A few comments on profit warnings, JV finalisation, cash...

A few comments on profit warnings, JV finalisation, cash position and charts/volume.

As I understand it Loudong is one of two main subsidiaries of General Nice Group. Decisions to fund PLV aren't based upon a profit warning of one subsidiary. Note Loudong also announced a profit warning on 7 Feb 2013 prior to its annual report. Since the latest profit warning, Loudong's share price has risen and despite two profit warnings in 12 months, their share price is still more than 50% higher than a year ago and only down 8c from the time of the first warning. I suspect a profit warning has a different meaning/consequence in Hong Kong. I don’t rate it an issue.

Re JV finalisation, the Loudong board is meeting on Tue 27 Aug to "consider and approving, among other matters, the interim results."

Wise Energy Group was created 9 July 2012 and under Hong Kong law is required to submit audited annual accounts within 1 year and 42 days from creation. That equates to 20 August 2013. See link for confirmation:

http://www.hkent.biz/1770326.html

So my thinking is that a JV finalisation date of 31 August 2013 as detailed in PLV's 12 August release has been chosen based upon reporting requirements of the two Hong Kong companies. Otherwise, it’s a straight forward signing off with the sub-lease parties. If WEG proceeded with JV finalisation on 31 May as initially planned, they would have to carry half the asset writedown, partly offset with some extra cash income. This way, PLV carries 100% of the writedown, until WEG has submitted its financials.

Re cash position its good news as I read it. I'll use exact figs as rounding has consequences with e/rate adjustments.
-US$24m debt funding approved 1 May when the e/r was 1.0367 (RBA numbers). That converts to A$24,114,980. In June Quarterly, security deposits were $24,622,000, which I read that we could not touch. Our operating cash was only $566,000 which is very tight, despite us having $25,188,060 in bank accounts. Fast forward to the 13 August release, and they state the same total ($25.2m) as 30 June, but that the makeup is different. Only 19,006,000 (environ bond) and $2,400,000 (Escrow for the seawall) which equates to $21,406,000 in security deposits. Operating cash is now $3,500,000. As most know, our US$ loan gets reduced by US$2.4m per ship (pre-payment). $25m less 2 ships to GNR in June qtr, or $4.8m equals $20.2m and at the e/r of 0.9275 on 30 June 2013, the loan is now A$21,778,976. This figure broadly corresponds with the $21,406,000 in security deposits I quoted earlier.

My read is that physical delivery in one quarter is associated with lagged financial adjustments. Pretty standard. Okay, so if GNR wants to receive another ship, it will need to release a ships worth of funding (US$2.4m). If they don’t, then PLV sells to GNR or someone else at spot, with no pre-payment and with full exchange rate adjustment benefits on the sale. Right now, GNR are benefitting on the exchange rate on the pre-payment amount since they effectively paid for the ships when the e/r was 1.0367. The good news is that, assuming the 3rd ship has gone to GNR, this would require the security deposits to reduce. It calls into question whether the GNR funding is being released gradually on an on-going basis until the 30 August when it will then be finalised in total. Eg security deposits are reducing, indicating the loan is being utilised. The other good news is that our pre-payment deduction from the sales revenue is only US$1m for the next 16 ships (see half yearly p22). So, compared to $2.4m, that’s an extra cashflow of US$1.4m to PLV per ship (A$1.52m at today's e/r). It's key that PLV got over the hump of selling 3 ships with $2.4m pre-payment on each.

I havent proof read the above and hope its stacks up. Not interested in being right, so if you have a different read on it I'm happy to consider alternative points of view as long as you put up numbers. I work on facts and figures and ignore the one liners from the chicken little brigade as Humble calls them.

Fundamentals and TA are connected. Much talk has occurred on PLV threads re large price advances on stuff all volume. Horses for courses. When demand increases and supply is withdrawn you will get this outcome. That combination provides the greatest price advance relative to the volume energy required to drive it. Demand has increased as bidders stepped up to the plate. Reduced supply required even higher prices to get transactions completed. Cliffs 19.8m shares were absorbed in one month simply because a retail punter with $60,000 was picking up 1 million shares at a time. Had the price been 24c, it might have taken four months to absorb that volume. EIM have not sold down despite predictions. So, in relative terms supply has reduced. That fits with Coal Kings ascending wedge (for the non-TA's, you want to own it on the 12.5c break). The wedge indicates an advance, followed by a retreat and an even more keen advance since supply doesn’t come on market during the retreats. Behind every supply demand curve are people armed with expectations. The long term fundamental buyers of PLV have their eyes on more than a move from 6c to 12c. Rightly or wrongly they think this stock is worth 30c, 40c, 50c, 90c or more. It's why the supply got absorbed and essentially hasn’t re-entered the market despite 100% gains. Rising Fe prices, improving exchange rates, reduced risk of dilution and a better cashflow outlook will do that.

Cheers
Bleasby