Kiwi, a great deal of your analysis and comments are perfectly sensible and well thought out. Let's forget past production for the time being and focus on the bigger picture going forward.
Firstly, while I agree with your comments about not relying just on quarterly reports if you were considering a major stake in the company, the standard of MAE quarterly reports are below par in my opinion for reasons I have previously disclosed. They are a listed company and have obligations to advise the market of the true status of operations. For two years, the terms imminent and substantial have been used as often as I've had breakfast and lunch, for little to show. A reasonable person can be expected to take company announcements seriously and form investment decisions based on those announcements. However, lets move on for now and look at a hypothetical but realistic scenario.
The operating risks for this company increase by the day. We know they only have the equivalent of 3 months working capital (assuming the use cash at the same rate as the previous quarters) assuming there is no significant ramp up in production (I will be convinced only when the company announces the rates). Indeed with the June Q half over, one could say they may only have 6-7 weeks on working capital. So far so good. Let's assume the pipeline owner decides to undertake further maintenance for 4 weeks which means no production and sales to the grid. Where to next? Yes, another capital raising may be possible, but it may be more problematic. Sure, they can offer shares at a significant discount to the current price provided the institutions buy the MAE story. Let's work on the basis of a heavily undersubscribed placement. Where to next? OK, the directors may be in a position to exercise the June 30 2008 options at 30c to given the company an additional $6M, assuming they have the cash or can raise the $ to exercise the options. But what next? This company is not exactly blessed with 12 months working capital which could comfortably allow for further operational setbacks. They will soon run into working capital issues. Yes, Oklahoma may be sold (timing and value unkown) but in the half yearly results lodged a few months back Oklahoma was an important strategic asset and now it's no longer considered core - I understand, things can change. But interesting nonetheless. Get the drift of what I'm saying. By the way, MAE is happy to upload the analyst reports with buy recommendations, including Patto's March 2008 report on their website. For transparency reasons, I would also encourage the company to upload the 1 May Patterson's note. They should be prepared to disclose all research on the company, not just the favourable stuff. It says something about the personnel.
Think about what I'm saying the operational risks of this company going forward. Risk is an interesting term. I think Kooka made a specific point to me that they're in a risky business. Agree. But you wouldn't know from there collateral (on the website) where they reference their strategy as low risk.
One last point. Thus far, there is not one significant substantial shareholder on the MAE books. AMP at 5% is the largest. As I've indicated in an earlier posting, I also hold shares in MGX - Mount Gibson Iron. This time last year they were about 70c, but a Chinese Steel producer (Shougang) had already built a 19% stake in MGX. Today the share price is almost $3.40. That a Chinese steel producer built up a significant stake in a junior Australia iron ore producer gave me confidence about the future of the company. I can't say the same of MAE to this point.
MAE Price at posting:
0.0¢ Sentiment: None Disclosure: Held
