By Tom Winnifrith, The Sheriff of AIM | Wednesday 15 June 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.
Highlands Natural Resources (HNR) has been busy today announcing shite results, a bogus spin-off which is a joke and giving details of what is a sordid covert attempt to keep the lights on with a placing. The much ramped (not by us) shares are crashing and the stench of a sordid ponzi is everywhere.
Let's start with the results and, if we cut through the horseshit waffle of which there is much, let's get to the real issue of cash and cashburn. the company has all sorts of explanations for a cash outflow of £1.106 million and a loss of £1.818 million last time and as I am just a nice guy I will not bother to point out that excuses are like arseholes. We all have them and no-one cares. Okay I did point it out.
But lets move on and we are told:
At 31 March 2016, the Group held £717,000 in cash and cash equivalents. This was increased post period end via a placing of the Group's shares which raised £519,000 before costs plus further warrant exercises providing £112,500 and at 31 May 2016 the Group's cash position had increased to £996,000.
So in April and May the company raised £631,500 yet its net cash increased by by £279,000. I am prepared to accept thart placing fees ( call it £35,000) is a one off but that still leaves an underlying cashburn of £317,500 in just two months. That suggests a real ramp up in the cost base. My guess is that the company has - at best enough cash to last it until the end of October and then it is lights out time.
But doing a placing would be tough given that it still has yet to explain where the cash from the January 29 placing has got to. It said that cash was for trials with Schlumberger but those trials - we are now told, are at no cost to Highlands - but the cash has still disappeared in smoke anyway. Highlands just wont say where the cash has gone. So even the Bulletin Board Morons and rampers would not back a placing. Thus Highlands has announced a covert one.
You will remember that on April 8 2015 Highlands bought certain rights from a worthless start up, Diversion Technologies (DT) which was owned by er..... Highlands own senior management. It issued DT a stack of shares but also a load of warrants. So today we are told:
Highlands, the London listed natural resources company, is pleased to announce that it has been notified by Diversion Technologies LLC ('Diversion') that Diversion has today entered into arrangements to sell its entire holding of 30 million warrants in Highlands to an institutional investor (the "Institutional Investor"). The 30 million warrants were granted to Diversion by Highlands as part of the consideration to acquire a 75% interest in the pending patents for DT Ultravert, which has the potential to transform and significantly reduce the costs associated with unconventional exploration and production via re-fracking.
These warrants are exercisable into ordinary shares in Highlands at 25 pence per share so, if the Institutional Investor takes up its options to acquire the entire holding (as described below) and exercises the warrants, Highlands will receive new funds of £7.5 million. This is a potentially significant event in the development of Highlands. Whilst Diversion did not have the financial resources to exercise the warrants, the structure of the arrangements with the Institutional Investor specifically contemplate the warrants being exercised.
Initially, the Institutional Investor has the right, within the next two days, to acquire 10 million warrants ('Stage 1 Warrants') at a price of 5 pence per warrant, payable to Diversion.
In addition, Diversion has granted the Institutional Investor an option to acquire its remaining warrants as follows:
1. Subject to exercising the Stage 1 Warrants within the next four weeks, the Institutional Investor is entitled to acquire a further 10 million warrants ('Stage 2 Warrants') at a price equal to 10 pence per warrant plus 50 per cent. of any amount by which the Highlands share price on the day prior to exercise exceeds 55 pence. For example, if the Highlands share price that day was 65 pence, then the price for the acquisition of the Stage 2 Warrants would be 15 pence per warrant.
2. Subject to exercising the Stage 2 Warrants within the following four weeks, the Institutional Investor is entitled to acquire the final 10 million warrants at a price equal to 10 pence per warrant plus 50 per cent. of any amount by which the Highlands share price on the day prior to exercise exceeds 55 pence.
FFS. Any fool can see through this. The "institution" wants to own 30 million shares in Highlands in the same way as I want a season ticket to a gay bar in downtown Raqqa. It is no more a long term investor in Highlands than I am. Quite evidently its game plan this morning was to sell 10 million shares at any price over 30p as fast as it could. Were it to - hypotheticaly sell the lot at a weighted average of 40p it would make £1 million risk free as it then exercises and delivers in two days. If the VWAP is 35p the gain is £500,000. Even at 31p it still makes £100,000 with zero risk.
Not surprisingly the shares have crashed to 31p.
My guess is that the spiv, sorry investor, will get all 10 million away. Looking at recent share price action it may well have started selling before today. I would hope that whichever Nomad acts for this piece of Turkish has verified that this has not happened as it would be illegal. Going forward once tranche one is exercised, the shares may then rally a bit as Highlands serves up more ramptastic news and as long as they get over 35p the spiv can do another 10 million in stage 2 and so on.
Only if folks see through this total charade - for it is a charade - and the shares stay below 35p will phase two be stopped. But phase one alone is effectively a placing raising £2;.5 million for Highlands at 25p. That will allow it to ramp up its cash spunking and keep going into 2017. Pity the poor saps paying as much as 80p just a week or two ago but you were the cannon fodder in a ramptastic attempt to get this covert placing away.
Don't blame the bears for we warned you. Blame the company. This is a backdoor placing born from desperation as it is now been called to account on its piss poor fundamentals ( no asset backing, no sign of positive cashflow) and its RNS announcements which simply contradict each other.
This is a rotten businesses which - even by the standards of the AIM casino - stinks.
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