| A recent report published by the Cohen | | | | the technical report filed by Sproule. The |
| Independent Research Group, called Wall Street's | | | | worst-case scenario on the property showed 504 |
| #1 Independent Research Firm, rated Pacific Asia | | | | billion cubic feet for three coal seams. The high |
| China Energy (TSX: PCE: Other OTC: PCEEF) a | | | | case volume scenario for seven coal seams |
| Buy. The 68-page research report set three | | | | reached as high as 11.2 trillion cubic feet. Sproule's |
| wide-ranging valuation levels as price targets for | | | | assessment, called the "Most Likely Case volume" |
| PCE shares for the company's coalbed methane | | | | estimated 5.2 trillion cubic feet. Some analysts |
| concessions in China. Considerations such as the | | | | have valued each trillion cubic feet of gas at C$1 |
| wide range of the Guizhou's abundant gas | | | | billion market capitalization. |
| reserves, expected prices of natural gas during | | | | This valuation does not include PACE's other CBM |
| the research firm's forecast period, and | | | | concession in China, the Huangshi project, where |
| discounting factors, such as the stock price's high | | | | the company began drilling test wells in mid May. |
| volatility, were included in their price targets. | | | | Nor does this include the company's joint venture |
| PCE shares, which closed at C$1.16/share on | | | | partnership with Mitchell Drilling Services of |
| nearly 131,000 shares trading hands on June 19th, | | | | Australia for the exclusive use of the drilling |
| were given long-term fair market pricing of | | | | company's Dymaxion® system in China. We |
| C$1.96/share by Cohen Research. This pricing was | | | | interviewed Nathan Mitchell, president of the drilling |
| under the most pessimistic scenario. The low-case | | | | company, who was both optimistic and excited |
| scenario included a natural gas price as low as | | | | about his company's joint venture with PACE, and |
| $275 per 1000 cubic meters, and included a | | | | looked forward to expanding his drilling operations |
| discount rate of 25 percent on the stock price. | | | | into China. |
| Cohen also reported, in the report, that at the | | | | Mitchell told us, during that interview, his drilling |
| current market price, PCE is "grossly undervalued." | | | | company's technology made it possible to extract |
| Cohen Research wrote, "As per our Base Case | | | | gas for around US$1.25 per mcf. This would help |
| scenario estimates, the NAV of PACE's resources | | | | make potentially "uneconomic" gas more |
| falls in the range of C$5.31 - 7.83 per share (with | | | | economic under a very pessimistic scenario. |
| a discounting factor of 20 percent)." Under the | | | | Revenues from others using the Dymaxion |
| most optimistic pricing, assuming natural gas at | | | | system in China would flow into the coffers of |
| $375 per 1000 cubic meters, Cohen targeted PCE | | | | both PACE and Mitchell. Obviously this joint |
| shares at C$11.56/share. Cohen Research used | | | | venture is moving forward. On June 8th, PACE |
| the Net Asset Value (NAV) based method, which | | | | announced it had appointed a country manager |
| is one of the most accepted methods to value | | | | for the joint venture, writing, "Mr. Pacey will |
| mining companies. | | | | oversee all aspects of the joint venture activities |
| PACE, the acronym for Pacific Asia China Energy | | | | in China as the Joint Venture Company prepares |
| and not the stock's ticker symbol (which is PCE, | | | | to deploy Mitchell Drilling Contractors Pty Ltd's |
| trading on the Toronto Venture Exchange, or | | | | proprietary Dymaxion Surface to In-seam Drilling |
| TSX), is fortunate that one of its concessions is in | | | | System later this year." |
| the Guizhou province of China. Estimates describe | | | | Cohen Research did warn of negatives in making |
| this Chinese province as hosting more than 20 | | | | a hypothetical Bear Case for PACE's projects. |
| percent of China's coalbed methane (CBM) | | | | The research team wrote, "Commercial viability |
| reserves. The country's total CBM reserves have | | | | has not yet been proven." The report also pointed |
| been independently estimated to exceed 31 trillion | | | | out that technical studies were insufficient to |
| cubic feet. | | | | "accurately assess the quality of CBM" to be |
| PACE was the first Canadian publicly traded | | | | extracted. Current drilling is underway on both |
| company to participate in China's granting of CBM | | | | CBM concessions. On June 12th, PACE reported, |
| concessions. PACE is participating in the | | | | "Early stage desorption data from 12 samples |
| Baotian-Qingshan CBM project through its wholly | | | | show a range of gas contents between 105 and |
| owned subsidiary Asia Canada Energy (ACE). | | | | 407 scf/t (3.3 to 12.7 m3/t) after 4 to 19 days |
| China's state-owned CBM company, China United | | | | of testing. These values will be exceeded as |
| Coalbed Methane (CUCBM), granted the | | | | desorption will not be completed for several |
| 970-square kilometer CBM concession in | | | | weeks." |
| September 2005 to ACE. The Baotian-Qingshan | | | | The company appears on the right track and has |
| concession is located in the CBM-rich Guizhou | | | | been issuing regular progress reports, which are |
| province. | | | | encouraging. As PACE progresses to its final drilling |
| The Cohen Research NAV levels confirm what | | | | in Guizhou province, and as the price of natural |
| we anticipated. Earlier this year, we had reported | | | | gas recovers, we suspect Cohen Research will be |
| on the assessment by Sproule International on | | | | pleased with their price targets, as might |
| the Baotian-Qingshan property. On March 1st, | | | | shareholders in Pacific Asia China Energy. |
| PACE had released three scenarios presented in | | | | |