You are correct that it is unlikely that the band of supporters will allow a price much below 20c option price but that is or has in the past been called by some as "irrational Exuberance" The support at current levels or the level of 20c has to be built upon the belief that the share must be worth at least that.
Well what is the dynamics - I argued before that as it had an unlimited resource - the input is produced everyday by recyclers. Yes and at that time I believed that the equipment was functioning - It was not so we have no idea what the real cost is to process and what is the margin. Looking backwards I think that Geelong never really made money - contribution to overheads maybe. The reality is that the unknown now is the cost to process and possibly whether we can get value or dispose of AL80. The machinery may well also be a challenge.
The review will have to give comfort so it will not be doom or gloom unless its straight into administration. So we will have "Green shoots" or small encouraging signs. Or a plan towards the future. But in reality how can you value the company @$34million if you dont give insight into its viability. A 10 bagger is $340million @ a 14per thats a profit of $24million that would IMO have to be at least one plant in the USA of 250,000 tons PA. That's based upon the old management comments and a small profit here to cover corporate costs.
You have to ask yourself if a fair valuation for the opportunity is $34million. On the information we have right now that the process is not working as it was outlined to shareholders I cannot suggest that that is the case. So if the share was trading now I would not buy more at 26c and I would be unlikely to purchase @ 20c. That is why the suspension does give them a chance to get out of gaol and create a new plan without trashing the sp in the process.
You also have to ask yourself how a short suspension will solve issues that have been there for 2 or 3 years. I may no longer be happy with past management but I cannot see them as being incompetent to be so close that a new team can solve the basic issue within 6 to 8 weeks. Now that the time is almost at an end I think we may get another notice extending it by another 4 weeks.
On that basis whilst I was positive about the share being able to come out of this period positively I am less convinced these days. maybe is just insecurity of not having information or the ability for the market to trade - I don't know but what I do know is that if any of us knew it was going into a 6 week suspension many would have sold.
I think this share is going to have a few rocky patches and I personally think that opportunities may well exist at prices I did not expect.
PS Look at PGC I Posted a question for you.
MHM Price at posting:
26.0¢ Sentiment: None Disclosure: Held
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