OK, I originally said this issue wasa Fail, but that was based...

OK, I originally said this issue wasa Fail, but that was based on the information included in the initial release,which led me to make a few erroneous assumptions. Now that I've looked at the T&C's I think it's actuallypotentially pretty good, provided the directors exercise their discretionscorrectly, although I still would have preferred a simple underwritten 1 for 4 or 1for 5 non-renounceable rights issue at between say 10 and 12 cents, with theability to take additional shares if there was an initial shortfall.

I figure the company wants to raisecirca $6M and I'm happy with that because it should (hopefully) facilitateraising the remainder of the project finance required to get Lindi intoproduction. Without this $6M the cost to do that (ie the interest rate demandedby lenders) would be much higher. The first $3M under the SPP is locked in (subject to the usual outs) and the $3M Top-Up looks likely if it is required, but it doesn't look locked in to me. I'm guessing that Patersons will have gone to itsclients seeking equal commitments to the plan underwriting and the top-up. Sofrom a project financing point of view it looks like the money will be raised.

After reviewing the T&C's, itseems to me that the full $6M can be raised under the SPP. The directorshave a discretion to scale back the SPP if applications exceed $3M, but I willbe very disappointed if they choose to do that. The total issue is limited to30% of 270M odd shares - ie circa 81M shares, which would raise $6M, even at$0.085, so if SH come up with $6M and the directors don’t scale that back to$3M then Patersons may get no shares and settle for the underwriting fee -which is still money for jam!

Larger shareholders (me, but onlyjust) are disadvantaged and will be diluted a bit, but management have morediscretions that will mostly come into play IF shareholders stumpup more than $6M. They can then give the whole $6M to SH, ignore SH whohave sold after the announcement and reward shareholders who have bought afterthe announcement. Rather than having an incentive to sell, SH actually have adisincentive to sell and an incentive to not only take up the SPP but alsoto buy on market. Patersons also has little incentive to massage the pricedown as the lower it goes the less likely they will get stock (again, subjectto the directors not exercising their discretion to scale back the SPP if itexceeds $3M).

The fall from 14.5c to 10.5c hasknocked circa $10.8M off the market cap, which seems excessive for a $6Mcapital raise, although jittery markets have obviously also been a factor.Locking in project finance on reasonable terms will be a big plus and if thisissue facilitates that then it seems to me that a major re-rating will be inorder if/when it is announced.

So, I'm changing my mark from Failto Good Pass because it seems to me that management has structured thiscapital raising in a way that should raise the required funds and at leastpotentially gives SH the ability to participate fully if they want to. It’s agood one for the little guys and if larger holders don’t want to be diluted,then they can buy more shares at what would now appear to be bargain basementprices! I did and it took a while to get them at what I think is a good price!

I will however drop my mark back to a Fail ifthe SPP raises more than $3M and the directors choose to scale it back to anythingless than circa $6M to give more to Patersons than they have to. SH should get the first bite and if they don’tcome up with circa $6M then there’s no point complaining about Patersons takingup the balance because we need the money and it’s got to come from somewherekiddies!