Dex,I do not understand the logic of your post here or the...

Dex,

I do not understand the logic of your post here or the preceding star rated post above.

Your math as I understand it is that Kingaroy is valued by Pattersons at 19c and Wandoan 15c. A combined 34c multiplied by current shares on issue of 919m, yields a market cap of $300m odd.

It is not correct imo to assume that CXY will not conduct cap raisings to finance Kingaroy or Wandoan. Given that Kingaroy stage 1 (200MWe) involves a capex spend of $305m, it is easy to see that CXY will have significantly more shares on issue than currently. To the extent that this happens, the $300m figure you quote and compare against CNX and LNC, will also be exceeded considerably.

Pattersons have included some equity raisings in their figures and start with around 100m shares less than the number currently on issue (giving a favorable bias to their figures). They finance Kingaroy largely thru debt (in the absence of an alternative financing arrangement) such that CXY has a debt to equity ratio of 1300% by 2013. That is not going to happen. An external equity provider will be required. To the extent that this happens a portion of the cash flows promoted by CXY will be attributable to the equity provider and not CXY shareholders. Again this needs to be factored in when making comparisons against CNX and LNC.

The most logical outcome imo is for CXY to specialise as a gas producer. On this basis, the cash flows that are relevant are not those of an electricity producer, but rather those of a gas producer. Power generation is a specialised activity and I fail to see how CXY currently has the required skill set or the financial capacity to participate in electricity markets. That might change if their balance sheet grows. In the meantime, its sensible to establish a small demonstration plant as per CNX and hopefully a bit bigger than the 10kw plant you suggest (generates around $3000 annual gross revenue). It is a necessary pre-cursor to a bigger plant and thus I think it has more to do with this than bringing forward cash flows.

Before anyone shoots me for contradicting the company line, I suggest you ask yourself what you know about electricity market risk. This is a market unlike any other on planet earth. It is a market in which supply must equal demand at every point in time. There are no stocks or inventories that fill supply/demand gaps. The market has thus been set up to severely punish supply shortfalls. Trading losses can conceivably exceed a million dollars a week depending on contract/pool exposure levels and generation size. It gives new meaning to trading risk.

If I am wrong and CXY does proceed down the electricity infrastructure route, then you will need to get your head around the financing issues and to what extent that cashflows will be attributable to debt and external equity providers. Perhaps we are also getting ahead of ourselves as some UCG production figures are required first.

Cheers
Bleasby