The Speculator

PORTFOLIO POINT: GoConnect receives an ASX query as its shares surge 30% and turnover doubles ahead of a free issue of shares.

The internet entertainment company GoConnect (GCN) last Monday (May 7) confirmed a free distribution of 100 million shares in associate First Mongolian Investment Holdings would be made to qualifying GoConnect shareholders registered by June 8.

To my knowledge, not a line appeared in any of Australia’s major newspapers. Eureka readers were not neglected, however, since the Speculator reported details of the planned issue in last week’s column. The likelihood of such an issue was first revealed in Eureka Report on March 21 from publicly available announcements lodged with the ASX, but was overlooked by other reporters.

On May 10, the Australian Securities Exchange queried the rise of the company’s stock in the space of a day from 2.7c to 3.5c – an increase of almost 30% on rising turnover.

Indeed, total GoConnect turnover surged to 29.03 million shares last week, as they rose from a low of 2.7c to a high of 3.5c and closed the week at 3.1c. In the previous week, 13.49 million GoConnect shares traded in a range of 2.6c to 2.9c. The shares remained firm this week, with more than 5 million traded so far at prices between 3.2c and 3c. GoConnect’s issued capital amounts to approximately 770 million shares.

In its reply to the ASX query, GoConnect chairman Richard Li repeated last week’s announcement that shareholders with a minimum 250,000 shares at June 8 would rank for a free distribution of 0.10 of a First Mongolian share for each GoConnect share held – so that means a probable distribution of 25,000 shares for a minimum holding of 250,000 GoConnect shares.

The distribution is being made to enable First Mongolian to gain a compliance listing on the ASX. Under a coming prospectus, said to be “well underway”, qualifying GoConnect investors will also be offered the right to subscribe for an additional $2,000 of First Mongolian shares.

The planned issue is being managed by Melbourne-based investment banker Sino Investment Services Pty Ltd, of which Richard Li is also principal. (My apologies in last week’s column for having erroneously identified Sino’s principal as Alfred Li, proprietor of Sydney’s Imperial Peking restaurant.)

First Mongolian is the holding company for diversified interests in mining, business consulting and media and is developing joint ventures with GoConnect and others to deliver music and entertainment content throughout Greater China.

-The Speculator portfolio, as at May 16
Company	ASX	No of shares	Bought	Purchase price	Current price	Current value
Image Resources	IMA*	15,000	31/12/2010*	0.362 av	$0.330	$4,950
Viralytics	VLA	19,995	20/12/2011	$0.308	$0.305	$6,098
Robust Resources	ROL	6,000	31/12/2010*	$1.49 av	$1.105	$6,630
Scotgold Resources	SGZ	27,500	31/12/2010*	5.5 av	$0.075	$2,063
GoConnect Ltd	GCN	250,000	31/12/2010*	0.034 av	$0.031	$7,750
Minemakers	MAK	20,000	25/01/2011*	0.425 av	$0.195	$3,900
Platsearch	PTS	20,000	8/02/2011*	$0.130	$0.087	$1,740
Broken Hill Prospecting	BPL	20,000	22/02/2011*	$0.160	$0.095	$1,900
Austpac Resources	APG	40,000	2/03/2011*	$0.060	$0.036	$1,440
Potash West	PWN	11,050	30/03/2011*	$0.200	$0.225	$2,486
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	$0.015	$6,128
TNT Mines	TNT	4,440	22/07/2011*	$0.000	$0.250	$1,110
Quickstep Holdings	QHL	20,000	23/11/2011*	$0.185	$0.160	$3,200
Orpheus Energy	OEG	19,250	17/08/2011*	0.164 av	$0.130	$2,503
Black Mountain Resources	BMZ	10,000	17/04/2012	$0.300	$0.265	$2,650
Total value of portfolio						$57,297
Cash at bank						-$6,570
Total						$50,727
Portfolio change since January 3, 2012 (started with $50,000)						1.45%
All Ordinaries change since January 3 2012 (then 4155.22)						3.88%
*Shares held from previous year, carried at their December 30, 2011 closing price.

Potash West appears grossly undervalued

We added the West Australian fertiliser hopeful Potash West (PWN) to the portfolio in March last year at 20c, after visiting the company’s tenements covering some 2,900 square kilometres over the Dandaragan Trough on the sand plain country north of Perth.

The shares later rose to a high of 35c, before sinking again this year to trade today at 20c.
Coincidentally, I’ve just received a 14-page report the company commissioned from Australian Independent Investment Research Pty Ltd, a Sydney-based company formed in 2004 under Aegis Equities Holdings.

The report, prepared for the month of May when Potash West shares stood at 24c, gives the company a base-case share price valuation of 65c – more than three times its current price.
With 76.3 million shares on issue, at 20c the shares carry a market capitalisation of $15.26 million, with remaining cash of around $2.5 million.

The report notes that the company holds one of the world’s biggest deposits of glauconite-bearing greensands, a source of potassium oxide, with near-surface grades of above 4% identified in 10 target zones over 140 kilometres of strike, following a 153 hole, 8300-metre drill program completed in February.

Benefication work through screening and magnetic separation has yielded a clean glauconite concentre of 6% potassium oxide, with a target to define a production flow-sheet by mid-2012. Leaching tests on a 2,000 kilogram bulk sample have demonstrated a 95% extraction of potassium after six hours’ leaching. A finished scoping study is expected by the end of this year.

Readers wishing to see the complete report will find it on Potash West’s website.

Speculator remains in the black

A slip of a clerical finger on the keyboard last week inadvertently plunged the Speculator’s share performance table into deep deficit.

Readers might recall that last week I profitably sold 10,000 shares in takeover target Coalworks (CWK) for a net $10,380 after brokerage, then picked up another 5000 Cortina Resources (CRC) at 10c each. The cash received should have reduced our negative cash balance from $16,950 to $6570.

Instead, a misplaced finger added the proceeds to the bank debt, blowing it out to minus $26,810 and boosting the portfolio to a completely false loss for the year to date of 32.39%.

Instead, it should have reduced our bank debt to minus $6570, to show the overall gain in the portfolio’s cash plus shares value to a still modest gain of 8.09%, compared to an all-ordinaries gain since the beginning of the 2012 year of 5.31%. That has been corrected this week.