Hi Cabe,I am not sure you are correct. By sitting on its...

Hi Cabe,

I am not sure you are correct.

By sitting on its position and allowing ADT to do all the spending, where does that money come from ?? CR's. SFR clearly is not being allowed to participate in the CR's more than its entitlements allow.

Every $1 spent on exploration / development will likely have a multiplier effect on the value accretion. For example, I read a presentation from another developer yesterday whereby every $15k of exploration added $200k to its valuation, as measured by a subsequent and successful TO offer. SFR, by sitting tight risks this occurring with ADT. Imagine $10m being spent in exploration adding $130m in valuation (in keeping with the above example). SFR loses.

Secondly, with c. 16% position, capped to 19.9% you may be correct in that it prevents a competitive process .... if ADT was a mediocre minnow.

However, it is becoming increasingly clear that ADT has a world class asset that is growing with every drill bit put into the ground. I would also think that a lot of work went into the process that (a) allowed them to bid, uncontested, on the 32km of exploration ground around Vares, and (b) for ADT to be confident enough that it was worth their while securing that ground.

The prize is so great with ADT, I think the process is likely to be similar to Nevsun's Timok deposit where even though Nevsun had a JV partner in the deposit (lower porphyry) the initial bidder was trumped by the Chinese (and the JV partner didn't even bother to bid).

I would highly doubt that SFR would want to remain a 16.0-19.9% minority interest in a Chinese run operation located in BiH.

SFR, IMO, is close to being skewered in regard to ADT. They should have taken a leap of faith and taken ADT out a while ago. Now it is Common Knowledge that ADT have exceptional assets and the larger the prize becomes the more difficult it will be for SFR to outbid a larger predator with a lower cost of capital/ synergies/ regional experience.

This is just my opinion, but my firm was active in the market all day trying to increase our ADT position. It was very hard work. There are simply not the willing sellers .... and for good reason.

Cheers
John