theories of share price falls, page-2

It is true that OXR shares have come under selling pressure recently.

The father of value investing, Benjamin Graham, said that in the short run, the market is like a voting machine--tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine--assessing the substance of a company.

My impression is that there appears to be a lot irrational votes against OXR in the short term driving the price sub $2 and in the long term the real value of OXR shall weigh the stock in at $6-5.

The forces that are driving the stock down are mostly temporary and a distraction.

• Confusion and Concern over the OZR ZFX merger
• Fear from an Australian bear market.
• Concern over high oil prices impacting costs of production.
• Oversupply of zinc in the market.
• Fear of China’s boom decline impacting the demand for metals.
• Carbon trading scheme impacting on the cost of production.
• A gas explosion in WA has impacted energy supply to the mines
• Credit Crises Recession from the US scaring investors into selling.
• Blow out in time or cost of mine projects due to lack of qualified people.

I wager that many of these effects are temporary because they are largely macro forces. They may have a negative effect but they globally apply to most companies. The strategy to overcome these downward pressures is to find value companies that are resistant.

I believe OXR is a value company because.

• It’s simple. Digs stuff up and carts it off to china
• Has a strategic competitive advantage with the mine assets, mix of resources and size of resource that it holds.
• Has a strong Statement of Financial Position and Statement of Financial Performance.
• Has a large amount of cash to invest in new projects.
• And most important has an experienced team.

The last point about the team is crucial because most companies are separated by the management.

Good management should

• Work to enrich share holders and not work to enrich themselves.
• Be frugal and not waste money as spendthrifts
• Be dedicated to improving shareholder value and rational allocation of capital
• Work toward repurchasing shares and not dilute existing holdings by issuing new shares
• Treat shareholders as Partners and not Patsies
• Is the Annual report straight forward or fluff?
• Are the managers honest with accounting, or do they appear to be hiding information and concealing numbers?

In terms of OXR it worries me that the management are claiming large amounts of money for termination payments and million dollar salaries that don’t seam to be forwarding the interests of the company. I feel happy that the termination payment did not go through and so in all this is a small concern.

The Marketing campaign behind the merger, techno rock video etc does seam to be a little exorbitant. As a counter point I expect a merger to impact on expenditure. It will be interesting to see if they are frugal with the billions of cash from Zinefex or if they waste it on non-core expenses.

In large I believe they are dedicated to improving shareholder value. Although we haven’t seen much in the way of share price increase lately I cant see away to blame management for this.

I don’t know of any new share issues.

It worried me that the shareholding meeting was controlled and that management appear to not respond to shareholders concerns. To be fair they are most likely under some workload from the merger.

I thought the Annual report and presentation from the meeting was not too fluffy. Although they did seam to talk more about there past accomplishments and ranking compared to other companies and potential markets. I would like to have seen more talk about generating value.

OXR accounting seams to be fairly open and transparent. There does not appear to be too many confusing foot notes and lots of value discussions.

In my view a sub $2 share price means an irrational Mr Market. The company is making profit and demand is strong. Prior to the merger OXR was $4 and ZFX was $8. The combination of the two companies equates to roughly $5-$6. The assets of those companies have not disappeared and the value should roughly be equivalent.

Alternatively a finance company is made largely of paper and has no assets to buoy value. Beer and Sterns can fall to zero as there are no underlying physical assets that can be sold to recuperate value.

The Markets for Metals are world wide and established. China has become a large market and won’t disappear overnight. Similarly the US, even depressed, shall require metals. I personally find it hard to see the loss of value.

Warren Buffet says buy and hold when Mr Market undervalues irrationally. A sub $2 OXR to me signals buy.

Ryan