Syntroleum (SYNM – Nasdaq)

Dear Bottarelli Research Member,

It has certainly been an exciting week for our small-cap portfolio! Despite a weak market, our blend of small-cap positions offered us a very nice cushion from the downward action. Now that earnings season is coming to a close, Bryan and I will continue to monitor the major market averages very closely. We want to see evidence that the latest rally was driven primarily by earnings, combined with economic indicators that show that the “soft landing” our Fed has been promoting will indeed play out. Therefore, let’s all remain patient, calm, and focused – and let the market tell us how to proceed accordingly. After all, the market is always right!

For this week, we’re going to zero in on news pouring out of Washington D.C. surrounding the need for alternative fuels. One particular news event that caught my attention was the announcement that our policy-makers are now considering producing alternative fuels using coal-to-liquids technology. This announcement reignited my interest in a tiny company that I’ve been following for years.

This little gem owns exclusive technologies that create synthetic fuels, and they’ve been quietly putting together some major joint venture deals with companies and governments around the globe. They currently have coal-to-liquids technology, as well as a number of other synthetic fuel sources, that have all proven effective. In fact, they’ve received accolades from the United States Air Force, Marathon Oil (MRO – NYSE), Sinopec (from China), and Tyson Foods (TSN – NYSE), just to name a few.

Looking specifically at the Tyson Foods deal, they created a 50/50 deal to convert low grade, inedible fats and greases into renewable synthetic diesel, jet, and military fuels. This is going to be huge for them moving forward, especially as skyrocketing oil and gas costs place increasing pressure to develop alternative fuel sources.

I can promise you this: Not only is the cost of fuel being spoken about on every major news network, but it’s also the topic in every restaurant, local pub, coffee house, and grocery store across America. The need for alternative fuels is in high gear, especially as oil and gasoline continue their upward assault of $150.00 per barrel and $5.00 per gallon, respectively. For Americans, the outrage caused by these prices is flaring up faster than a lit match in a dry forest. The case for implementing synthetic fuels is hitting closer to home than ever before.

Like I mentioned, I’ve followed this company for a number of years, just waiting for the right opportunity to buy in. So when I heard the news this week, I quickly realized we have a “perfect storm” brewing for this week’s pick. Therefore, I want us all to strike now before the heard of retail investors begins their stampede through the turnstiles.

The very best part of this investment is the fact that shares are just coming off their lows, offering you a great entry point. In fact, the recent news will certainly offer this company a boost, and I expect Wall Street to quickly wake up and take notice. It’s not a matter of “if” but a matter of “when.” And when this does happen, we’ll all be in prime position to capitalize from a major shift into synthetic and alternative fuel sources – locking in uncommon profits along the way.

The pick is Syntroleum Corporation (SYNM – NASDAQ) and let’s buy shares at or under $3.00. I consider this stock a new “core holding” in our small-cap ledger, as our timing could not be better. To speak personally, I’m hoping (and praying) that our leaders in Washington realize that we, as a country, can create our own clean energy. We simply need to focus on using the proven technology that has been in place for years. And now, more than ever, it’s time to get serious and address this critical situation before it spirals out of control. SYNM is part of the solution.

UPDATES

China Finance Online (JRJC – NASDAQ): Once gain, JRJC has reported stellar earnings. Net revenues increased 24% quarter over quarter and 177% year over year. Net income increased 62% quarter over quarter and 403% year over year. Yes, indeed, our so-called “Goldman Sachs of the Far East” is really coming through, and I fully expect this upside momentum to continue. After all, JRJC is expanding their customer base very quickly, and this rapid growth has allowed them to increase their net income projections for Q2. They’re now projecting net income between $5.50 and $6.0 million, which represents a 155% to 178% increase from the corresponding period in 2007. From the looks of these numbers, JRJC has a lot of room to move. Let’s continue holding and enjoy the ride! Hold.

Terra Nostra Resources (TNRO.OB): Shares have begun to climb back, as the nonstop demand for steel remains in full swing. This demand should get TNRO back on track, and I expect to see shares continue moving higher from here. I still have them on a short leash, but the fact that they’re now moving in the right direction makes me want to maintain the position. Hold.

