why i won't invest in tap, just yet...

Below I have set out, in my opinion, a balanced view of the current legal situation with Burrup. It is my personal opinion, so feel free to add your own comments. Of course, you should do your own research and seek your own professional advice regarding your investment decisions.

I would like to make the point that I believe there is tremendous value and upside potential in TAP's assets (Thailand, WA, Ghana) but obviously there is a degree of uncertainty surrounding TAP's legal issues, which is weighing heavily on the TAP share price. I won't touch on Alcoa (which I believe is of smaller concern), just Burrup.

The best case scenario would be if the courts found in favour of TAP on all counts, including declaration of force majeure. TAP would have zero liability to Burrup, and I believe the TAP share price would substantially re-rate north.

The worst case scenario, according to TAP, is a US$20-25m liability to Burrup based on LIQUIDATED DAMAGES relating to the shortfall of gas. Payments to Burrup would be spread over the remaining life of the contract (i.e. $1-1.5m per year to circa 2030) This would be a good result for TAP, as it provides certainty, and should also result in a northward re-rate of the share price. Whether TAP would be able to fund this liability out of existing cash reserves is open to discussion. I believe a small cap raising may be required

The worst case scenario overall would be if TAP was liable for liquidated damages, as above, as well as GENERAL DAMAGES. I have linked the following article for your perusal, which alludes to this

http://www.bfpl.com.au/index.php?option=com_events&task=article&eid=36&Itemid=7

Of particular interest is the paragraph:

"Mr Oswal is disputing that figure, saying liquidated damages only apply to events such as equipment failure, and that Tap?s liability in the event of a gas shortfall would be in the hundreds of millions of dollars, equivalent to the value of the gas it would need to source from other parties to make up the Burrup shortfall."

There is a big difference between the reported contracted price of gas of circa $1 per gigajoule compared to the current market rate of $6-8 per gigajoule

Now you don't need a maths degree to work out the consequences for TAP, with a current market cap of circa $180m, being liable for "hundreds of millions of dollars". This is a potential "knock-out event" - that is unquestionable

I believe it is prudent to consider all scenarios, good and bad. We have recently seen AED being forced into liquidation for losing a court case (albeit completely different facts to TAP) Many investors didn't see that coming, including Sprott who invested a significant amount of capital in a placement/cap raising only a few weeks prior.

At the end of the day, I choose the investment decision that let's me sleep at night. At this particular point in time, regardless of the great assets TAP holds, my capital is far too precious, so I'm sitting on the sidelines, hopeful of a favourable resolution for TAP, so I can again become a shareholder

Looking forward to your comments

Cheers