ajl - chart, page-7

Hi michaelgd. A nasty morning all round at the moment. Could be indicative of a progressive rounding top and might hint at a time to be again wary of equity markets for perhaps 12 months. We'll see.

Re AJL, these are my opinions. With AC as chairman and CEO and a large shareholder, it behaves a bit like a private company in some ways. I still like it longer term.

Short term its very cash stretched (less so if their 15% of ATP651 is settled, but still tight). As at 30 June it had a deficiency (current assets less current liabilities) of $52m, roughly equal to the tax due. It was in breach of its lenders covenants to ANZ. This is in addition to the recent convertible share trigger event. It carries $120m of goodwill, largely from the market-top buy of McNeil Drilling.

Its two recent appraisal plays havnt gone to plan the Arawn CBM play in BC and the Monument fracture play in Texas. Arawn hasnt performed as hoped and Monument discussed above. Their 47% of Cuadrilla Resources in Europe is worth keeping an eye on. Cuadrilla requires another $50m in funding now and theyre hoping to attract another partner to pop it in.

The 2009/10 drilling and construction businesses results will be lower due to current margin pressure. As you suggest, longer term they will likely gain a share of large project work.

Gloucester was an exceptional investment, generated using shareholder funds, excellent mgmt decisions and no doubt some dumb timing luck. Imo a public co. shouldnt create a privileged group of insider employees who receive benefits ($20m) on top of their salaries. Imagine if the result was reversed. Would mgmt kindly stump up funds to reimburse shareholders for large losses resulting from their bad decisions. Not on this planet. Its the old story of privatising the profits and socialising the losses.

I generally only try and predict longer term co. share movements. It's sitting in my value range, but Im out as theres too much uncertainty for me and the possibility of some nasty surprises imo. If I buy after the right announcement Ill miss some of the bounce from whatever low, but hopefully all of the risk. If Ive misjudged it altogether then it won't be the first time. Plenty more fish. Not investment advice but just an idea of my strategy with AJL and in general atm.

Regards