This is a copy of a comment I posted 3/3/12 that is relevant to...

This is a copy of a comment I posted 3/3/12 that is relevant to the current capital raising. As much as any of us may dislike dilution of our equity position, adding debt without the cash flow to cover it would seem to have much greater potential to do shareholders harm, as our interest is subordinate to that of a lender. The original 3/3/12 post:
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I caused a minor kerfuffle by suggesting the dilution caused by the Tomingley project capital raise was akin to diluting a beer with a shot of whiskey. So I emailed Alkane and was surprised and pleased to hear from Mr. Chalmers himself. He replied in less than a day and kindly agreed to allow me to share this on Hot Copper.

My query:

Dear Sirs,

I am a long-time shareholder in Alkane Resources and I have a question regarding your recent share placement. I follow your company through the numerous presentations and information on your website as well as Mr.
Chalmers numerous interviews (include the 12 February Ellis Martin interview).

A discussion of equity vs. debt has just come up on the Hot Copper market forum and I wonder if you might shed some light on Alkane's position. I have posited that a share offering in the current environment is preferable to debt financing. Others complain about dilution of shareholder value but I see it as "diluting a beer with a shot of whiskey" as it financing that will eventuate into cash flow without the burden of debt payments in an uncertain macroeconomic environment.

Does Alkane have a position on the value of debt vs. equity that you can share relating either to the current Tomingley project or future DZP financing?

Sincere regards,

His reply, in full:

Thank you for the email and I am pleased to hear you are a long term shareholder. It is a difficult and complex issue weighing up the debt vs equity issues and it was a matter that we spent some time discussing internally. One of the keys is the security/covenants/conditions precedent that financial organisations attach to debt. Even for small facilities such as what we are considering for the Tomingley Gold Project may have requirements that will prevent managing the rest of the business in a manner that is best for the shareholders. Debt can also become expensive particularly in tight financial markets.

After recently completing a road show into London, New York, Toronto, Sydney and Melbourne we felt that the market was very receptive to an Alkane equity issue. We thought the mix of rights to shareholders and placements was a reasonable arrangement, particularly with the placements bringing in some large international funds that could be very important in 12 months time when we look to finance the larger Dubbo Zirconia Project.

We did consider delaying the issues until perhaps some more positive news might boost the share price but the volatility in the markets are still great and we could not justify taking the risk. In other words the dilution was a better outcome than delaying the two key projects, or submitting to unreasonable debt constraints.

I hope this helps.

Regards
Ian

I greatly appreciate Mr. Chalmers' gracious reply. It clearly demonstrates a sincere concern for shareholder interests.