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Leni Gas Cuba – Goodbye ISDX and hello Canadian mugs, sorry I mean investors

By Cynical Bear | Sunday 12 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.

With Leni Gas Cuba (CUBA) posting its half-year results and its scheme circular for its RTO with Knowlton on Friday, it is a good to time to reflect on what delights the Canadians have in store.

The sorry tale of the company’s short life on ISDX has been well documented on this site (HERE) but I was still slightly surprised to see that having raised about £4.7 million in the previous year, its cash balance is already down to £1.2 million and continuing its downward trend pretty rapidly.

One of the good things about this RTO though is that certain information is required to be given to the shareholders in the scheme circular, particularly around cash as the company has to show that it has sufficient cash reserves for the year ahead.

Accordingly, buried on page 92 of the 159 circular that one can find here, there is a very helpful section stating that on admission, the enlarged group expects to have  a cash balance of C$1.9 million and then it goes on to show how that will be spent in the coming months including C$500,000 on the RTO expenses, another C$95,000 on listing and compliance, C$290,000 on management and director remuneration, as the plan is that only 60% of salary will be paid until the next fund-raise occurs which is very generous of them.

The balance goes on general administrative expenses and working capital with about C$170,000 allocated to further working capital loans to the random assortment of loss-making Cuban related JVs that the business has accumulated over the last six months or so.

So all the money is nicely accounted for by just existing for 12 months. Fantastic – where do I sign up?

So to summarise the situation, within 12 months, the business will have frittered away all the money raised to-date and will have this jumble of Cuban JV assets together with the Petro Australis and MEO Australia stakes.

I could now spend a bit of time showing how the current price on ISDX significantly overvalues the company and one would be much better off investing directly in MEO Australia if that takes your fancy; however, the reality is that there is no liquidity on ISDX so it doesn’t really make any difference (there was only one trade last week selling £7,500 worth of shares at 1.2p.)

Accordingly, although the long-suffering shareholders are moving from one lobster pot to another one on the TSX Venture Exchange, they may as well wait and see how the liquidity pans out in Canada and trust that, with a bit of Lenigas ramping, a few unsuspecting Canadian investors buy into the story, support a further raise and create a bit of liquidity in the market at a favourable price.

Lenigas is ramping to the very end though and I did smile at one line in the second paragraph of the RNS on Friday which stated that using the last closing price of Knowlton, the exchange ratio would value Leni Gas Cuba at 6.25p.

In your dreams – that may be the situation today based on a couple of illiquid trades in Toronto, but I can’t see it staying there.

As Knowlton has no significant assets, post-RTO, it makes logical sense that the market value of the combined entity will be similar to the value of Leni Gas Cuba today, albeit it should arguably come down further for the additional dilution of the RTO and for the wasted costs of the whole exercise. The advice remains consistent here, get out when you can, I wish you all the best in your quest to pass on your pretty worthless paper to wide-eyed Canadian mugs enthralled by the wonder of Lenigas.

I doubt many people will be sad to see the back of Leni Gas Cuba when it leaves these shores and swans off to Canada on 12 July but, personally, I will miss the random JV announcements and the hilarious efforts at ramping up the hype for the comedic value alone. So long, Leni Gas Cuba, don't forget to write!


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