KAL Energy: Avoid This Stock At All Costs

Important note from SA Editors: Seeking Alpha received a letter from KAL Energy's lawyers alleging that the article below, originally published June 12th, "is replete with false and misleading statements", expressing concern that the purpose of the article was "to manipulate the Company's stock price", claiming that "the falsehoods in the article are in fact defamatory and libelous", and demanding that Seeking Alpha immediately remove the article under threat that "KAL will vigorously pursue claims for defamation and liable (sic) and the Company's rights under the federal and state securities laws". A separate letter to Mr Turner, forwarded to us, outlined the alleged inaccuracies.

Mr Turner, who is not a Seeking Alpha employee and whose opinions are not those of Seeking Alpha, assured us that "neither myself or any other member of Hallgarten and Company... directly nor indirectly, has benefitted financially in any way from our coverage of KAL Energy... when we were first falsely accused of having a short position in the company by KAL we immediately sent a mail to KAL Energy HQ explaining that this was not true". Mr Turner adds that he "stands by every word" in the article.

Seeking Alpha is committed to open discussion of stocks that adheres to honesty and full disclosure. We have therefore asked KAL Energy's lawyers for permission to publish the section of their letter to Mr Turner outlining the alleged inaccuracies immediately below the article on this page, so that readers may judge the issues for themselves. When we receive their permission, we will publish that letter. We would also welcome a submission from KAL Energy itself clarifying the issues discussed.

We believe that KAL's counsel's demand that Mr Turner "cease and desist from making any further statement regarding KAL and investments in KAL" does not further the cause of open and honest discussion for the benefit of investors.

Our request to KAL Energy's lawyers to publish their discussion of the alleged inaccuracies in the article has not yet been answered.

First, Wikipedia gives us the background on the Portuguese fable “Stone Soup”:

According to the story, some travellers come to a village, carrying nothing more than an empty pot. Upon their arrival, the villagers are unwilling to share any of their food stores with the hungry travellers. The travellers fill the pot with water, drop a large stone in it, and place it over a fire in the village square. One of the villagers becomes curious and asks what they are doing. The travellers answer that they are making "stone soup", which tastes wonderful, although it still needs a little bit of garnish to improve the flavor, which they are missing. The villager doesn't mind parting with just a little bit to help them out, so it gets added to the soup. Another villager walks by, inquiring about the pot, and the travellers again mention their stone soup which hasn't reached its full potential yet. The villager hands them a little bit of seasoning to help them out. More and more villagers walk by, each adding another ingredient. Finally, a delicious and nourishing pot of soup is enjoyed by the travellers.

Kal Energy Inc (KALG.OB) is a modern day version of stone soup.

Late last year, a London-based private equity group called Mining House Ltd took over a virtually untraded Nasdaq listed company with a market cap of just under U$6m and previously run by a Brooklyn real estate businessman. Once in charge, the first thing they did was change the name of the company to KAL Energy Inc and then quadruple the number of fully diluted shares to 47.3 million. A little later they reverse-mergered privately owned Thatcher Mining of Singapore into the newly named KAL Energy Inc and paid off the previous owners of Thatcher with a small cash sum and 32 million shares of newly created shares. Our eyebrows raised when we found out the Thatcher Mining began life as a company as late as June 2006 and that at least one of the shareholders of Thatcher, David Pope, is also a member of the key management group at Mining House Ltd.

So from seemingly nothing they found themselves with a NASDAQ listed company and managed to quickly fill it with a tasty ingredient, namely the main assets of Thatcher; two large unexplored coal mining properties in Indonesia that seem to hold around 192million tonnes of thermal coal. A neat trick, but it was just the start of it all.

Next, they needed some working capital. So they ran a private placement in February this year, selling 17.6m shares to floor-level investors for 20 cents a share (which must have been a popular offering to those lucky enough to get on, as shares in KALG.OB were trading at around 80 cents at the time. Why pay 80 when you can pay 20?). After commission costs and such, they were left with about U$3.4m. So the stock dilution had gone from under 12m shares to over 97m in a single quarter, but they now had a company, an asset and some working capital. Not bad for three months’ work!

With that capital, they started a drilling program at the site to find out exactly what they had under the ground. The problem was that although a promising site, it had never been professionally surveyed to Canadian 43-101 or Australian JORC standards. That is something that costs money. So KALG laid down the lion’s share of their U$3.4m to drill and explore at the site.

