Tuesday, February 15, 2011

Early Stage ASX Shell Plays (part 2)

Let's continue our look at some of the ASX shell plays that are still in their infant stage with very little volumes being traded...

This is probably the most riskiest of the shell plays that I am going to mention however one of the more different cases.  The company is teetering on the edge with cash to the tune of $249,000 (Quarterly Report 30/11) and has had to minimise all expenditures to survive.  The company has two geothermal projects in South Australia however due to the poor sentiment towards the sector and subsequent lack of funding the company has found itself in a position whereby it needs to branch out into other commodities to survive.  Management are hoping by acquiring a project that is in a more 'sexy' sector that they will be able to raise funds.  The company has stated:

"An alternative is to diversify Geothermal Resources exploration base into other commodities that have more immediate appeal and for which capital can be raised. This uses the Company’s exploration skills and could provide shareholders with more immediate returns whilst waiting for an improvement in the geothermal exploration investment climate.  Directors are monitoring other investment opportunities, particularly in the precious and rare earth metals sector, and may act to secure a suitable opportunity if it presents itself."

Considering that the company has very little cash something is going to happen sooner rather than later, whether it be administration or a hot new project.  GHT last traded at $0.09.

I like this prospect.  This is one of the more cashed up shells around with about $4.3million on hand so there is less pressure on management to vend in a project anytime soon.  From my research it seems that an Iron Ore project will be the most likely kind of project to be acquired by the company.  The company has been looking for a project for some time now (almost a year) so things are slow going however they nearly acquired an Iron Ore project in Spain.  Negotiations for this Spanish project are unlikely to result in an outcome.  NAE has an excellent MD in Gary Fietz who worked at BHP Billiton (BHP) in their Iron Ore division for 21 years.  NAE last traded at $0.09.

I believe that this company is about to move out of the early stage shell play category with the share price having mini breakouts every so often and trading volumes picking up.  The stock price is becoming quite volatile also.  There is good value here with the market capitilisation at $5 million and the company having $2.5 million on hand.  Recently the company sold it's US oil well projects for $11.3 million which helped the company extinguish outstanding debts.  What I find exciting is that the company's financier has allowed them to maintain a $40 million line of credit facility for future acquisitions!  AVD last traded at $0.026.

Unusally this company is maintaining it's internet marketing business whilst deciding a resources project might be a good way to 'diversify'.  I am unsure what experice the management have in the resources sector and the tenement applications made tend to lack any detail or substance in the announcements made to the ASX.  TVN last traded at $0.011

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