massive buy oportunity, page-50

Champ2003,

The BPT P/E is a bit misleading. The recent profit of 14.9c/share included the one-off sale of 10% of BMG @ $70m. Consequently, around 10c/share of the profit was from this item.

The reason why the share price didn't go into orbit when announced was that, before the BMG sale, analysts were expecting around 9c/share earnings. Excluding the sale, actual was around 5c/share. That's a P/E of 25 @ a share price of $1.25.

It is still throwing off big licks of cash, but that's being used up faster than expected by exploration and development costs.

However, this is not a unique experience for BPT. Once upon a time, depreciation and amortization charges were written off much more slowly than they are today. Accounting standard changes in recent years mean they have to be expensed far more quickly.

I've noticed this effect on virtually all resource stocks, except the very large, long-established multi-nationals. The smaller ones with newer projects are often generating big licks of cash, but the accountants require the capitalized project costs to be written off pronto.

So, as your projects get older, there are less D&A write-offs and, hey presto, you get a big turn around in earnings.

I understand what the accountants are trying to do - they don't want years of profit being declared and then, 10 years down the track when the deposit is mined out, you have a $100m capital write-off, because D&A was expensed too slowly.

However, this issue (big cashflows, but low reported profits) seems to be so prevalent amongst new producers that I don't think they quite have the balance right, at the moment. There seems to be huge front-end weighting of these write-offs, meaning that you are writing off more at the start, when you are only just ramping up production.

Having said that, looking closely at the figures, D&A isn't BPT's only problem at the moment. They need to work harder on trying to contain their overall costs. That's what Reg built his reputation on, when Beach struggled for many years as a marginal Cooper Basin producer. IMO, he needs to revisit his roots a bit more often.

I continue to hold...for the moment.