Meanwhile, they were not averse to spending cash in other places. They had a company, an asset and working capital, but they still needed to “get known”. So KALG went on the publicity trail and paid several different research analysis companies between $6500 and $10,000 a piece to publish positive reports on the company (all of which can be found on the KAL website). KAL also received excellent publicity from Bob Moriarty of 321gold.com and 321energy.com fame. Mr. Moriarty, as a friend of one of the original investment group, was invited to buy part of the original 20 cent placement. He was taken on the grand tour of the property in Indonesia. Then on April 17th he published a wonderfully positive report on KALG for all to see in his own inimitable style. He did mention that he was a shareholder in KALG and advised readers to do their own due diligence into the company before making any decisions, but all the same it would seem that a lot of people took him at his word. KALG.OB moved from 0.98c to over $1.40 soon after publication of Moriarty’s note, all on much improved volumes.

So what now for KALG? We are told by the company that while the necessary drilling program is going on, KALG will be able to sell 200,000T of bulk sample to be mined this year on the open market. This will provide cash flow for the future, and the company plans to ramp production to 5MT per annum by 2010. The bulk sample certainly will help, but if the approximate $2m profit they bring in from 2007 bulk samples sales is enough to cover expenses going forward we would be extremely surprised. As for the future production plans, maybe the company is jumping the gun slightly as it does not have the necessary work contracts or environmental permits to allow it into commercial production as yet.

Mr. Moriarty, in his glowing note, said he didn’t see any large dilution in the future. This could have been one of the main attractions for those who bought KALG after reading his article. Of course Moriarty is entitled to his opinion, especially as he is a shareholder in KALG (we presume that he has not sold out as yet, of course), but we certainly beg to differ on this point. It is estimated by one published report available on their website that KALG will need at least U$100m to ramp the project in the next four years, and with the lack of cash at bank they are almost certain to use heavy dilution for financing. It has therefore certainly benefited the company to have a share price lifted by “third party reports” and favourable articles by website owners with large retail followings, as raising U$100m in share dilution is far easier when your stock is worth $1.38 and not half that amount, or even a quarter of it.

So if we assume for argument’s sake that the company is fortunate enough to place new shares at $1 each on average, this means there would be at least 200 million shares in existence by full production time (quite possibly a lot more). If we use the company report’s own estimated net profit margins of U$10 per ton of coal, this would give us an estimated net profit of U$50m, or an EPS of U$0.25 per share, for the year 2010.

Today, KALG.OB stands at U$1.37. Those that buy the stock today are looking at a company with an estimated forward PE of 5.5X on 2010 earnings.

A company that has gone from a $6m market cap to a $130m market cap in just 6 months without producing or selling anything.

A company that still does not have the necessary permits to operate their mine.

A company whose asset is still non-industry standard compliant.

A company with little cash at bank and whose board expects shareholders to pay for the necessary working capital and pay their salaries for the next years.

A company that keeps very quiet about the significant amount of dilution it will need to do to go into full production.

A company that has already earmarked 1,750,000 as yet un-issued options to two of its executive members, and has approved a plan to give away a maximum of 12 million options to directors and management of KALG in 2007 alone.

A company that offers cheap shares and guided tours to influential website owners who then write glowing reviews on the stock (with all the necessary caveats at the end of the note, of course).

A company that pays thousands of dollars to research houses in return for reports recommending KALG to one and all.

Not surprisingly, we take a different view. Avoid this stock at all costs.

Disclosure: none

Comments

[paul.hendry]

Mark, you raise some valid points although now the company has its proven resources of 204 million that takes the most important one of your list.

You have gave this new founded company a complete bashing for being what..a new company. The have extremely good fundamentals and also have lots in their favour moving forward..lets remember they are a Junior Mining Company so therefore like all junior companies financial challenges lie ahead as they strive to go into production. Share dillution again like most Junior companies will happen but I think all who invest in the Juniors are aware of this as will probably be the case with KALG.

When it comes down to Bob Moriarty..his reputation for investing speaks for itself can we say the same for you...lets wait and see..hope you put your money where your mouth is..I now where mine is!!

[ottorock]

Paul,

The 204MT resource published yesterday is not a proven resource. It is an JORC compliant inferred resource. As it happens, in my opinion it is not the most important on the list. I do not have the slightest problem with the resource KAL has found and wants to develop.

