One of the more controversial penny stock picks promoting OTC stocks supposedly “sent out an alert by accident” which sent OTC Bulletin Board listed America West Resources, Inc. (OTCQB: AWSR) soaring two weeks ago. Friday, the best penny stock to buy from two weeks ago became one of the biggest losers closing at 0.251, down -51.64%.
AWSR had 695 trades worth $958,620 on 3,503,632 shares traded and has plunged -86% since the leak from the senders of the penny stock newsletter. But why was AWSR, an established domestic coal producer, so quick to go from one of the hot penny stocks on the rise to one of the most dumped pennystocks this week?
AWSR Stock Snap Shot:
Market Cap: 16.23M
Price/Sales (ttm): 2.42
Price/Book (mrq): 3.93
% Held by Insiders: 48.33%
Friday’s news from rival coal producer Dynegy, Inc. (NYSE: DYN) didn’t help matters when penny stock trading erupted on 17,778,842 shares, more than 10X the 3-month Average Volume, after a court-ordered investigation discovered that DYN’s purchase of coal-fired power plants from a unit that later filed for bankruptcy was fraudulent and harmed creditors. DYN closed at 0.76, rallying back from 0.59, to close down -35.61% for the day, down -86% for the last year. Subscribe To Get Our Next Alert FREE.
So was the promotion leak what caused the drop in America West’s stock price or is the company doomed for failure?
A Closer Look:
AWSR is focused on the mining of compliant (low-sulfur) coal. The coal is mined for the sale to U.S. utility companies for use in heating water and creating steam used to turn turbine engines. Ultimately, AWSR hopes to be able to sell its mined coal to coal fired power plants for the production of electricity.
Coal is expected to remain the largest single source of electricity in the U.S. With 97% of the coal consumed in this country coming from domestic mining, AWSR should be in the path of profits sometime in the near future if this trend continues.
However, the U.S. Energy Information Administration (EIA) reports that the percentage of electricity generated in coal-fired power plants fell to its lowest level since 1978 at the end of 2011. Cheaper natural gas prices and warmer weather last year were the primary reasons that coal generation dropped although shuttered coal plants, an expanding renewable energy sector, and recession-inspired energy conservation are also factors to consider.
As true as those factors may be, then why isn’t AWSR in a bullish trend?
2011 much better than 2010:
When America West Resources announced it’s Horizon Coal Mine was successfully completed (here), it got investors optimistic and drove the stock price through the roof gaining 39% on the day of the announcement. AWSR closed May 26th at $1.80, a then three-month high, on a nine month record volume 16X the 3-month average trading volume at that time. AWSR eventually ran up to $2.20 on May 31st closing at $1.89 on volume of 156,102.
When AWSR announced their financial results (here) for the first half of 2011 on August 23rd (here), it was as if no one paid any attention to the fact that revenues rose 16% versus the prior quarter, the third consecutive quarter of double-digit growth, and that net loss declined -12.5%. The fact that revenues for the 6 months ended June 30, 2011 climbed 67% from the prior 6 months or that Loss from operations decreased 19% compared to the prior 6 months did absolutely nothing to trigger interest in the coal mining penny stock as volume that day was a measly 3,400 shares.
AWSR Three Year Stock Chart:
RSI, MACD and Full Stochastics can all be ignored simply because you can clearly see from the volume graph that the “leaked promotion” was clearly a massive dump as the stock had not traded more than 500,000 shares ever in the last three years. Again why due diligence is important since apparently the “leakers” had accumulated a large number of restricted shares which would have had a 6-month hold period on them before they could be traded.
Liars can Figure, but Figures don’t Lie:
In the Q3, 2011, AWSR converted a over $7 million of its long-term debt into stock, almost all of which at a $1.00 per share, and sold 2 million shares in a private placement at $1.00 as well (here). America West Resources reported their Q3 2011 financial results on November 21st (here) and again, nothing on the stock trading 4,604 shares to close at $0.50.
More importantly, the following financial highlights all point to what should be viewed as growth:
Balance Sheet Items:
Cash and cash equivalents: $118,779, up 82%
Property & Equipment: $14,942,784, up 34%
Land & Mineral Properties: $25,842,401, up 31%
Current Liabilities: $22,640,160, down 29%
Long-term Debt: $347,297, down 69%
Common Stock Issued and Outstanding: 63,266,675, up 89%
(increase/decrease compared to balances as of December 31, 2010)
Compared to Q3, 2010,
- Q3 Coal Sales increased 27.34% to $3,591,604
- Q3 Total Operating Expenses decreased 11.42% to $5,498,819
- Q3 Loss from Operations decreased 43.65% to $1,904,967
The 9 months ended September 30, 2011 compared to the same period for 2010,
- Coal Sales increased 51.62% to $11,060,347
- Total Operating Expenses increased 9.35% to $16,384,245
- Loss from Operations decreased 30.94% to $5,296,194
From a financial perspective, AWSR achieved much better revenues from coal sales for both the quarter and the nine months ended September 30, 2011. It may not yet be enough to cover the gigantic working capital deficit, but it is definitely a step in the right direction. Regardless, if AWSR continues to realize the full potential from its Horizon Coal Mine, the company stands a good chance of getting out of the red within the next 7-10 years.
America West has incurred continual losses and an accumulated deficit of $55,467,077 as of September 30, 2011. These conditions raise substantial doubt as to America West’s ability to continue as a going concern.
Coal fired power plants are the number one source of greenhouse gas emissions globally and have been proven to impose a tremendous toll on the public’s health. So the move towards natural gas which emits fewer greenhouse gas emissions when burned is most likely imminent until solar power becomes efficient enough to eradicate all fossil fuels.
Although AWSR looks to be on the path to penny stock profitability in the long-term, the shares are both tremendously diluted and so thinly traded that it warrants no investment for anyone who is considering AWSR anything other than a long-term hold which even lacks the appeal considering the industry.Share