Omagine

May we engage in a conversation on capital markets and how Omagine is using them?

Let's start by acknowledging that companies need capital such as cash. The question that follows is how they get it? A couple methods come to mind, those being: selling shares in their company (that's what we bought) or borrowing it (from a bank or by selling bonds).

So the next question that should pop into everyone's mind is, since a company such as Omagine needs capital, which is the best way for them to get it? I'll guess its best to get it where's its cheapest and most accessible.

This is where the conversation becomes tricky. To date, the primary way in which Omagine has chosen to raise cash was by selling shares. That seems like it was a good idea and they did so cheaply. By the way, the cash seemed very accessible too. So over the past few years, cash seemed cheap and accesible to Omagine. I know that cheap seems like a weird word to use when talking about cash but remember that Omagine isn't getting that cash for free, they've been trading portions of their company for it in the form of stock (what we all own).

Now we have arrived at the point in the conversation that Alton and Billy find so dear. That is, are shares cheap, expensive or fairly priced? Let's take a step back though and recognize the two sides in this trade (raising cash). Those being the company and one of us, investors. If I buy some stock in a company and I did so cheaply, then naturally we presume the company got the opposite of the deal, so it was expensive for them. They sold me something worth more to me than the cash I tendered for it. Now, we can argue both sides fulfilled their objectives, company raises cash and I got a promise of riches in the future but that's not the point of this conversation.

But let's really look at what happened here. I paid $1.80 in cash for a share of the company. Up until just recently the company had no intrinsic value to speak of, it was really just, as I said before, a promise that the company will be worth something in the future. So I paid $1.80 for a promise? Hmmm, doesn't feel like I got a great deal but I guess time will tell. On the flip side of the coin, Omagine got $1.80 and all they gave me was a promise. Suddenly it feels like Omagine got that $1.80 cheaply - good for them!

Now we come to our present situation. Omagine has announced the recording of assets in their financial fillings. So Alton (and I agree with him), would argue Omagine now has intrinsic value. That value being something between $23 to $40 per share, right? Hmmm, so if Omagine sold a share of the company to me for $1.80 when its intrinsic value is over $23, we could all agree that would be an expensive way for Omagine to raise that $1.80.

So, let's speculate. I will speculate that Omagine wouldn't want to sell something worth over $23 for $1.80. But we already agreed that they need cash, all companies do. It follows then that they would want to raise cash or capital through other previously mentioned methods, such as selling bonds or borrowing money. That's got to be cheaper than selling stock at the current market price of $1.80 to raise cash.

Omagine's most recent 10Q filing waxes poetic on their cash needs and timing for such. Based on that, it seems like they've got it under control and will be able to continue operations with adequate cash.

I want to take a brief pause from this discussion to clarify a concept. That is, the price of a share of a company may or may not, on any given moment correlate to its intrinsic value. Maybe it's cheaper, or maybe it's more expensive. Omagine, at present appears to be an egregious example of the divergence of share price and intrinsic value that can occur in an open market such as the one Omagine shares trade. Think about it, if the price of gold can go up and down minute to minute, certainly something as nebulous as a share of a company can as well. Shall we make the assumption that Economics 101 theory prevails and price is determined by supply and demand? If so, it seems obvious that there's plenty of supply of Omagine shares and not that much demand. To use the old expression, the market for Omagine shares is saturated, like Bill's week-old bath towels.

Back to the topic, here's a bit that's germaine to the conversation of cash. In Omagine's fillings, including the most recent 10Q, it's well documented that an agreement exists between Omagine (LLC) and its biggest independant shareholders, the Oman Royal Court of Affairs (RCA) and Consolidated Contractors Company (CCC). In that agreement RCA and CCC promise that they will collectively release ~$70 million in cash for Omagine (LLC) to use as it pleases. Perfect! I'd bet that cash infusion and the possibility of raising cash through borrowing is going to satisfy Omagine's cash needs handily with some to spare.