sgl sydney gas

A few anomilies have emerged in the pricing of the shares, convertible notes and options for Sydney Gas that might be worth exploiting.
Shares have run up from around 30 cents at the end of June to 84cents yesterday. Briefly, some reasons for this run include-
*Cornerstone investor (Lee Ming Tee) acquiring about 25% of SGL by way of allocation and on market buying by associates.
*Inclusion in S&PASX 300 index from late September which necessitated institutions buying around 9 million shares on-market.
*Drilling of about 100 new wells in the Camden project (which adds to about 20 existing wells). These new wells will connect to AGL network before the end of this year.
*Cash flow predicted to jump from about $3million per annum to $35million per annum when new wells are connected to AGL network.
*Expected positive results from new 5 well project and announcement of drilling programme for the Hunter/Newcastle project.
* The successful conversion of the 30 million odd vendor options plus various debt and capital raisings that has raised about $70million to fund future development (plus lines of credit from Westpac and a funding arrangement from US organisation).
* Company moving from explorer to producer - supplying about 10% of Sydney's gas in the near future with long term contracts already secured with AGL.

Sydney Gas has 2 convertible notes listed (SGLG & SGLGA). These notes convert to 60 cent shares in April/June 2006 and pay 12% per annum. Theoretically they should be priced at 60 cents -
+ (say) 10 cents being discounted income stream
+ margin share price is above 60 cents - currently 25 cents
+ margin for expected improvement in share price before mid 2006 - say 45 cents, assuming you anticipate a share price above $1.30 by June 2006 - I am being very conservative!
Using these assumptions $1.40 for the notes would not be out of the question. Currently they are priced around current SGL share price of 85 cents!

Another anomily I believe is the pricing of the Feb 04, 60 cent options (SGLOA). Last traded @ 28.5 cents - a 3.5cent premium to current share price. With the anticipated announcements from Sydney Gas regarding completion of 2003 drilling programme and commencement of high cash flows plus announcement of 2004 plans, these could provide good leverage if share price reaches some of the "predictions" that are being circulated - $1.30 by Feb 04. That would value SGLOA @ 70cents - potentially 150% gain.

This coming Friday there is a General Meeting of shareholders and I would anticipate some guidance from management of the success of the 2003 plans. From the presentations to institutions of late, shareholders are anticipating some very positive announcements.
While the shares have run very well of late, the potential as they roll out the wells over the coming years is huge.

Check out the web site and do your own research.

Declaration of interests - I hold SGL, SGLA and SGLOA