By Tom Winnifrith, The Sheriff of AIM | Thursday 7 April 2016
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Yesterday on the back of news from the Kiliwani gas field in bongo bongo land Neil Ritson, gopher to the fat aussie share ramper David Lenigas seemed keen to let share trading morons across the land know how exciting this was for Solo Oil (SOLO). Some morons paid up to 0.4p in the secondary market. The shares are now 0.27p to sell after the inevitable placing but the numbers still make no sense.
The placing at 0.25p raised £800,000 but as the Bulletin Board Morons, who still believe Lenigas and Ritson, rub vaseline on their sore posteriors they should get ready to lube up again because they are going to get shafted with another placing PDQ. Folks: myself and a well known ex bank robber from the Manchester slums warned you this placing was coming and that you were going to get shafted. You ignored us then and paid for it. Don't ignore us ahead of the next shafting. Do the maths...
At June 30th 2015 Solo had net current assets of £1.7 million but of the trade receivables a good amount - loans to HH Devs for instance - looked exceedingly hard to be turned into cash. Real net current assets were perhaps £1 million and the company's PLC cashburn excluding drilling costs is around £400,000 every six months so without drilling costs net current assets would by now be just £400,000.
But of course there has been hectic activity at the Horse Hill site as well as in Bongo Bongo land at Kiliwani and the company claims in today's statement to have already paid the first $566,000 (call it £400,000) it was paying to increase its stake at Kiliwani. As such it is hard to see how net current assets even if we believed the interim number would - prior to today - have been much more than sweet FA.
But at least the company has - say - $1.1 million cash now, post placing costs. However $708,000 of that is due when the first gas sale however small is made at Kiliwani and meanwhile PLC costs are running on a jeux san reevenues basis at c$100,000 pcm. Meanwhile in 90-100 days when the commissioning phase ends and gas production is managed under the long-term take-or-pay provisions of the Gas Sales Agreement with the Tanzanian Petroleum Development Corporation, Solo is on the hook for another $892,000. As such cash outflows in the next three months - ignoring any work at Horse shite - will be $1.9 million and net current assets today are - at best $1.1 million. I tend to think they are far less.
We are told that net revenue to Solo will ramp up to $2-2.5 million per annum. What is net revenue? Is it Solo's share of sales but what are costs so what is net profit? I suspect it is far lower. Probably just about enough to cover PLC costs but not to see Solo actually make much in the way of profit.
At 0.27p to sell, the market cap is c£16 million. For a company with a clear need to place again to plug that three month balance sheet black hole and which is then going to be operating at cash breakeven at best, that market cap is a joke. Ahead of the next bailout placing within 3 months the shares are a SELL.
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