While it is certainly a good option to buyback shares when it is...

While it is certainly a good option to buyback shares when it is trading at large discount to fair value, whether it is commercially sound to do from a capital management perspective will depend on whether the company has excess capital and what the WACC is. In STX's case, we know its debt are priced at c.9%. Even though it doesn't have to make any repayment till 2026 with the interest incurred capitalised, we are still essentially paying 9% for our capital. If we spend the 10mn on buying back shares, it will cost the company 900k in capitalised interest per annum. When we were trying to work out if STX could meet its spends with current cash holding + expected cash inflows, I think we determined that it would meet its spend obligations without a raise, but it wouldn't have much spare wiggle room. So throwing 10mn at a buyback could potentially mean we delay drilling OH2 for 3-4 months.

Personally, I still think some level of commonsense and rationality will return to the market sooner or later no matter how frustrating it can be at times currently. So I'd say preserve the 10mn for drilling because that will grow the business in the long term.

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