jump to navigation

They’re Baaacckkk…the Trillion Dollar Asteroid Miners August 4, 2007

Posted by Thomas Olson in Uncategorized.
trackback

As those who regularly read the Cynic understand, our primary goals are to (a) prevent bad investments from happening, and (b) convince potential “space tragics” not to devote their lives, money and careers to pursuing pipe dreams that will only end up breaking their hearts and potentially harm their long term professional prospects.

Having said that, we also work to help potentially good investments be made, although admittedly, those opportunities are far fewer, given the kool-aid plans with which we are bombarded on a too-regular basis.

On a year-end wrap up program on the Space Show, this last December 31, “Professor L” and I discussed the very real probability that the coming three years or so were going to be “put up or shut up years” for alt.space and space-related business efforts.

Since then, I have put my own butt on the line in this regard, working with a coalition from SFF, NSS, and the Space Commerce Roundtable to bring to pass two successful Space Investment Summits: the first in New York in April, and the second just prior to ISDC, in Dallas. (There is a third event scheduled for Dec. 5-7 in Silicon Valley). We considered these events “successes” because some potentially new players were coming to the table from the financial world, and we were filtering out, to a great extent, business plan promoters whose premises were unsound, at best. (We’re trying to be civil, here.)

But this doesn’t mean that the “giggle factor” is dead, or that unworkable ideas seeking funding still aren’t poisoning the well. A case in point, and the reason for this long overdue post, is that we were, in fact, subject to another one of those rather unfortunate efforts just recently.

We have received – totally independently – an unsolicited copy of a business plan from a group that intends to “mine near earth asteroids”, and needs $5 mill in seed/startup cap. What’s troubling about this is that I know at least one of the principals personally, and believed he was old and experienced enough an engineer to know better. Other Cynics and independent commentators are professionally acquainted with other project team members. We all expressed shock and awe at these people crafting a document like this.

I mean, yes, it has the requisite form of a formal business plan, with an Executive Summary, a description of products and services, a market analysis, risk analysis, sales strategy, etc., right out of the Business Plan 101 playbook. From there, however, the resemblance ends. There is nothing in the way of practical substance to this document.

Although there is a Confidentiality Agreement on the first page of the document we received, this document appeared on our representative desktops completely out of the blue and unsolicited, hence we have no legal or ethical obligation to abide by it. However, as again, we collectively know and respect some of the principals involved, no names will be used in this analysis, in the hopes that should they read this, they will feel chastened enough to quietly withdraw the plan before they get even more embarrassed by any angel investor’s cruel comments.

Frankly, this plan wouldn’t withstand five minutes’ scrutiny in a VCs office, and one could bet that after seeing this, they wouldn’t agree to look at another “space” business plan for at least five years. It is just so wrong on so many levels, it’s difficult to know where to start. So we’ll just start at the beginning.

The first interesting tidbit was in the bio of one of the lesser-known (to us, at least) partners, who claimed he was on the Board of Governors for a certain space advocacy group based in Australia. According to Shubber, that organization has no Board of Governors, and never did. (It’s been discussed, apparently, but never implemented.) Is there anything else in that individual’s bio that we should question?

They claim they have signed a “Memorandum of Understanding” to obtain a launcher being developed by an outfit called “Tri-Constellation”. The only mention I could find on Google about them was here. So the first piece of “unobtainium” in this plan is the use of a launcher from an unknown company that is still in development. Seems to me that Falcon 1 is far closer to reality than this. Why didn’t they just call Elon Musk?

Essentially they intend to be an “ore hauling” operation – moving raw or “partially refined” ore from NEAs to Earth. “Partially refined”? Isn’t that like being “a little pregnant”? Where is the technology to collect and “partially refine” this ore between the NEA and Earth? In the same paragraph they then claim this is a “more traditional” approach – show of hands, please – who else thinks this is a conflicted statement? What do you consider to be a “more traditional” approach to commercial space mining, when none has ever been achieved in our lifetimes?

They claim they can “avoid” environmental impact regulation – except they want to bring quantities of “partially refined” ore back from space. It has to land somewhere. When it does, should the reentry procedure or the container itself fail, there will be an “environmental impact” to be reckoned with. I don’t think they’ve thought through the cost of regulatory compliance well enough, let alone their insurance needs.

