valuation, page-14

The value here is literally a million dollar question for many of us...

Or multi-million for some.

I have suggested people study the NDO equation...this was not a throw-away line, but a well equated comparison at so many levels.

NDO is currently enjoying a $300m+ market cap...interestingly, this is still not much better than what they were on some 12 months ago. They are drilling now and will soon be in production, but as is the nature of such genuine projects, "value" is bought forward in terms of market cap some 12 months or more, in order to help the viability of things, reduce dilution in subsequent equity raisings, improve the attraction for funds and larger investors, insto's etc...to bolster a support base…and ultimately, to ensure project success.

Higher prices…a premium to “fair value” as it were…in may ways is a sort of insurance policy for all those who are in to make it happen.

Sadly however, once this initial forward value is built in to a level commensurate with projected ideals, the stock often sits and stagnates sideways until the next significant set of circumstances kicks in. We have seen NDO trade sideways for about a year now…manipulated all the way by those with the means to do so…but this will soon change.

NDO has based their value model on extracting cash-flow from an existing unloved project, now extremely viable due to the shifting oil equation, in order to fund a wider more diverse growth strategy (in NDO’s case, this is focused on the Philippines). As part of this strategy, they have effectively wined and dined those that matter at many levels, government, corporate, business…to set up the next phase of the development expansion and in the process, facilitate a network supportive of significant value add to their first mover status.

In short, NDO has punched way beyond their weight. They have been able to do so only because of the calibre of their management and in-house expertise…and of course, the significance of their assets.

CVI is in many ways a mirror image of NDO, except they are based in the more attractive “low fruit” Angolan/Cameroon oil/gas theatre.

Cameroon to CVI is the equivalent of Galoc to NDO. It will ultimately provide cash-flow to fund an expanded and much bigger presence in the region...and a much wider business model…a scenario representative of their relative first-mover status.

Like NDO, CVI too are punching way beyond their weight...the common denominator being the calibre of people on board!

In CVI's case however, Cameroon is likely to be 5 times more valuable to them than NDO's Galoc...and CVI's Angolan/Niger Delta ground will be, in my opinion, significantly more attractive in terms of premium to the share price and possible bang for your buck than NDO's blocks SC54 and SC58, or even Linapacan A and B.

All these projects are highly attractive by the way…but CVI’s middle east incentive will see far higher premiums ensue in my view. I also do not see the same sort of external influence impacting CVI’s Smythe and crew that NDO’s Whitby and co have had to deal with/

When all is said and done, the overall upside for CVI in my view is about 5-8 times that of NDO...all things being equal of course! This is perhaps a big statement, but as I see it, equal luck applied to both Companies, given their obvious in-house capacities and particular ground positions, should eventually see such a balance eventuate.

CVI's oil production from Cameroon alone, assuming current plans are implemented, would see them producing some 1.6mmbls (net) per year at peak production levels (about year 4). This compares to a peak of some 1.2mmbls net to NDO when Galoc hits planned peaks.

Importantly, Cameroon reserves are about 5 times that of NDO’s Galoc, meaning the likelihood of a larger development programme (stage 2?) and eventual increase in production…or simply longevity of production are than much greater.

Cameroon also has significant gas potential however...and unlike NDO's Galoc, can actually be economically piped just 13km or so to the Quest sponsored gas fired power station. Stated production capacities equate to an additional 300k barrels oil equivalent per year (net) to CVI, bringing peak production to almost 2m barrels per year oil equivalent in year 4!

These are not exactly small numbers…and whilst most small caps looking at such numbers might attract healthy scepticism, the quality of people involved here, at the very least, commands a second glance.

We have not even looked at Angola yet…not the Niger Delta…or any other left of field developments that tend to happen when you are as well networked in this part of the world as CVI appear to be.

Shall we even bother to discuss Catabola? This looks to me like a very high quality, very serious proposition…and one which could surprise to the upside significantly. For BHP to have even suggested in passing they are “watching”…is indication enough that at least a few in the know view that a significant mineralising event has taken place.

One decent intersection here…and results to date support such a prognosis…and we could see the current market cap barely reflective of this asset all by itself…let alone all else that is going on.

Clearly, CVI’s focus however, is and will be oil and gas…so we can look forward to an eventual spin-off of their metals assets at a later date…not until some form of “value” can be assessed I would suspect however.

My view is CVI will eventually see an expanded register of some 500m shares…but at that time will be fully funded to first production at Cameroon, have extensive seismic and perhaps maiden drilling campaigns underway at both the Angolan and Niger Delta ground positions…assuming they get both?

At $6, we would be looking at a $3b company…with development success at Cameroon and potential dividend payments underway, and exploration/development success at either their Niger Delta or Angola ground, or both…and with a decent discovery and spin-off completed at Longongo and/or Ucua, a net return to shareholders of some $6 within say 4 years is not out of the question.

In the meantime, we are witnessing the transition of the company from basket case to real chance…and with it the associated corporate positioning/manoeuvring typical of such scenarios…including the much maligned musing of some of us little old shareholders.

Get in early…build up a safety profit margin, or even sell down to a free-carried position if you so choose…but try to exercise some level of intellect in your day to day behaviour here that does not see you give away a good position to those who will use every dirty trick in the book to get you to do so.

I have a reasonable position in this now…and whilst I feel the share price has a considerable way to go, I will likely still sell a small number at each of the round number levels ahead from 40c up…50c…60c…and so on, but only in small numbers on the appropriate days, until I have reached an eventual number I am happy to run with indefinitely. This is both prudent and sensible in my view…and something I urge all people to consider with all stocks they hold.

Being prudent does not always mean to sell however…sometimes it means to hold, or not trade…or indeed by. Again, we need to excise intelligence at a fundamental level when making such decisions.

At the end of the day, this is as it should be with every buy/sell/hold decision…you just need to employ a modicum of common sense. If I may however, the adage “you never go broke taking a profit” is absolute bollocks…opportunity lost is as bad as a real loss in this game of 3 steps forward two steps back!

Buying/selling/holding for me depends on future developments and achieving milestone events along the way…if I see fundamental reason to, I may well buy more than I expected, or at the failure to achieve a stated goal, I may sell more than I expected...such is the nature of flexible thought.

For now however…I am happy to watch on, support the stock on-screen where I can, smooth out any silly peaks…and generally go along for what is essentially a very smooth, very comforting, very professional…and above all, very profitable ride!

Cheers!