Ann: COZ Agreement for Legune Station, page-31

A couple of interesting weeks for COZ since I last posted, firstly getting a speeding ticket for increase in price and volume, then its Trading Halt/Voluntary Suspension and finally an announcement to end its non-trading period on Monday.

After testing 8+ cents (high point being 8.9 cents, but only momentarily) immediately after its announcement re signing an option agreement for Legune Station COZ price was gradually pushed back down to 7.3 cents in a brief selldown, where it has settled. At this level clearly the selling is limited and there appears to be support around this level. I’d be surprised if further lower priced selling was to appear this week, noting that the AGM is on Thurs, and there is likely to be more information about its “successful Christmas 2014 trading period for its north Queensland prawn operations”. Looking at the chart the price trend remains very good, particularly if it holds the current price for the next week or so, or possibly kicks higher as I’d expect it to do towards the date of the AGM.

I still contend that COZ is completely undervalued with regard to its Queensland prawn operations, and should be priced more in line with CSS and its comparable kingfish operations revenue (ie still should be around 11.5 cents relative to CSS on that basis alone IMO). In coming quarters further improvements in production should be achieved as the Coral Seafarms operation becomes more in step with the other SeaFarms operations at Cardwell.
Importantly, the latest food scare related to imported frozen berries and Hepatitis A is a timely reminder to the Australian consumer of the relevance and benefits of Australian food production. Therefore I feel very comfortable in holding COZ just for its currently increasing prawn production out of Queensland.

I consider the announcement on the option for Legune Station to be a very positive outcome as it clearly opens the door for COZ to focus its efforts on Project SeaDragon (PSD), as its second dimension (albeit blue sky) within the prawn aquaculture space. Regardless of your political views IMO it is a very healthy state of affairs when the NT Chief Minister makes positive statements regarding the possible future development of PSD – clearly the NT Govt welcome the potential of PSD within the Territory, and will facilitate the permitting process as much as it can. After the negativity of the politics with CO2 it is very positive and pleasing to know that COZ is finally on a winner in that regard!
Needless to say the PSD will require a lot of work, and I’m sure no one doubts this. The initial permitting, environmental work, some of the feasibility work etc I imagine will be prepared by COZ with the support of relevant consultants over the coming months. All of this preparatory work should provide the framework and basis for COZ to then approach an interested party or parties to partner the company in the development of the project. It is naïve for anyone to suggest that COZ, with its minimal balance sheet and extremely low market cap, would even think to try to develop the project on its own without the support of one or more major backer(s). As was noted by COZ in its latest announcement this also option enables the company to engage with potential financial backers, some of whom previously have expressed interest.

The other very positive outcome in recent months for COZ with its PSD has been the considerable reduction in the A$, which will improve the economic viability of the project and an even more attractive return on investment.

How all this plays out in the future will surely provide an exciting time for COZ shareholders, and for this reason I will not trade this stock, it’s a long term investment and I will continue to slowly add to my currently growing position.

On a completely different subject, but raised by a HC poster recently: Whilst no one can speak for the Executive Chairman I’m very sure that he, being a long term and substantial shareholder, and having spent considerable personal funds in getting to his current shareholding position, surely his preferred exit strategy will be to sell out his holding to a company that finally takes over COZ - the majority of his shares that I’m aware of in recent years have been acquired by either the conversion of options in Nov 2011 (at 12 cents per share conversion totaling $10.8 million), the taking up of his rights under last year’s rights issue ($5 million) and various on- and off-market transactions (eg Dec 2013, totalling $733,000).

With respect to the future possibility of a takeover of COZ I remind the reader to how other significant players in various agricultural sectors have been poorly valued by the Australian investment market, only to be pursued by international groups at some point in time. In this case some group who will recognise the value of COZ, particularly with regard to the Australian benefits of stable government, a relatively certain investment regime, and rigid biosecurity measures the combination of which are near impossible to procure in other domains, particularly in Asia. An analogy might be the takeover battle we saw in Warrnambool Cheese & Butter where the value of the company rose considerably above what the general Australian market had factored for the company via previous trading. Thus it might be worthwhile holding some shares in COZ with a view to waiting for that final take out of the Executive Chairman – but that might be some years away just yet!