Some Comments on the OBJ AGM Notice

The other day OBJ released their AGM Notice which contains some points which I believe are worth discussing. Some time ago OBJ did a capital raising which provided each participating shareholder with additional options that were exercisable at 1 cent per share.

Given the current share price is 2.2cents they have been “in the money” for a considerable amount of time. It is also important to note that the options are tightly held and a number of Top 20 Shareholders are also Top 20 Option Holders. Any way at last year’s AGM these options were effectively extended to the end of this year by re-issuing new options to all excising holders for minimal consideration. This was done to “reward long term shareholders”. At the time many people commented how this extension was to ensure that people who had backed OBJ would be able to benefit in any upside in the share price following the signing of a commercial agreement. Given they were extended for one year, many holders felt that news would therefore be forthcoming within that period.

If we jump forward to today, the company is again proposing that these options effectively be extended for another 18 months until 30 June 2013. All existing option holders will be granted new options at 0.0001 cents, which are exercisable at 1 cent (i.e. in the money). Now this has generated some heated discussion on Hotcopper, however my view comes down to the definition of an option, which is:

“The right but not the obligation to purchase a share at a set price by a pre-determined date”

As a result of this definition options are affected by the price of the underlying security and time to expiry (time decay). However, because OBJ keeps extending their options, OBJ option holders are only at risk from the first part of the equation, the move in the underlying share price. Furthermore option holders do not have any voting rights over the company, nor own any percentage in the company (from those options). Given the board must act in the best interest of shareholders (i.e. those who hold the heads) I don’t see why they should continually extend the options. If option holders want to benefit in the potential upside in OBJ then they can exercise at 1 cent (instant profit of >100%) and be part of the company like normal shareholders.

Finally extending the options provides option holders with “artificial finance” at the detriment to shareholders as they only pay a fraction of the total cost of the shares for the time being and are therefore leveraged to the underlying move in the share price. Meanwhile the company misses out on having the cash from exercised options which could at the very least be earning interest in the bank.

The second aspect which I wanted to mention was Resolutions 3, 4 and 5 which approve the issue of Performance Rights to Glyn Denison, Dr Chris Quick and Jeffrey Edwards. I am all in favour of this resolution as it is associated with three key criteria. The notice states “The Performance Rights may be exercised by the Directors or their nominees upon the satisfaction of the performance condition which is:

(a)  6 million performance rights to vest subject to the execution of an agreement to design and develop commercial product(s) utilising the Company’s technologies (Milestone 1);

(b)  6 million performance rights to vest subject to the satisfaction of the regulatory requirements necessary for the Company to offer a product of its own design and development to the market either directly or through partners (Milestone 2); and

(c)  6 million performance rights to vest subject to the commercial release of a product utilising the Company’s technology (Milestone 3),

The Performance Rights shall expire three years after their issue date at 5:00pm (WST).”

Those conditions seem perfectly reasonable in my opinion. As each of those milestones are reached you would expect an increase in the share price and naturally the management team deserved to be rewarded if and when these conditions are met.

On final note: I don’t expect the option extension resolution to be defeated by I will be voting no to ensure that the company’s is aware that some shareholders are against such a program.

Weekly Update: Week Ending 29 October 2011

To calculate the weekly performance on my portfolio I take the close from last Friday to work out the percentage increase/decrease in each stock. This is compared to the ASX 200 (Code: XJO) and the Small Ords (XSO). The Small Ords is comprised of companies included in the ASX 300 index, but not in the ASX 100 index. I include the Small Ords in my comparison as it helps highlight the markets appetite for risk.

Market:	Close (Friday 21/10/11):	Close (Friday 29/10/11):	Percentage Change:
XJO	4196	4353	3.74%
XSO	2361	2434	3.09%

This week the XJO was up 3.74% and the XSO up 3.09%. It was a little strange to see the XJO outperform given that “risk is on” and we saw some strong buying across the board this week. I do however think this reflects the fact that many large cap stocks are undervalued and therefore investors are only just starting to piling back into the big end of town. If this rally is to be sustained I would look for the XSO to start outperforming next week or the one after.

Code:	Weighting:	Share Price Friday (21/10/2011)	Share Price Friday (29/10/2011)	Percentage Change:	Weighted Change:
OBJ	19.98%	0.018	0.022	22.22%	4.44%
MHM	7.07%	0.680	0.785	15.44%	1.09%
KGL	11.40%	0.097	0.097	0.00%	0.00%
KGL #2	7.01%	0.093	0.097	4.30%	0.30%
Cash	54.54%			0%	0.00%
TOTAL				13.988%	5.83%

In regard to the individual stocks within the portfolio it was a brilliant week with the portfolio increasing in value by 5.83%. This was largely due to the strong increase in OBJ, which was up over 22% following the release of an announcement concerning a Joint Development Agreement with FMCG#2 and MHM which is finally showing some sustained strength after being battered and bruised for a couple of weeks straight. Kentor Gold was the weak performer and closed flat, although it did rally off its mid-week lows. I have included a second line KGL #2. This represents the additional stock I purchased at 0.93 on Thursday and the gain of 4.3% I had made on that purchase by the close of trade on Friday.

