Trecora Resources
(NYSE: TREC)
Chairman: Nick Carter
Podcast: Play in new window
INTERVIEW TRANSCRIPTS:
WSA: Good day from Wall Street. This is Juan Costello, senior analyst with the Wall Street Analyzer. Joining us today is Nick Carter, the Chairman of Trecora Resources. The company trades on the New York Stock Exchange. Ticker symbol is TREC. Thanks for joining us today there, Nick.
Nick Carter: Yeah, glad to have the opportunity here. Thank you.
WSA: Yeah, anytime. So for some of our listeners that didn’t catch our last interview, can you give us a history and overview of the company?
Nick Carter: Yeah, briefly, it’s kind of an interesting history. We have a mining investment in Saudi Arabia, which is now the secondary focus of the company, but it actually was the legacy business, which started in 1967. And in 1987, the company, which was then named Arabian Shield Development Company, purchased a small petrochemical company in Silsbee, Texas. And in the ensuing years, the petrochemical company has become a big dog in organization and started paying the bills shortly after the acquisition. And in about 2004, the earnings were such that it became apparent we should do something to maximize the share price. By that time, about 24 million shares had been sold via private placement, mostly during the late ‘60s through the ‘80s to raise money for the mining development. And the petrochemical branch over time continued to slowly expand using internally generated funds and just taking small steady steps.
In 2008 to improve the share price, we moved off the pinksheets and the bulletin board and we joined NASDAQ under the ticker symbol ARSD. As the company continued to develop, we moved to the New York Stock Exchange in 2012. In 2014, we changed the name to Trecora Resources to better indicate the breadth of the operation, which at this point was more petrochemical-related in addition to the mining division. In our operation, we have six key executives and they all have extensive petrochemical experience and education. Simon Upfill-Brown is President and CEO, Ron Franklin is the VP of Manufacturing, Sami Ahmad is the CFO, Connie Cook is VP of Accounting and Compliance, and Mark Williamson is the VP of Marketing. We have Peter Loggenberg as the President of Trecora Chemical, which was an acquisition we made about three years ago. These executives work well as a team and they’ve all got one goal – to build shareholder value. We manufacture and focus on high-quality products and best service possible in the markets that we serve. So, that’s kind of the overview and background on the company.
WSA: Great, bring us up to speed on some of your most recent news including the Q3 results.
Nick Carter: Well, the recent earnings call was day before yesterday, we had a number of newsworthy items. The third quarter was good, but it was a little bit disappointing. We did have some financial impact from Hurricane Harvey. And we’ve got a $58 million advanced reformer project that was delayed because the vendor had some problems with some of the welding. It’s a very specialized piece of equipment they were building for us and it turned out the welds weren’t suitable for the service that we were putting them in and then we had to go back and had to remanufacture that piece of equipment. The Harvey situation cost us about a million and a half in EBITDA and that included about $700,000 in extra expense. And secondly, the vendor manufacturing error delayed the project, which would turn out probably $6 million to $8 million in EBITDA annually, delayed it by a quarter and it should have been starting up in the fourth quarter, but as it turns out, at best, it’s going to be probably towards the end of the first quarter. So those were kind of the disappointments in the earnings call and in the news.
Just as importantly, there were a couple positives that really shouldn’t be overlooked that we need to focus on and that is that the sales volumes of prime products were both year-to-date and quarter-over-quarter compared to 2016 increased even though our largest export customer had reduced volume by about 25%, so this indicates that the remainder of our market is growing and is getting strong. And we look for good things to come in the second and third quarters of 2018, particularly. Second and third quarters are historically our strongest quarters.
Secondly, the good news was that after shutting down in late 2015 for repairs and reorganization, the AMAK Mining investment, which we’ve got in Saudi Arabia, is operating on a continually improving basis and profitability is just around the corner, and it’s already got positive cash flow.