Vision: The same-old “build it and they will come” model – but with a “Ben & Jerry’s” twist – they are willing to donate 10% percent of their profits to charity. (I’m sure Bob Werb, Bob Zubrin, and George Whitesides, are chomping at the bit.) They go on and on about the “potential” of asteroidal materials, but are VERY short on substance as to how those materials will be economically mined and retrieved. But then they muddy the waters by going afield into “threat mitigation”, extraterrestrial commodities exchanges, etc. So again, what is it they actually want to DO for a living?

Expenses/Budget:

They are asking for $5 million for seed/startup, followed in 3-4 years with a $50 million round to fund the rest of the R&D and ramp up of operations.

But it seems the only goal from the $5 mill is so everyone can draw a salary on the VCs dime. Most entrepreneurs would never go to that length when asking for other people’s money. But not space, apparently – even a startup demands a competitive salary, right out of the gate!

Their projected operational expenses account for the entire $5 million over a 4 year fiscal period. Virtually all of it is eaten up by salaries, office expenses, and “miscellaneous” expenses (travel, etc.). The R&D budget is a whopping $25k per year, whereas “Salaries” start at $550k the first year and climb to $760k by Year 4. Plus there is a “launch service deposit fee” of $375k per YEAR included, despite the fact that they AREN’T LAUNCHING ANYTHING. Where’s ANY deliverable that would justify the $50M Round 2 funding?

They mention an “orbital refinery” as one of the facilities they need to build. (Is Robert Bigelow in the audience?) There are other facilities as well they expect to build from scratch – not one of which is costed-out, or included in the financial projections (Hint: if you can put your fiscal projections in a Word table on a standard size page, you haven’t thought things through.)

Profitability

The one “barrier to entry” they don’t mention is an overwhelming cluelessness when it comes to fundamental mathematics.

They based their income projections on a glaring error: That asteroids scale up or down in a linear fashion. They began this descent into error by quoting the public writings of Professor John Lewis at the University of Arizona, who in 2001 estimated that the 2KM long asteroid 3554 Amun contained 30 times as much metal as has ever been mined through the last 5000 years of human civilization, and would be worth $20 trillion at 2001 market prices “if mined slowly.” Fair enough. But the kicker is this glaring statement: “It would logically follow that a two-hundred meter nickel/iron NEA should be worth approximately one-tenth of that value. Therefore, a twenty meter nickel/iron NEA should be worth approximately $200 billion and a ten meter nickel/iron NEA should be worth approximately $100 billion.”

And, by that logic, a one-meter asteroid is worth $10 billion? Right. Apparently the authors forgot basic geometry. The volume of an object increases as the cube of its average radius, not on a linear basis, so at the 20-meter scale, the author’s value estimates – and hence their gross revenue estimates – are off by a factor of one million.

Oops. Dr. Lewis himself got a good chuckle out of this.

So it seems the only real short term cash flow available to them comes from the “novelty” aspect, i.e., prove you can bring home a small sample of something exotic from a NEA then auction it off at Sotheby’s for millions. After that, things get a bit squirrelly.

They’re going to try new concepts in robotic mining as essentially an “all up test”, on a private capitalist’s dime. They also bring up that old chestnut, mining He-3 (Let it go! There IS NO FUSION REACTOR!!)

The “competition” they mention are all cash-strapped startups themselves, with the exception of SpaceDev, and they are quoting SpaceDev products and projections that are five years old.

Investment to date by the founding partners – only $3000. And half of that was by the partner whose bio was the least convincing of the five. Rather telling, eh? Most entrepreneurs will mortgage everything they have to make their dream happen, because they are the Truest of True Believers. For a project of this grand a scale, I would have expected the founding partners to raise $1 million between them just to get out the gate and prove they were serious. But instead it looks like a weekend-warrior’s intellectual exercise, sent out on the slim chance that some fool with more cash than sense might bite.

In short, I would, at the very minimum, add a zero to their Round Two R&D/startup budget, to make it $500 million, which is still probably way too low. In addition, I would also knock a good six zeros off their income projections. Are there any takers now?

