observations and a view

A couple of items have been raised on the forum recently, namely the relative risks associated with the electricity market and CXY issuing shares etc for future fund raisings.

Electricity Market:

I am on record as saying that I strongly believe the electricity generation market is the lowest risk and best entry point for CXY. I guess my belief is founded on two issues, firstly, the electricity market ain't going to fold tomorrow, or next week or even next decade. Electricity is one of the economies basic factors, like food. Even in economic downturns and the like, the amount used remains relatively stable.

The entry into the market isn't quick, usually involving some pretty heavy asset rich infrastructure. Equally the demand for electricity continues to grow, from the figures I saw a couple of years back, by around 1.5 to 2.0 per cent per year. Australia's population will continue to grow towards 30 million and individual efficiencies (i.e. at home level) won't allow the new demand to be provided from (excuse the pun)current sources. So in my view electricity will be required in growing quantities over the coming decades.

The associated issue then becomes the source of fuel to provide that electricity. In that regard UCG has one two massive advantages over large scale minied coal power generation. Firstly, it is considerably cheaper to produce power from syngas with even small scale power generators than that produced by very large assets using mined coal. Secondly, the "bad gases" effect is consdiderably reduced when using syngas when compared with mined coal.

One threat does indeed come from other fuel types, natural gas, coal seam methane, nucleur etc all have their place. None however are so readily available and risk free as UCG.

Equity Raisings:

CXY has indeed a large number of shares on issue. But as a large shareholder, you might be surprised to know that I for one don't disagree with the chosen path for fund raising in principle. A couple of the raisings have been carried out at lower than ideal prices, but have always been completed (unlike a number of other companies over the same period). I certainly don't like the fact that some of the raisings have ended up in weak hands, i.e. ones that are prepared to cash in a tenth of a cent profit. I also appreciate that Len wants CXY to be able to fund the first power project itself. To that end a shareholder has to take the given that some form of debt:equity split is necessary.

Longer term it seems to me to offer a choice. Be a gas producer or a power and products manufacturer. The latter introduces further risks that may produce rewards. What I know of Len however suggests that he favours low risk strategies. To this end once the initial power plant is working and delivering a profitable stream of income, he/CXY actually have a choice. Keep or sell. I find the sell option a fascinating thought as to sell as asset with a fixed income stream usually produces a rather higher price than selling one which is not yet built.

It is only a slight stretch to see that should CXY decide to sell a (then) successfuly profitable Kingaroy operation it could then finance a considerable number of UCG projects where others take the asset investment risk. At that stage CXY becomes a gas producer and us shareholders get our rewards in a strong dividend stream.