Toubani Resources Ltd T.TRE

TRE's Reward/ Risk Ratio repeat posting

[algrove]

Once PWC publishes its report in two or three months' time, there is likely tobe two outcomes at the extremes.

If the report fully supports theallegations, then the share price value will likely become near nil.

Ifthe report fully refutes the allegations, the company would still have beenwounded and the end game will likely be a takeover before year-end, for anywherefrom $10 to $15 per share. Let's assume $12.50.

At a current share priceof $3.19 this means a person buying at that price risks losing $3.19 or getting$12.50 for his newly acquired share. This is a ratio of 3.9 to 1.

However, the probability of each outcome is not the same i.e. it is not50/50.

Each person can use his own outcome probability distribution. Inmy personal opinion, the likelihood of the allegations being proved correct andthe value of the shares going to zero is less than 10%. However, to be moreconservative, I will assume 20%, i.e. 80 % probability that the allegations willprove incorrect and the shares taken out for around $12.50.

So thereward/risk ratio becomes 3.9 x 0.8 = 3.12, say 3, and 1 x 0.2 = 0.2. 3 dividedby 0.2 = 15. So based on the foregoing assumptions and using the closing priceof June 17 of $3.19, you have a 15 to 1 reward / risk proposition.

Tome that is a compelling reward/risk proposition, but each person should do hisown due diligence and employ his own outcome probability distribution and arriveat his/her own reward/risk ratio. This is merely an attempt to instill someanalytical rigour to the discussion, which so far today has concentrated on therantings of the Globe & Mail's Sherlock Holmes in China, entertainingas they may be.