Ann: NexGen Due Diligence Complete - Outstanding Results Achieved, page-392

Hi Hawks. It is a good question, and difficult to answer as the effects of dilution on SP can be difficult to predict. First lets do some math, and the numbers are a little hard to get a handle on so I hope i'm on the money here;

Currently we have 370,884,867 shares on issue. A mixture of the listed and unlisted options are being converted but what you need to know is roughly 229 million are left to be converted

a further 240 million shares will be issued when the deal is done and 160 million performance shares will be issued at that point, but only come into play when certain conditions POST the deal being done are met. In valuing a coy we need to decide which of these amounts to include in our current valuation.

Generally speaking unconverted options wouldn't be included, as the cash they bring in currently isn't reflected in the coys books. It would be reasonable however at this point to include at least the listed options given the likelihood of conversion and the close expiry date BUT you need to take into the account the cash they will bring in, about another 4 million dollars.

I would certainly include the 240 million shares which will be issued when the deal is signed but you wouldn't include the performance shares, as these only come into play when certain "value adding" events happen to the coy. I would suggest working on a current issue number of roughly 610 million or 770 million including the options (but add $4 mill to the coys value if you do). It is definitely not the 1 billion shares that some people are suggesting. This gives a mcap of either 32 or 40 million. I hope this makes some sense.

Certainly the options converting has seen some selling pressure but this will ease, and remember, just converting options doesn't mean people want to sell them. I don't think the performance shares will make much difference, they'll probably be tightly held by the directors anyway and they'll only come into play once those value events happen. The remaining unlisted options represents around 10% of the number of share I've included in the mcap calculations above and I can't imagine would have a big effect of SP, even in a ST sense.

There is no reason this company couldn't be valued closer to the 100 million mcap right now, which gives us a great deal of potential appreciation on the current mcap even including the upcoming issue.