Mining House describes themselves as a private equity group. If that is so, why don't they invest their private equity into the project? In that way, the shareholders who buy in at this level will not be subjected to the dilution that will wash away the advantage of buying in early.

If Mining House put up the $10M for the next stage of development, the investor (and also myself) would feel a lot more confident about buying in to the project. In fact, the board has just asked the public for the next $10m tranche. The placement is priced at $1.14 and closes on July 3rd. The bonus offered is that for every 2 shares you are given a warrant at $1.66 (2 year expiry date, 180 days to register).

My note is not about the Kalimantan projects or whether they have coal or not. It is about presenting the facts to the retail investor about the prospect on front of them and how the corporate stucture of a new company can easily be biased against the retail investor. I am not criticising the company just becuase it is new; on the contrary, i cover many juniors and there are a lot that take a much more investor-friendly attitude towards those who would buy in to the deal. Also, I can hardly be accused of "bashing" when every single piece of information in the above note has come from KAL Energy Inc's own filings! To accuse me of bashing is to accuse the company of bashing itself. It's all REG F (in the public domain).

However, what i have done is to publicize a few of the facts that the board at KAL would prefer to keep quiet and away from the wider public domain.

As for Bob Moriarty, I stand by every single word I wrote in the note. i also respect your right to disagree with me. These things are, after all, subjective.

Finally, are you the same paul hendry that wrote this about KALG on May 6th 2007?
smallcap.seekingalpha....

While tons of money have been made in the most recent up-cycle (about 7 years) in the coal business, and it may be a good investment for the future......

.....the company being promoted by the owner of the elaborate 321energy.com website, KAL Energy, Inc. (KALB on the over-the-counter market), is a classic case of why I do not believe anything that anybody tells me about an OTCBB stock.

For instance, amidst the glowing recommendation by "Bob Moriarty" he says: ""I have a third party report on KAL Energy done by Tri-State Capital in early March. According to their figures, KAL Energy has a NPV (Net Present Value) of $776 million US. According to the stock market, the company has a market cap of about $91 million. I think Tri-State's figure is lot closer to reality and the stock remains very undervalued."

What Mr. Moriarty is not telling anyone is that "Tri-State-Capita... is not the independent invest advisory firm it sounds like. It's sole business appears to be creating hype for companies when it is hired to do so:

www.tristatecapital.co...

KAL Energy, Inc. likes Bob Moriarty a lot! They link to his article from their own website:

www.kalenergyinc.com/i...

Hey! www.kalenergyinc.com proudly links that exact same Tri-State-Capital article from their website too!:

www.kalenergyinc.com/i...

Read that report. It is basically 22 pages of "paid-for-hype&qu... If you read carefully enough, you start finding little details such as:

"As of November 30, 2006, KAL Energy had current assets of $115,123, consisting of $11,123 in cash, $90,000 in a loan to Thatcher, and a note receivable of $14,000 from its former consultant. This consultant repaid $31,000 of the $45,000 due and owing to the company. As of November 30, 2006, the company had liabilities of $55,766, consisting of accounts payable and accrued liabilities of $12,946 and a non-interest demand loan of $42,820"

This is supposed to be a company that has a current market value of between 91 Million and 776 Million dollars? "News" about this company was non-existent before January, and their has been a blizzard of it since then.

This company just raised 3.5 Million dollars for "phase 1 drilling" (testing). Next in the game plan is to raise 6 million dollars for "phase 2 drilling" (more testing). Guess what happens to the value of the current shareholders shares when they issue enough stock to raise that kind of money? Correct, it gets diluted. We won't address the dilutive effect of the "USD 50M+" they plan to raise in 2008 >> if

[ottorock]

Paul,

KAL do not have a proven resource. It is a JORC compliant inferred resource.

All the information above comes from KALG.ob's own filings. To accuse me of bashing is to accuse the company of bashing itself

are you the same paul hendry that wrote the following on 6th May?

smallcap.seekingalpha....

.....the company being promoted by the owner of the elaborate 321energy.com website, KAL Energy, Inc. (KALB on the over-the-counter market), is a classic case of why I do not believe anything that anybody tells me about an OTCBB stock.

