Coal Seam Gas companies

(taken from AOE's Acquisition Scheme Booklet)


Coal Seam Gas (CSG) has been of considerable interest over the last few years. It represents a new technology of producing gas. Over the recent years there has been various corporate takeovers of CSG explorer and developers (eg Sydney Gas, Sunshine Gas, Roma Petroleum) by bigger companies (eg BG Group, Shell, AGL).

The table below may serve as a quick guide as to what CSG companies are still available and hence possible investment opportunities. Note that currently, Arrow Energy has an acquisition offer. In terms of size by enterprise value, none of the remaining CSG are close to Arrow Energy.

Most of the remaining companies are explorer / developer. Only Molopo is producing gas from its field in the Bowen Basin in Queensland. Note that the largest field for Molopo is in Canada, hence the 2P and 3P numbers from overseas are not included here. It also has tenements in South Africa.

From the 2P and 3P resources we see that many of the explorers have quite small reserves. The only other company with significant reserves besides Arrow Energy and Molopo would be Eastern Star Gas.

Just a note that:
1P = proven
2P = proven and probable
3P = proven and probable and possible.

Hence those companies with a very high 3P and relatively small 2P means that the majority of the reserves are only "possible". These are the companies with higher risk compared to one with smaller percentage of Possible reserves. In table, in the Proven and Possible %, the lower percentage the better.

All Ord Triple Top Confirmed, but Dow Jones Hold the Key

Source: http://ozstock.blogspot.com

At the end of this incredible week which saw both the Dow and the All Ords (as well as many others) plunged, the Triple Top of the All Ords has been confirmed. However, caution is in order as this is still a newly confirmed Triple Top and may turn around suddenly. Nevertheless, W.D. Gann and David Bowden recognised that Triple Top is one of the safest signals for beginners to trade, even more so than a Double Top, because when these signals are met, they are most likely to continue on as expected.

To avoid being caught out, decide on a suitable Stop Loss if your are going short. The level of stop loss depends on your own risk-reward apetite. Some people place stop loss at a certain percentage of their expected loss, for example you can put the stop loss at a price where you would lose 3%, 5%, 10%, etc. Others place their stop loss based on special points on the charts. For example with the Triple Top, we may choose the previous Low point as the stop loss which is in the week of 1st Feb 2010 at 4532 points.

In addition to the All Ords Triple Top, we also see the chart breaking the all important Gann 1:1 (brown line) or 45 degree angle. This is the angle of great strength where support or resistance will be tested. Again, it has only just broken this angle, so cautious trading with Stop Loss is prudent.

The Dow Jones on the other hand, does show a correction after coming down strongly from the yearly high. However, it has not formed any significant Double Top or broken any Gann angles. It is however approaching another the Gann +10 angle where it may find support or it can breakthrough.

The Dow tells a cautious story. As the All Ords seem to show signs of an emerging bear market, perhaps we have to look towards the Dow as a final confirmation as to whether both markets will go down or pull up from here on.

Technical Analysis - Summary of Trending Indicators

A. Directional Movement Index (DMI)

One of the easy way to trade for profit is to follow the trend. But with the market moving up and down on a daily basis, we need an indicator such as the DMI to confirm whether it is an actual trend or not.

The Directional Movement Index (DMI) is an indicator that measures the strength of a trend. It is used to answer question like, "Is this a strong uptrend?" or "Is this a strong downtrend?"
Developed by J. Welles Wilder, Jr., it is designed to determine whether a security is in a trending or non-trending market.

There DMI itself is a combination of 3 indicators

+DI: current positive directional index, the range of highs divided by the price range over the last day and previous close, smoothed over a given number of periods.

-DI: current negative directional index, the range of lows divided by the price range over the last day and previous close, smoothed over a given number of periods.

ADX: (Average Directional Index) modified moving average of the difference of +DI and -DI divided by the sum of +DI and -DI, multiplied by 100.

The most important of the 3 is the ADX which tells the strength of the trend, whether up or down, as long as its value is above 30 or 40.

To confirm an UpTrend:
  ADX > 30 the higher the better
  +DI > -DI

To confirm a DownTrend:
  ADX > 30 the higher the better
  -DI > +DI



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Summary of Oscillators

Technical Analysis - All Ords Triple Top and falling ABC Swing Signal

The chart of the Australian All Ordinaries show a few indicators together up until 19 May 2010.
This has been an incredibly volatile few weeks and some major signals are on the verge of being established, if they have not done so already.

1. The Triple Top - the most recent top seems like the biggest of them all. A double or triple top is one of the easiest way to profit according to David Bowden and WD Gann. But to be sure it is a triple top, its recent downward leg has to break the other two bottoms on Nov 09 and Feb 10. The recent lows has passed that slightly. This indicates a short signal - but remember the stop loss.

2. Swing Trading - ABC - This is another easy way to identify a trend. As indicated on the diagram, when the graph moves from C downwards and passes B, then it is time to sell. Notice the ABC is based on the swing chart of the daily graph.

3. Price Retracement - the scale on the right hand side indicates the current price has broke through the 50% retracement from the major high in 2007 to the major low in March 2009. The 50% is a strong resistance and support line and according to W.D. Gann, once it breaks through, it signals a strong trend.

4. Finally the graph below is the Average Directional Index - ADX - this indicator is not a commonly used one, but practitioners who use this indicator have done it quite successfully. Basically, for a downtrend to be established, the ADX (blue line) must be above 40, as it is now. This shows the bear trend is very strong. In addition, as the ADX is rising while -DI(green line) and ADX  are above the +DI (red line), it is a strong indication of sell.

There are many other indicators, but the four above combines the simple and proven ones as well as the more advanced ones, and they all point downwards.

