why not give us the 4c cash in mos too!, page-2

..Morningstar Mosaic update:


Latest recommendation report Valuation: $0.19

Last updated: 08/07/10 MRRT Replaces RSPT

MOS owns 50% of the Wallumbilla LPG plant, 100% of the Silver Springs gas processing facility, compressors at Churchie and Downlands fields and 290km of pipeline. Tariff income stems from re-delivery of Santos gas. MOS may increase production if potential at its SE Queensland acreage is realised. Gas has high condensate and LPG yields, leases are close to pipelines, construction costs are low and development times short. The future lies with exploration and gas marketing. Fracture stimulation to increase glow rates from tight reservoirs holds great promise. Farm-ins to accelerate exploration yielded mixed results. Speculative and not for conservative investors.

* The Gillard Labor government replaced the troubled Resource Super Profits Tax (RSPT) proposal with a new Minerals Resource Rent Tax (MRRT)
* This looks to be the win-win outcome we said we were looking for in recent updates. The new proposal appears to largely address key minerals industry concerns over retrospectivity, competitiveness and resource differentiation.
* All oil and gas projects not already falling under the existing Petroleum Resources Rent Tax (PRRT) regime will be rolled into it. The headline PRRT rate of 40% is similar to the now dead RSPT rate so it's largely like-for-like.
* Further details on the new tax can be found in our 'RSPT Backflip' Special Report


* We had sharply downgraded our valuation by 20% when RSPT was first announced.
* Modelling-in the replacement PRRT is less harsh to valuation than expected and we upgrade by 11% to A$0.19ps.
* Possibly more important in the short term, MOS has received an unsolicited proposal from AGL to acquire all MOS shares at a cash price of A$0.15ps. The proposal is conditional upon MOS entering into a Scheme of Arrangement.
* The bid price seems low-balled despite the sharp premium to the share price. The board is considering the proposal but has made no decision as to its merits.
* It is not inconceivable a higher bid could come. Regardless we retain our Speculative Buy recommendation.

Unchanged.


Kind Regards