Ann: Response to Media Speculation, page-113

I can’t see the logic for the doom & gloom shared by some people here & by the AFR, unless it’s just an effort to short the stock & tank it, which is pretty much Glaucus’s modus operandi.

The arguments are mostly circular: if people lose confidence in the stock, its price will fall. Of course, that’s how the market works, & it has little to do with the company’s performance. Not to mention, it has risen significantly since its lows.

Or they say, if BLA exits the water market, the value of the water assets will fall. Duh! Of course that unrealistic hypothetical would have some such effect. That’s like saying that if BHP exits mining, then mining asset prices will fall. Yes, yes they would. But how realistic is that scenario?

There is no dispute that BLA’s water assets are independently valued. Also, if it is said that BLA is responsible for 25% of the trades in that market, that means that 75% of the trades are made by other players who are satisfied with the market price - BLA isn’t paying a different price to anyone else. The price is the market price, or the price the market will bear. Alternatively, if it is said that BLA’s trades are concentrated in ~8% of the most heavily traded instruments, we’re still back to the same thing: if they are the most heavily traded instruments, then there’s a lot of others trading them, & their price is therefore the price the market will bear.

If BLA would exit the water rights market, sure the prices of these instruments would take a hit, but it can hardly be imagined that it would pull the rug out from under them, as there are still many others who value them at present rates, & why would these others prostitute & devalue the market to their own detriment? Anybody making such claims doesn’t understand how commodities markets work.

But what nobody seems to be asking, which I would expect to be the first question asked, is why would BLA exit the water rights market? The only reason BLA would exit the water rights market would be if the company collapsed. But if that was the case, the price of the water rights would be the last thing on its shareholders’ minds. So long as the company remains viable, it will not exit the water rights market in a way that would impact the value of its water assets. As such, the question of what would happen to the water rights market if BLA were to suddenly exit is a furphy in considering the value of BLA's stock.

There is no realistic scenario in which a collapse in the value of BLA’s water rights, due to BLA withdrawing from the water rights market, leads to a collapse in the value of BLA stock - for all practical intents & purposes, it is a circular argument. If anything unfortunate were to happen, it would be in the reverse order - i.e. a collapse in the value of BLA stock could lead to it withdrawing from the water rights market, leading to a reduction in the value of the relevant water rights; but not the other way around.

Why people might even consider such an artificial scenario boggles the mind! For these fanciful speculations to bear fruit, BLA would literally have to prostitute the water rights market, liquidating their positions in it (to their own detriment) for no reason, thereby putting downward pressure on the water rights market, leading to the devaluation of BLA stock. That is never going to happen!

And this is why the value of BLA stock is again on the rise. If somebody wants to tank its SP permanently, they at least need to come up with a realistic scenario. I wouldn't be holding my breath for that.