The Speculator

PORTFOLIO POINT: Many smaller companies are launching large issues of new shares at a discount to market. Alert shareholders might look to selling their holdings as soon as they trade “ex-entitlement” and replacing the stock with the new issue.

A reader of this column who simply signed himself “Daryo” wrote last week wondering whether he should take up an offer of new shares in emerging gold miner A1 Minerals Ltd (AAM).

We added A1 Minerals to our portfolio on May 12 at a purchase price of 14.5¢. On June 22 the company announced a share purchase plan giving existing shareholders at that record date of June 22 the opportunity to subscribe for up to $15,000 in additional shares at 13¢ each.

Had I been smart, I could have sold out last week at prices up to 16.5¢ and the shares closed the week at 14.5¢. Unfortunately, the shares have since dropped this week to the planned 13¢ issue price of the new stock, so I missed on a small profit turn. Hopefully, other readers who followed the Speculator into A1 Minerals took their opportunity to sell at a premium after the record date, banked the proceeds, then looked to replace the stock at 13¢ in an offer that will remain open to them until July 17.

I must counsel “Daryo” and other readers that I cannot give private advice as to what they should do because I have no idea of their financial circumstances. I can only write about what I would do and it’s up to readers to decide if they are in a position to follow.

nThe Speculator portfolio, as at June 30, 2009
Company	ASX	No of shares	Bought	Purchase price	Current price	Current value
Laserbond	LBL	20,000	4/07/2008	$0.10*	$0.090	$1,800
Robust Resources	ROL	40,000	13/02/2009	$0.155 avge	$0.675	$27,000
Quicksteps Holdings	QHL	20,000	16/03/2009	$0.165	$0.170	$3,400
Cortona Resources	CRC	20,000	14/04/2009	$0.150	$0.165	$3,300
A1 Minerals	AAM	20,000	12/05/2009	$0.145	$0.140	$2,800
Gage Roads Brewing	GRB	40,000	26/05/2009	$0.050	$0.068	$2,720
Image Resources	IMA	12,000	2/06/2009	$0.645	$0.635	$7,620
Blue Energy	BUL	20,000	9/06/2009	$0.225	$0.195	$3,900
Trafford Resources	TRF	30,000	16/06/2009	$0.185	$0.245	$7,350
Citigold Corporation	CTO	26,250	19/06/2009	$0.152	$0.170	$4,463
Scotgold Resources	SGZ	20,000	22/06/2009	$0.100	$0.145	$2,900
Viralytics (ops)	VLA	100,000	3/06/2009	$0.010	$0.010	$1,000
Total value of portfolio						$68,253
Plus cash at bank						$9,600
Total						$77,853
Portfolio change since January 2, 2009						94.63%
All ordinaries change since January 2, 2009 (then 3655.7)						7.99%
*These shares were carried over from the 2008 portfolio, hence the 2008 purchase dates. However this price is the "beginning of year" value not the original purchase price. Disclosure: The author's family holds shares in Laserbond Current value based on last sale June 30, 2009

We’ll subscribe to A1’s new gold mine

A1 Minerals plans to have its new Brightstar gold mine, 30 kilometres north of Laverton, WA, in production by December at an initial annual rate of 30,000 ounces, based on a probable reserves estimate of 1.159 million ounces of gold grading 4.2 grams to the tonne for a total estimated gold recovery of 150,163 ounces in four deposits to be mined as open pits.

At a presentation to shareholders last Friday, managing director John Williams predicted that the initial production rate of 30,000 ounces would have a cash operating cost of $A600 an ounce. If gold prices hold at current levels ($US940 an ounce and an exchange rate of US81¢) that implies a gross operating surplus of $540 an ounce or $16.2 million a year from 30,000 ounces of production.

A1 Minerals presently has 119 million issued shares, which traded as high as 23¢ in the past 12 months. If the planned offer to shareholders is fully taken up it will boost issued capital by 35.87 million shares, taking total issued paper to 155.43 million shares. At 13¢, the company would carry a market capitalisation of $20.2 million with cash of $7.6 million.

That would enable it to bring on production and continue exploration programs within the company’s 2500 square kilometres of tenements in the Laverton district.

John Williams holds 5.91% of the company, after the biggest shareholder Sandra Wheeler (6.91%), who is described as the partner of plant construction manager Bill Hobba. Hobba sold the plant to A1 Minerals and is now in charge of its refurbishment.

Shareholders registered by June 22 will this week get a prospectus inviting applications for up to $15,000 worth of shares in $1000 multiples at 13¢ to be paid by July 17. We’ll apply for another $3000 worth to add to our existing holding.

Viralytics’ successful options issue

Our cancer-cure hopeful Viralytics Ltd (VLA) should see its new options listed by the end of this week after almost 900 shareholders took up their entitlements to an offer of one option at 1¢ for each share held.

The options offer raised $915,000 (91,599,000 options), which are exercisable to shares at 3¢ each on or before July 29, 2010. Holding statements will be issued to option holders on Friday, July 3.

Directors have reserved the right to place the shortfall of the options issue (amounting to 215 million) which could raise another $2.15 million. Funds from that plus the $6 million convertible note issue announced on June 12 will see the company’s programs well funded into the middle of next year.

Indeed, if all the issued and unissued options are converted to shares a further $9.25 million will be raised and, together with the convertible note facility, will provide the company with the potential to fund up to $20 million.

David Haselhurst writes a monthly column for Money magazine.