gravity's restructure a "sparkling" opportunity

It will be interesting to see whether investors make a late charge as the date for participation in Gravity Capital's company restructure approaches.

The restructure aims to elicit full market appreciation of GRN's diamond exploration effort, a welcome move IMO when one considers that KIM soared on the back of its JV discoveries with DMA while GRN (40% owner of DMA) saw its share price halve over 6 months.

Under the planned restructure, Gravity's diamond exploration arm will become a separate entity known as Gravity Diamonds which will assume 100% ownership of its controlled subsidiary, DMA and will have access to some of the world's richest diamond prospects in the Democratic Republic of Congo in addition to its diamond pipe discoveries at Ellendale in W.A.

Gravity's base and precious metal assets at Gawler Craton (gold), Broken Hill (silver and base metals), Bendigo (gold) and Gippsland (oil) will be housed in an initially unlisted company, Stellar Resources, until the expected ASX listing at the end of this year. Active drilling is underway or planned at each of these prospects in coming months. Stellar Resources will have 37.7m shares and cash backing of 13.3 cps.

Owners of GRN shares as at September 27 will receive a one-for-one in-specie distribution; that is, one free share in Stellar Resources for every ordinary Gravity share held as at September 27.

As one who has been disappointed at the lack of market recognition afforded GRN's diamond exploration success, I believe the separation of assets to be a good strategic move that will greatly enhance value to shareholders - assuming of course that Stellar Resources achieves its ASX listing on schedule. Consequently, I increased my stake by 70% over the past week to ensure I receive as many shares as possible in the restructure.

The new company, Gravity Diamonds Ltd., will have an expanded share base of 118.2m shares (with cash backing of 11.7 cps) but with BHP Billiton holding 9.64% and "some of the most highly prospective diamond exploration ground in the world", I believe the dilution effect to be more than offset by the enormous potential of the tenements GRN will have access to in the medium to longer term. BHP is already drilling in the DRC with GRN able to farm-in subject to shareholder approval of the restructure.

Prospective investors should be aware that the new share issue at .32 cents per share will only be available to sophisticated and institutional investors.

Announcement of the discount restructure proposal lowered the share price from .42 cents to around .34 cents but I expect it to resume its upward climb once the restructure is finalized and certainty returns.

The recent letter to shareholders explaining the proposed split makes for very interesting reading and is available under GRN's ASX announcements.

In my opinion, it proposes to extract better market value from the company's various exploration arms in a way that does not dilute shareholder value. In terms of its DRC diamond assets, it's probably a "watch and wait" stock but with the prospect of plenty of short term local action through Ellendale and Stellar Resources, I doubt it will be boring.

Essentially, the question I asked myself about the proposed restructure was this: are the two values of the separated companies likely to exceed the current shareprice? Given that institutions will be paying .32 cps for the diamond arm alone, and that Gravity's base and precious metal assets have a cash backing of 13.3 cps, I concluded that the restructure represented excellent value and added to an already significant holding.

Given the latter statement, I am scarcely objective so conduct your own research. Does anyone else have an opinion on the restructure?

Gupper