CGX Cash Burn Rate:From their latest financial report for the 3 months ended June 30th, CGX reported a net loss of $6.9 million for 3 months alone. Now they said the following: "CGX incurred exploration and evaluation expenditures of $5,823,237 for the three month period ended June 30, 2011 compared to $1,878,648 in 2010. The increase is due to the Company continuing to advance its properties and prepare for drilling on both the Georgetown and Corentyne properties in 2011. These costs are expected to increase in the upcoming periods."
Now the other amount of the loss comes from other expenses including payroll that will go up due to more hiring.
I always seem to be asking questions:
1. If Inpex makes a discovery from their well, how much would this affect CGX share price given CGX has no stake in the Inpex well and CGX is already valued at $329 million ($344 million on fully diluted basis) with nothing generating revenues for them. Their first well (Eagle Shallow) is still high risk (probably 1 in 5 to 1 in 10). If they don't hit on first attempt, they have nothing to back them in terms of revenue generation. They will have to issue a lot more shares to drill their next well (not counting Jaguar, that's already covered for and they are not the operator of Jaguar). From my best estimates, the first commercial production for CGX would be 2014-2015, how much shares will they need to issue before they get to commercial production and how much % of their reserves be in a joint venture sharing situation by 2014-2015?
In these market conditions, waiting 2 to 3 years is an eternity, therefore I think management would much rather an early take out than wait until 2014-2015 for the company to start generating profits. I had this company on my watchlist for a long time but the recent jump in company value to almost $350 million seems a little steep considering all the questions yet to be answered. Just a miss on Eagle Shallow would cause management to do another big equity issue and I'm sure no one thinks their probability of hitting with that well is more than 50%.
2. When will Q3 results be available (for 3 months ending Sept 30th, 2011)? Are they waiting until Inpex release results hoping for that to over shadow a bigger net loss for Q3? If they had net loss of $6.9 million in Q2 and say themselves that costs are expected to rise for upcoming periods, how much will Q3 loss be?
As a last note, Jaguar is considered to be a really high depth and pressure well, if Murphy and Inpex both had major delays in drilling using Atwood Beacon, one must wonder how much delay could be in store for Jaguar given it's a much harder well to drill than Murphy's and Inpex. Everyone is saying 6 months, but if you add two months delay to that you're looking at September 2012 as first possible time for Jaguar results.