Warick Grigor on PAK
Far East Capital
Explaining PAK’s rationale in exiting Imagine
I have been fielding a number of queries regarding Pacific American Coal’s departure from Imagine IM.
It is obvious that there are quite a few shareholders in PAK who came onto the register because they were inspired by Imagine’s achievements in the graphene space, and they are now annoyed that PAK has moved on.
Perhaps a few words here will explain why it did so. When the decision was made to invest in Imagine, the coal sector was dead.
Graphene was a refreshing area of interest. The initiative worked well initially, with the PAK share price being a strong performer.
Quite a few traders made good money, but then the playing field changed. Firstly, coal has had a good return to favour.
Secondly, the graphene commercialisation path for Imagine was taking longer than PAK first understood.
The PAK directors were faced with the prospect of constantly raising money to fund Imagine, but with no clear time frame as to when the business would become profitable.
PAK didn’t wish to be the banker to a company that hadn’t ceded management control.
Rather than ponder the uncertainties, PAK decided that it would be in the best interests of its shareholders, and smarter, to get its money back and look for something that was more tangible.
Graphene is great, yes, and I am a strong advocate of the sector, but it is a specialist industrial material, not a conventional commodity.
It is not for everyone. There is a great growth curve ahead for operators, but as yet no-one is making profits out of graphene as they haven’t had the production or sales volumes.
However, the graphene scene is changing rapidly with FGR dramatically lowering the operating costs of graphene production and opening the door to large volumes, to make it worthwhile for manufacturing industry to proceed with graphene plans knowing it can get supply.
Whereas Imagine has a specific focus on geofabrics, FGR’s entry into graphene is much more broadly based.
It controls its raw material supply, it can make graphene for third party sales and it has the rights to a number of exciting applications that include energy storage devices, fire retardants, polymers, cement and many others.
I am very comfortable with PAK’s decision to regroup as a mining company, not a technology company. It will enable better control of its finances, with more certainty.
I believe that now that PAK is selling close to its cash backing, it is perfectly poised to advance its coal and to also undertake more conventional initiatives in the mining sector. At 3.2¢ today, PAK is very cheap with no downside.
I continue to add to my position at these levels, giving me even more incentive to make sure this one works.
One final point - there has been no decision that Imagine will proceed to an IPO in 2018. In truth, it would rather stay private and not have to spend money on the additional cost and compliance that an ASX listing imposes. The mention of an IPO last week was just the statement of a possibility, not a firm plan.
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