Speccy,Firstly, nice post mate. TU from me. Good to see some...

Speccy,

Firstly, nice post mate. TU from me. Good to see some factual and supporting arguments. VERY refreshing.

I agree with the essence of what you're saying, however I feel the examples are not 100% comparable. I am on board with your pretense, that for a $50m cap company to sign a deal for $154m is not only impressive, staggering in fact - I also believe it was foresight to a level that is uncommon with all the egos on the ASX. The reason I feel this is different, is the very nature of the deal:

The announcement goes:

Buru Energy Limited (“Buru”) is pleased to announce that it has entered into a binding Farm-in Agreement (“Farm-in”) with Mitsubishi Corporation (“MC”) to jointly explore and develop the Canning Superbasin, located in the Kimberley region of the northwest of Western Australia.
Under the Farm-in, MC has the right to earn an equal interest to Buru in the majority of Buru’s exploration permits by spending up to A$152.4 million on exploration and development. MC also has the right to acquire an interest in Buru’s production permits in exchange for an additional
cash payment

Under the Farm-in:

• MC has the right to earn interests in Buru’s exploration permits by carrying up to A$102.4 million of Buru’s exploration costs, split between up to A$62.4 million of conventional exploration and A$40 million of unconventional exploration.

• MC may also carry up to A$50 million of Buru’s development costs for major oil and gas production infrastructure.

• In exchange for providing this funding MC has the right to earn up to a 50% interest in the majority of the exploration permits held by Buru.

• MC also has the right to acquire a 50% interest in Buru’s production permits in exchange for an additional cash payment at a price determined by an independent expert based on 2P reserves


I see a few flaws in this deal.

#1 They have taken all but 2 or 3 of their permits, and if your figures are correct r/e acres within the JV deal, then I suggest that intimates an imputed value of $15.40 per acre
Their valuation before the deal was already $5 per acre (assuming your $50m market cap and acreage figures are correct)
Compare that to Central, at $1 per acre rough value now. Even if Central wanted to get an equivalent conversion, that would be 5 times lower than Buru's, leaving a possible expectation of $3.85/acre.

This automatically rules out a Mitsubuishi-style investment, as they couldn't possibly attract it because the numbers will not stack up, despite the possible value of the resources.

#2 Mitsubuishi already has an interesting history in dealing with Aussie companies. MMX had a very difficult time with them in their Jack Hills iron ore project, and all cost estimations spiraled out of control before long. They have yet to kick a shovel in anger... this deal was many years ago now. I also realise I am using a bit of conjecture here, but they DO have a contentious record with Australian companies.

#3 The commitment of "up to" $50m, indicating this is the maximum they will spend for infrastructure funding, will inevitably leave no choice but for another major dilution of permit interest at that stage, given a success worthy of development. After they conduct exploration, and hopefully (for them) begin the infrastructure process, subsequently concluding some Pre-bankable feasibility study, they will realise another JV or cash injection will be required for the bulk of the project's remaining CAPEX requirements. This will dilute Buru's renaming 50% to closer to 5% or 10%.... in their case, for ALL of their assets... not just the one.

So all in all, it is a DECENT deal for them, but not one necessarily repeatable for Central Petroleum.

I would look for a different sort of deal in order to get Central over the line initially, and so they can demand fair value. This is the problem you have when you are forced to make a large decision too early. It is fine for Buru as they do not have such diverse potential assets as does CTP. Central needs to keep in mind ALL of it's assets, and how to best make money of all of them.

I have my own inclinations as to what the board should decide, but I may save them for another post on another day.

Thanks for your post though mate. More like these please! Intelligent conversation is so refreshing! Really appreciate your post.

RB