Additionally, in that investment project, which is primarily zinc and copper production, the prospects of gold plate has added to the current line of business over there. We’ve got a leased area which is turning in very promising results for gold and silver, and it’s based on some locations of some historic mines, so we’re pretty confident that the early exploration results are correct because the ancients were finding gold and silver there. So we’re sure that there’s a lot more that they haven’t recovered.
So that was the good news and the bad news. And all in all, the quarter was a little bit weaker than what we had planned on, just because of the things that were outside of our control, but all in all it wasn’t too bad of a quarter, so we’re happy with it.
WSA: And so what are some of the key trends that you’re focusing on right now in the petrochemical space and how is the company continuing to position itself to capitalize?
Nick Carter: Well, the investment community is already aware of the resurgence of the U.S. petrochemical industry, based on the plentiful and low-cost natural gas production. And fortunately, a considerable amount of our best products go into industries that are profiting most from this situation, which is probably ethylene, polyurethane, and polystyrene, those types of things. And most of our customers produce those kind things. So over the last several years, we’ve invested over $100 million in capital expansions to make sure that we supply our customers the volumes they need and also to increase our ability to increase the margins on our by-product materials because when you manufacture the high purity materials we do, there is always some leftover materials that probably don’t carry the value. And at best they’re neutral on a margin basis.
We’ve added this at that advanced reformer which will upgrade those things and give us some real margin on it. So we’ve invested the money and we’re already in the lead position in this market for our products and we are investing to ensure we stay there and benefit from the growth in the industry. Additionally, about three years ago, we purchased Trecora Chemical, which is a producer of high-grade polyethylene wax and it also does some very extensive custom processing for people. And that acquisition was done to help spread the revenue base within related industries that we’re already familiar with. So we’re doing what we can to keep up with the customers’ expansions and also the growth in the industry in general.
WSA: And in terms of the gold project, what are some of the key goals and milestones there over the next six to twelve months?
Nick Carter: Well, we’ve done the basic exploration to know that the resource is there on that gold project, but what we’ve got to do is do the joint compliance exploration and analysis that would actually make it a bankable feasibility study, so that when you actually invest money in production and development, you know pretty much for sure what you’re dealing with. With all the early indicators that we’ve got right now, it is a very good resource, but you’ve got to take that step and do it correctly and that is to formally analyze the area and do an official estimate of what the reserves are. We’ve got a very good, extensive write-up on our website about the exploration that has been done to date and why it is that we’re so comfortable that there’s a significant resource there. I’d encourage people to look at that if they’re interested in the details of the technology and all that.
WSA: And what are some of the factors, Nick, that you feel make Trecora unique from some of the other players there in the sector?
Nick Carter: Well, actually, with some of the prime products that we manufacture, we’ve only got one competitor. The purity that these products are produced at, make it very difficult for other players to get into the business. With the type of products we produce, the high purity C5, C6 (?), the customers have to add these products as part of their manufacturing process. So what they want is a secure supply, they want consistency and quality, and they have to have very high purity quality. Consequently, it’s hard for other people to get into these industries with these products, and so we’ve only got one other competitor almost worldwide. And because we compete with them all over the world, we ship these things all over the world. So we’ve got a pretty unique position. {I think in North America, we’ve got something like 60% of the marketplace and that’s because we’re fairly small company.}
We’re focused exactly on these products and do everything we can to bring value to our customers on these things. And consequently the customers appreciate what we do for them and count on us to perform. And so as far as the position, we’re pretty unique now. The trick is we expanded our capacity a couple years ago and the reason was because all of our customers are in these big expansion projects. And so we picked up a couple extra customers this year. For the next two to three years, we will see the volumes continue to grow. These people that we service continue with their expansions and get them into operation and they’ll be taking more volume and more volume and more volume. So we’re in a good spot right now. We’re excited about the future of the business for the next few years.
WSA: Certainly. So as far as investors and the financial community, Nick, what are some of the key drivers that you still want them to better understand about you guys?
