Disclosure: The author has a short position in one or more of the shares mentioned. 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.
On the face of it, Harvest Minerals (HMI), whose shares have quadrupled since they switched horses from the ASX to the AIM Casino a year ago, seem like a cracking good investment.
Harvest’s main asset, the Arapua Fertilizer Project comprises mineral rights to a large chunk of phosphate-rich land in Brazil which is surrounded by fertilizer-hungry farmland. Apparently, they don’t so much have to mine it as dig it up and store it which costs $7 per tonne and wait for an orderly queue of nearby farmers to form, eager to pay £50-60 per tonne, and trundle it back the short distance home. (These farmers seem to have been a bit dim hitherto, choosing to import fertilizer from Canada, unaware of the bonanza on their doorstep) It’s all so cheap and simple that the company doesn’t even need to tap shareholders for more than the £1.5million it raised last year. So far, so amazing.
The boring bit is that the stuff that they dig up, (which they have chosen to call KPfertil,) is a new product which needs to be tried, tested and approved before being marketed and sold to the farmers. On top of that Harvest must pay a shadowy company named RV2 Rio Verde Mineracao Ltda (RV2) £800,000 before commercial production gets underway.( RV2 seems to be related to one of Harvest’s executive directors, Luis Azevedo.) £800,000 is pretty much that all is likely to be left now of the £1.5 million on the company’s balance sheet on June 30th.
It is true that there is a potential for a further £1 million to come in from the exercise of 11.9m warrants at 8.8p but I can’t see the company getting through 2017 without needing more funds.
It seems strange that Harvest appears to have paid zero up front for this cash cow, or for that matter for generous Aussie investors to allow pommie AIM retail enthusiasts in on the act.
With a market cap of £25 million (allowing for the warrants) this is getting way ahead of events and I will be looking to sell short into any strength, borrow permitting. Anyone holding should get out while they are still ahead.
This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tips from Tom & Steve and ahead of a new shorting idea from Lucian Miers click HERE
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