Northern Oil & Gas (NOG – AMEX): They just reported a first quarter net loss of $187,000 ($0.01 per common share). But within this news release comes the real story, which reveals why we want to own this valuable Bakken Formation play. You see, NOG has made significant progress in its first full year as a publicly-traded oil and gas company. They’re quickly turning their acreage into production and cash flow, and that’s great news for early-stage investors like you and me. Since the end of the quarter, NOG has added production from two new Bakken wells, completed two additional Bakken wells, and is currently drilling six Bakken wells. This is music to my ears, and as they gear up to participate in over 40 gross Bakken wells in 2008, I fully expect this gem to move significantly higher. Let’s continue to buy under $10.00 and remain positioned for what I believe is going to be mouthwatering profits. Buy under $10.00.

Ivanhoe Mines (IVN – NYSE): Our Mongolian gold and copper play should soon offer us some news about the permitting stage on their Heruga Discovery. This discovery could be a monster, yet nobody knows for sure just what truly lies in the ground. Even though it’s off its highs, I would encourage you to buy or add shares at these levels. Make no mistake, IVN is quietly on the move. They’re positioning themselves to take some big steps in the upcoming months, and from what I am told, once permits are in hand, the fireworks will go off. If you are new to Bottarelli Research Small Caps, please review our original IVN buy alert from Friday, February 29^th 2008. What they are sitting on is truly breathtaking. Buy/Hold.

Gran Tierra Energy (GTE – AMEX): Our little oil and gas explorer has pulled back, just as we suspected. This is a clear illustration of why it’s always a good idea to lock in a portion of your gains on any intra-week strength. We said that we’d use any sizeable dip to add to our position, so if we tap anywhere between $5.00 to $5.50 per share, I want to add more shares of GTE to our position. Buy GTE on dips between $5.00 and $5.50.

PowerShares DB Agriculture (DBA – AMEX): Here’s another great opportunity to buy DBA on a dip. I heard that beef prices are going to rise very soon, and I’ve also been told that crops in the Midwest are not doing well due to wet and cold planting conditions. I fully expect soft commodity prices to rise this year, and DBA is the perfect way to play them. Buy.

International Coal Group (ICO – NYSE): Our recent small-cap coal play is giving everyone a second chance to own a position. Make no mistake about this undervalued situation! Coal prices are set to soar, and if our leaders approve coal to liquids legislation (as we expect), this sector will explode. I urge you to own ICO in your portfolio. Buy/Hold.

On that note, have a great weekend. And as always, be sure to give thanks for the abundance in your life.

Sincerely,

The Market’s Top Synthetic Fuel Technology Company, Now On Sale for Under $3.00 Per Share

With oil prices topping $135.00 a barrel, it goes without saying that alternative fuel sources remain red hot on Wall Street.

Within the specific alternative fuel sectors, solar, electricity, wind, and fuel cells receive most of the investment attention. But for whatever reason, biofuels (which represent a billion-dollar market opportunity) have yet to receive a fraction of investor interest. This sets the tone for today’s newest small-cap investing opportunity.

Let’s start from the top…

A “biofuel” is broadly defined as solid, liquid, or gas fuel consisting of (or derived from) recently dead biological materials, like plants. This distinguishes biofuels from fossil fuels, which are derived from long-dead biological material.

In terms of the size and scope of the market, biofuels are used globally and biofuel industries are rapidly expanding across the U.S., Europe, and Asia. The most common use for biofuels are liquid fuels for automotive transport. This alone could tremendously decrease our nation’s dependence on foreign petroleum.

In fact, looking specifically at the coal-to-liquids trigger that Mark mentioned above, consider this: Right now, the United States has the world’s largest coal reserves with an estimated 268 billion recoverable tons. Converting just 5% of U.S. coal reserves into synthetic fuels would equate to 29 billion barrels of U.S. crude reserves. In other words,we could virtually double our nation’s domestic motor fuel supply without drilling a single well or building a new refinery.

The benefits of biofuels are quite apparent. They can help moderate oil prices, reduce carbon emissions, reduce deforestation and soil erosion, and positively impact our water resources, just to name a few. But while everyone agrees on the benefits, the greatest technical challenge is to develop ways to convert biomass energy specifically to liquid fuels for transportation.

That’s where Syntroleum (SYNM – NASDAQ) comes into play…

Syntroleum’ssynthetic fuel technologies make them one of the most promising biofuel companies in the world. They are one of the leading companies to introduce renewable fuel technologies like biomass-to-liquids (BTL), gas-to-liquids (GTL), and coal-to-liquids (CTL).

As a general description, Syntroleum converts natural gas into synthetic liquid hydrocarbons. And to accomplish this, they use a proprietary Syntroleum Process for Fischer-Tropsch (FT) conversion.

