I am trying to understand the discussions covering may issues resulting from the KWG proposed ("convertible") supershares: dilution, no advantage for small shareholders (and presumably, this is set up for the advantage of large/institutional shareholders).

As I understand it (correct me if I am way off mark), the idea of the supershare is to raise the SP to a level that institutions would have a chance to participate in any future financings. There are rules that don't allow those entities to invest in "penny" stock, say @ $0.07/s, but if they have an opportunity to have a supershare @ 50 x $0.07 = $3.50/s, the rules would allow them to participate in the financing of KWG. Similar rules apply to the margin of an investment port folio. Some brokerage would set the level for a marginable stock (e.g. TD set it @ $5.00/s?, but others may be more lenient for the level, say $3.00?).

The main concern is dilution, but dilution will occur when a company needs to do a financing by issuing more shares, regardless of the kind of shares, supershares or regular shares.

As a math exercise, take KWG with 750M shares @ say $0.07/s (as an example for simple math). If we convert all that to supershares, it would be 750/50 = 15M shares @ $3.50/s. Assuming that everything is stable and KWG would wait for an opportunity (a positive development) for the SP to head up, even a bit would be fine, to issue more shares @3.50/s. Let's be brave enough to double the OS of 15Ms (I would call this significant dilution), i.e. OS becomes 30Ms for 15M x $3.5/s = $52.5 M additional cash in KWG treasury. Dilution big time, but the company now has some serious cash.

We can do the same exercise with the OS in regular shares using 750M shares, double the OS to 1.5Bs for 750Ms x $0.07/s = $52.5M. Same outcome.

So I don't see the problem one way or the other, if we are willing to accept dilution for cash infusion. One advantage for the supershares is that the company (KWG) can have a better chance to finance the deals with people who have money to invest if the share price is not in the penny range.

I don't know how Noront did it, but as I recall back in July 2007 (don't recall what triggerred the sharp rise in the OS, it shot up to $7.00/s). Taking advantage of this fortunate situation, NOT had a nice financing @ $6.00/s (feel free to provide more accurate info). Even in the NOT case, due to market conditions and investors' sentiment, the SP did not stay up at that level for too long. Now 7 years later, NOT SP is @ $0.54/s (it was @ $0.32/s in the early part of the year), and the OS is ~230M shares (~1/3 of KWG's OS, but it's in the billion range, if one prefers to talk billions, i.e. ~1/4 B, quite a bit of dilution here as well).

In summary, KWG will do some financings for extra cash with the resulting dilution. But that's nothing new...and I have no fear if this happens. Just keep fingers crossed for some positive development for the market to finally appreciate KWG value. KWG has a lot more than just the claims on the N-S corridor (80%BH chromite, 30%BD, 20% of other stuff in the JV with BOL and FNC, patent for chromite conversion process using natural gas, perhaps even additional Ni and PGM).

BTW, in a takeover case, the bigger fish, the one that want to swallow us, wouldn't care less if we have regular shares or supershares. They would look at the value of the company and come up with a decent offer which must be acceptable to shareholders. KWG BoD will have to do an independent valuation to justify its recommendation to shareholders.

goldhunter