Berretta,The share buy back is exactly what's required right...

Berretta,

The share buy back is exactly what's required right now. You have observed that after CSL bought back shares the share price (SP) fell below where it was before the buy back. You also have observed many others. On this you're totally correct. It is not at all uncommon. Also, as you've agreed, this is not a causal relationship.

When you consider the situations when share buy backs (SBB's) are likely to occur, this apparent paradox becomes quite clear. As is the case with CFE, SBB's are typically initiated when the SP is flagging well below true value. This may be due to market conditions, general sentiment, sceptism and sometimes confusion regarding the stock and a swag of other causes resulting in a lack of demand.

The SBB artificially inflates demand and often the SP during the SBB. After the company has finished buying the shares back, and in the absence of a further impetus from announcements and so on, the pre-existing lack of demand re-emerges and the SP falls, at times below where it was initially. Not surprising given that the market had already been undervalueing the stock.

Running with the old adage that the market is a voting machine in the short term and a weighing machine in the longer term, ultimately the a company's SP approximates its true value. I certainly believe that to be the case with CFE. For example, when Marampa, Mayoko Sappes and Leichardt are sold, Pinnacle is floated ($?), others have become more advanced or sold as well, the cash and receivables are included, it's clear that CFE will be a multi-bagger. The sale of Marampa for 400-600m would hardly see CFE continue to be ignored.

Here's two scenarios based on a SBB at an average price of say, .50c, costing 27m (I think CFE can buy back 54m shares).

Scenario 1 - 27m is handed back as a dividend, equating to 4.3c per share. Registry has 626m shares.

Scenario 2 - SBB costs 27m and implemented before Marampa, Mayoko or other assets are sold.
- The big ticket sales that are slated to be sold in the not too far distant future are realised and the SP moves to $1.
- a dividend is paid. Because there are 54m less shares, the dividend will be 8.6% higher, not only on the first dividend, but on all subsequent dividends. After you've exceeded 50c in dividends (4.3cps is 8.6% of 50c), 8.6% of all dividends are the profit made over scenario 1.

But weight there's more...lol.

Should you decide to sell your shares when you believe true value is reflected in the SP, or the SP is higher than what you consider to be true value on the back of some news or whatever, the SP will be 8.6% higher than would otherwise be the case, given that market cap is simply number of shares X SP.

Instead of a SP of $1, it would more likely be $1.086, or twice the .043c initially forgone to allow the SBB.

When the SP begins to reflect true value, and there is far more certainty as to the worth of the company, the market is looking at growth prospects, cash and assets, and comparing them to market cap, and that's where fewer shares is considerably advantageous.

In short, ALL subsequent dividends will either be 8.6% higher or cost the company 8.6% less.

The company's Market Capitialisation will ALWAYS be 8.6% lower for a given SP, giving further upward pressure on the SP. I should add that the higher the SP, the greater the benefit. Further, unlike other SBB where the SP later fell, CFE will most likely have it's SBB quickly followed by the really big announcements we're all waiting on. Terrific timing.

Finally, on the effect of this SBB on a potential takeover.

Let's say that currently 250m/40% of all the 626m shares currently on issue are held by long term investors with no intention of selling. That is, those that wouldn't dream of selling for less than well over $1. Tony Sage, African Minerals, some instos, myself and many other smaller holders.

After the SBB, there are now only 572m shares. The 250m shares held by these same investors now represent 43.7% of the company. Clearly the more shares that can be bought back, the stronger a company's defence from an opportunistic takeover.

Hope this clarifies things a bit.

Peter