Basket case

You have to seriously wonder if ELK is a going concern.

The September 14 Quarterly told us that at the end of the quarter ELK had cash on hand of AUD 1.602 million.
Since that time they have received the loan from MEL of AUD 2.5 million.
ELK's admin expenses for the Sept 14 quarter (which were the lowest for a year) were AUD 0.455 million. For this purpose it is assumed that ELK's quarterly admin spend will stay around AUD 0.450 million.
I suspect that ELK also had to pay their share of the Grieve project funding beyond the extent of the free carry and Denbury loan during the December quarter. (Total project spend USD70 million, ELK share @ 35% USD 24.5 million less free carry of USD 10 million and USD 12 million funding from Denbury). So a payment of USD 2.5 million (~AUD 3.05 million).
If this payment wasn't due in the December 14 quarter, it would almost certainly be due in the March 15 quarter.

So at the end of the December 14 Quarter, ELK's cash on hand would have been around AUD 0.603 million.

And we have now just seen ELK pay out the short term loan of AUD 1.25 million. This would mean ELK would have no cash at all, in fact they would have a deficiency of something like AUD 0.647 million.

And 2015 does not seem to fare any better.

ELK has advised that they expect reduced funding requirements for Grieve in 2015 of USD 0.650 million for capital and USD 1.25 million for lease costs. If we assume ongoing quarterly admin costs of AUD 0.450 million, that results in a total spend in 2015 for Grieve alone of ~AUD 4.1 million. This ignores any development work for Singleton.

Where do we think that this funding comes from - the sale of the Grieve crude oil pipeline? Not likely.

In the 2014 Annual Report ELK released some scant details on two offers that they had received. Both involved staged payments, an upfront payment, another payment conditional on refurbishment of the pipeline and agreed transportation tariffs and final payments once oil started flowing. Of these it is really only the upfront payment that is likely to fund ELK during 2015. The magnitude of the the upfront payments were stated to be 35% to 40% of the USD 5.5 million sale price. So the sale of the pipeline would generate a maximum income in 2015 of USD 2.2 million (AUD 2.7 million). This is still AUD 1.4 million short of ELK's projected 2015 minimum cash requirements. And the sale could potentially leave ELK committed to completing the refurbishment of the pipeline.

So the next twelve months see ELK short by at least another AUD 2 million and even right now they are probably already short by AUD 0.647 million.

Who thought this was a good deal for MEL holders?