is the force strong within bly?, page-17

BuyNHold, sorry I offend, I don’t post to upset people and I sincerely don’t wish to come across as arrogant in any way. But from the numerous views we are getting on this stock and our posts, I’m happy to accommodate the few people that don’t agree with my opinion. From the beginning, I have not set out to change your and other passionate supporters of BLY sentiment. There are others, possibly only a quiet few, that aren’t so dedicated, and may consider my opinion more balanced.

There are no rules in the TOU, that state I must own a stock to be able to participate in the conversation. Viewers sitting on the fence would certainly appreciate alternative opinions, if it’s assisting in their own decisions (information based strategy).

First, I am not attached to BLY now or have been at any time in the past. Second, I am not trading CDF’s in this stock and for that matter, trading BLY at all (well not yet). And as I have already stated, I do not hold any stock, and my sentiment is still, SELL.

The Take Over question. First I find the paradox in any supporter of BLY entertaining this idea, as truly paradoxical. It seems to go against what posters are saying, in that this stock will bounce back to its true value (?). If so, why hope for a TO, and at the same time deride me for bringing it up?

Common sense rules out another drilling operator of size considering BLY, as it would be better off to wait till it collapses further. But then if you wanted to acquire more rigs cheaply, there’s a plethora of other companies, with equipment not turning that would be more than happy to have someone come in and take them of their hands. All large international drilling companies (and every one in between) are under the same present market pressures as BLY (some though are weathering it a lot better than BLY), that is low utilisation and tighter margins. Well done to Anglo when they sold it to corporate equity, at the most opportune time. Of the track here but I believe it is relevant. If we compare boards with industry peers, we see the current lack of hands on industry experience in all but one board member. Except for a struggling Foraco, we see drillers on all other boards.

From BLY own announcements, they’ve increased Net Debt by 122% for 0% change in Revenue. That 122% increase in debt, achieved only a 5% increase in revenue per rig with the same amount or rigs from the previous year. Yet that revenue margin fell by 2%. They’ve increased their bank revolver capacity by a further $100m in February (kudos to BLY in getting that through before people become aware of the market conditions), and now have only $142m out of $750m not drawn. With operations occurring in a very depressed market and without a foreseeable change ahead. Also stated by BLY is the “cost out” lag. This from observations seems to be about six months. So in theory, this perceived “over selling” of BLY might be right on the money, pending the next set of data to come out.

This brings up what I mentioned earlier, “What price do you attribute a drill rig parked up and not working?” What is its value and therefore, the value of BLY? Run their revenue numbers on lower rig utilisation and see the story – its not good.

BLY state that they “assume exploration spend will be less in 2013” and that “contracts will be delayed”. All so that juniors “may be struggling to raise capital”. Really? How smart and observant!!! Take a look and I reiterate that the high water mark for capital risings on the TSX/ASX for ALL mining stocks peaked in the 2H 2010. So why do most people refuse to link money raised to money spent and how it impacts on BLY. They clearly state that 61% of their revenue is exposed to these cyclical changes.

Breakdown: 2H08 is when the GFC took place. 1H09, 2H09 and 1H10 saw a recovery in raisings due to steady and or increasing metal prices through demand. 2H10 saw money raised on the stock market peak at nearly double the pre-GFC industry boom. 1H11, 2H11, 1H12 and 2H12/YTD has seen a steady decline of capital raisings.

Yes the world turns and they are still mining but as BLY states, they only get a paltry 13% of their revenue from production drilling and underground. On the flip side, a company such as ASL are far better situated to ride this out because of the diversification.

Chaddy36 your $1.75 call is brave. It can be done if the industry turns and we a significant lift, but as we are already in to a depressed position from 2H 2012 to a month out to the end of the financial year, I can’t see that happening (near term). BLY will survive to Xmas but go deeper in debt. The continued inability to make revenue from parked up equipment, make me believe a $0.50 SP more realistic.

To all CDF traders, have fun on the way down, there’s plenty of opportunity to be had here. Watch out for the PD’s along the way.