My broker was lucky enough (or unlucky depending on how you view...

My broker was lucky enough (or unlucky depending on how you view South Australia ;-) to go on a site visit with PAX. He sent this client update about it yesterday if you are interested.

Dear Client,

A long but very rewarding day yesterday, and as per the first officers landing speech, I look forward to flying Sharp Airlines very soon and no doubt will see them again next time I decide to fly.

Key points

* Excellent infrastructure in Mt Gambier and near Penola. This included roads and amenities. The entrance to Salamander 1 was in a very lush forestry area, and I joked on the way in that if there was no steam they could refocus and sell Xmas trees to the public. I was then informed that this wasn't the case as the Government owned the trees. As we drove into the area it was Dongaville, then the sheer size of the project was revealed.

It should be noted that Mary Mackillop from the age of 16 acted as a governess for her uncles children at Penola. We did a brief drive by at the church and other local haunts. With the recent events announced from the Vatican I would expect interest in the region to increase and no doubt there will be those looking to cash in on an increase in tourism to the area. This may inadvertently provide press attention for PAX upon success.

* Bertus deGraaf is one passionate person and this was clearly evident during the presentation. His persona reminded me of the woman whisperer from the Carlton Draught ad that is currently running. We were provided with "A brief Australian Geothermal Primer" and his mission now is to create an understanding and debunk many of the false myths surrounding geothermal in Australia.

* The tour of the Weatherford drilling rig was amazing. 138 semi's, (please note that AC/DC only required 48), mud pumps, water storage areas, offices, and the mother of all rigs. During a visit to one of the offices we were shown how every 5 metres of rocks taken from the drilling were assessed for their characteristics as the whole operation was to be protected from an unexpected gas hit. So far, so good! They have been able to pretty much predict the formation types at each level. The drilling data was contained in a log, that no doubt some daytraders must have obtained during a brazen B&E then totally misinterpreted the information. The well was nearing 2900m just before we left the site. Recent drilling has gone extremely well and they are right on the cost line. (budget wise)

* I could sense that they are rather annoyed with the share price, but Bertus explained to me that he had seen both under and overvaluations back from his Ross Mining days and there was nothing he could do about it. Whilst the technical side was impressive, I then based my questioning on how the multiple upside potential will come, and what it would take to increase investor interest.

* The real prize is the whole Penola trough and ultimately clean base load power generation. He spoke excitedly about the Italian company who is prepared to assist with the demonstration plant (should Salamander 1 be successful) and this involved a performance guarantee and more pleasingly they approached PAX!. A major vote of confidence indeed!

* PAX are 3/4 of the way through the drilling, however do not expect rapid-fire announcements on temperature and flow rates shortly thereafter. It is quite an involved process and will take time to work through.

* Figures to look for as per the base case include, Flow 175 kg/sec. brine temp of 145d Celsius, injection temp of 70d Celsius, ambient temp of 16d Celsius (remembering we want a lower ambient temp). On page 26 of the presentation released today you will see the comparison with Imperial Valley in Sth California and this is a useful guide.

* We did not attend the well opening and there was no major media in attendance. Martin Ferguson and a large media contingent will be attending next Friday. (Could have been this Friday if I heard incorrectly. There could well be a greatly increased level of press attention in the immediate to short-term, so those looking for exposure or increasing their holdings should do so in the next day or two.

Although a share price of 10.5c is disappointing, PAX are drilling a $15m well at Penola to be the first to demonstrate conventional geothermal energy in Australia. If the well is a success then they will be able to work towards securing a partner to take this through to development and power generation. (There has already been interest shown in this regard). The stocks recent breakdown has nothing to do with fundamentals or drilling progress but is a more a reflection of nervous sellers driven to exit due to a lack of market depth and/or excitement. Bertus is an MD who thinks outside the square, is visibly passionate about what he is doing and ultimately sees Panax Geothermal (PAX) developing into a much larger company through Penola and their other projects that could provide considerable upside potential. STRONGLY RECOMMENDED AT 10.5c-11c.


Cdchi1