Dow and All Ords go separate ways?

(source: http://ozstock.blogspot.com )

Despite a few hiccups, the market has been going quite steadily upwards. Even news of volcanoes, civil unrest and the Goldman suit could not hold the market down. This is true for both the Dow Jones and the All Ords up until last week.

Looking at the weekly charts below, the Dow is powering on quite strongly. Looking at the Gann chart below, it has clearly moved part the resistant Gann-5 angle and is between two other Gann angles. There is no indication that it will hit a higher resistant angle soon.

The All Ords present a slightly different story. OVer the last week, daily trades showed symptoms of nervousness. The week ended slightly lower. While one down point does not determine a change in trend, the current position of the All Ords looks as if it is forming the third peak of a triple top. To confirm a triple top we need to wait for it to pass the bottom of the triple top formation which is around 4500.

If a triple top does form for the All Ords, it will represent a strong decline. At this moment with the Dow heading up strongly, the notion of the Dow and All Ords going in opposite direction is difficult to imagine. The other likely option is that one of these two will have to change its direction.

Technical Analysis - Dow Jones and All Ords Bull Continues?

Source: http://ozstock.blogspot.com

Here's an update of the weekly Gann charts for both the Dow Jones and the All Ordinaries Indices. There are no new angles on both graphs, rather just the continuation of previous graphs. Over the last two months there was a significant change in behaviour in that since late January world markets have dived but has since recovered and is now almost at the January highs.

Looking at the All Ords, since late last year until today, it appears to be trading within a range. However, as the All Ords is approaching the previous two recent tops, there is a potential for a triple top soon. With the recent highs, it is also approaching the top envelope of the 20 day high. It's something to watch if it will cross the barrier.

The Dow Jones on the other hand does not appear to be range trading in such an obvious way. It has been climbing up to the January high, made a steep drop and is now about the same as the January high point. This is also something to watch if it will pass this high point or create a double top. Note that the current position is well clear of most of the Gann angles shown in the chart.

From a technical analysis overall assessment, the general trend is up. But from a fundamental assessment, there are worries about sovereign debts of several western nations and the strength of the recovery. As both types of analysis are opposing each other, it's time to wait and see.

Analysis - BRC - Brain Resource Company

The following is a very quick analysis - a look at key numbers of BRC. This analysis is prompted by the sudden increase in buy volume of BRC today. Not only is there a 15% price jump, the volume traded got a big boost. This certainly looks like someone knows something is going to happen. So the question is whether it is worth the punt?



Date Open High Low Close Volume
11-Mar-10 0.26 0.30 0.26 0.30 765,530
10-Mar-10 0.25 0.26 0.25 0.25 0
9-Mar-10 0.25 0.26 0.25 0.25 0
8-Mar-10 0.26 0.26 0.26 0.26 4,000
5-Mar-10 0.26 0.26 0.26 0.26 7,500
4-Mar-10 0.25 0.26 0.25 0.25 0
3-Mar-10 0.25 0.26 0.25 0.25 0
2-Mar-10 0.25 0.26 0.25 0.25 0
1-Mar-10 0.26 0.26 0.26 0.26 58,500
26-Feb-10 0.26 0.28 0.26 0.26 0
25-Feb-10 0.27 0.28 0.27 0.27 0

A quick analysis of the numbers in the half year report are shown in the numbers below. On the positive side, BRC is a biotech / diagnostic company where the core product is not drugs, rather it is a large database of brain related information and specialised software for brain analysis.







Date 11/03/2010
CMP 0.3
EBIT 672067
NPAT 778185

Interest Expense 0
Interest Earned 106118
Net Interest Expense -106,118


Debt Short term 0
Debt Long term 0
Debt Other 0
Total Debt 0

Cash 14,672,976
Intgb Assets 13,359,586
Deferred Tax Assets 350,000
Depreciation 51,027
Interest Bearing Investments 0
Total Assets 30,247,849
Total Equity 12,402,599

Sales 3,828,462
Cost of Goods 2,524,225
Cash Flow from Operations 1,462,214
WANOS 91,714,454
EFPOWA 91,714,454
Shares at End of Period 91,714,454

ROR (Required Rate of Return) 10

PE Sector 12.95

Net Income 778,185.00
Gross Cash Flow 829,212.00

Net Debt to Equity = -1.18
Net Debt to (Total Assets - Intangibles)-0.87
Net Debt / (Net Debt + Equity) 6.46
Net Interest Cover Ratio = -6.33
Debt to Gross Cashflow 0
CFPS 0.02
EPS current 8.48E-03
EPS previous 3.80E-02
PER 35.36
Gross Margin 34.07%
NPAT Margin 20.33%
NTA/share -0.01
ROE 6.27%
ROA 4.32%
Market Capitalisation 27,514,336

EQPS 0.14
Buffet Value 8.48E-04

EPS Growth -77.67%
PEG -0.46


Financially, BRC is debt free. It is a profitable company, unlike majority of cash-burning biotechs. Cash flow numbers look very good indeed. Hence the 3 major financials of profit - debt - cash flow; all look very good.

On closer inspection, we see the intangibles asset is almost half of the total assets. In fact the Net Tangible Asset (NTA) becomes negative because of the large intangibles. In addition, there is a big contribution to liabilities from Payables - which is almost 10 times receivables. Is it healthy for a company to have such disproportionate payables? When are they going to need to pay up?

In addition the ROA and ROE are quite modest. Applying the Warren Buffet 1981 formula, assuming we are asking for a 10% Return on our investment, the formula puts a price on BRC of $0.00085, which is certainly less than $0.30.

Opinion to myself: Buy quickly if brave and pull out soon. The long term health of BRC is yet to be confirmed.