For instance, amidst the glowing recommendation by "Bob Moriarty" he says: ""I have a third party report on KAL Energy done by Tri-State Capital in early March. According to their figures, KAL Energy has a NPV (Net Present Value) of $776 million US. According to the stock market, the company has a market cap of about $91 million. I think Tri-State's figure is lot closer to reality and the stock remains very undervalued."

What Mr. Moriarty is not telling anyone is that "Tri-State-Capita... is not the independent invest advisory firm it sounds like. It's sole business appears to be creating hype for companies when it is hired to do so:

www.tristatecapital.co...

KAL Energy, Inc. likes Bob Moriarty a lot! They link to his article from their own website:

www.kalenergyinc.com/i...

Hey! www.kalenergyinc.com proudly links that exact same Tri-State-Capital article from their website too!:

www.kalenergyinc.com/i...

Read that report. It is basically 22 pages of "paid-for-hype&qu... If you read carefully enough, you start finding little details such as:

"As of November 30, 2006, KAL Energy had current assets of $115,123, consisting of $11,123 in cash, $90,000 in a loan to Thatcher, and a note receivable of $14,000 from its former consultant.

[paul.hendry]

HALLGARTEN AND GARTEN : A COMPANIES ADVICE I WOULD TAKE WITH A PINCH OF SALT.

KAL ENERGY : JORC compliant resources = 204 million! "exceeds initial estimation"

[strato]

It's too bad that people like Mark Turner use this platform to promote self interest

[paul.hendry]

Hallgarten & Company who Mark Turner works for.

[ottorock]

We have recently sent this mail to both KAL energy and to the company that issued the KALG.ob PR dated 14th June 2007.

Dear Sir/Madam,

It would seem you have not done sufficient due
diligence. Neither myself or anybody connected with
Hallgarten and Company, either directly or indirectly,
has any position either short or long in KAL Energy
Inc. Our note was a short call on your stock,
something that is perfectly valid.

This can be verified by reading our original article
available on our website, hallgartenco.com. We
will also be very happy to make a full disclosure to
any relevant authority.

We are not responsible for factual errors made by the
owners and operators of yahoo.com.

The title of your recent PR is misleading to your
shareholders, based on an error made by a third party
and should therefore be changed.

We are glad that you have finally seen fit to make a
fuller disclosure of company policy to your
shareholders regarding KALG.ob and its corporate
background.

Yours faithfully,
Mark Turner

[kingcoal]

I think it is you that has not done sufficient due dilligence, you are recommending shorting a company that has just proven, with in industry guidelines, over 200 million tons of high quality thermal coal. If you knew what you were talking about you would realize the value of this coal is between 8 and 13 billion dollars. And they are just starting, and has the majority of their land to explore yet. Did you know that Japan and Korea have negotiated a buy sell contract for thermal coal at a price of $67.80 USD. DO THE MATH. I also note you are trying the deflect your inacurate assessment of the company by yourself on the company by stating you are glad the company has finaly seen fit to make a full disclosure of company policy to their shareholders regarding the company background. My question to you is, HAVE YOU READ THE 8K. It discloses everything. To all of you out there who may read this I can confidently comment as follow, In my opinion This person is a XY$%!@%^&

[danarog]

What a poorly researched, vindictive piece of prose on Mark Turner's part. Hope he took his profits yesterday after he caused the stock to plummet with his inaccurate assessment. I continue to support and recommend this stock to family, friends and clients, and I have 20 years in this business under my belt...
EF Hutton (NY), Shearson (LA), American Security Bank (DC), Dean Witter, Robinson Humphrey & Credit Suisse (Atlanta). It sounds like Mark has a serious personal vendetta against KAL Energy as well as a bug up his ass. That's OK, I'm sure bubba will work that out of him in prison when he gets hit with a class action suit for liable. ;-) Keep up the good work KALG!

[kingcoal]

Danarog,
I cannot agree with you more, I wonder who pissed him off that much in order for his mouth to run amuck as it did. I think Bubba will find a better use for his mouth (amounst other things) as it's no good for anything else. This company has the best story I have heard in a long time. I have never seen such a transparent attemp to harm a newly emerging company that has the potential to become a large producer of quality coal in such a short time. They planned their work and worked their plan and delivered on time and on budget and the coal is there, what else can the shareholders ask for. A lot of results in short period of time. My hat is off to the founders, management and officers of this company. I know what it takes to do what they have done, I am in the coal business and follow juniors in the business. This company may verywell be a take over target for a larger producer. Keep in mind only part of 1 block was drilled, they have the rest of that block as well as another block next to producing company's and that coal is of higher quality. Mark make sure to take your jar of vasaline with you

[kambingramah]

Has anyone actually read the statement which is supposed to be JORC compliant? I advise them to do so carefully and critically.

