The negative sentiment which followed today's Witbank coal...

The negative sentiment which followed today's Witbank coal purchase may well prove mis-placed in my view. With a current market cap of around $30m and 70% control of a 152m tonne coal resource* (not to mention CME's other projects), there appears considerable room for appreciation in the share price longer term, and management mention a billion tonne resource as their longer term resource target.
*The resource estimate pre-dated the JORC code.

Dilution fears no doubt contributed to the sell-off today (the stock will have around 877m shares if all options are exercised) but OXR too has an enormous number of shares on issue (nearly 1.4 billion) and that hasn't stopped its share price growing exponentially in recent years. What matters ultimately is the size and quality of the resource and whether it can be extracted profitably.

On this point, management estimates that 119m tonnes may be accessed via open-pit methods which suggests low extraction costs for the bulk of the mine life.

The cash and scrip purchase price CME has paid equates to 20 cents per tonne of coal in situ. This appears modest at face value but of course banks have a nasty habit of imposing hedging and all sorts of other demands on putative producers in return for their loans. The true cost will likely prove considerably higher once the cost of capital is finalised. Still, there would appear to be plenty of profit in the offing if management can arrange funding swiftly and without too many onerous conditions. Labour costs too should be modest by Western standards.

My take on today's negative market reaction is that it was caused primarily by trader disappointment at the type of mineral to be extracted (coal is not as 'hot' as uranium) and by dilution concerns. But given the South African location (the Kendal power station is nearby and mentioned as a prospective customer) and other nearby markets' reliance on lower tech fuels, I view the coal focus as a positive - like chasing brumbies rather than unicorns. Once the disappointment dies down that it's not uranium this time round and funding details become available, we might begin to see the stock price resume its upward climb.

I picked up some more today and await further info on the deal. That's a lot of coal they're talking, after all.
Cheers
Gupper