my reasoning behind the fall in fms

Hello All,

I've read a few posts on here and have to say I¡¦m quite amused, the general feeling I get among posters at present kind of makes me feel like its feeding time at the zoo, except the animals have gone without food in a while.

I haven¡¦t posted much on here but have enjoyed reading some of the posts and thought i would share my views on the stock.

Basically I¡¦m a fan of flinders and have been for some time, in saying that right now I hold no stock at all and sold out after the announcement on Monday when the stock started to plunge. The announcement in my view was a great announcement and should¡¦ve seen flinders trade up to about $.17 - $.175. For the stock to come off like that makes me wonder what they need to post to send it higher ahead of the options expiry on the 29th of September, maybe they need to hit 100 million tones in one drill hole LOL ƒº.

The announcement instilled a lot of confidence and belief (until i see reason to re-evaluate) for me in the company and has backed up the potential for the project with,

- Great drill results, channel iron Ore was encountered in all holes except for the water bore hole, which if anyone knows the project wouldn¡¦t count this anyways.
- An increased target tonnage to over 500 million tones and if drill results prove this up could be a company maker (500 million tones is well known in the industry as the cut off for taking a project from the ground up to production).
- Acceptable grades very much inline with FMG

I¡¦ve read a lot of posts on here and in my view Warnie and Druidic call the stock very well; I have a very similar view as to the both of them apart from being a bystander right now.

Going forward it all boils down to the drill results and they will speak for themselves; if they¡¦re positive and prove up a resource then i believe Flinders will retest its all time highs, although in the short term (next 6 weeks) I see the stock coming under a bit of pressure. Flinders looks likely to retest $.10 and possibly below in the coming month as the company has 1.1 billion shares on issue and 360,933,052 options are due to expire. TAKE NOTE PEOPLES as this is nearly one third of the total amount of shares on issue at present and will be re-issued as shares to option holders (bypassing the market) if flinders can stay above $.10 (which I doubt).

To put it simply flinders does on average about 12 million in volume turnover a day (on a 20 day volume average) and in the next four weeks the company is going to re-issue nearly one third of the total shares on issue. What drives the share market is SUPPLY AND DEMAND and these shares will not be purchased initially from the market (which if they were could effectively push the stock higher). Not to mention there is a very large amount of shares already on issue, hence this stock has been a trader¡¦s delight ahead of announcements.

There are a few likely scenarios that I can see will come from the options exercise cloud that will potential cap the upside in the SHORT TERM.

1. Investors sit and hold 360 million shares (I doubt this as the volume is just to large and as I said fms does on average around 12 million shares a day).
2. Investors sell down the options below the share price. This gives opportunity to the high risk punters for arbitrage; they buy the option, exercise it and then sell the shares into the market for a quick profit (this puts downward pressure on the stock). The downside risk to this play is in the time it takes for the registry to allocate the stock before it potentially falls stripping the profit and leaving one with a crying baby.
3. The stock trades below $.10 over the next month and the options become worthless.
4. The X factor, someone big jumps onto the registry through purchasing the options and exercising them ( I doubt this will occur at this stage as anyone who knows what they¡¦re talking about knows that no one big (i.e. Twiggy) will get serious about fms until it has FRIMED UP A RESOURCE.

The truth to the matter is that FMS isn¡¦t falling because of the recent announcement being bad it was very good and promising; it seems to me that the educated investors out there are concerned about the resting place for the 360 million options that are going to be converted to stock if FMS can stay above $.10.

And one more point that I think may have been overlooked, never discount the fact that the market participants appetite for speculative iron ore stocks have come off the boil a bit causing a revaluation. Just look at BRM for example; their share price tells a very compelling story, they have a market capitalization of nearly 200 million aussie dollars with a PROVEN resource of nearly 1 billion tones of hematite (announcement on the 21/8/08), this places BRM with an in ground resource value of nearly $.20 a tone of DSO Iron Ore.