around the traps ... with the ferret

  1. 4,756 Posts.
    Around the Traps ... with THE FERRET
    08:14, Wednesday, 30 March 2005

    Sydney - Wednesday - March 30: (RWE Australian Business News) -
    ******************************

    The HHG buyback is obviously keeping a lot of investors up at
    night.

    Eric on the email says he has seen one prominent analyst
    advising HHG shareholders that they are being ripped off.

    However, Eric reckons if the analyst had bothered to do some
    basic arithmetic, he would have realised that shareholders will not be
    out of pocket, because if the shares are bought back cheaply, each
    remaining share should rise a corresponding amount, as the table shows.

    Current value of shares (say) ........ $1.52
    No of shares on issue ........ 1,733,600,000
    Market capitalisation ....... $2,635,072,000
    Buyback price (say) .................. $1.33
    Shares to be bought back ....... 901,472,000
    Cost of buyback ............. $1,198,957,760
    New market capitalisation ... $1,436,114,240
    No of shares on issue then ..... 832,128,000
    Value of each share .................. $1.73

    Eric says, "I know the HHG deal is a very strange animal and
    some of the process defies logic, such as the rounding to 500 shares (I
    wonder if you will only be permitted to buy in lots of 500 after the
    deal is completed!), but the buyback seems fair to me."

    *****

    Trading in FORTESCUE METALS GROUP (FMG) was reinstated
    yesterday and the price jumped all over the place following the release
    of the company's rebuttal/explanation of the newspaper report last
    Thursday which sent its price plunging and its shares into trading
    halt.

    The price fell as low as $3.05 and went as high as $4 before
    closing at $3.70, down 7c.

    That extends Thursday's pre-suspension loss of $1.28.

    However, we do not know whether it was a problem of translation
    or a transciption error, or even if it was intentional, but when FMG
    said, "Furthermore, in the AFR article China Metallurgical indicated
    that it was restraining from commencing production work until ... etc".

    Shouldn't that have been "refraining"?

    Fortescue is definitely living up to its meaning which,
    according to the Macquarie Dictionary, is "a small brown-banded fish of
    the Scorpion family, Centropogon australis, having spiny fins and
    spines on the sides of the head capable of inflicting a painful wound".

    *****

    Ferret wants to know where you line up for these lottery-win
    placements.

    As we wrote yesterday, gold explorer MOUNT CONQUEROR (MCO) made
    a placement on March 17 of 1.78 million shares at 7c each (with
    attaching free options exercisable at 10c) and a further 7 million
    shares at 7c (with options) on March 18.

    Mount Conqueror rose a further 2.5c to a record 16c yesterday,
    which means the "placees" (clients of Martin Place Securities) have
    more than doubled their money in 11 days.

    Even the options are showing a 60 per cent profit.

    By the way, after rises of 3c and 2.5c in the past two days it
    might be time for the ASX to lodge a query.

    Mount Conqueror started diamond drilling its Morning Star Gold
    Project at Woods Point in eastern Victoria.

    *****

    Still on placements and participants in MIDWEST CORPORATION's
    (MIS) $34 million handout at 37c a share are making even more money.

    The iron ore hopeful rose a further 24c to $1.09 yesterday
    (before plunging back to 91c at the close - the Fortescue effect?).

    However, in this case the ordinary shareholders share in the
    booty with a share purchase plan at 37c.

    The only black mark, as we pointed out nine days ago, is the
    fact that Midwest shot up from 38c to 63c ahead of the trading halt for
    the announcement of the capital raising.

    *****

    Some placements can blow up in the recipients' faces.

    Denis on the email writes, "It is interesting to note the
    current trend of many mining and oil companies that undertake capital
    raisings and offer heavily discounted share prices to 'sophisticated
    and professional' investors.

    "Well it's less than a week since the 85c offer price for 20
    million MOUNT GIBSON (MGX) were snapped up by these investors.

    "But thank to a rising US dollar, many of us amateur, small,
    retail investors have waited for the opportunity that now presents
    itself (MGX currently at 85c) and will yet be able to partake at
    perhaps a slightly cheaper level."

    Denis did not know how right he was.

    MGX slumped 11c to close at 80c.

    The fall was probably caused by some of those oh-so-canny
    buyers taking profits after having chased the shares relentlessly from
    63c on March 4 to 95c ahead of the trading halt on March 21 for the
    placement announcement.

    As well as the placement, managing director Brian Johnson
    advised that, after a series of meetings in China over the past few
    weeks, he was confident that subject to approvals being in place,
    development of 61 per cent-owned subsidiary Asia Iron's 5 mtpa iron
    pellet project in Nanjing would proceed before the end of 2005 and be
    commissioned in early 2007.

    *****

    Following the good news from drilling operations in Tanzania,
    shareholders of SUB-SAHARA RESOURCES (SBS) will be keeping their
    fingers crossed they don't run into another sovereign risk situation
    such as when Eritrea ordered it to cease operations.

    Sub-Sahara yesterday rose 0.1c to 5.4c and touched 6.8c after
    reporting a new gold discovery at the Mabale Hills Project in Tanzania.

    *****

    KENTOR GOLD (KGL) punters have also had an early baptism of
    fire on sovereign risk.

    The company's 50c shares were listed for the first time on
    March 18 and went as high as 58c.

    Yesterday the stock fell 8c to as low as 40c despite the
    company's reassurance it was business as usual in the Kyrgyz Republic
    despite political upheaval.

    (Comments and complaints to [email protected] - no requests
    for advice please.)

    ENDS

    Copyright © 2005 RWE Australian Business News. All rights reserved.
 
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