Most common tools used are shorting and churning the same stock to stop it from running. Sound familiar? Shorting is when company stock is borrowed at its current price, with the aim of buying it back at a cheaper price, making a profit.
For Cdu, the mining license approval could have been a catalyst for an offer had the register been vulnerable. It's no coincidence that management sought a cornerstone investor or 2 before mining license approval. It's insurance against would be hostiles trying opportunistic bids just as we're about to realise our true worth transitioning from explorer to producer.
i.e. Even if the hostile lost $10mill shorting over time (which is highly unlikely given their deep pockets and the ability to control a stocks trading at certain times), they can gain significant multiples in a successful takeover at say 20% lower then a companies true value being reached.
The hostiles net result can be millions of dollars ahead. Cudeco in case containing 200 million shares is a very interesting example.
Cdu as an example: (please note example only, and not my prediction. I believe Cdu is in a very strong position to withstand low ball offers given cornerstone investors, loyal long termers and clever share buy backs and redistribution's).
A hostile could accumulate 25% of the stock in a stealth method over a period, i.e. plenty of nominee accounts as to bypass disclosure. A $3 average being a reasonable average. Successful trading can bring this average down further, but for now lets keep it simple.
They manage to stop the stock from reaching $7 by continually churning existing shares, lowering their average buy price by shorting, and suppressing it to $5.00. To the point where a stock wont even run up on good news. Sound familiar?
Then whammo make a bid 30% above trading with maybe a second juicier bid, and your still at $8. Had the stock been allowed to trade on its normal patterns the successful bid is more likely to have been $10-$12.
The difference between the totals is quite significant
Initial 50m shares at $3 = $150m
remaining 150m shares at $8 = $1.2b
= $1.35 billion and a takeover average a shade under $7
At $10 for the remaining 150m you add an extra $300m. Takeover average becomes a shade over $8
At $12 for the remaining 150m shares it's an extra $600m more. Takeover average a shade under $10
As you can see in the scheme of things, burnt shorts and share churn at a loss for a hostile eyeing off the bigger prize can be insignificant.
I'm very happy we have management with a lot of hurt money on the table. They become more paranoid then me, and that's a good thing!!
(These are my views DYOR)
Cheers
mm
CDU Price at posting:
$3.84 Sentiment: ST Buy Disclosure: Held
