Ann: Proposed Capital Reduction and Return, page-27

As I said I like the leverage to potential success here. I’m not married to the stock, I just like having it in the portfolio because I don’t have many companies with explosive share price appreciation potential. When you have an EV of zero, success is by definition explosive because your EV starts at zero. Based on market capitalisation, if you reduce your market cap by returning money, any value you manage to add to your exploration projects (which by the way are currently valued at zero) is magnified so more interesting to investors.

Let’s take an extreme example to highlight this for you.

Say a company starts with $100 million in cash and a greenfield project worth zero.

They spend $5 million on exploration on the project over two years and the market values that exploration at $15 million, ie they end up with $95 million cash and a market cap of $110 million. Market cap increases by 10%. This is very ho hum for investors.

Take the same example using $10 million in cash and a greenfield project worth zero instead.

Company spends $5 million on exploration in two years and market values that exploration at $15 million (same as previous example above). ie they end up with $5 million cash and a market cap of $20 million. Market cap increases by 100%, investors prick ears up becaause the company has performed.

Not a hard concept to understand, even for you.Esh