Just think about it....., page-7

I had a long conversation with DR on Friday afternoon Perth time. Like many others on here I was perplexed by the timing of this CR, and to a lesser extent unsure of the need for one just yet, especially at these low share price levels. Following this conversation, and having given it all some thought, I think I’d summarise the rationale being that the board is trying to position the company for the long term, whilst protecting our short term interests. I’m not being an apologist for them – I have a big loss on the shares and options and DR knows exactly how unhappy this makes me – but I am trying to understand our best way forward rather than “give-up” on my position.

On the issue of why raise now with the share price so low, I think it’s fair to say that DR, along with all of us holders expected that by now the shares to be somewhat higher than they are. As you all know operationally the last year has been pretty good (3 decent farm outs, 2 lots of 3D largely paid for by others, good size uplift in prospective resources) but the shares have stubbornly refused to follow the news. I think DR was especially surprised and disappointed that the resource upgrade failed to deliver a lift for even a day. So, DR never wanted or expected to be doing a CR at these levels, but the share is where it is, so you have to deal with reality.

We are far from alone in the small cap explorer sector in having a depressed share price. There are many out there with depressed prices, and as such it’s fair to say we’ve been caught up in market risk aversion and a general sector malaise. In a slightly circular argument this is part of the reason why the company wants to raise capital now. Assets are cheap at the moment. The desire to buy another project is trying to take advantage of the very thing that is hurting us all now – low share and asset prices. The logic is to try and position us with something new and excited for the medium term at current low valuations. Just letting our other two projects run would be a valid strategy but, for right or wrong, our board and management are trying to be a little more proactive and aggressive. If it works, they’ll be heroes. If it doesn’t, they’ll not move far from where they are now.

Reading between the lines, I think there is a secondary factor at play on the timing front. We’re all aware that AWE recently had a big discovery. Even though all the P67 data post 3D looks to be excellent their other discovery simply must increase the chance that AWE doesn’t take 60% of our project due to them reallocating capital over the coming years to develop that other discovery. It could well be that AWE takes 30%, remains operator, and starts spending on P67. This could lead us to the slightly tricky situation of having to rapidly spend our cash balance, leaving nothing in the pot for anything else. A slightly deeper cushion would, therefore, be a good thing to have. We have, of course, recently opened a data room to sell down a further stake of P67 on the basis of the strong post 3D upgrade. With this, the East coast gas shortage story, and the proximity to developed fields, I think a further farm out or re-jigging of current participants on P67 should be relatively easy to achieve which would relieve the spending pressure I just mentioned.

On the specific timing issue of why close the CR before AWE makes it’s intentions clear, or before any comments on the Seychelles 3D are available, it is of course possible that the timeframe for the offer is extended. An extension of only 2 weeks would see us pass the AWE election date and give a few weeks for WHL to do some sums on the Seychelles 3D. I believe it’s likely we’ll see such an extension.

On the issue of management and director “partial” take up, I know nothing about the personal financial circumstance of those involved, but I would still like to see them all take up their full share. I sort of get Whiskey’s point about them facing similar risk to us, but with them being industrialists and us lot being stockmarket punters, maybe the reality is they just have a different risk appetite to us? Speaking of which, I’m still stinging from the current listed options blowing up, and DR knows this.

So, my interpretation of what management is doing is this: accept that the share price performance is rubbish and work with what you can. Give the company a little more of a cash cushion to bridge the period where AWE might decide to not take 60%. This period would hopefully only be a month or two at most and thereafter utilise the balance sheet to take advantage of the depressed valuations we are all hurting from. So, short term pain for medium and long term gain. Hopefully.