Font Size: Decrease Increase Print Page: Print CRITERION: Tim Boreham | April 10, 2008 Article from: The Australian A MONTH ago, the prevailing view on this central Australian oil and gas pioneer was that it was hiding its light under a mulga bush. But be assured that's no longer the case, thanks to A Current Affair.
In one of those shameless cross-promotion exercises (for PBL Media's Money magazine), the fearless exposer of dodgy realtors endorsed Central as one of three picks from veteran stock watcher David Hazelhurst.
The next day Central shares jumped as much as 40 per cent, or 5.5c, to a new high of 19.5c on stiff volume of 7 million shares, which proves that: (a) at least some Channel Nine viewers still exist and (b) they're just as receptive to a decent stock tip as a miracle fat cure.
In truth, your columnist is peeved he missed out on tipping the stock earlier, in that a couple of readers had sung Central's praises, but he was preoccupied with two-bit tiddlers elsewhere.
Central is an unusual play on three counts: its funding methods; its focus on the underexplored dead heart; and the intended exploitation of expected gas finds through a gas-to-liquids plant.
A fourth quirk is that, as a side play, it's exploring for helium, an abundant element that has become increasingly scarce in usable form. The Americans have been selling down their stockpiles of helium, prized not so much for party balloons but as a safer cooling agent in nuclear reactors.
Since listing in 1998, Central has acquired 250,000 square kilometres of acreage, the biggest onshore Australian tenement holding of any company. But it's what is under the crust that counts.
Central this month is due to embark on the first leg of a $30million, five-well program in the Northern Territory.
According to Central chief John Heugh, the turf has been "generally neglected" since the 1970s and 1980s -- and for good reason. Most of it is covered by the inhospitable Simpson Desert, which is more renown for camel power than manpower or infrastructure.
We're not sure how the rock kickers nut these things out without the benefit of a hole or two, but Central has reason to believe there's plenty of the slimy stuff below, as well as conventional and coal-bed methane gas.
The first effort, Blamore 1, targets 70 million barrels of "undiscovered oil in place". The second, Simpson 1, will target 190 million barrels. Then there's three wells to flow-test coal-bed sites known to contain gas.
Central is being helped by two farm-in buddies, Petroleum Exploration Australia (linked to chief backer Martin Place Securities) and the listed Rawson Resources, the latter through both farm-in and farm-out deals.
Central's grand plan is to quickly exploit any finds for cash flow, but its grand plan is to build a large-scale gas-to-liquids plant in Alice Springs.
Rather than selling stranded gas to the eastern seaboard at a relatively low price, the plant would convert the gas to ultra-clean diesel, jet fuel and naptha for export markets.
The idea is to ship the stuff to Darwin on that snazzy new rail line. What a fine idea: the rail line, which cost taxpayers $800million, would then be used for a purpose other than conveying travel writers on freebies on The Ghan.
To give a flavour of the economics, Heugh and co are eyeing CBM reserves of 44 to 77 trillion cubic feet, with "34 tcf would be sufficient for a 140,000 barrels a day plant over 70 years", Heugh says. "There's sound reason for looking at the viability of such a large-scale plant." On the flipside, development costs would amount to several billion dollars.
Funding-wise, Central has availed itself of a $80 million rolling bond arrangement, pseudo convertible notes, which can be drawn down in $1 million lots when the funds are needed.
Heugh says it's cheaper than going to the market for equity funding, while both the company and the bondholder, a hedge fund, enjoy the flexibility to walk away. "If we drill six dusters in a row and the share price is driven down to 15c, the thing will be terminated," he says. There's also protection mechanisms so the bondholder can't take control on the cheap.
We're reluctant to ascribe a speculative buy to Central -- "as seen on TV" -- Petroleum, given the share ramp-up over the past week. But if Central attains a fraction of its potential, the stock would be worth much more than its $30 million market cap, so we'll do so anyway.
Watch for the first drill results by the end of June.
Medical Developments International (MVP) 23c
THE insidious influence of the Opes Prime collapse continues to spread to innocent third parties, with this emergency pain treatment mob affected in an unusual way. But we gather there's a happy ending in sight.
MDI yesterday revealed it had been stood up by a counterparty that bought a million shares as part of the company's share buyback.
Management thought the deal had been signed and sealed on March 28 at 23c a pop, but then learned the trade had been cancelled by the ASX.
We gather the seller was an arm of the establishment Melbourne Baillieu family, whose MDI holding was seized by Opes Prime creditor ANZ Nominees before the buyback transaction could be satisfied.
"It has been unfortunate for our share price that at least one of our large shareholders has needed to sell their shareholding and we were keen to clean up the remaining overhang through the share buyback," MDI chairman David Williams says.
Otherwise, the company isn't too fussed -- and why would it be? All it has to do is await the ANZ firesale of the holding and offer, say, 15c a share instead.
Until now, MDI hasn't appeared on Criterion's radar, even though it's one of the revenue-generating biotechs with enough spare dosh to contemplate a buyback. The company recently reduced its borrowings to nil. "We don't want to sit on the cash -- it's not as if we have anything to do with it," says Williams.
MDI sells asthma products and ventilators but its main game is the production of Penthrox, a non-narcotic pain relief similar to laughing gas. It's delivered to casualties by ambos and ski rescuers through a green whistle-type device.
With the local market pretty much saturated, MDI has turned to offshore markets, including Saudi Arabia and the US, where it is seeking regulatory approval for veterinary use.
MDI is entrenched in micro-cap territory, having made a net $421,000, down 49 per cent, on revenue of $4.38 million. Earnings fell mainly because of the cost of a Food and Drug Administration audit of its Melbourne manufacturing facility.
Biotech-wise MDI is a relatively simple story, with weighty backing on the register from Richard Pratt's Thorney Group, fundie Wilson HTM, Telstra's super fund and the Myer family.
While stocks such as MDI are almost impossible to value, we'll chance a speculative buy, as it expands into bigger markets using existing cash flows.
The Australian accepts no responsibility for stock recommendations. The author does not hold an interest in any of the stocks mentioned. Readers should contact a licensed financial adviser.
CTP Price at posting:
7.9¢ Sentiment: Buy Disclosure: Held
