DRK 0.00% 1.2¢ drake resources limited

just a theory

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    Conspiracy theories aside, this may be a better explanation of the recent share price action in both GMR and DRK/DRKO

    The two companies will ultimately have about equal equity in the Bergslagen / Falun copper-gold projects, but DRK is by far the better entry, for the following reasons:

    a) It is free-carried to for the first $US6.0m by GMR and partners

    b) It currently still has 100% ownership and operatorship, and would retain this if GMR were to stop spending

    c) Its Market Capitalisation is about 25% that of GMR's so the upside potential is far superior

    Now both DRK's and GMR's share prices have suddenly fallen to surprisingly low levels (GMR to below the recent placement and current SPP price of 13c), and the DRKO options are unsurprisingly close to worthless, being 4 days out from expiry with the mains trading at the option exercise price.

    Now why should this be? Is the project suddenly no good??

    No! The project is still fantastic and the drilling, though a little slow, has been going extremely well, with results exactly as expected, confirming the historical drill results and assays at the Falun mine.

    So what is happening?

    Well, the best entry to the project is and always was DRK, and the cheapest way to get hold of DRK shares up until last week was to exercise one's options at 20c (either free at IPO or bought very cheaply since then)

    So a large part of the recent sell down of DRK mains from the high to mid 20s has probably been people who own both DRKs and DRKOs selling the shares at prices above 20c to exercise their options at 20c: the usual arbitrage activity as options expiry approaches.

    And equally, for those who hold both GMR and DRKO options (which many GMR shareholders may have decided is a good idea, given the superior leverage of DRK/DRKO), what more obvious thing to do than sell some of this years 3c placement DRK shares at a handsome profit, and use the cash to exercise their DRKOs.

    This is just a theory. But it is the only way that I can make sense of the recent sell down in both GMR and DRK, and it does make sense: there are far more DRKOs on issue than have been sold during the past month, so there must be a lot of people who have been raising the cash to exercise the options that they are not selling.

    And equally, why would you tip more money into the GMR SPP at 13c when you can get so much more leverage to Bergslagen/Falun by using those funds to exercise your DRKOs?

    This of course assumes that the holder understands the true value of the Bergslagen/Falun projects, the complete irrelevance of the slower-than-expected drilling, which is due to hard rock and mine cavities, and the very great significance of the confirmatory assay results that have been obtained from the drilling so far.
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