Why Linc Energy is being crushed

Linc shares down more than 30% in last five days

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Linc Energy (ASX: LNC) has seen its shares slammed down more than 30% over the past five business days, after the company announced that it was proposing to delist from the ASX and list on the Singapore Exchange (SGX).

It seems investors aren’t keen on the move by the company and owning shares in a company listed on a foreign exchange. Linc says it believes a listing on the SGX will help to unlock the value of the company’s conventional and unconventional oil, gas and coal assets and its underground coal gasification (UCG) technology. The company says it wants to broaden its investor base and improve access to international oil, gas and energy investors, as well as improve access to capital markets.

But there could be other reasons contributing to Linc’s shares getting smashed, including an announcement that it is considering offering shares to new investors. That move is likely to dilute existing Australian shareholders, devaluing their shares and pushing the share price down.

Despite investing around $200 million to develop UCG and gas to liquids (GTL) technologies, the company has yet to establish a commercially profitable operation, and generates little in the way of revenues for the company.

But perhaps the biggest reason for the company’s low share price is that very few investors understand the company’s strategy and despite all the hype around UCG and GTL technologies, Linc has yet to post a profit, while raising large amounts of capital from shareholders and debt from its lenders.

As an example of a confusing strategy, Linc has built a portfolio of coal assets around the world, and recently announcing that Linc was going to purchase Rio Tinto’s (ASX: RIO) Blair Athol coal mine. But Linc and Mr Bond have repeatedly said the company wants to offload its coal assets, and was not a buyer.

Interestingly, Rio estimates that Blair Athol has around 10 million tonnes of coal remaining. Linc subsidiary New Emerald Coal wants to produce up to 3 million tonnes of coal a year, suggesting the mine has a life of just over 3 years – not much, and there is also the question of who will bear the rehabilitation costs of the mine once it does close. Rio currently has a $64 million bond lodged with the Queensland government to cover the rehabilitation, which is estimated to take around 5 years.

Cynics might also suggest the company has no focus and is too complicated, with diverse operations in the US, Poland, Uzbekistan, Australia, the UK and South Africa, with plenty of potential but many as yet unprofitable. Until Linc can generate a profit or positive operating cash flows, there will always be a question mark over the company’s assets, and maybe that should be the priority of the company, rather than moving to a different exchange.

Foolish takeaway

There are plenty of other companies listed on the ASX for Foolish investors looking for exposure to oil, gas or coal, including the likes of Woodside Petroleum (ASX: WPL) and BHP Billiton (ASX: BHP). Both companies offer a much better chance of sustained profits than Linc.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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