As a brief background, the Fischer-Tropsch process was discovered by German researchers Franz Fischer and Hans Tropsch in the 1920s, and it describes a chemical reaction in which synthesis gas (a mixture of carbon monoxide and hydrogen) is converted into various forms of liquid hydrocarbons.

The purpose of this process is to produce a synthetic petroleum substitute (typically from coal, natural gas, or biomass) for use as synthetic lubrication or synthetic fuel. The synthetic fuel can run trucks, cars, aircraft engines, and even some diesel engines – and it has been proven to work across multiple applications.

In fact, a major advantage of Syntroleum’s clean and renewable fuel products is their compatibility with today’s diesel engines and their ability to be transported using existing infrastructure. This alone is a major plus for mass-scale application of SYNM’s synthetic fuels.

But perhaps the most significant milestone for Syntroleum occurred on December 15^th 2006, commonly referred to as “B-52 Test Day.” In a test program with the U.S. Air Force, Synyroleum produced over 400,000 gallons of diesel and jet fuel using their Fischer-Tropsch process. The point of this test was to help the Air Force to reduce its dependence on imported petroleum.

Now remember: The Air Force is the U.S. military’s largest user of fuel. So this test program was a huge deal for a small company like SYNM. And on this critical day, a B-52 took off from Edwards Air Force Base in California for the very first time powered solely by a 50/50 blend of JP-8 and Syntroleum’s FT fuel.

The goal of the flight test program was to qualify the fuel blend for fleet use on B-52s and other military aircraft. And after a seven-hour flight, the test was considered a tremendous success! After an intense follow-up study, U.S. Air Force Secretary Michael Wynne officially certified the B-52 on August 8^th 2007 as fully approved to use the FT blend, marking the formal conclusion of the test program. A picture of the B-52 taking off during this landmark test flight is shown below.

Sparked by this result, SYNM is also testing its ultra-clean, low sulfur fuel with the U.S. Department of Energy and the U.S. Department of Transportation. They plan to commercialize their licensed Fischer-Tropsch technology via coal-to-liquid plants in the U.S., China, and Germany.

This alone could be enormous potential.But that’s just one aspect of this story. You see, Syntroleum is also developing anew technology called Bio-Synfining for converting animal fat and vegetable oil feedstocks into middle distillate products (such as renewable diesel and jet fuel).

In fact, Syntroleum is in the development stage with Tyson Foods (TSN – NYSE) – the world’s largest processor and marketer of chicken, beef, and pork – to build biodiesel plants that will turn low-grade chicken fat and grease (which are too impure to use in any traditional biodiesel conversion processes) into renewable synthetic fuel sources.

This venture with Tyson Foods is a strong example of SYNM’s leadership in the industry. Together with Tyson, Syntroleum will construct the world’s first renewable synthetic fuels plant utilizing its Bio-Synfining technology. With an investment of over $150 million, the initial 75 million gallon-per-year plant will contribute clean and environmentally-friendly fuel to our nation’s transportation fuel supply. As it stands today, this project has a scheduled completion date of 2010.

But Tyson Foods and the U.S. Air Force are not the only ones interested in Syntroleum’s technology…

SYNM officially arrived “on the map” when they signed an agreement with Exxon Mobil’s Research and Engineering Department in 2004. Under the terms of this agreement, Exxon Mobil provides Syntroleum with a worldwide license to produce and sell fuels from natural gas (or other carbonaceous substances such as coal).

And that’s not all. Other companies and organizations that have been involved with SYNM include…

Chrysler and Toyota: Both major car-makers performed emissions tests on their motor vehicles. Each study concluded that Syntroleum’s liquid diesel delivered 72 MPG, met advanced emissions standards, and showed no perceptible reduction in power or performance.

U.S. Department of Energy: Syntroleum produced up to 150,000 gallons of diesel fuel and 10,000 gallons of synthetic jet fuel, which was evaluated by several laboratories under DOE contracts.

Massachusetts Institute of Technology: MIT conducted an extensive emissions program over three years looking at the inherent benefits of synthetic diesel fuels in modern emissions-compliant engines.

AVL Laboratories: A durability test of Syntroleum was conducted using a DDC bus engine and a Caterpillar (CAT – NYSE) engine. Both engines completed a 1,500-hour test cycle with no problems. These same engines were also part of the field demonstration program where Syntroleum products were tested in transit bus services in Washington D.C. and Denali National Park. In both case, no fuel related problems were observed.

