Despite being a nickel and Minara bull overall, I am very bearish on the valuation of the rights.
Operating on the principle of history and human behaviour repeating itself, one needs to recall the last Minara rights issue in 2003.
At that time, Minara went for a 15 for 1 rights issue deep discounted at 5 cents per right.
There was a clear reason to take up the rights which would then release the company from the huge debt burden it had at that time with US bond holders at an agreed price of 28 cents in the dollar.
The other choice was to be diluted to bits as a shareholder.
Yet on the last couple of days the rights dropped to as little as 0.1 (one tenth) cent. I know this as I had an order on at 0.1 cent just behind the successful bid but bought 3.5 million rights at 0.2 cent and sold just before close at 0.7 cents making a nice profit on the day.
The buy case was actually stronger back then and people were a lot more liquid.
Based on this, I think there is a real risk that the rights may drop to much lower levels and and possibly under 5 cents.
The problem will be greatly increased next week as people who operate through on line brokers finally get their rights allocated releasing a panicky flood of rights on to the market. At the moment, I think the rights price is likely artificially high due to the thin availability of rights to buy.
I would dearly liked to be talked out of this one.
Cheers Eos
MRE Price at posting:
76.5¢ Sentiment: Hold Disclosure: Held
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