Hi all, The $1mill per tonne figure only applies to the initial...

Hi all,
The $1mill per tonne figure only applies to the initial SA order. When the plant is running at name-plate capacity, revenue will actually be less than this (unfortunately). The company would not reveal exact figures to me, but when I said "$750k per tonne?" Dean told me that "that sounds about right."

A few other points:
Bioshares, who are the only analysts presently covering CMQ, released a short correction on Friday re the company's ability to meet the 40k L milestone. I think there can be little doubt that the company will meet this milestone.

I'm also expecting a positive ann re the APVMA license in the next few weeks, which could spark a short-term SP surge (perhaps to $1.60, given irrational exhuberance).

I would also be surprised if CMQ don't have the ability to produce at nameplate within 6-9months.

However, while CMQ is firmly on my watch list (I may even trade the APVMA ann), I'm certainly not investing yet. My main concern lies less with execution risk (although this risk is real) and more with valuation fundamentals.

After MHI have acquired their 49% (lets face it, the $2.40 options are not likely to be exercised) CMQ will have 201mill shares on issue. At $1.23, this will give CMQ a market cap of around $250mill. Now, if we take a best case scenario, and assume that CMQ will sell 20 tonnes of product in FY06 and 50tonnes of product in FY07, forward revenue will not likely exceed $15mill for 06 and $37mill for 07 (based on 750k per tonne). Based on these numbers, CMQ looks significantly overvalued to me, even assuming the best case scenario. To see what I mean, consider that the stock is already trading at a hefty price to potential FY06 sales ratio of 16.5. And, to repeat, this p/s ratio assumes, perhaps unrealistically, that CMQ is (i) able to produce at nameplate and (ii) that it is able to sell everything it produces. (By comparison, PTD is presently trading at p/s ratio of about 5).

Granted that FY08, again on a best case scenario, may produce revenue in the order of $200mill. However, I think only a fool would factor potential FY08 revenue (and beyond) into today's SP, given the significant execution risks that lie ahead. And of course, best case scenarios rarely occur, and given CMQ's history, I'm in fact expecting 06-08 revenue to be significantly lower than the numbers cited above. For all these reasons, and given that I'm the kind of investor who like to make a decent profit (!), I wouldn't consider a serious investment in CMQ in the medium term unless the market cap (post MHI dilution) falls to around $100 mill or 50c per share. Above 50c, it seems to me that the risks far outweigh the potential rewards, at least if we look ahead to 2008.

MHI/Stark are soon likely to own 49% of CMQ. While it might look, prima facie, that MHI have gained this control at a bargain price, it now seems fairly clear to me (and I think to other experts) that they have in fact paid a small premium, based on standard valuation metrics.