We bring this up not to heap ridicule on any particular individuals, but kool-aid ideas like this, that are nevertheless sent blindly into the pipeline, need to be hammered down with extreme prejudice, and shown to the world for the ill thought-out exercises they are, in the hopes of discouraging others who haven’t done their homework.

Advertisements

Comments»

1. Brian Swiderski - August 4, 2007

Now this truly is Kool-Aid, and it does need to get stepped on. Tragic pranks like this undermine the efforts of serious people. How so many intelligent, otherwise competent people can be so foolish is indeed a cosmic mystery, although it is possible as you say that they’re just screwing around looking to fund their hobbies. Still, the irresponsibility is staggering, not least to those who actually are digging deep into the problem and looking for a legitimate roadmap.

Personally, I don’t think any form of space mining is economically feasible until (a)most manufacturing is moved off-Earth, and (b)we get a space elevator, because the volumes needed to become profitable would be impossible to safely deliver to Earth’s surface, and that’s ignoring massive atmospheric disruptions from reentry. Most likely Earth, the Moon, and Mars will have to depend on local mining for their metal needs during the 21st century.

2. Jonathan Goff - August 4, 2007

Tom,
Wow. Unfortunately, while many of the basic errors can be fixed (ie they can correct their geometry error, flesh out the numbers better, factor in a little more self-sacrifice during the startup period or raise more money themselves, etc), I just not sure the fundamental business idea is even remotely salvageable. I hate to say that, because I very well may know some of the principals, and wouldn’t want to offend them. But the reality is that as much as you and I would wish otherwise, lunar and asteroidal materials are probably still subeconomic at this point. Before we can make a business plan for resource extraction off-planet, there are some other more mundane and boring businesses and technologies that have to be in place. For one, there really isn’t any in-space transportation infrastructure. The hardware, and support infrastructure, operations experience, etc needs to be built up first using near-term markets. Just because that is going to be a long, hard slog doesn’t mean that it can be avoided. There’s no lunar/asteroidal resource extraction market that is both sufficiently valuable and sufficiently probable at this point (with out existing technology and knowledge) to justify developing the whole set of infrastructure that would be needed to harvest that material. I’m hopeful that this will change, and I’m doing my small part to try and bring us closer to the point where those business plans close, but we shouldn’t delude ourselves and jump the gun like this. It just tars the rest of us, who are trying to build foundations up to those castles in the air.

Anyhow, I don’t want to offend, but there are preliminary steps that need to happen first before a plan like this should even be considered.

~Jon

3. Thomas Olson - August 4, 2007

But that’s the thing, Jon…as soon as you correct “the geometry error” the fiscal projections fall apart entirely. You don’t have to go any further. But they did, anyway, compounding the error.

tao

4. Loving Misanthrope - August 4, 2007

I gots my pickaxe handy. Gimme a ring when y’all ready ta start chipping on big space rocks.

5. Anonymous - August 6, 2007

This just kills me. Asteroid mining is my particular pet glass of kool-aid, and this proposal is silly even to me.

If you’re ball-parking costs, think closer to Apollo-sized program (or even new launcher development orders of magnitude), versus something that might not even cover the cost of the hardware to get out and take a look around.

Secondly, as appealing as it is, there are some significant non-technical obstacles.

Third, I don’t know economics, but I am pretty certain that you can’t just wave your hand and say “mine it slowly” when trying to figure out how much the price of a bulk commodity will be decreased when X many jillion dollars of it is put on the market each year.

It’s tricky enough as is – there’s no reason to put a frosting layer of dumb on the top.

6. Ray - August 7, 2007

Have any of you looked at the business plans from this school competition?

http://www.8clunarventures.com/finalists07.shtml

http://www.8clunarventures.com/winner07.shtml

7. TomsRants - August 12, 2007

Definitely worth checking out. Thanks for the heads up.

8. accountingguy - March 28, 2008

Interesting bit.
I have an old copy of this exact book from waaay back in the day. I thought the idea was great, but was really unable to evaluate the business end of it to see if it made sense.

It did inspire me to do a lot of reading, and to get a financial education to be able to figure out if it really would work.

I will, at some point, revisit the book with an eye towards a more realistic figure, and would love your feedback. A good skeptical, knowledgeable mind would go very far in getting a realistic picture of what is possible.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: