“Thin Air” Product Could Make you $7 from 59 cents.

By Travis Johnson, Stock Gumshoe, February 20, 2009

“You most probably use this every day… but you can’t see, smell or touch it …

“To the naked eye, this product is no more than thin air – so it might surprise you to learn that you could make money from it… really good money…

“You see, this “invisible” product could soon be Australia’s single largest export… and, right now, one little-known, Perth-based company sits at the centre of a government-backed multi-billion-dollar investment and development programme in Queensland…

“This thing takes off and, by 2011, this small firm could be making profits of over $120 million a year…. not bad for a company that has a market cap today of just $50 million!”

That’s how this ad opens for the Australian Small-Cap Investigator from Port Phillip Publishing (which itself is sort of like the Aussie version of Agora, not sure if there’s an official relationship between the two). It used to be edited by Dan Denning, if memory serves … the current editor is listed as Kris Sayce.

Let me start by saying that although I do hold a couple Australian stocks in my portfolio right now and I’m being (probably too) patient with them, they’re not really setting my pants on fire (thanks in part to the big fall in the Aussie dollar over the last year or so). So my favorite Australian investment at the moment is my new pair of Blundstone boots. Man, these are great boots.

But we don’t all consider shoes to be investments — I’ll stipulate that I’m odd. My retirement plan also depends significantly on a freezer full of frozen pizzas, but that’s just me.

Kidding! There are some burritos in there too, of course … diversification is the key.

So I’ll keep an open mind, and I know I have a lot of fabulous readers in Australia who might just be interested … and who knows, maybe the rest of us would like 1,000% gains, too.

Let’s see what they’re touting as a “thin air” investment that could make you a ridiculous return (I’ll go out on a limb and say that turning 59 cents into seven bucks is ridiculous, but that’s not to say I’d turn it down).

As you’ve probably guessed, the “thin air” product is natural gas — which is, of course, pretty much indistinguishable from air unless sulfur has been added, or you light a match. Even with the collapse in the natural gas market, though, it costs quite a bit more than air.

And the big profit potential that this ad talks about is Liquefied Natural Gas (LNG), natural gas that is supercooled and compressed for shipment. That’s because there are still some huge urbanized markets that have huge demand for relatively clean natural gas, but have no gas reserves of their own — principally South Korea and Japan, which are a relatively short LNG tanker ride away from Australia. And who knows, if Russia keeps swinging its big pipelines around in a threatening manner, Western Europe may need to start importing a lot more LNG too in the years ahead. This is slowly becoming a fairly liquid (ha!) international market, though it’s still far more local than the crude oil trade.

You’ll probably be unsurprised to hear that the Small Cap Investigator folks think that they’re getting you in on this tiny stock before the world takes notice, which is generally their raison d’etre — they say that “there’s a TON of upside in this stock” and that they “haven’t seen this kind of growth potential in a company for YEARS.”

The ad says that they see the worst case for this stock to be an advance to $2, which would still be a nice 300%+ return … and that they’re riding a huge boom in expected Australian gas exports, particularly citing the OECD in saying that Australia has “potentially the biggest OECD gas reserves left in the world…” and also noting that the LNG market in general is supposed to triple in size over the next 20 years.

Australia has been relatively late to the gas export game, partly because there hasn’t been enough infrastructure for transporting it, and transport was prohibitively expensive when gas prices were much lower than they are now — so they’re expected to peak as exporters in 20 years or so, while many politically friendly countries are long past their days of growing gas exports. We’ve seen LNG stocks touted before, from InterOil to Woodside to LNG Energy. This one we’ll look for today is definitely a different stock, so let’s see what we’ve got to work with …

The clues are thin — it’s a Queensland company, and it’s cheap based on forward earnings (“Our little Queensland firm is currently trading at 0.37 times potential 2010 earnings.”)

Mmmm, “potential” earnings. Tasty.

We fire up the Thinkolator and, based on those limited clues, get this answer:

Liquefied Natural Gas Ltd (Ticker is LNG in Australia — great ticker, trades on the pink sheets LNGLF but is probably extremely illiquid on the pinks, so be careful)

This was at 59 cents (Australian dollars) just a few days ago, but has driven up to 66 cents as of the last time I checked. This is, as the ad implies, not really a gas exploration or production company — it’s a middleman. They source the gas, they liquefy it, and they sell it on to someone else.

It’s possible that this isn’t the match, but it’s as close as I’ve gotten — LNG is at the right price, it’s the right kind of company, and it’s in the right places — they are headquartered in Perth, as teased, and their main project appears to be in Queensland.

I don’t know a lot about these guys, but it is perhaps a positive that they’re not gas producers, since they might be able to do better if the gas they source comes at a cheaper price — no guarantee on that, they may have long term pricing deals in place, but it’s worth investigating. Interestingly, their largest shareholder is Golar LNG, the fast-growing LNG tanker company, so they appear to at least have the connections to transport their gas, and Golar is a pipeline to the well-heeled Norwegian magnate John Fredriksen, so they may be able to get funding if they need it to build up their capacity.

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Golar has been investing in liquefaction facilities around the world, not just in tankers, so that’s another interesting company that you might want to look at if you like this “LNG middleman” space — I haven’t looked at them in recent months, and the share price has cratered, so be careful.

So … one for the consideration of my friends Down Under, and anyone else who likes the LNG business. If that includes you, feel free to share your opinions with a comment below. And if you’ve ever subscribed to one of the publications from Port Phillip before, click here to review it and let us know your opinion (don’t worry, it’s quick and easy).


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