pattersons update

New liquidity source - Andrew is Back.

Cougar Energy (CXY) $0.12 23 March 2010
Recommendation: BUY
Analyst: Andrew Harrington Tel: 612-8238-6214
Event
Last week Cougar announced that it had achieved ignition at Kingaroy and had successfully begun to produce Syngas.
The Syngas is passing through the pilot gas processing plant and the company is currently flaring the gas.
Impact
This is is a giant milestone for Cougar Energy. The company has progressed quickly to proving its resources and technology to what has been a somewhat sceptical market. This now visibly demonstrates that the energy is extractable with CXYs UCG technology.
Now the company will undertake around 6 months of performance testing under different condition in order to establish the consistent volume and quality of Syngas for use in the planned 400MW power station. More technical information will be released in the coming weeks as a track record of gas production is built up.
Cougar is now determining the economics of a small (probably 5MW) electricity generator which would provide a return on the gas that is currently being flared and so offset the costs of the performance testing.
Additionally, the company is well advanced with its pre-feasibility study and is investigating the used of several smaller units rather than a single 200MW in its first phase, which would lower initial capex and have a gradual stepped programme with earlier cashflows.
The share price ran up to 15c in anticipation of the first burn but in what may be considered a case of buying on the rumour and selling on the fact the share price has now declined to 12c. We expect that the share price will recover this profit-taking as we roll forward and as the economics of the power project is defined in greater detail.
In our view at a market cap of just over $100m CXY is highly undervalued, both on the NPV of its Kingaroy project and on its contained energy basis. Accordingly we re-iterate our BUY recommendation with a price target of 20c per share.
Patersons Securities Limited acted as lead manager to the placement that raised $8.29 million at 8.25 cents per share for Cougar Energy Limited in September 2009. It received a fee for this service.
Andrew Harrington Research Analyst D: +61 2 8238 6214 | F: +61 2 8238 6266 | E: [email protected] | W: www.psl.com.au Patersons Securities Limited AFSL No. 239 052 Level 48, Australia Square, 264 George Street SYDNEY NSW 2000
-

Cheers,
CW