Ann: Trading Halt, page-51

ORE is making plenty of money- $US 229 million in cash in the bank after deducting its share of current project debt and rapidly paying off Stage 1 debt. The small headline profit is due to accounting requirements such as future tax obligations, reduction in capital asset value due to peso devaluation, and ORE taking the opportunity to put the balance sheet in better order for the future by writing down the value of the Borax operation (which actually has an improved outlook) to zero.

The first question is whether ORE is undervalued. I think most people would agree yes (especially TTC who were happy to pay $7.50 per share earlier this year).

The second question is why. Seems to be two main reasons - market nervousness about Argentine economy and sovereign risk, and shorting activity. Market nervousness about Argentina is valid, but imho is likely overblown- they would not shoot themselves in the foot by crippling the Olaroz business or its planned expansion.

So what is the case for buying back shares?

First reason is that the company believes the share price is undervalued, so that purchasing shares increases the intrinsic value of the holdings of investors (that don't sell). So what is the current value? Most broker valuations are $6 or more I believe, but say $5. Current price is $3.55, so using cash in bank to purchase shares returns around 40% (5.00/3.55) if the share price returns to fair value in the longer term. 40% is a lot more than the interest they are currently getting on their cash horde to say the least!

Second reason is that it will stop the ability of short-sellers to manipulate the share price down, and likely send them elsewhere to greener pastures. I reckon just the announcement of a share buyback program might be enough to send the short sellers packing.

Downside is that ORE may need to raise some capital to fund Stage 2. This would not be difficult with ORE being a proven producer with one of the lowest production costs i the market. This may not be the case, however, since the largest component of Stage 2 costs is building the ponds, and much of this cost is in pesos so will reduce the overall $US project cost due to devaluation of the peso.