IMO the attempted CR is a hedge against other corporate...

IMO the attempted CR is a hedge against other corporate manoeuvrings not panning out. It is now clear to me they are trying to package this one up for sale and they explicitly mention they reserve this right in body of the prospectus (p17). The announcements are pretty much a rehash of what has been reported recently. There are now even more questions that are posed by the lack of real information

The Entitlement Offer is quite smart actually, for a number of reasons:

1) Firstly it gives them time… time to deal with other corporates, whilst giving the shareholders something to think about.

2) If the offer is not taken up by the majority of the shareholders (which is the likely case, more on that later) then this leaves open the possibility of another corporate (so long as they have more than one share now) to take a 50% stake in the company at $0.35/share. Cheap. If this occurred the Board can blame the current shareholders for their lack of support. “We gave you a chance”.

3) The quantum of the raising has been specifically aimed at wiping out the debt, not fixing the problems. Why not raise less, run the mine and pay off the debt over time with cash flow? Most other companies do it that way. This is a clearest indication of a lack of conviction in their stated plan. And some members of the Board have a history of this tactic of building up a large treasury of shareholders cash.

4) The timing of the announcement was, most likely, planned weeks ago. You can bet any amount that the RED Board were on the phone with the North American instos minutes after the release (remember it can’t be directly released to the North American market). If they didn’t I’d be surprised. This gave them a few days over the weekend before having to handle the Aussie shareholders.

5) The fact the Offer is not underwritten is neither here or there. The catching mitt has probably already been put on.

So what’s the CR worth to the current shareholders? Now on an NPV basis about $2.35/share. After a $47.4m raising and taking into account the upfront negative cash flow contemplated by their ‘plan’ (at least $35m) must give about a total NPV of $220m or about $0.80 at current gold prices (down from about $2.35 before the CR). In the current market, this must relate to an SP of about $0.45/share give or take. The devastation of the SP comes from two sides, the dilution and the dramatic reduction of the NPV from the large additional upfront expenditure. Taking up the offer is therefore untenable for the current shareholders (for the risk and SP upside) but may appear cheap for the corporate. The RED Board would know this and have probably already presented this case to others.

When I got home from dinner last night and read the announcement, I pissed myself laughing at the statement in the prospectus that “Mr Jackson and Mr Milazzo have indicated that it is their present intention to subscribe for their full Entitlement (at 0.017% and 0.018% of the total shareholding respectively). My wife said I was still laughing in my sleep!