By Tom Winnifrith | Wednesday 2 December 2015
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.
Our scepticism about overhyped African Potash (AFPO) just moved up a notch as it has borrowed £750,000 from the Mrs of the FD in what must be one of the expensive loans in history.
Katrina Clayton will pick up a £60,000 arrangement fee on day 1. Then earn interest at 1.5% per month over the nine months of the loan.That is another £99,375. So in all she will get £159,375 back over nine months. That is an annualised rate of 28.33%. African would have paid less if it had borrowed the cash on its credit card.
Surely it would have been better to do a small placing? Well maybe not becuase who would have backed such a placing when African happily admits:
The Bridge Loan will provide funding to the Company to bridge its short term working capital requirements for the next 3 months. If the Company is not able to generate sufficient cash-flows from its trading operations after that three month period to cover its ongoing working capital requirements, then further funding will be required.
In other words this cash wil last for just 12 weeks at which point there will have to be a, no-doubt heavily discounted, confetti issue in order to keep the lights on. And by the way should the next placing be for £1.5 million or more then the loan plus any outstanding interest, in order words if the next cash call raises £1.5 million that will simply buy an additional three months.
At 1.8p valued at £14 million this is company in dire straights and its shares are a sell.
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