long poetic missive

okay... after a weekend of hard yakka and not enough lager, I am now ready to pen the much anticipated "long poetic missive"... so here goes...

after re-reading the last quarterly I have given the possible departure of GoldFields from the JV some thought and four conclusions spring to mind...

1. they hate it - after spending a fair swag of cash (perhaps upwards of $10m) GFA have decided that the regional area is no good, the exclusion zone is no good, and that they don't want to have anything further to do with the project - weighting 5%

2. they love it, but can't complete their JV requirements, so they are pulling out to try and scare CQT (and CQT shareholders) so that they can then renegotiate a better JV deal - weighting 30%

3. they love it, and now want to buy the lot, so they would rather spend money on a takeover than spend it on further drilling (let's face it, the longer they stay the course in the JV, the more obvious it should be to us and the rest of the market that the SH asset is a farkin ripper!) - weighting 40%

4. they may love it or hate it, but regardless, they are in breach (or obviously heading for breach) of their JV obligations, and our man JT has rung them up and said, "pull your finger out bokkies, or bugga off!" - weighting 25%

Now some of you will think I have rocks in my head regarding the 4th scenario above, but there is precedent for such an audacious move by the MD of a piddly Aussie company to eject a big international player out of a JV;

some of you may have heard of a company called Karoon Gas, they had a similar event in 2005. I was a shareholder back then and I was pretty happy in early 2005 when KAR announced they had a JV with British Gas. BG was a great partner at the time and it seemed KAR would be on their way... then it all went pear shaped when on 17th Oct 2005 when KAR announced that "Karoon has received a withdrawal notice from BG International" - I was shocked & stunned, and feared the worst - KAR shares got belted about 40% in a matter of days (from memory), however within a few weeks the market worked out that BG withdrawing was a good thing and it recovered. Eventually it emerged that KAR MD Bob Hosking had effectively ejected British Gas because they had breached their JV commitments and had tried to "renegotiate" the terms of the JV to better suit themselves! BG must be spewing now - KAR appear to be sitting on more gas than QGC, and BG could have had 60% of it for a fraction of the money they paid for QGC!! hahaha - but I digress, and to a certain degree I am indulging in a wee bit of gloatation!! ;)

JOINT VENTURE

So, in essence I think it is highly unlikely that GFA would walk as per the 1st scenario above - I think they are withdrawing, regrouping, and we can perhaps expect a Spring/Summer offensive... if this happens, I imagine we can expect a pathetic opening bid. GFA will know that to get a bargain, they will need to move before CQT releases the BFS and I think that is due Q4 2009? If for whatever reason GFA do walk, I expect CQT will be the recipient of millions of dollars in exploration data (KAR picked up millions worth or exoploration data from BG) and that is a good thing.

CQT SHARE OVERHANG

Obviously with GFA, the JV is just one aspect, they still own about 20% of CQT shares, and there is a natural concern about that sort of "overhang" in the market... however, I am not worried because, similar to the problem the Chinese have with their "overhang" of US Treasuries, the reality is that if GFA sell on market they will start an avalanche on themselves and lose even more money. This is because as soon as anyone gets a sniff of them selling, there will be a mass panic. I think the only way out for GFA (if in fact they want out of their CQT shares - which I doubt) is a trade sale or asset swap. This is similar to what they did on Sino... my understanding is GoldFields "sold" their Sino holding to Eldorado in exchange for shares in Eldorado - so although GoldFields are out of Sino on face value, they still retain a significant, albeit indirect interest. Ultimately GFA will know precisely what CQT has, what it should be worth, and they won't be a seller at anything much under their valuation. Their 20% stake is currently worth about $25m, and I doubt they are that hard up for cash that they will be in a hurry to sell.

WHEN - NOT IF

Regardless what happens with the JV and GFA's stake in CQT , there will be life after GFA for us. I still firmly believe that GFA's presence in CQT for so many years, and their expenditure of millions of dollars indicates that CQT have a quality asset. This is reason enough for me to stay long, because as sure as night follows day, the quality of the asset will become appreciated, the asset will be mined, and the rewards will flow... IMHO, is a just a matter of when, not if!

CQT MANAGEMENT

As for the moaning and groaning about the general lack of communication from CQT management, I read this sort of complain about most stocks and all I can say is get over it lads, it isn't as bad as you make out! As it happens I have another analogy to explain;

years ago I met with Richard Cottee, who at the time was the MD of a struggling coal seam gas company called QGC. His stock was languishing around $0.20 and when he was asked why the market, brokers and analysts didn't like his stock he replied something along the lines of... "because they are stupid - the board and I have laid out a plan for the company and I am paid to execute that plan. If the market doesn't get it, I'm not paid to hold their hands and explain it to them. I will get on and do my job, and one day the market will understand."

For us to expect constant updates is unrealistic - CQT have a big project on the go, and they appear to be getting on with the job, rather than talking about it and producing glossy hand-outs!

I also hear the constant demands for a "Roadshow" - why do we need one? CQT have enough cash in the bank, and traditionally companies only present either when they want money or when they are on the verge of a change in status (i.e. from explorer to producer) - I for one would not be interested in CQT raising money at these levels. There will be plenty of time to raise some cash when the share price is nudging $1.50.

PRUDENT OR LUCKY?

Of course I would also have liked things to happen sooner, but the reality is that 2008 was a very scary year, and either through good luck or good management, I think it was prudent that JT slowed things down and reduced the cash burn last year. The reality is all non-producing gold and commodity stocks got belted around 80% from their highs last year and CQT were no different. At least we weren't put over a barrel because of some optimistic contract, obligation or debt like so many other companies were last year.

CONCLUSION

I am long CQT, I am staying long and I will look to buy more on dips regardless of whatever happens to GFA. My dogmatic belief in the value of KAR came through eventually, and I would expect CQT will be 50% to 100% higher by June 30th 2010 as the market finally starts to understand that production is drawing ever closer.