The portfolio still has over 50% of its value in cash based on the current value of all stock held and represents circa 45% based on my initial purchase price. If we remove cash from the portfolio we can really see the strengths in some of the moves this week and on a stock only basis the portfolio was up over 12%, outperforming the market by a factor of three.

Code:	Weighting:	Share Price Friday (21/10/2011)	Share Price Friday (29/10/2011)	Percentage Change:	Weighted Change:
OBJ	43.95%	0.018	0.022	22.22%	9.77%
MHM	15.56%	0.680	0.785	15.44%	2.40%
KGL	25.07%	0.097	0.097	0.00%	0.00%
KGL #2	15.42%	0.093	0.097	4.30%	0.66%
TOTAL					12.17%

That’s it for today’s posts guys. I still have a lot of information and opinions in my head that I should be able to write about tomorrow or early next week, but for now it is back to work.

Gold About to Rally Hard?

In my last post on Kentor Gold I mentioned that I would post about my current thoughts on gold. Well as you would know I posted a chart the other day that showed gold had broken below the ascending triangle pattern that had been forming. As a result I thought there was a chance that it could head lower and perhaps even touch the lower band of the long running uptrend which stood at $1,500 per ounce.

However, this can now be classified as a false break in my opinion, with Gold rallying hard over the last couple of days (up well over $100 per ounce). It has now broken to the upside and out of the upper band of the long running channel. As a result we may be about to see another strong move to the upside.

Anyway I posted a video on youtube which explains my thoughts more clearly so please feel free to check it out.

KGL: I Bought Some More!!!

If you have followed my blog for some time you would know that OBJ represents the largest percentage of my portfolio. Based on the original purchase price I have invested twice as much into OBJ as I have into KGL and MHM.

My original plan was to buy more shares in KGL after the outcome of the Kyrgyz Elections, although it does appear from early polling that our preferred candidate (the current Prime Minster) will be elected to the position of President. I also posted a chart a couple of days back that indicated gold may be heading lower and therefore I was happy to wait another week or two before purchasing some more shares. That situation has now changed and it appears as though the move down was a false break. Gold has since put in a couple of strong days and broken the upper band of the long term up trend, which in my opinion, indicates that it may be able to go on another run. (more on that in my next post).

So with gold breaking to the upside, positive news emerging from Europe and KGL remaining in the low nines I decided to hedge my bets and buy half now, half later. As a result of this new purchase I now hold 75% of my ideal holding in KGL (previously 50%), which leaves the last remaining parcel to be purchased in the near future. This will ensure I am fully invested in KGL for the time being.

So with the decision made to add to my holding I looked to place an order on Thursday morning at 9.1 cents. For those of you who had your brokerage accounts open that day you would have notice everything was still in “pre-open” even at 10:30-10:40am. Something was definitely up and we all soon discovered that the ASX had gone into melt down. Based on the market depth I think I had a good chance of my order going through. However, as luck would have it more positive news from Europe emerged while we were off line and by the time we were opened I was only able to get my order away at 9.3 cents. It wasn’t all bad though as it did manage to close even higher at the end of the day.

What a Week!!!

Your guys are going to have to bare with me today and tomorrow as I have a number of posts that I would like to get out. I had planned to make a number of these throughout the week but business has just been ridiculously busy (which is a good thing!).

As a result I have not been able to complete any more of my online mining courses, nor spend much time research companies and conducting analysis. However, what this week has done, is remind me of how much you can achieve on a daily basis. Instead of moping around in the morning or chopping and changing between tasks if you stay focused and on-course you can smash out an amazing amount of work.

So if you are in a similar position to me, where you have a long list of things to accomplish then just get cracking because by the end of next week you will feel a lot better for it.

There is lots of exciting news to come out today and tomorrow so please make sure you check back.

What A Day For OBJ: New Announcement: FMCG Company to Secure Access Rights for Beauty Care

Yesterday was a very significant day in the life of OBJ Limited (in my opinion), yet the market either fails to realise its significance or just plain ignored what it actually means. The announcement was released late in the day (2:30pm) and the stock quickly moved from 1.8cents to 2.3cents. However in the final half hour it dropped back to around 2 cents and amazingly finished the day at only 1.9 cents.

So why is this announcement so important and what does it mean?

“OBJ Limited is pleased to announce that a global FMCG company has commenced negotiations with the Company for a Joint Development Agreement (JDA) for the development and commercialisation of new products in the consumer health and beauty fields utilising OBJ’s three core technologies”

I have added the bolding to help highlight the key points. Here we have a company that has “commenced negotiations”. They are not thinking about commencing negotiations, or waiting for the outcome of tests, they are actually in the process of formalising a Joint Development Agreement and the terms, conditions and payment that will be applicable. This is the first concrete sign that we have, from any of our partners, which indicates we are moving to a stage where income could be received. For a company with a market cap of $20m, any revenue (regardless of how big or small) could have huge implications for the company and its ability to accelerate growth in other areas.

