trading bible, page-20

But how did it start?

The saga began with a board meeting of Australian Mining Investments on May 29. McCrae and the two executive directors, Timothy Koitka and Peter Hutchison decided to change the company's name to Cudeco. As McCrae explained later, it was short for Copper discovery of the Decade Company.

Then the three directors awarded themselves 10 million options to be exercised at 50?. The current share price was 31?. It's these options that shareholders will vote on next Monday after the Australian Securities and Investments Commission forced Cudeco to defer an earlier vote, arguing that shareholders were not fully informed.

Cudeco was in a delicate position. In the previous year, the company's advisers, Martin Place Securities, Hudson Securities and State One Stockbroking Ltd, had raised $3.8 million for the company, in the course of issuing 60 million shares and options.

Martin Place is a boutique corporate advisory business. It is not listed by the ASX as a stockbroker and deals for clients via E*Trade.

It is run by former analyst Barry Dawes and executive chairman David Sutton. Six years ago, Sutton was chairman of the Hudson Investment group, which at the time controlled Hudson Securities.

In 2000, Sutton and other Hudson Investment directors and group companies signed an enforceable undertaking with ASIC to improve corporate governance after the Australian Stock Exchange referred allegations of suspect share trading by a related party.

Hudson Securities changed its name to Aequs Securities last year. Its website says that it is no longer connected with Hudson Investment.

By last May, almost half of Cudeco's equity was held by clients of Martin Place and Aequs, although the outdated Top 20 shareholders list didn't show this. In fact, no one outside the company or its advisers actually knew who owned AMI.

That's how Wayne McCrae seemed to like it. When the AFR applied to look at the AMI registry in July, access was denied, reportedly on the chairman's wishes.

The company said yesterday McCrae was on Cudeco's exploration prospect at Cloncurry and could not be contacted for comment.

McCrae last filed a substantial shareholder notice in 2003, when he held 50 per cent of the stock. The latest annual report says that he holds 15 per cent, down from 25 per cent last year.

Counting the options, McCrae has 11.3 per cent of the stock today. According to the annual report, the second-largest shareholding, worth more than $30 million, is the Campbell family in Perth, which owns 8.6 per cent of the shares and options through separate holdings by Greg, Dianne, Robert and Maria Campbell, and by Camsport Pty Ltd, the company they jointly own.

"We still own 20 per cent of Cudeco," Martin Place managing director Barry Dawes told the AFR in early September. He did not reply to queries from the AFR as to whether he was referring to separate clients of Martin Place or whether a substantial shareholder notice needed to be filed.

Back in May, despite the flood of placements, AMI was facing a funding crisis. At its current cash burn rate, McCrae's outfit would run out of money by early August - just when it believed it had a promising copper prospect.

Cudeco had a tranche of 7.3 million options that would expire on July 31, with another 35 million 20? options due in 2008.

The 2006 options had a $1 exercise price, which meant two things: firstly, with AMI's share price languishing at 31?, no one was going to exercise them; secondly, if by July 31 the share price was above $1, AMI's funding problems were over.

On Wednesday May 31, two days after the board meeting, AMI announced a new copper discovery based on two drill holes, with "surprising results" from another four drill holes still being processed.

Thus began one of the great Australian trading runs.
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At 3.40pm the next day, Thursday, McCrae started buying the July options through Shaw Stockbroking. He bought more on Friday, ending up with 729,500 options, accounting for 10 per cent of the July options.

The options were so far out of the money McCrae bought them for less than half a cent, most of them from day traders at CommSec. "For a punt, I'm prepared to risk another $3000," he later told the AFR. He said AMI's drilling contractor put in an order for 2 million options before changing his mind.

But McCrae wasn't the only one buying on June 1.

At 11.29 on the Thursday morning, even before McCrae had put his first order in, someone began buying large slabs of the July options through E*Trade. In six days, E*trade bought 1.6 million options.

It's not known how many shares the McCrae family controls. While Wayne has 11 million shares and options, other family members own at least another 1 million shares. This mystery punter, whoever it was, stood to make up to $15 million profit.

McCrae family members were also trading. The annual report shows that by September, McCrae's son Cameron had sold at least 141,000 of the shares he held a year before.

Cameron McCrae was distracted by his own burgeoning commercial activities. On the day of the May 29 board meeting, when the directors awarded themselves the options, Cameron registered a $200,000 loan he had taken out two weeks earlier from the National Australia Bank for his newly established C3 Trading Trust. Yesterday, Cudeco said Cameron was overseas and could not be contacted.

On June 7, AMI reported more upbeat news and again eight days later. Trading was minuscule, but the AMI share price ratcheted steadily up. On June 19, it rocketed from 97? to touch $1.41 before easing back. The July $1 options were now in the money.

In the closing trades, a day trader known in investor chat rooms as Trade4profit picked up 26,000 of the July options for 16?. Within days, these options would be worth more than $200,000.