Met new interim chairman Sam Middlemas.Was good to revisit the...

Met new interim chairman Sam Middlemas.
Was good to revisit the basis for my enthusiasm for this investment.
This is my largest exposure and have been in for close to 18 months. Needless to say the last 6 months have been financially and emotionally challenging with ELM.

Reading the last few reports definitely rekindled my enthusiasm for ELM. The massive amount of work that has been undertaken by the ELM with consultants, geos etc to advance their technical understanding of the project in conjunction with the massive task of Canadian listing and raising a decent amount of funds in very discouraging markets speaks volumes about the managements belief in the project.

They are advancing this very very professionally. The lead guy at Pala does not normally take a seat on the board of companies they invest in, they will just nominate an underling the task.

To underline thge economics of this project:
One of highest grade potash deposits in the world.
Relatively shallow compared to Can. and Rus. deposits
Close to port
Government support
Very good cash position +$50m
Large tenement only 15% has been looked at
Blowout first resource 800mt
Planning 2mt per annum output starting 2015
Cost per tonne = $65
Price per tonne $500
Lets be conservative and say $300pt profit
Thats $600m profit per year
Multiple of 10 = $6bn company
Mine life when they achieve 2bn tonnes = 1000yrs

Even being ultra conservative, these numbers are extraordinary and remind me why im so heavily invested.

Risks
Sovereign - minimal, govt very pro mining
Technical - outside my grasp but I guess the enemy of any potash play is the project being adversely affected by water. If someone has a grasp of the technical risks I would really appreciate their assessment.
Management - always an unknown, but given the quality of work done it would seem that they are all on 'the same page'.
Funding risk - a significant unknown, in the event of a global banking crisis a la 2008 or worse this becomes a real issue for ELM and any listed early stage play.

The capex on this is upwards of $1bn. With a mkt cap now below $300m there are only a couple of paths.
(1) Grow organically through drilling and proving up resource with intermittent cap raisings at progressively higher share price.
(2) Partner up with a major. This could be structured in different ways depending on mkt environment and progress.
(3) Takeover

FWIW my view is that (1) will be undertaken over the the next 6 months and as long as there are no problems they will be the subject of a takeover(s) before end 2012.

The overall market has definitely led to investors losing sight of their initial investment rationale so good to reiterate. At present people nervous and raising cash.
ELM has fallen 60% from its high in April (after rising 900% the previous 6 months). So understanding their behaviour is easy. But ELM is an amazing value proposition and hard to think there is much more downside. I guess in a worse case scenario I can envisage a drop to 75c but such a price is not sustainable IMHO.
The other reason investors may be squeamish is the perceived lack of info emanating from the board and belief that the newish board are acting more in their own interests than s/holders (unsubstantiated, petty and churlish comments on HC earlier ELM threads)
I have spoken to other directors in Jo'burg and was very impressed by their professionalism and technical grasp.
Read the last few reports and its hard not to be impressed by their progress. I told the Chairman that a better flow of news from the board may be enough to stay some shaky hands. But the overriding impression I get about this is they are less interested in the interim share price and more focussed on the end share price.

As a s/holder I am resigned to the fact that I shall never extract full value out of ELM because it will get taken out beforehand.


My philosophy for investing is to develop the strategy first and unless a material factor changes I will maintain the strategy. But changing share price is not a material factor affecting strategy. If your entry price was too high then manage that accordingly but that wont and never should be a reason to dump the strategy.

This is a long term investment stock that has sufficient volatility to allow some trading as a sideline interest.

This stock is now undervalued and as with hindsight we now know $3.00 was too much too soon, so it will prove at current prices. This is a great entry level.

Technically the 115-120c level is an important price point.
If it keeps holding that level we should see an upturn. The last quarter and first quarter for the last few years has seen significant appreciation in ELM. Dont know why may be coincidence merely an observation. Ther will be some resistance at 180c and 210c.

Now wasnt it the legendary Sherlock Holmes who gave the investment tip....."Elemental, my dear Watson"

And from all the books i read he was never ever wrong.

So who am I to argue