Ann: Quarterly Activities/Appendix 4C Cash Flow Report, page-106

@specvestor Thanks for your kind words.

My problem is not that they should have used bank debt or bonds or other instruments. There is a lot to be said for small companies not using debt, and that is certainly a reasonable choice and one that I respect DRO for not making.

My problem was that, DRO seemed to view CRs as free money, not as a cost to shareholders. They issued nearly 100 million shares at 30c when they didn't need to. That extra $30 million dollars, has cost shareholders $150 million in equity - they effectively gave away more than $100 million dollars from the capital raising last year (at current prices). They then backed that up with another 100 million, and even after ramping up inventories they are still holding over $100 million in cash. They did need a capital raising, but if they had been more prudent, they could have kept the original one (@30c) around the 30 million share mark (as originally planned) instead of 130 million mark and then when they did the one this year 70 million shares (@80c) would have been plenty. DRO should have currently have 200 million less shares on issue and be sitting on about $20 million of cash.

The cost of that to shareholders is about 30%, more if you add in the free shares to management. Oleg also got paid more than the CEOs of BHP and DRO last year based on the value of those shares - that's a massive red flag for me. Personally, I won't invest in stocks that have such poor capital management. Sometimes that means that I'll miss out on a stock that does very well, but I became successful not through big winners, but by avoiding big losses. In over 40 years of investing I've only ever been wiped out once despite holding stocks like YPB, ABC, TIM, and WMT, that's why I have a lot of capital today.

I know a lot of people at this end of the market are looking for the massive winners, which is the opposite of what I do. I look for good, well managed companies that are growing and try very hard to avoid anything that doesn't smell right. Naturally, that means that I miss out on plenty of big winners, but I also miss out on a lot of big losers and means that my returns are pretty consistent.