RI Pricing - valueor not

Hi all,

There seems to be a lot of posting about why it might be worth it for shareholders to take up their 1/13 share offering at 1.2c when they could buy on market for something in the order of .8c.

Here is how I think things sit.

You can buy "two" shares through the RI and pay 2.95c (that is, 1.2c plus option exercised at 1.75c)
You can buy two shares on market and spend 1.6c total.

Market: It costs you less overall but more up-front to buy on market for the same amount of shares acquired.
RI: It costs you less up-front to take up the RI but more overall.

The RI has the added benefit of being able to guarantee the second purchase price, so that there is up-side if the company delivers and its SP goes up. The downside is that the company does not deliver and you lose the difference on the one share you paid upfront, that is you lost an extra .4c. You obviously would not exercise the option just to sell it so the loss is limited to the SP difference.

The RI puts money in the pockets of the company to deliver. Buying on market does not. In one sense, the benefit of the up-side can be self-fulfiling both ways. If everyone takes up their entitlements and maximises the chances of success, then the likelihood of the returns on the option being increase.

One other benefit of the RI, for the company of course, is that the exercise of options over time will see further funds trickle in for spending on the project. That's no direct benefit to the holder. Its an indirect benefit via the financial health of the company.

Put another way, the RI has a some added financial risk (.4c is lost if it does not come good) but with potentially far greater upside and lower initial up-front cost. The market option puts more in your hands today but with much more limited upside.

Lastly, and needless to say, the decison is a few weeks away. It is hard to imagine any argument against participating if the SP was the same as or higher than the offer price but we are not in that world right now.

The point being that there is a real decision to be made there that is not cut and dry.

My 2c and of course DYOR.