Secondly we can see that this agreement is for the development and commercialisation of products that use OBJ’s three core technologies. This demonstrates that a global company is confident that all three technology platforms (eM-Patch, Field-in-Motion and the Dermaportation patch) not only work, but have real life implications.

All that was containing in the first opening paragraph! If we read the rest of the announcement we are also reminded that this company only signed a Letter of Intention in September 2010. So in just over a year they have conducted their technical evaluation and are happy to proceed with the negotiation of a Joint Development Agreement. This represents a significant increase in speed to commercialisation compared to our other partners GSK (who have been on board for many years) and the other FMCG who signed on in 2009.

Furthermore we cannot forget the importance of first-mover advantage. Now that one of our partners is progressing towards the development and commercialisation of new products we may see our other partners GSK and FMCG#1 review the current status of their program. Even if the products are in different areas I do think there is an advantage in being the first to say that your products use a new, world first technology that can generate significantly better results.

It will be interesting to see what the next few days bring as the information begins to circulate. Will we see an increase in buying or will the announcement continue to be ignored?

Link to the announcement

KGL: More High Grade Drill Results Confirm Jervois as a Significant Multi-Metal Project

Yesterday both KGL and OBJ made announcements to the stock exchange. I’ll keep this post short cause I am very keen to discuss the OBJ announcement (you will see why soon).

Anyway, onto KGL, the announcement wasn’t bad, nor was it spectacular. It basically confirmed that the final assay results from the preliminary diamond drilling at the Jervois Project in the Northern Territory had been completed.

The drilling continued to hit significant copper and silver intersections and the mineralisation is confirmed to the north, along strike, from the Bellbird Deposit.

Sometimes I think the most important information is contained within the heading. As a result I don’t think we can understand the importance of the words “significant multi-metal project”. At the very least we could be sitting on a Copper mine (subject to the usual feasibility study of course) with silver credits. On top of that you can throw in some lead and potentially gold (only minimal).

The completion of this drilling program should also lead to some further news shortly with an updated resources expected to be announced at some point in the near future.

Link to announcement

Weekly Update - Week Ending 21 October 2011

To calculate the weekly performance on my portfolio I take the close from last Friday to work out the percentage increase/decrease in each stock. This is compared to the ASX 200 (Code: XJO) and the Small Ords (XSO). The Small Ords is comprised of companies included in the ASX 300 index, but not in the ASX 100 index. I include the Small Ords in my comparison as it helps highlight the markets appetite for risk.

Market:	Close (Friday 14/10/11):	Close (Friday 21/10/11):	Percentage Change:
XJO	4196	4141	-1.31%
XSO	2361	2318	-1.82%

The market was off again this week with the XJO closing down 1.31% and the XSO faring a little worse (down 1.82%). I don’t this was entirely unexpected given the upcoming European submit this weekend. No one wants to be holding stock in case everything well and truly does hit the fan. However, both the US and Euro markets we up last night so they are definitely pricing in some positive news this weekend. If it eventuates then our market could be set for a very strong Monday.

Code:	Weighting:	Share Price Friday (14/10/2011)	Share Price Friday (21/10/2011)	Percentage Change:	Weighted Change:
OBJ	19.96%	0.018	0.019	5.56%	1.11%
MHM	7.07%	0.680	0.690	1.47%	0.10%
KGL	11.38%	0.097	0.091	-6.19%	-0.70%
Cash	61.60%			0%	0.00%
TOTAL				0.280%	0.51%

My portfolio outperformed the market this week, largely helped by OBJ and MHM which both finished the week strongly. Overall the portfolio was up 0.51%. The best stock was OBJ which continues to see some strong buying around the 1.8 and 1.9 cent level; it just doesn’t have enough power to crack above 2 cents yet. Hopefully next week (fingers crossed)!

The worst performer for the week was Kentor Gold which was off over 6%. I think this is largely due to the pull back in copper and gold prices and general bearish sentiment in markets. Gold did however rebound strongly last night after a couple of days down. I have previously said that I think there is a case for gold to hit $1,500, however if global markets rally then “risk with be on” and we may see some further strength in gold (especially if they turn on the printing presses again – i.e. start a quantitative easing program in Europe or the US).

Code:	Weighting:	Share Price Friday (14/10/2011)	Share Price Friday (21/10/2011)	Percentage Change:	Weighted Change:
OBJ	51.96%	0.018	0.019	5.56%	2.89%
MHM	18.40%	0.680	0.690	1.47%	0.27%
KGL	29.64%	0.097	0.091	-6.19%	-1.83%
TOTAL					1.32%

Finally examining the portfolio without cash shows that its value increased by 1.32%.