theories of share price falls

You can blame shortsellers and downramping and fund liquidation all you like. Doesn't change the fact that this share price slide is ridiculous.

The bottomline from my observations in this past month is this.

There are 3 reasons why this price isn't going up.

a) There is no real buying. Anyone who is buying here today (i refer to the so called value funds, superannuation funds and institutions, not the 20000 shares you and I are wading in with,) is turning them over for a 5 cent profit, not wanting to be exposed to the general market instability.

b) There are plenty of people who want to sell. Funds and institutions who have had holdings both in Zinifex AND Oxiana may wish to reduce their exposure, since they are effectively getting double their exposure (1 OXR & 1 ZFX = 1 OXR & 3.1 OXR). Add this to the daily trading which you see people buying millions to sell them 4/5 cents higher...and you get plenty of sellers and ZERO buying. Add shortsellers, panic sellers, margin selling and you see what you see.

c) Sentiment of resources is pretty bad at the moment. ALthough the treatment of Oxiana has been unfair in the past 3 weeks (not many shares can boast being down 30% in the first 3 weeks of the financial year), having said that, big diversified miners like BHP dropped 10% in the same period.

The only caveat to all this and the slight positives are these:-

1) At this price, it opens the doors for someone like Teck, Xstrata or even Anglo to run some numbers and make a lowball bid. This however is quite unlikely in the current environment, with tight credit and prudent management the in thing.

2) The share price of Oxiana fell from 3.50 to 2.75 pre finalisation the merger, as opposed to other resource stocks which held up. This recent selloff, if its attributed to funds liquidation of resources, is a bit ridiculous, as they did not out perform in the months before. Anyone selling shares down here is losing money.

3) Share buyback seems to be the straightforward thing to do. However, having 1.5 billion in the bank is a pretty handy thing too. A special dividend could put a short term floor but will be a complete waste of money.

At the end of the day, the board has to ask the following questions:-

a) did they get the zinc price forecast wrong? So wrong that this could be a company destroying acquisition?

b) Would the money be better spent in the fast tracking and full development of Prominent Hill to accelerate the revaluation of the share price to a more copper friendly target?

c) Have they really performed in the best interests of shareholders by maintaining tight lipped approaches to the share price slide instead of making a concerted effort to identify the funds/large holders selling out, and reiterating the future prospects of this company?

So what solutions to the share price?

The company has to get out to the market, to run a roadshow to the people who have the ability to soak up all the excess liquidity this merger has created. It has to convince major players that its sound and diversified operations is not a pure zinc play and will not go down the path of Pasminco. It has to re establish its reputation ( I speak of Michelmore steering the ship vs Owen Heggarty), and quickly at that.

On the back of the envelope, consider that if you "acquired" 1.5 billion in cash at the price of a 400% dilution of your share price (assuming that ZFX's assets are worth nothing since the zinc price is stuffed and the market seems to feel that way about zinc), OXR board have effectively provided ZFX shareholders with a rights issue at a quarter of OXR's median price on its own (call it 3.50) Which effectively equates to 90 cent entry price on a 1 for 1 basis, or a 2.70 entry price for ZFX shareholders on a 3 for 1 basis (which happens to be the median price before the massive liquidation towards the end and the start of the financial year). Its pretty scary, and the funny thing is, its not until I'm down 30% in 3 weeks did I realise what a bad position the company have planted themselves in to.

I think its cheap down here, but what I think and what AXA, Barclays, the Future Fund and their ilk think are irrelevant. They got more money, I don't. Until they step up to stop the tide of margin selling, short selling, day trading and stops and continued speculation driving it lower, she's not going up.

Suffice to say it probably will NOT win Digger of the Year this year. Dog of the Year might be a better award.