Nick Carter: Well, I’ve been with this company for a long time and I was President of the petrochemical operations for many years and then President of the parent company for a number of years. And I can say I’ve never seen so many good things happening at one time in this company. The expansion of the industries that we serve would be generating growth for our premium product lines and our capacity has already increased and ready. The advanced reformer project I talked about is, worst case, a few months within the beginning of operation and that has excellent economics. This acquisition, Trecora Chemicals, that we did three years ago is finally getting its running legs and it’s making some noise as it establishes its high-purity wax business and the very much in-demand custom processing business. And that includes some high pressure [Indiscernible] [0:13:38] that we’ve added recently.
And then this mining thing, which has been around for a long time, but we’ve got the right people operating it, we’ve got good resources, metal prices are as high as they’ve been in years, and this is just as the operations are finally advancing to our predicted levels. And then even this gold prospect on top of that makes the whole thing look more favorable, so we’ve really got exciting times in the company right now and we work doing everything we can to keep the momentum going and make sure these things come about the way we planned. Everything is positive right now. It’s just a matter of getting it done.
WSA: Great. So, perhaps you can talk about your background and experience, Nick, and who some of the key management and key players are there.
Nick Carter: Well, I started the petrochemical company in 1977, and when Arabian-American purchased it in 1987, they made me President. The individual owner at that time, of course, retired. So they made me the President of the company, and I was with it through the early growth years, from 1987 until in 2012, I hired Simon Upfill-Brown to be the new CEO and take my place as far as the petrochemical side of the business. I was the President of the parent company, which is now Trecora Resources, starting in 2009 and I retired from that job in 2015 and turned that over to Simon Upfill-Brown. His background is he was in custom processing with a company called Hoffman. He worked for Dow Chemical for a number of years. He was in the paint business for his early career and he’s got a really good background, knows a lot of people, he graduated with an MBA from Stanford University. Good education, good experience, and so he’s at the controls of the operation currently. We’re very pleased with his performance.
Ron Franklin worked with Texaco as I recall. He’s our VP of manufacturing. He’s an engineer, of course. He’s got probably 30 years of experience. Sami Ahmad is the CFO. Sami has only been with us for about a year, but a lot of his career was with Lyondell. And then we have Connie Cook. Connie is our VP of Accounting and Compliance, and she’s been with the company probably about 22 or 23 years now, somewhere in that neighborhood. And then Mark Williams was an ex-Ashland man and he’s been with us for about 20 years or so. So we’ve got a good, experienced executive team and they certainly know how to get the job done. And they’ve been through the good times and bad times in the petrochemical industry so they know how to handle it well. We’re pretty excited about the operation of our team.
And when we bought what is now Trecora Chemical, we kept the man who was President of the company when we bought it and his name is Peter Loggenberg and he’s a PhD chemist. He has an excellent, imaginative mind and a lot of experience in the petrochemical industry and custom processing, and so he was a good addition to the team with that acquisition. So we’ve got a good group of people and certainly very dedicated.
WSA: Certainly. So once again, joining us today is Nick Carter, the Chairman for Trecora Resources. The company trades of the New York Stock Exchange, ticker symbol TREC, currently trading at $11.55 a share. The market cap is at about $280 million. And before we conclude here, Nick, to recap some of your key points, why do you believe investors should consider the company as a good investment opportunity today?
Nick Carter: Well, it’s just because we’ve got about half a dozen really good things happening that are really going to improve the cash flow and economics of the company. There’s a lot of growth coming just around the corner. It’s coming from major players who are investing billions in the petrochemical industry, and that’s who our customers are. And they need these products that we produce. And that’s just around the corner. And so it’s a good time to get in on the stock. It’s fairly low-valued right now. And so with all these various things that we’re doing to improve the value of the company, they’re just about to come to fruition all at one time here, so I think it’s a great opportunity to get into the stock.
WSA: Well we certainly look forward to continuing to track the company’s growth and report on your upcoming progress. And we’d like to thank you for taking the time to join us today, Nick, and update our investor audience on Trecora. It’s always good having you on.
Nick Carter: Sure thing, Juan. I appreciate you giving me the opportunity to tell the story.
