ajqo - dead?, page-2

In the IPO documents (Page 190) there is a provision for what happens to the options listed if there is a capital raising.

URL as follows for the Replacement Prospectus:
http://www.asx.com.au/asxpdf/20120420/pdf/425r2njt4xl6pn.pdf

The forumlae is O^n = O - (E(P - (S+D)) / N+1)

O^n = New exercise price of the option
O = Old exercise price of the option
E = Number of underlying shares into which one option converts
P = The average market price per share (weighted by volume) of underlying shares during the five trading days ending on the day before the ex rights/entitlement dates.
S = Subscription price of pro-rata issue.
D = Dividend due but not yet paid on existing underlying shares.
N = number of shares that must be held to be entitled to receive one new share.

Lets have a scenario where AJQ issues shares at 15 cents for a capital raising O = 0.50, E = 1, P = ~0.19 S =0.15 D = 0 N = 1

New Option Price = 0.50 - ((1(0.19+0)) / 1+1) = 0.405 or 40.5 cents per share.

This is of course assuming a pro-rata issue, and not a quick institutional placement.

The market will need to rerate AJQ on the basis of dollar per acre valuation if we have any hope of reaching higher than the option exercise price.

In my view this can be reached a few ways, one is some sort of corporate action happens with LKO and AJQ realizes some of their money they invested with them and in their tenements. Otway-1 being a successful producer would be a great way to bring in the new year.

Another is that the Egilabria-2 well is opened up at the end of the wet season and it flows much better than it did before (2 meter flare isn't exactly commercial). I'm not sure how likely this is but if it didn't flow before I'm reasonably certain it won't suddenly start gushing gas (happy to be proven wrong).

Another is that big energy companies have a look at the geological data etc and decide it's worth a go, this has happened to other companies and tenements around AJQ in the range of 10-20 dollars per acre implied when farming in. Current market price places us at 1-2 dollars per acre. So if we begin to trade at around 5 dollars an acre we should be around the 60-70 cents mark which would be a nice start.

Still hopeful but realistic in my future planning that all of my money I placed into AJQO's has resulted in a complete wipeout, I will view anything I get out of them as a bonus. There is still a very very slim chance that AJQ will soar over the year if shale suddenly comes strongly back into fashion, but who knows.