trading analysis

Hi all,

Long time lurker, first time poster. Came across my radar the other day by chance. I've done a fair bit of looking into it of late, and thanks to all for their posts as they have really helped me in understanding the issues for this stock. Special thanks to MTW, JGPM, Noellyn, lionel007 and oze-wolverine.

Please note that the following are my musings only and not meant to influence anyones decision in any way. Please do you own research and form your own conclusions. I have no mining or technical qualifications and am only coming from this from a common sense fresh set of eyes point of view.

I like many of you think there is value here, both from the return on capital/dividend, but also the remaining assets post CCP sale. The issue as many of you would agree is where this stock will trade post going ex-dividend.

Before I take the plunge, I wanted to play devils advocate. I've come at this from a few angles and humour me with the following and feel free to provide any insight as to why i might be being too pessimistic or missundertanding.

1. As many have highlighted, JPM (UK) has been selling the stock over the last 18 months, but the selling has picked up in earnest over the last 2-3 months. As you will all be aware, JPM (UK) came into the stock in Nov 09 for 24.5c per share. So every share they sell at current prices, they�ve made 2.5 times their money. Based on my calculations, ignoring inflation, they will have gotten their initial investment back by the time they get down to 5%. Therefore all the shares they sell will be profit. Assuming they will continue to sell down their shares to a 0% holding, they will be wanting to maximise their sales price, but won�t be holding out for a precise number as they are already in profit. I think the share price action in the first Fri-Tue period is reflective of this (when the ASX was performing poorly, the selling put pressure on the stock as there wasn't buying strength as compared to Wed-Thurs). If you assume that most of the selling is JPM, the price dropped 1c per day for 3 days. Given they have only sold 12m shares out of a total of 31m they held originally, they are less than half way there. Until the dividend is announced, i wonder how much more (retail) demand there is for such a large number of shares? In the last month, there have been 17m shares traded, so assuming they aren�t the only sellers, it might take them at least thtat long to completely sell down. That�s a long overhang and presumably put more pressure on the stock post dividend as there will be less support for the stock from people buying it for the franking credits? I note that some people have mentioned the stock will rocket once JPM is out, but that is a long way away!

2. My next question is why are they selling now and not waiting for the dividend and return of capital? Others have mentioned that they have no incentive to hang on in because they will not receive the franking credits due to being a non-resident. However, while this may be true, they will still receive 38c per share in cash, plus own the shares post dividend. What this says to me is that at current prices, the total value to they are receiving at the moment (call it 62c-64c) is more than the 38c plus their view of what the share price will be post dividend. This implies that JPM may think the residual value is materially below 24c, as presumably if it was marginal you probably wouldn�t bother, given they have to sell such a large stake.

3. JPM obviously think that there will be no takeover offer from IVA or others, or if there is, that it won�t be at a price much higher if at all than where EXS is currently trading. Otherwise you�d probably hang on wouldn�t you? In addition, given the size of their holding before they started selling, call it ~8%, you would suggest that they would have had detailed discussions with IVA about whether they were interested in buying their stake, because it would be much harder for IVA to buy an 8% stake from hundreds of retail shareholders than one institutional shareholder. I know there have been rumours in the past about IVA making an offer. Given the proximity to JPM�s selling (rumours were earlier in 2011 from what i can tell), you�d suggest they would�ve canvassed out IVA then if not before.

4. If you look at the trade history of when JPM has sold, and which brokers have been the buyers on those days, it is predominantly retail brokers (i.e. Etrade, Commsec and Macquarie Retail). Shaw, Patersons and Ord have also been in there, but to a lesser extent and I�m not familiar with whether they are predominantely retail/insto brokers (does anyone know?). None of the other substantial shareholders have increased their holdings, so suggests they don�t see a big opportunity here either?
While I�ve focussed on JPM above, I think this applies to Aus Ore as well, as you�ll recall they bought in at $0.30 in Aug-10 and I think someone mentioned they are a non-resident also.

5. Not a big issue, but regarding the options, some people have mentioned that it is good EXs gets the extra cash. However, as the shares are issued at a price below the current market price, that makes the value of the existing shares worth less (e.g. if I have one share worth 62c, whose only asset is cash, and issue one share for 40c, I now have $1.02 in cash, but there are two shares outstanding therefore the share price is 51c all things being equal). While usually it would be good for a development company to get cash, in EXS' case, they dont really need it so all it does is dilute the value for existing shareholders which is not a good thing. However, not material overall.

6. Post the dividend, what are the other big shareholders going to do. As mentioned above, JPM bought in for ~24.5c, Aus Ore for $0.30, but all the other large shareholders have bought in well below current levels, Cooke - $0.19, Sol - $0.38, IVA - 35c (although I can't find what they paid for 18m worth of shares they bought). This says to me that post the dividend/return of capital, they will all either already be in profit, or have very low implied entry prices. As with JPM, this may mean they have less incentive to maximise their sales price. Given the best asset is gone now, and the market cap of the company will only be ~$84m, I wonder if there is less incentive to hang on, and therefore there will be significant overhang in the stock?
Not sure if anyone has a view on the above? Discussion welcomed, and please let me know if you disagree with my calculations as I may have stuffed them up!

Finally, does anyone know who the other large JPM (Aus) is nominee for, i can't seem to see a substantial sh notice for them? Also, does anyone know how IVA got the additional 18m shares between their May 08 and Aug 10 substantia shareholder notices? I suspect it might've been in Nov 09 when JPM (UK) got their stake at 24.5c, but a sub sh notice doesn't seem to have been lodged?

Thanks Guys