I note that the employer of at least one of the consultants used is not mentioned as specifically required under Article 8 of the JORC code

"A company issuing a Public Report shall
disclose the name(s) of the Competent Person or Persons,
state whether the Competent Person is a full-time
employee of the company, and, if not, name the
Competent Person’s employer. The report shall be issued
with the written consent of the Competent Person or
Persons as to the form and context in which it appears."

On a technical level the issue of Tenure is not well addressed in the statement.

It is acknowledged that the concession is a "KP". This form of tenure is reserved for Indonesian nationals and Indonesian companies. Foreign entities are specifically excluded from financial involvement.

Unless the tenure issue is clearly explained the JORC compliance of the statement is questionable.


Further I note that the tonnes are based on an assumed density. The absence of a measured density would disqualify the sample as valid points of observation for the purposes of Resource classification.


It is also worth noting that the Energy quoted is on an Air Dried, Dry and Dry Ash free basis. Teh critical "As Recieved basis is not quoted.

A simple cacluation from 5,189kcal/kg (adb) at 19.4% moisture to ans as Received basis , 39.9% moisture gives an As received energy of 3869kcal/kg. It is most doubtful that this is a saleable product.

It is certainly not in the $68.80/tonne league mentioned above.

Thsi calls into question the key consideration of Article 19 of JORC "there are reasonable prospects for eventual economic extraction."


This is but a brief overview of some of the key failigns in the report. Eventually it is up to the individual reader to decide for themselves whether the report is or is not JORC compliant. I urge that the report be read thoroughly and for any who do not understand it fully to seek professional geological advice before making financial decisions.

[kambingramah]

A little further on the technical side.
If you wish to consider a coal on the market which is comparable to what is reported then look to PT Arutmin (Bumi resources) EcoCoal brand.
Its specifications are slightly superior to what is being reported for Graha. This coal comes from the Asam-Asam/Mulia deposit which is a mere 17km from the coast of south Kalminatan and a very short barge distance to an established transhipment point.

The coal is sold at the bottom end of the market. It is generally targeted at teh domestic power generation market rather than the export thermal market.

The value of the coal is highly questionable.

[dapurcell]

Kingcoal is rhapsodizing I see.. sniffing the vaseline (sic)? or gulping the Koolaid?

If one can believe him one would think KAL is the biggest thing out of Indonesia since Bre-X!

Kambingramah obviously knows his coal and I note the various amateur commentators haven't had any glib retorts to his well-founded comments..

[kambingramah]

I am just warming up on this one.

Please refer to the press release from PLN (indonesian power generation authority) below.

this gives you a guide for the domestic pricing of this coal around Rp264,000 per tonne. At current exchange rates this is about $29 per tonne. thsi is the price on ship or landed at the powerstation.

Beign generous and assuming the most optimistic case that this this is the price FOB on a panamax vessel it clearly gives a reality check to the $67.80 per tonne quoted by Kingcoal.


Give me a little time and I wil run up a very optimistic finanacial model on Graha BLok 24 to make things a lot clearer.

Once again - please READ the entire report which is supposedly JORC compliant. Do not rely on the headlines.

If you do not understand what you read please seek professional advice before making finanacial decisions on minerals properties.




Arutmin Lowest Bidder of Coal for Power Plants
(Arutmin Penawar Terendah Tender Batu Bara PLTU)
Bisnis Indonesia, 7 Oct 2006

