burning down the house, page-3

GOING FORWARD

The people who are looking ahead here and trying to determine the catalysts for SP growth are asking the right questions. This is the debate we should be having.

On 29th April, Fat Prophets issued a note on Marenica that called it just about right.

They comment that since their first review of Marenica, tonnage has increased 86% and resource has increased 120% to 85Mlbs. This upgrade in resource halted the slide from 24c that began in June 2009, and rerated us back up to 22c, before the recent slide.

They commented on the chart, suggesting that a break of 13c would send us to the December 09 low of 10c (where we are now). However, the flipside is that if a break of 16c occurs, 22c becomes the target again. They suggest that 16c is the key level that should be monitored in the coming months.

So it could be fair to say that Marenica might trade in a 10-16c range if the wider market (and sector) recover some lost ground in recent months.

They point to the spot price as the main barrier to explorers with low-grade deposits. In fact, they did not expect our scoping study to support the development of a mine at current spot price.

This is a key quote, and highlights that PIs might be capitulating unnecessarily and that the stock is oversold

Even if the scoping study is disappointing, we do not see a lot of downside to the companys share price because the current market capitalisation is only AU$0.80/lb.

Well, we are currently sitting at US$0.49c/lb with an industry mean that could be up to ten times that figure.

SO WHAT WILL GROW THE SP?

Well, we dont suddenly stop exploring, do we. Many targets have been identified on the deposit and, as FP points out:

There are 16 new targets being investigated. With good results from the Western Extension and with upside from exploration targets, we would expect the company to have combined resources of over 100 Mlbs U308. The resource will increase again when the Western Extension is included in resource estimates.

They conclude that at 14.5c with more upside than downside, Marenica Energy will continue to be held within the portfolio.

We will now have to wait 3-6 months for further metallurgy before scoping numbers can be firmed up. This will be another catalyst for a rerate, provided the scenario is as economic as the company say.

The company has cash in bank but we know (like any junior explorer) well need to raise further cash going forward. Do not rule out a placing at a premium to the prevailing SP. Marenica has a resource of the size now that could inspire a new key ii into taking a decent percentage stake in the company. A stake the size of Arevas or Batavias could not be acquired on the open market at this price, without sending the SP into orbit. So the need to raise funds might actually be an opportunity to strengthen the register at a mark-up to our bombed out SP.

Certainly we would expect Batavia to support any placing and not dilute their holding. Areva might decide that this is an opportune time to inch closer to 20% (hope not). But we know from recent investor presentations that the company has been in Hong Kong, Germany and UK, courting institutional interest. This could bear fruit at any time now.

So in summary, were looking for:

- Resource increase (any time)

- Institutional Investment (any time)

- Further Metallurgy (3-5months)

- Scoping on Heap Leach (5-6 months)

- Market improvement (to take us higher in the 10-16c range?)

- Spot Price / Sector improvement.


Annoying that we dont have the scoping figures now. But on the upside, when they come, the market might be in a better place, the spot price is predicted to turn, we will likely have 100Mlbs to judge the scoping against, and our share register might be broader and stronger.

Plenty reasons to hold/buy at this price and not many to sell IMHO.