The Westaim Corp. $3.90 – Toronto symbol WED

THE WESTAIM CORP. $3.90 (Toronto symbol WED; Aggressive Growth Portfolio, Manufacturing & Industry sector; SI Rating: Speculative) is the riskiest of the three.

It develops technologies through two subsidiaries: iFire Technology Corp. (wholly owned) and Nucryst Pharmaceutical Corp. (75.0%-owned, Toronto symbol NCS). Nucryst sold shares to the public late last year, and Westaim aims to eventually sell stock in iFire as well.

iFire is currently developing a faster, cheaper way to make flat-panel displays that it hopes to license to TV manufacturers.

It recently built a $46 million pilot plant in Toronto to demonstrate the advantages of its technology to prospective customers. The facility also gives iFire practical feedback that it can use to refine its process. Westaim will probably spend between $4 million and $6 million more on this plant in the second half of 2006.

Nucryst makes medical products that prevent infection in burns and wounds. The company has licensed its technology to UK-based medical device maker Smith & Nephew plc, which helps offset its rising research costs. Nucryst’s latest product, a cream to treat skin conditions including eczema, is now in the clinical trial phase.

Both of these operations are still losing money. Consequently, Westaim’s losses from continuing operations in the second quarter of 2006 grew to $0.13 a share (total $12.0 million) from $0.12 a share ($11.0 million) a year earlier.

Research costs grew 4.5%, to $9.3 million from $8.9 million, while revenue rose 22.8%, to $7.0 million from $5.7 million.

Westaim’s long-term debt is just $8.0 million (6% of shareholders’ equity), and it has $84.6 million ($0.90 a share) in cash and short-term investments. That should let it fund its research without issuing more stock, which would hurt the value of the existing shares.

Westaim is a buy.

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