PT Arutmin Indonesia provided the lowest price in the coal supply bid for the 10,000 MW power plant crash project at 5 locations. The 5 power plants are at Rembang, Tanjung Jati, Pacitan, Paiton Baru and Tuban. The contract will have a 20-year duration period with coal supply of 9.3 million tons per annum. Another company, PT Kasih Industri, won the contract to supply 3 power plants, namely Labuan, Teluk Naga and Indramayu power plants. The contracts are for 1.9 million tons of coal for the Labuan plant at a price of Rp 255,000 and 2.86 million tons each for the Teluk Naga and Indramayu plants at Rp 252,000. PT Bara Mutiara won the contract for Suralaya Baru power plant, while PT Titan Mining won the contract for Pelabuhan Ratu power plant. Arutmin has also offered the lowest bid price for coal supply to power plant projects which are not included in the crash program. The company will supply 1.26 million tons of coal per annum to Suralaya power plant units 1, 2, 3 and 4 at a cost of Rp 248,171 per ton and 1.26 million tons to units 5, 6 and 7 at the same cost. This supply will replace part of the supply from PTBA. Arutmin also offers 0.28 million tons per annum to the Asam-Asam power plant at a cost of Rp 144,221 per ton. PT Titan Mining Energy won the 0.48 million tons coal supply bid for Parit Baru power plant at Rp 263,694 per ton. The Chairman of the coal supply bid team for PLN, Tony Agus Mulyantono, said that the price from the lowest bidder will become the benchmark for other participants. "For security of supply, there will be 4 coal suppliers required to provide 50%, 30%, 15% and 5% for each power plant. Therefore there is no one winner, we only set the lowest price leader as the lowest price winner. The price will be set as benchmark for other suppliers which are still interested to become suppliers, he explained. Companies that passed the qualifying process are Arutmin, Titan, Bara Mutiara, Kasih Industri and Surya Sakti Dharma Kencana.

[Raj Ojha]

Kabingramah, after reading the JORC report I found a few items slightly misleading. The report definitely states measured RD in table 2 (min 1.29 max 1.33). It appears the writer has been conservative and used a low range value of 1.31.

Your question of marketability is interesting although very pessimistic. I admit I was a skeptic of low rank coals until I recently attended the Coaltrans conference in Bali. Out of many talks I attended the most fascinating and jam packed was a talk provided by PT Adaro Indonesia.

Adaro have been exporting their trade marked Envirocoal for a number of years now to Europe and the America’s. When they first proposed doing so the skeptics continuously criticized them claiming there was no market. Now they are one of the largest producers in Indonesia.

They now have an additional product called Envirocoal-Warra targeting the huge emerging market for coal generated electricity in India.

An interesting point raised at another talk I attended was the potential for growth in coal generated electricity in India. It was stated that in the previous 12 months, China created an amount of coal fired electrical capacity equivalent to the entire Subcontinents total national output. This gives an indication to kind of demand that will arise for steaming coal. I don’t know where else this will come from except Indonesia. Australia is choked and the big producers are now net importers. I think these guys are onto something interesting.

[kambingramah]

Interestingly I was at the same conference. It is true that the market for these sub-bituminous coals is growign rapidly. Remember that Adaro's Envirocoal is 5200kcal/kg @ 25% moisture As received.


Wara coal is 4850 kcal/kg 31%Moisture (adb) that equates to 4147kcal/kg @ 41% moisture As Received. It is a completely different market point.

The Graha coal is broadly similar to the wars coal in Energy terms and a good place to start comparing.

I suggest people read www.dim.esdm.go.id/mak...
for some background. this will help them understand where this graha coal fits in the market. It will certainly help people to not see it in th e$67.80 market of an earlier contributor.

There are many many coal deposits like this in Indonesia. Quite a number of them, like wara are very large. Deposits of the order of a Billion tonnes are not unusual.

Finding anyone making a large profit per tonne out of them is unusual today. the holy Grail is coal upgrading technology whereby the moisture is reduced and so the As received energy enhanced. There is a lot of activity in this area with Adaro and Arutmin investing in trial plants. the Bayan group has partnered with White Energy to build a commercial plant not far from the Graha deposit.

If and its a big IF this works at a competitive cost then things get interesting for these deposits.


A key piece of information missing from what Kalenergy has reported is the strip ratio.

I noted that in the announcement there is a comment that there is no reliable topography data. Without this strip ratio cannot be calculated. My Back of the envelope would say that at anything over 5cum per tonne this deposit would struggle to make money. It would be most interesting to find out how much of the reported 204Mt is withing this strip ratio limit.

I wait more information from the owners with great interest.

[kambingramah]

where did all the optimists go?

[rolf]

You've made some interesting points, but your last two comments send your stock plummeting.

It's disappointing to see you lowering the tone of your comments to sarcastic baiting.

[hernandez.j7]

i supposed they have lost interest in this chat site since all comments are heavily biased one way or another, has anybody spoke with the company etc ?

[kambingramah]

interesting. Given the rapid and vey public response to Kalenergy from Mark's initial article they have been curiously silent.

