The Speculator

PORTFOLIO POINT: Investors who bought into Gullewa ahead of the listing of its subsidiary Allegiance Coal saw their shares spike last week.

Last week’s tip, Gullewa (GUL), proved a winner for nimble followers of the Speculator who traded the stock ahead of this week’s listing of its much bigger subsidiary, Allegiance Coal (AHQ).

I bought in at 6.3c and saw the shares jump 66% to a high of 10.5c in the final three days of trading last week, on a turnover of more than 900,000 shares – mostly at the week’s high price.

I sold 60,000 of my holding of 100,000 shares, recovering my investment cost but still retaining 40,000 Gullewa shares for what amounts to a free ride into a future turnaround.

Allegiance couldn’t have picked a worse time to list in this unenthusiastic market, where nervous Nellies will be easily tempted to lock-in tax loss sales in the coming month up to June 30.

As pointed out in last week’s column, Allegiance’s initial public issue, underwritten by Patersons Securities, raised $7 million through an offering of 35 million shares at 20c, plus a free one-for-four option exercisable at 25c by March 30, 2014.

On their listing day (Tuesday, May 29), Allegiance’s shares debuted at 19.5c but rapidly fell to a day’s low of 11.5c, before recovering slightly to close at 12c on a turnover of 1.52 million. (This morning, the shares opened at 12.5c.)

The public issue took total issued shares in AHQ to 176.66 million, with Gullewa retaining 100 million shares (56.6%) and Colin Randall and Associates holding 25 million shares (14.2%). Randall, a mining engineer with 40 years’ experience in the development and management of major coal mines in both NSW and Queensland, is Allegiance’s managing director.

The remaining pre-listing shares totalling 16,666,674 (9.4%) were issued to seed capital investors in November 2011, in a capital raising of $2.5 million at 15c a share.

New shareholders in Allegiance should be comforted by the fact that the Gullewa/Randall holding of 125 million shares is subject to a voluntary escrow of two years before any may be sold, or at least 12 months after the listing date if the three-month weighted price of the shares exceeds 60c.

As I commented last week, that’s a prudent inclusion in case a takeover bid emerges as times and market sentiment improve for superior Queensland coal projects.

As a previously unlisted identity and subsidiary of Gullewa, Allegiance Coal over the past four years has put together a portfolio of 14 granted tenements totalling 2,361 square kilometres over seven of Queensland’s coal basins, including advanced projects on the Bowen and Surat Basins.

The funds raised in the recent float will cover a budgeted exploration and drilling program over the next two years, with a JORC-compliant inferred resource estimate targeted within the next 12 months.

-The Speculator portfolio, as at May 30
Company	Code	No of shares	Bought	Purchase price	Current price	Current value
Image Resources	IMA*	15,000	31/12/2010*	0.362 av	$0.310	$4,650
Viralytics	VLA	19,995	20/12/2011	$0.308	$0.305	$6,098
Robust Resources	ROL	6,000	31/12/2010*	$1.49 av	$1.000	$6,000
Scotgold Resources	SGZ	27,500	31/12/2010*	5.5 av	$0.070	$1,925
GoConnect Ltd	GCN	250,000	31/12/2010*	0.034 av	$0.033	$8,250
Minemakers	MAK	20,000	25/01/2011*	0.425 av	$0.180	$3,600
Platsearch	PTS	20,000	8/02/2011*	$0.130	$0.080	$1,600
Broken Hill Prospecting	BPL	20,000	22/02/2011*	$0.160	$0.094	$1,880
Austpac Resources	APG	40,000	2/03/2011*	$0.060	$0.032	$1,280
Potash West	PWN	11,050	30/03/2011*	$0.200	$0.205	$2,265
Cortona Resources	CRC	25,000	13/04/2011*	0.146 av	$0.096	$2,400
Golden Gate Petroleum	GGP	408,500	20/04/2011*	0.0145 av	$0.016	$6,536
TNT Mines	TNT	4,440	22/07/2011*	$0.000	$0.250	$1,110
Quickstep Holdings	QHL	20,000	23/11/2011*	$0.185	$0.155	$3,100
Orpheus Energy	OEG	19,250	17/08/2011*	0.164 av	$0.140	$2,695
Black Mountain Resources	BMZ	10,000	17/04/2012	$0.300	$0.245	$2,450
Gullewa	GUL	100,000	22/05/2012	$0.063	$0.085	$3,400
Total value of portfolio						$59,240
Cash at bank						-$6,610
Total						$52,630
Portfolio change since January 3, 2012 (started with $50,000)						5.26%
All Ordinaries change since January 3 2012 (then 4155.22)						0.31%
*Shares held from previous year, carried at their December 30, 2011 closing price.

Biosciences talkfest lifts Viralytics

The appearance of our cancer-cure candidate Viralytics (VLA) at the Bell Potter Life Sciences Conference at the Sydney Stock Exchange last week coincided with a rise in its share price from a week’s low of 28c to a high at its close of 34.5c – a gain of more than 20%.

Viralytics’ invitation to the conference, hosted by Bell Potter analyst Stuart Roberts, was seen as quite an acknowledgement, since only seven companies were invited to participate and they included goliaths of the biotech sector such as Mesoblast, GI Dynamics, Reva Medical, Phosphagenics and Starpharma. Some 200 investors attended the day-long talkfest.

Viralytics managing director Bryan Dulhunty updated progress on the company’s Phase II trials in the USA on destroying melanomas through multiple injections of the company’s trademarked Cavatak coxsackievirus, which combines with tumour cells, destroys them and replicates itself to invade more tumour cells.

After encouraging results in Stage I trials in Australia, Viralytics won approval from the US Food and Drug Administration late last year to conduct Stage II trials on up to 63 patients in America. This involves multiple injections into multiple tumours over an 18-week period to monitor immune-related progression-free survival at six months.

The first Stage II patient began successful treatment last December and others are being progressively recruited. I understand that if enough of the first 15 or 20 recruits show positive results, it may be possible to accelerate development without being required to run Stage II trials on all 63 proposed targets.

A progression to more advanced Stage III trials, including targeting a wider range of cancers, such as colorectal prostate and head and neck cancers, would raise Viralytics’ investment profile significantly.
Viralytics, now with a market capitalisation of around $25 million, has no debt, and remaining cash of $6.4 million (equivalent to 8.5c a share) – sufficient to carry through its programs until at least the end of the year.

Orpheus raises cash to boost Indonesian production

Our Indonesian-based coal developer Orpheus Energy (OEG) raised $2.24 million this week through a placement of 17,227,198 shares at 13c to international and institutional investors to advance its production assets.

The issue, managed by broker BBY, used up the company’s 15% placement capacity, so all shareholders may expect an entitlement in any future capital raising.

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