Hi Dott,I fully understand your position.Buying back shares and...

Hi Dott,

I fully understand your position.

Buying back shares and then cancelling them automatically improves the PE ratio as the profit is divided by less underlying shares.

At the same time, as you state, it could help get rid of the persistent sellers at this price range.

Although I am not sure whether it is allowed under ASX rules, if DRA did this through a 100% owned subsidiary and obtained more than 10% (and not cancelled the shares) then it would provide a blocking parcel to any low-ball takeover offer. I suspect this is not allowed though and shares need to be cancelled immediately, as the logical conclusion is that a company could end up with 50.1% of itself and just make decisions that benefited management and directors.

However,

Any company looking to grow in size - and DRA does have good growth prospects - needs a larger share register with a greater number of shareholders present vs. a smaller one.

This is because if the company wants to reach goals such as the ASX200 then it needs to reach minimum trading volumes per day, x% liquidity, etc.

Why would DRA want to reach the ASX200 or the like? Because this then allows greater access to debt funding/ institutions etc to further grow...

In addition, it has been shown to be much more value acreative for shareholders for a company (with legitimate growth prospects) to invest its cash into growing the company - the SP will then sort itself out by itself over time.

In DRA's case this would mean investing in getting brown field and greenfield opportunities into production and doing more drilling to firm up JORC resources.

For example - as per 2nd March presentation: I would prefer DRA to spend $2.5m at Svartliden to find 340oz gold ($7.35 per oz) and $2m at Jokisivu to find a further 300oz gold ($6.66 per oz) than spending $4.5m just buying back shares.

The company is currently valued at approx $52 per JORC oz; so a cost of between $6.66 - $7.35 per oz to find more vs. a market valuation of $52 per oz once JORC'ed(+600%) is a simple decision.

Now, we all agree that there isn't much upside in buying $1.05 C Notes for $1.03. However, this must be dealt with by Feb-11 and, provided that the SP isn't >17.5c would cost DRA in cash anyway - so DRA may as well chip away at the outstanding Notes on a continuous basis provided it doesn't have pressing needs for it in the growth side of the business.

I wouldn't worry too much about the C Notes. Effectively it is just debt on DRA's balance sheet that will be cleared by Feb-11. DRA is highly cash flow positive now and will be able to pay this debt off easily.

Unless the SP is >17.5c by Feb-11 we shareholders will not be diluted... and I can think of worse problems than having DRA at 17.5c by Feb next year :)

Cheers
John