Cohen Research Report Bullish on Pacific Asia China Energy

By: James Finch
Submitted: 2007-01-17 16:16:38
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A recent report published by the Cohen Independent Research Group positively rated Pacific Asia China Energy. The firm's 68-page research report set three wide-ranging valuation levels as price targets for this company's shares because of its coalbed methane concessions in China. Considerations such as the wide range of the Guizhou’s abundant gas reserves, expected prices of natural gas during the research firm’s forecast period, and discounting factors, such as the stock price’s high volatility, were included in their price targets.

Cohen Research likes PACE, the acronym for Pacific Asia China Energy, because the company has one of its concessions is in the Guizhou province of China. Estimates describe this Chinese province as hosting more than 20 percent of China’s coalbed methane (CBM) reserves. The country’s total CBM reserves have been independently estimated to exceed 31 trillion cubic feet.

Cohen assigned a long-term fair market pricing of C$1.96/share for the company based upon its reserves. This assessment was under the most pessimistic scenario. The low-case scenario included a natural gas price as low as $275 per 1000 cubic meters, and included a discount rate of 25 percent on the stock price. Cohen also reported, in the report, that at the current market price, PACE is “grossly undervalued.”

The research firm's highest scenario for NAV was an optimistic target of C$11.56/share, based upon a natural gas pricing of $375 per 1000 cubic meters. Cohen Research used the Net Asset Value (NAV) based method, which is one of the most accepted methods to value mining companies.

The firm explained that PACE was the first Canadian publicly traded company to participate in China’s granting of CBM concessions. PACE is participating in the Baotian-Qingshan CBM project through its wholly owned subsidiary Asia Canada Energy (ACE). China’s state-owned CBM company, China United Coalbed Methane (CUCBM), granted the 970-square kilometer CBM concession in September 2005 to ACE. The Baotian-Qingshan concession is located in the CBM-rich Guizhou province.

The Cohen Research NAV levels confirm an earlier assessment by Sproule International on the Baotian-Qingshan property. Reports filed Sproule suggested three scenarios in a technical report the engineering firm released last winter. The worst-case scenario on the property showed 504 billion cubic feet for three coal seams. The high case volume scenario for seven coal seams reached as high as 11.2 trillion cubic feet. Sproule’s assessment, called the “Most Likely Case volume” estimated 5.2 trillion cubic feet. Some analysts have valued each trillion cubic feet of gas at C$1 billion market capitalization.

Cohen Research did warn of negatives in making a hypothetical Bear Case for PACE’s projects. The research team wrote, “Commercial viability has not yet been proven.” The report also pointed out that technical studies were insufficient to “accurately assess the quality of CBM” to be extracted. Current drilling is underway on both CBM concessions so we'll discover how bullish or bearish this case might be. From what we understand, a final report may not be available until this autumn. Yes, it does take that long to properly evaluate a large CBM or gas property. A recent gas discovery by Husky Oil in China is now under review by China's state-owned oil and gas company.

James Finch contributes to StockInterview.com and other publication. Sign up for our free update service. Just visit http://www.stockinterview.com for details. For more information about the Cohen Independent Research Group’s report on Pacific Asia China Energy, visit: http://www.cohenresearch.com

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