Ann: Requisition for Shareholders Meeting to Rest, page-64

re: Ann: Requisition for Shareholders Meeting... asteroider

It is a tough one.

I guess the idea is to check out the intentions and credibility of the new directors, and then make some decisions about what to do with your investment. They cannot do much worse than what Ellyard has achieved over the last 18 months.

Perhaps the best thing for it is to sell the UK operations and then just focus on Tanzania, which has some value in the longer term. If they cannot raise capital without severe dilution then what is the point of exploring in Italy or even Australia - these are just gambles. They should minimise all outlays (get rid of staff and reduce directors fees) and hope that eventually the Tanzanian assets will come good. Holding KEY shares would then be like holding options on the future value of an actual asset of indeterminate value and I think some sort of market for this would exist. The asset will eventually be developed and oil/gas prices will go higher (we just do not know when) as the effect of peak oil takes effect.

Pure oil/gas explorers (and even many small producers) are not given much value by the market - maybe just their cash backing (eg see GBP which is below its cash backing of around 16 cents/share). Even AWE is now down to $1.61 despite being a recognised producer. These companies are not providing a dividend and investors are not willing to just provide funds forever without an actual return.

Looking at the charts it appears that the main damage to KEY's share price has happened after the flash crash on the NYSE in May. The market has become very risk averse and all my remaining oilers and csg plays are underwater (besides WCL I sold down or out of most them in the expectations that in a GFC2 the oil price would tank and the share prices would turn into rubbish again and WCL and GBP are my only investments over $13,000 in this industry).

The reality is that it does not matter much how good a management team a company has because the macroeconomic conditions and market sentiment will determine conditions in the sharemarket. Basically the only thing left holding up our market is China's demand for our resources. Every time there is a hint of tightening of govt policy our market cops it. That means to me the need to take extra care, and to only stay long in a company (if that is where one wants to be) if there is a very strong chance of them surviving. In 2008 KEY had a useful cash balance and I expected them to conservatively manage their funds.

I am still in too many specs so I am probably not the best person to pontificate on investment issues. I am mostly in goldies (some are producers or near producers) because I think that may be the only sector that does OK in a deflationary environment - otherwise I would be totally out of the market or trying to trade specific companies. Of course if I am wrong about where the gold price is headed and I do not take some evasive action then I will get to live in the house of pain that CNBC's Jim Cramer keeps talking about. The goldies sector is full of bull and landmines, which adds an extra level of anxiety to investing (maybe that could also be said about all of the junior mineral/oil/gas explorers/producers).

Good luck. You did a great Houdini Escape Act in 2009, and I hope you do not undo the good work.

loki