[dlfordfff]

Mr. K,

What do you currently think about KALG.OB as an investment. Do you think it is worth speculating on with some risky money. I only put 10% of my money into speculative companies.

Thanks in advance, I know a certain amount about coal. What I found interesting in you posts was the moisture content percentages and how it devalues the believed prospect.

Take care, DL

[dlfordfff]

PAUL HENDRY,

Just curious, are you someone that I know from Investorvillage.com from the CANROYS message board. If not sorry I bothered you.

DL

[sicophiliac]

I am curious if the grade of coal KALG has stated in the JORC report would be classified as lignite coal ? In response to kambingramah looking at Kal Energy's official website they do have maps that give topographical information on the blocks of land they have rights to. I have also google maped the rough locations of the blocks they have rights to and have found the topography to be relatively flat. Variations in elevation rarely go up more than 100 feet or so. Also they have some information on their site stating there are indications of a "low strip ratio" Perhaps somebody who is much more knowledgeable when it comes to geology and coal mining could take a look at that. BWT that pdf file on the Wara coal reserves wouldnt load worth a crap on my comp. I did some other research and found that there is some growing demand for the lower grade Indonesian coals due to environmental benefits of the low sulfer and ash content. Also Kambingramah you should look at the numbers on the test results from the coal from the other land block they have. In my admittedly ignorant opinion they look to be much better, higher caloric values/ lower moisture content ect.

[kambingramah]

in the resource report it is clearly stated that the topographic information in the companies possession is unreliable.

this is entirely normal in Indonesia where the best quality government maps are 1:50,000 scale and generally accurate to +/-25m. The sorts of features you have pointed out from Google earth can be almost entirely absent from such maps. It is normal for operators to commission survey themselves. It is generally accepted that given the coverage by foilage Laser survey is the best method for Kalimantan. That is all ahead of Kalenergy

Why is this significant. I have tried to prepare a little table below to show you. I have used the variation you report of 100 feet ( say 30metres). The resource report is a little unclear on the average thsicknees. It just reports a range. I have assumed a 5m thick Graha seam being well above the mid point of the reported range. At 30m the strip ratio is 4.6bcm per tonne. At 60m its 9.2

That is the difference between being interesting and being uneconomic at the grade of this deposit.

OB Depth Seam Thickness Seam Tonnes Strip ratio
30 5 6.5 4.6
60 5 6.5 9.2


Yes there is an emerging demand for these types of coal. There is no denying that. The question ultimately comes down to the total landed cost of energy. I am sure there are people on this board far more knowledgeable than me on that subject who could perhaps educate us on this. A good USA example would be the Powder River Basin in Wyoming. There is huge demand for its coal but the sale price is pretty low compared to Appalachian coal.

Now that you mention Blok 16 I have had a closer look

Yes the sampled coal quality looks good and by itself would attract about $50/t FOB vessel in todays market. Blended with Blok 24 on a 1:1 basis would give something like the Adaro envirocoal people quote so e easily $40/t.


Thats where the good news ends,

They spent 90 man days in the area and 190 man days in block 24. They found a fraction of the outcrops of coal in Block 16 compared to Block 24. this will give you an indication of the relative prospectivity of the areas

A key reason for this is that the coal is likely to continue under the low lying areas - aka the swamp.

What coal they have found is generally thin except for one nice 3.5m outcrop. The dips are very steep, 50 degrees being normal. This tells me that economic tonnes are likely to be small as the coal gets very deep very quickly.

The range of dips and dip directions is curious as well. Too little information to draw any real conclusions but given elevated energy I woudl look to tectonic activity (faults etc) as an explanation. this would tend to lower prospectivity.

It will be interesting to watch as the area is drilled.

[sicophiliac]

Ok forgive my ignorance but could you explain a bit more on what strip ratio is exactly? Is it the ratio of top soil needed to be stripped in relation to the amount of coal recoverable underneath? I wasnt too sure what was implied in your statement about the topography and its significants, I thought maybe if there were huge mountain ranges or canyons in the block it would make things a lot more difficult for them. That clearly is not the case but apparently smaller variations in topography are critical.

Looking at what you have said about the two blocks is it fair to say they have likely have a lot of the low grade coal and a little bit of the good stuff? I agree that the results from testing of block 16 will be interesting, they could very well make or break this company.

