I have been wondering why BRL's share price seems to keep coming back to the 14 to 15 cent level again and again for the last 7 months.
After all, the company is making enough cash flow to generate almost 1 cent a share every 2 to 3 months. Balance sheet is not an issue. Even a full payment of the US$40 million law suit can now be made...once the various appeals wind their way through NZ's legal system in a few quarters time.
So why is the stock languishing, with little interest at 14 cents? I took a look at the share price going back to 2013. And the answer appears to be right there..in history!
To play the tape back...the shares first fell to about 13 cents on June 27 2013. It bounced from there...and came back down to about 13 cents on October 14 2013...from which it again bounced hard. This time the rally failed. On February 25, 2014, the share price opened at 14 cents and closed at 8.3 cents...and did not see 8 cents again until the Solid Energy deal was announced in November 2016.
So there you have it. The legacy shareholders have been persistent sellers of BRL into any rally until now.
What does it mean from here?
I think we have exhausted the sellers. The bid ask is beginning to widen (Friday close was 1 cent wide...so no sellers left below 15.5), the trading volumes have dried up. It won't take much buying to push the share price back to 17 cents very quickly.
In a fundamental sense, the immediate trigger should be a halt in the fall of coking coal price. Not that it makes any difference to BRL, as their management has low balled their full year forecast using US$150 coking coal, while we are at US$174. But a reversal in the coking coal price from falling to stabilizing would be my vote for an upturn in BRL's share price.
Comparing the spot coking coal price of $174 with the futures price tells a wonderful tale. December 2018 future prices are at...$174! Even better, September 2018 is at $180. So the floor may already be in for coking coal prices.
Since BRL has a June end financial year, it is worth noting that June 2018 is at $175 and June 2019 is at $170. In other words, this 1 cent every 2 to 3 month clip is going to continue for at least another 12 months. By June 2019, BRL's shares, if unchanged, would price it at two times cash flow.
In 2017, BRL went up 89%. In 2018 so far, we are at -6%. I think in 2018, BRL share price will go up 45% (half of what it did last year). That would mean 22 cents by year end.
Oh...and then we still have Moosie telling us it will go back to...what was it Moosie...10 cents, or maybe 12 cents? Love these day traders! ROFL
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