what's next?, page-15

Hi JD,

I don't have a strong view one way or the other re: the rights take-up level and Magna's resulting stake as I've taken a bet on the ball mill working and the price of silver at least holding.

I don't hold the fears of others re: Magna. I've been on the receiving end of some really ugly "major shareholder in cahoots with desperate / ineffective Board" plays, but this one looks different to me.

Magna has never sought discounted shares, a preferential placement, an onerous convertible notes arrangement etc ... All its done is agree to underwrite a rights issue for free and even disadvantaged itself in the process (explained in my earlier posts).

Given the prices it paid for its shares in the past and the number it owns, its probably further in the red than any other shareholder. With the stake it now owns, its perfectly reasonable for it to demand a Board position and better management oversight. Its previous investments in CCU have not delivered the production levels promised, so now it wants to make sure that this investment in the ball mill does.

As for the poor take up by other shareholders .... As an Aussie, I think its a shame we sell so much of our national assets at what I believe will look like firesale prices to future generations. But if we don't have Aussie investors willing to stump up for the long term, we can hardly blame international investors for filling the void.

Objectively (in mid April, prior to announcement of Rights Issue) CCU was a company:

- that was going to run out of cash before it became cashflow positive;

- was looking at an extra month to get the ball mill running than what has actually resulted;

- was operating with an AUD of about $1.04 and a silver price of about US$23.60 = AUD silver price of about $22.70

and shareholders thought it was worth about 24cps at the time.

Now CCU is a company:

- which has resolved short-term cashflow issues;

- has been endorsed by its biggest shareholder;

- has been endorsed by its lender;

- has got the ball mill up and running;

- is operating with an AUD of about 96c and silver price of US$22.60 = AUD silver price of $23.50

and for some reason shareholders think its worth less than 13cps.

Why? Maybe because there are more shares on issue and shareholders have had bad results with previous capital raisings.


However, to me it looks more like the average Aussie investor is more of a speculator. He/she will hold shares at 24c, but if offered the same shares at 13c, will try to get them for 10c.

- 200koz/month, great.

- US$24/oz and AUD <$1, great.

Both .... come in spinner.