sick old dog, page-15

Bacci

I have also researched the Solvay process yes there is an increased cost as opposed to the Trona based process. As I understand it the latter requires a natural soda ash deposit. The USA has these and is very competitive.

However the reports seem to suggest that under normal economic conditions the demand has been outstripping supply and that prior to the GFC prices were improving.

In reality the transport and import parity pricing should make PSH competitive as well as their importation of supply as well. The BiCarb plant does live off this asset but the margins suggest that it makes good money.

The Solvay plant size suggests it would be better if it was in the 500,000 tons range but suggest that you can be competitive at anything from 330,000 tons so they are in the range.

Having investigated the company sometime back it appears that they were hit by a perfect storm and indecisive management.

They went on an upgrade and renewal plan before the GFC and this required a major upgrade to the Limestone mine as well. This meant they were burning cash that they should have raised from shareholders in a declining market. They couldn't hold margins in the GFC and yet the forward contracts on exchange which they took out too late only served to compound the error. The covered forward when the A$ was high and got no benefit from it tanking. This would have had a counter balance to the downward pricing pressure what it in fact did was cost them even more.

Bad decisions for which the Chairman has gone. Not sure if they have done enough on their thinking. It seems illogical to cover forward in this industry unless you are taking a gamble. It looks like the exchange rate declines when resources pricing is under pressure that looks like a counter to rather stabilise the income which suggests you should ride the wave rather than try to guess it.

The company needed to upgrade many things and should never have used debt to fund it even in a booming economy. In fact almost suggests they still had some "private equity" style thinking hanging over from the past.

On the basis of $5m profit after tax on 91,36m shares it suggests you make 5.4c per share @40c thats a little under an 8 pe. This is a bad year high exchange rate way above the mean average and a difficult market to boot.

The room for improvements must be:

1. Get a grip on the mine, its stock and its overburden.
2. Finish the way forward plan and get the benefits to flow through.
3. Raise some capital so that as and when the opportunity exists to improve the Soda ash plant presents itself it can be taken.
4. Get a good understanding of the process of covering forward or not and understand the points in the cycle it makes sense but dont use it as a gambling process trying to beat the market.

Good years suggest you could earn $9m and thats around 10c per share. When these occur you need to reinvest to make sense and bolster your balance sheet so that you can weather the deep cycles.

What are your thoughts because you seem to be sensing a doom and destructive scenario?

I only own a few to be on the register.