Agree with you entirely...either we will soon be $7 or we won't be. (we'll be taken over.)
Stating the obvious, there's still some risk about the reserves at K2 - but what's the chance now of KAR's net share coming in at 90 mmbbls or more ? IMO - 80% plus but I'd prefer to let the specialists on HC speculate on that. I know there had to be a seller for IOOF's 2 mill share buy last week, but there could be different reasons for the seller to get some cash. IOOF was happy to take the punt and when we multiply the risked outcomes to shareholders of a good or poor result, the result seems obvious. The downside can't be much less than cash backing - say $2 per share after KAR's 65% of K2 drill costs. But a good result also puts KW near the 80% COS, IMO, so we then can factor in a very large jump in price once K2 reserves are confirmed in a few weeks. With a 20% chance of the SP declining by $1 (20 cents a share 'risked') and an 80% chance of the price rising at least $1.50 before KW spuds to $4.50 plus, ($1.20 risked) you have a risked gain of $1 per share, or 33% in less than a month. Seems good odds to me.
It's also interesting to note the likely effect on the SP once KAR resumes its share buyback after testing of K2 is complete - say about 12 Dec. KAR will have paused the buyback for about five weeks since the last ann of 5 Nov when they were then averaging over 300,000 shares bought per day. So they will have 'paused' the opportunity to buy over 8 million shares until 12 Dec. From ~ 12 Dec, they may decide to catch up on their buyback in the small window for buying - of only a couple of weeks - until KW spuds.
Let's say they do intend to buy back the shares they 'lost' the opportunity to buy because of their concerns of trading when they could be accused of having inside information....so 8 mill divided by ~ 10 working days indicates they could try to buy 800,000 per day, or more than double past purchases. What do you think that would do to the share price? ...will just shorten the time for the price to reach $7. And, IMO, $7 is easy to justify if KW comes in.
In six months we will look back at today's prices and think "Why the hell didn't I buy more?"
IFL Price at posting:
$8.96 Sentiment: None Disclosure: Not Held
KAR Price at posting:
$2.94 Sentiment: Buy Disclosure: Held
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