Combine this extensive testing from Exxon, the U.S. Air Force, Tyson Foods, MIT, Chrysler, Toyota, and others, and you’ll clearly see that some of the world’s top companies have been testing Syntroleum’s fuel products for more than six years.

These tests have ranged in scope and variety, but in every case, the message was clear: Syntroleum fuels deliver superior performance with outstanding quality. And now, countries and companies alike are beginning to take notice. For example…

China Petrochemical: On January 25^th 2007, SYNM signed a non-binding memorandum of understanding with China Petrochemical to establish a joint technology development effort to advance Fischer-Tropsch technology in China.

Ivanhoe Energy: Ivanhoe Energy and Egyptian Natural Gas signed a memorandum of understanding to enable Ivanhoe to conduct and prepare a GTL plant in Egypt. If the results of the feasibility study are positive, IVN announced that they’ll commit up to 4.2 TCF of natural gas for the anticipated 20-year operating life of the project.

Combine these deals with over 160 patents (both issued and pending) and it’s clear that Syntroleum’s renewable fuel technologies put them in a prime position to provide high-performing, ultra-clean fuels to global markets.

If you combine today’s substantially higher oil prices with the abundance of biomass and renewable feedstock – and toss in the growing urgency for clean-burning fuels – you’re left with a truly world-class investment opportunity for Syntroleum. They’re offering the world an energy solution whose time has come.

So here’s the big question…

Based on everything presented, why are shares of SYNN trading under $3.00 per share? The answer is simple: The lack of revenue keeps investors cautious.

You see, SYNM’s biodiesel products are quite a ways off. The Tyson Foods plant won’t be ready until 2010. And SYNM admits in their SEC filings that they do not expect to realize any significant revenue for the “near future.”

In fact, I don’t want to sugar-coat this. The stock’s valuation numbers are quite awful.

• Price/Sales: a very high 34.57.
• Quarterly Revenue Growth: a very low -88.60%.
• Total Cash Per Share: a paltry $0.382.

But let’s not lose sight of the big picture. This is a pure play on SYNM’s huge potential in the synthetic fuel market – not on their current financial position. In fact, their objective is to be the world’s leading provider of synthetic fuels. And to achieve this goal, SYNM has outlined the following attack plan…

Development Projects: SYNM intends to provide their Bio-Synfining, biomass-to-liquids (BTL), gas-to-liquids (GTL) and coal-to-liquids (CTL) technology to companies that have resources that can be economically monetized using their technology through individual site licenses.

License the Syntroleum Processes: SYNM plans to develop new Bio-Synfining, BTL, GTL, and CTL plants through commercial and engineering support activities.

Expand and Develop Product Markets: SYNM intends to continue developing markets for their synthetic fuels to promote new construction of Bio-Synfining, BTL, GTL, and CTL plants, which in turn will establish markets for the fuels produced from these plants.

The entire investment play revolves around the opportunity for SYNM to move from a technology company into a production company – all as synthetic fuels become more and more mainstream.

As an early-stage investor, we already know that Syntroleum’s Fischer-Tropsch and Bio-Synfining technologies offer proven results. We also know SYNM offers a viable solution to the world’s declining oil and natural gas production, which at the same time, offers a clear advantage to existing alternative fuels.

Case in point, engines using Syntroleum ultra-clean diesel offer significantly greater well-to-wheel carbon efficiencies than gasoline and natural gas engines. And Syntroleum also offers dramatically reduced emission levels without sacrificing performance.

We also know that a number of major companies are interested in SYNM, and their potential markets are vast and currently in place.Renewable synthetic diesel fuel can be sold in the United States with our existing distribution system, which makes SYNM’s synthetic fuels very attractive to operators of fleet vehicles, city buses, the U.S. military, and commercial airlines.

CONCLUSION: The technology is proven. The demand and the consumer interest is present. The product just needs to gain mainstream acceptance. When you add it all up, for only $3.00 per share, I feel that the risk/reward ratio is skewed tremendously in our favor. So as a pure play on the world’s leading synthetic fuel technology, let’s add shares of SYNM to our small-cap ledger now!

PLAY: Buy shares of Syntroleum (SYNM – NASDAQ) at or under $3.00, good for the week.

NOTE: Before I go, I would like to give you a “head’s up” concerning an exciting new venture for Bottarelli Research members like you. I can’t say too much about the details of this opportunity at this time, but I can tell you that I have some very electrifying (and highly lucrative) development plans in motion. So be on the lookout. More details to come soon!

Sincerely,