Hi Dan (et al),Interesting summary thanks. I guess something...

Hi Dan (et al),

Interesting summary thanks. I guess something that seemed a little bit strange though is the whispers of another equity raising. Originally the company was looking at a 60% debt 40% equity split – so I guess the points that I was worried about in terms of AIM’s ability to raise debt in the current market are not too far off the mark. I guess where this turns a little bit messy is the register will subsequently be heavily diluted (which potentially has some fairly serious ramifications for the performance of he shareprice).

The key questions will be (a) who will be willing to participate in an equity raising given the performance of zinc price and the economic uncertainty hanging over the US (admittedly much of he jitters has come from large writedowns of earnings by Citibank and Merrill Lynch and not so much due to fundamental economic indicators - however make no mistake that the data that we are getting out of the states indicates that things are looking decidedly ill over there) and (b) how far discounted from the current shareprice will a placement be.

Let’s run some back of the drinks coaster numbers. Assuming that AIM needs to raise 10% of the project financing to bring the equity to debt split back to 50/50 this will result in a raising of USD 15 Million (ball parkish given a project cost of USD 145 Million). At a current FX rate of 0.9000 that will require a raising of AUD 16.7 Million. Now lets assume that the raising will happen at 20c per share (not an unreasonable assumption of around 80% of the current value of the shares). That will mean an additional dilution of 83.5 Million FPO shares (or an absolute bucketload of options). Hmmm … not sure if I like these numbers as this will represent approximately a 12.5% dilution.

Now let’s consider Mokopane. An anticipated amount of 18 Million (can’t remember if this is AUD or USD …. Lets assume USD and err on the side of caution) which will need to be raised as well. Bear in mind that this will need to be raised in the very short term given that AIM has only got around 18 months to do something with Mokopane due to the ‘use it or lose it’ rules under BEE. Therefore if I were in that position I would probably seek to raise the capital at the same time as the Perkoa equity raising. So, assume USD 18 Million @ 0.9000 = AUD 20 Million. At a discounted FPO price of 20c we are looking at another dilution of 100 Million shares.

What is interesting also (and a touch worrying) is that I vaguely recall a rule where the company can issue equity up to 25% of the company value before acquiring shareholder approval (can someone confirm this please ... can't remember if it is 25% or 10%). If so, then management could execute this dilution without the approval of shareholders. Bit scary I think.

Now, don’t get me wrong. Can the projects justify this approach? Probably (certainly Perkoa looks to have the goods and I am sure that Mokopane and Mumbwa will payoff eventually as well) however we may end up having to wait for the projects to be sufficiently advanced for the market to start moving north substantially should these two equity raisings occur. I must say, however, I think that dilution is the soft option.

In light of weakening metals prices and questionable outlook for the US economy I think that we may be waiting quite a while till we see the true value of this stock. If we see this degree of dilution I think we may very well see the price languish around these levels through to mid 2008?

Any other thoughts anyone. Always happy to be corrected ….