Ann: Gulf on Track for First DSO Sales, page-44

TT2000 - Be fair!

The numbers that I posted yesterday already included the earnings dilution due to the 75% ownership level now. The conversion from USD back into AUD clearly bumps the bottom line figure higher when talking in local currency terms.

You have suggested on various occasions on this site that the CIs tend to walk before committing and you wonder why. As you would know from having worked up in Indonesia yourself there is always a game of power and face going on - the locals seem to think that they can strike a deal and then walk away from it when they can't get improved terms based on their requests. We know that Pak Marten offered too much at the outset, tried to renegotiate, failed to get terms that he wanted so walked away from his deal - he clearly never heard of "Dictum meum pactum"! Next investor got spooked by the moratorium on illegal mining and ran for the hills - as we now know GMC is not a miner and has no deals with illegal miners for future supply. And then we come to current CIs. Precisely why the Indonesian investor failed to exercise his options is beyond me as it effectively increases his "in price" from $0.01 (head stock and options) to $0.015 - bizarre actions I will agree. Having put in well in excess of $10mil into the combination of GMG and GMC I don't see that he is running away from anything - especially when you consider that his conversion of his con notes in the indonesian company (secured by the smelters) into unsecured equity suggests to me confidence in the eventual outcome and profitability of the venture - why else do you dump security? The positive message that he sent to the market through that conversion was unfortunately canceled out by his non conversion of his options. Damned if I know why he did it. SingCo always had some wriggle room in what I consider to have been a badly worded term sheet so they have managed to extend their option exercise out to next year - lucky them.

So, has HB messed up? I really don't think that he has. I believe that the difficulties surrounding getting DSO approved were totally misunderstood so I think that you can lay the blame for that at his feet - problems dealing with Indonesian bureaucracy and local ownership levels. Had he banked on the vast majority of the last options being exercised for his cash flow purposes? Yes he had - in error as it turned out - easy mistake to have made when the options were trading so far in the money. Still, it turned out to have been an error and thus the need for the last placement of shares to replace that missing cash. My spreadsheet had always assumed 85% conversion of the options so I haven't really had to change my assumptions of shares on issue. Has he worked tirelessly on shareholders' behalf to get this deal over the line? Absolutely. Would other CEOs have walked before now? Absolutely. Is he a wealthy man that can find $$ to pay for his option exercise - I don't believe so - the man owns one suit and travels economy class! As his often badly worded releases state he is now talking to various banks about borrowings that were impossible to even dream about pre DSO.

So, I am guessing that HB is praying to the same God that ScoMo was praying to last week as both of them have been on the good end of miracles lately!

We are now looking at a completely different animal today than we were looking at 2 weeks ago. The DSO sign off is transformational. The funding discussions with the banks will be equally transformational - at which point I believe the stock will seriously rerate. Is it possible that there are further conditions attached to DSO? Possibly - I just don't know. Time will tell.

I really do not know of another listed stock that is probably trading on a 2021 EPS multiple of less than one - and that does not include any earnings from smelters 3,4,5,6,7 and 8!!

DYOR