[kambingramah]

No problems Sicophiliac. Strip Ration is the amount of waste material that needs to be moved for every tonne of coal. So a strip ratio of 4.6:1 means that to get 1 tonne of coal you must remove 4.6cubic metres of rock.

Now as each cubic metre of rock costs you $. The higher the strip ratio the higher the cost of producing a tonne of coal. In Indonesia the costs of contract waste removal range from about $1.40 for small scale local contractors up to $2.20. A lot depends on the scale and style of mining.

In any case you can see that going from 4.6:2 to 9.2:1 strip ratio adds 4.6bmc so between $6 and $10 per tonne to the costs of production.

Given the low sale value of this coal as-is these numbers are pretty significant in terms of project economics.

your summaryof "a lot of low grade coal and a little bit of the good stuff" is about where I see it given the current information.

[sicophiliac]

Do you know if Indonesian coal from this region typically has a low strip ratio or not? Also if the strip ratio is low then in your opinion should these guys be able to profitably get this stuff out of the ground? Even the low grade coal.

[kambingramah]

Typical is a difficult word to apply to strip ratio. There are large low strip ratio operations next to small high strip ratio deposits. Its not something that can be easily generalised.

[Lisa]

Pity the article has been temporarily removed. Note the volume of comments, the level of animosity to the author, and the failure of most of the critics to address the substantive points in the article.

[kambingramah]

does anyone know why it has been removed?

[danarog]

Note from SA Editors: This article has been temporarily removed pending further clarification, due to a complaint by the company.

[kambingramah]

yes spotted that but I was just wondering about the grounds for the complaint. Was there anything in that article that is inaccurate or misleading? As you may have gathered my expertise is on the technical side of coal geology and mining engineering and not the market finance side. Hence the interest.

[sicophiliac]

I think the main concern brought up in the article was the possibility of share dilution. Other than that most of the points made seemed to be criticizing the fact that KALG was a new company and did not yet have the typical laundry list of things that would make them a save established investment. I mean no earnings, no guarantee of financing yet ect ect. Is that not the case more or less with any new company ? Also and I am biased since I own some shares, what new start up doesn't engage in a little hype to build up market capitol ? In all honestly I cant see how saying "avoid this stock at all cost" can be justified.If you want a stock to avoid at all costs try EBOF for example. Its a risky play for sure but that comes with the territory of penny stocks. However, they seem to have quite experienced management and they do have a decent amount of coal in their blocks of land.

[hernandez.j7]

I tend to agree, what puzzled me is why a financial journalist would write such an article without even contacting the company (according to them). If he did he would have known about the impending report etc....I may be skeptic but it does bring into question the integrity of the article and therefore it can be taken with a pinch of salt…That too can be added to his soup recipe

[kambingramah]

what puzzles me is why the company has never responded to the serious technical issues in the underlying project. Forgive a simple mining professional but I would have thought that the issue of whether the project will ever make money or not woudl be more relevant. The company has not chosen to respond to direct questions or to posts. This is interesting to me when compared and contrasted to the original article.

[freeboof80]

Sadly, kanmingrham (whatever it means) you are realy a simple mining professional with a very vindictive and superficial attitude. People like you should just relax and worry about their simple things. You seem to pose as an expert but what you really do is to put your miserable comments for whatever reasons to ruin some people who want to start something different. If you have no positive contribution why don't you just butt out of this and let people to decide what they want to do with their destiny? Did you work on this project before or what? you seem to know an awful lot about it, where is that coming from??? Please let us know, i'm waiting for more info. Thanks.

[kambingramah]

and your point would be Mr Freeboof80?
Are you suggesting that people should invest in Mining projects without the benefit of advice from qualified and experienced mining professionals.?
Of course if people wish to do so then that is their choice entirely.

why that woudl then translate to personal attacks against me is not entirely clear to me but I am happy to listen to why.

[PugsleyAdams]

Hehhe Kambing means Goat in Indonesian and Ramah means friendly...mmm friendly goat indeed.

caol prices are soaring in Kalimantan now with 5800/5600 TM 26-28% approximately USD44.00 per MT FOB Vessel and 6300/6100 is at USD61.00 - 63.00 per MT FOB MV - so, not a bad increase over the last few months. If you have operating coal mines in Kalimantan at present, you would be "killing the Pig" not the Kambing as one would say...

i have read through this feed and interesting from all parties to say the least