The Speculator

Conflicts between various stakeholders in Coalworks prompt a sell-down, despite a bid from Whitehaven Coal.

PORTFOLIO POINT: Takeover target Coalworks is out of favour due to stakeholder conflicts, but we top-up our holding in emerging gold miner Cortona Resources.

Conventional wisdom says one doesn’t sell out of a takeover target as soon as the initial bid is made because the chances are it may be raised through a rival offer.

But I’m fed up with conflicts between various stakeholders in junior NSW coal developer Coalworks (CWK), even if it gives me something to write about. So breaking with convention, I dumped our parcel on market on Tuesday at $1.04 per share – the day after a proposed bid from Whitehaven Coal (WHC) was announced at $1 cash per share.

Whitehaven’s bid was sprung within a week of completing a $5 billion three-way merger with smaller rivals Aston Resources and Newcastle mining and sporting entrepreneur Nathan Tinkler’s unlisted Boardwalk Resources.

A month ago, Coalworks raised $17.4 million through a discounted placement at 78c a share. (In the week before the placement was announced, Coalworks’ shares traded down from 88.5c to 80c.)
The placement introduced to the company’s share register the Asian-focused Noble Group of Hong Kong. The placement of 22,383,343 shares was oversubscribed, with Noble Group taking just over half, or 11,430,707 shares, to emerge as a 9% shareholder in Coalworks.

But it watered down Boardwalk Resources’ equity in Coalworks from 19.9% to 17.3%. It acquired its holding last year for $19.2 million cash through a share placement as part of a deal where Boardwalk committed to spend $25 million on feasibility studies to earn a half-interest in Coalworks’ Ferndale project in the Upper Hunter (The Speculator, April 11).

Coalworks has had a chequered history in our portfolio. It was very successful when we bought our initial holding in March 2010 at 27.5c a share, finishing the year at 83c. We carried the stock over at its end-of-year closing price into the 2011 portfolio, after which it fluctuated between a year’s high of $2.38 and a low of $1.20, but we carried them over into 2012. This year, they’ve traded as low as 41.9c, marked by various ructions within the board and between major shareholders.

With minimum conditions on the present proposed bid, readers who remain shareholders can hold reasonable confidence that it will either succeed or be improved, with reaction from Noble Group yet to be revealed.

-The Speculator portfolio, as at May 9
Company
ASX
No of shares
Bought
Purchase price
Current price
Current value
Image Resources
IMA*
15,000
31/12/2010*
0.362 av
$0.390
$5,850
Viralytics
VLA
19,995
20/12/2011
$0.308
$0.330
$6,598
Robust Resources
ROL
6,000
31/12/2010*
$1.49 av
$1.180
$7,080
Scotgold Resources
SGZ
27,500
31/12/2010*
5.5 av
$0.076
$2,090
GoConnect Ltd
GCN
250,000
31/12/2010*
0.034 av
$0.029
$7,250
Minemakers
MAK
20,000
25/01/2011*
0.425 av
$0.220
$4,400
Platsearch
PTS
20,000
8/02/2011*
$0.130
$0.089
$1,780
Broken Hill Prospecting
BPL
20,000
22/02/2011*
$0.160
$0.100
$2,000
Austpac Resources
APG
40,000
2/03/2011*
$0.060
$0.038
$1,520
Potash West
PWN
11,050
30/03/2011*
$0.200
$0.210
$2,321
Cortona Resources
CRC
25,000
13/04/2011*
0.146 av
$0.110
$2,750
Golden Gate Petroleum
GGP
408,500
20/04/2011*
0.0145 av
$0.018
$7,353
TNT Mines
TNT
4,440
22/07/2011*
$0.000
$0.250
$1,110
Quickstep Holdings
QHL
20,000
23/11/2011*
$0.185
$0.170
$3,400
Orpheus Energy
OEG
19,250
17/08/2011*
0.164 av
$0.115
$2,214
Black Mountain Resources
BMZ
10,000
17/04/2012
$0.300
$0.290
$2,900
 
Total value of portfolio
$60,616
Cash at bank
-$26,810
Total
$33,806
 
Portfolio change since January 3, 2012 (started with $50,000)
-32.39%
All Ordinaries change since January 3 2012 (then 4155.22)
5.31%
 
*Shares held from previous year, carried at their December 30, 2011 closing price.

(Sold: 10,000 Coalworks (CWK) at $1.04 - $10,380)
(Bought: 5,000 Cortona Resources (CRC) at 10c - $530)

Orpheus shareholding retained

Whitehaven’s bid proposal reveals it does not regard Coalworks’ 33.35% shareholding in its Indonesian-based spin-off Orpheus Energy (OEG) to be a core asset and, should it gain control of Coalworks, will consider divestment of that shareholding. That might become a sweetener to appease Noble Group.

With Whitehaven’s current market capitalisation standing at around $4.8 billion, the company assures Coalworks shareholders its offer is fully-funded for the $142 million it requires to acquire all the relevant shares in which it does not already hold an interest.

Coalworks advises shareholders to take no action at this stage.

Free shares in new listing for GoConnect investors

Our internet entertainment company GoConnect (GCN) this week confirmed that shareholders with a minimum of 250,000 GCN shares registered by June 8 will rank for a free distribution of 100 million shares in First Mongolian Investment Holdings.

The distribution is planned to enable a listing on the ASX under a prospectus now claimed to be “well underway” in preparation. Qualifying GoConnect shareholders should rank for 0.10 of a First Mongolian share for each GoConnect share held – so that means a probable distribution of 25,000 free shares for a minimum holding of 250,000 GoConnect shares. The Speculator’s 250,000 shares rank for the free issue.

Shares in First Mongolian (an internet company with interests in a manganese deposit in Mongolia) will be issued with a nominal face value of 40c, providing a distribution face value for each GCN share of approximately 4c – dependent, of course, on what the market prices First Mongolian at when it ultimately lists.

GoConnect’s chairman Alfred Li, and principal of Melbourne-based Sino Investment Services Pty Ltd, has confirmed his firm will be lead manager for the proposed listing. Furthermore, GoConnect shareholders qualifying for the free issue will also be offered a right to subscribe for an additional $2000 of First Mongolian shares in the prospectus to be issued.

Cortona Resources presents to investors

We top up our holding in the emerging near-Canberra gold miner Cortona Resources (CRC) as it delivers an investment presentation to a seminar at Sydney’s Wentworth Hotel.

For no good reason I can fathom, the company’s shares slipped to a 12-month low of 10c this morning, down from a year’s high of 21c and a trading range of 11.5c-12.5c last week, when 2.87 million of the company’s 254 million shares changed hands.

Sure, the gold price slipped overnight to just above $US1600/oz, but the company should be in production early next year with a forecast cash cost per ounce of just $697.

It has also completed a $42 million credit package with Deutsche Bank to finance an initial six-year mine life, ramping up to an annual production of 65,000oz from its initial Dargues Reef mine 63 kilometres south-east of Canberra.

It is important to realise the mine is located with a 4 sq km approved mining lease, which sits with a 700 sq km exploration licence area. Many promising targets for extension have been identified with 50-250 metres of the mine and much of the exploration area never having been examined at depth.
The EL covers the Majors Creek Goldfield, the most prolific producers in NSW, which yielded at least 1.2 million oz of gold, mostly to 19th century diggers from alluvial deposits and shallow workings.

David Haselhurst writes a monthly column for Money magazine. Please note that he is not able to provide personal replies to emails.