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I don't view Blenheim Natural Resources as an investment, but can see a potential trade

By Gary Newman | Tuesday 2 May 2017

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.

Regular readers here will know that I am not exactly a fan of Blenheim Natural Resources (BNR), nor have I ever been despite plenty of interest from private investors in this company.

I’m sure that plenty will have been taken a bit by surprise when news came last week that the company had raised further funds via an equity issue just three months or so after the last placing came.

On that occasion the company raised £750,000 gross at 0.35p, issuing 214 million shares and the same number of warrants at 0.65p. So far there has been no RNS stating that any of those warrants were exercised when the share price rose to a level where they would have been in profit, but the company also tends not to state total shares in issue in RNSs, so it is hard to be certain that some of the placees didn’t cash in.

The latest placing saw £1 million gross raised via the issue of 222 million shares at 0.45p, although this time without any warrants attached – other than those issued to the broker, Cornhill Capital.

When it comes to reasons for raising the money it seems a bit strange that the company mentions the main reason as being to buy back and cancel all of the deferred £49 shares, given that is just £1!

It does also mention that some of the money will be used for investments, including the cash consideration for the ongoing investment into Nashwan Holdings. But also mentions that it will be used for working capital, and it shouldn’t really need to be using the money for that given that the money raised in January was also stated to be partly for that purpose.

Now I know that many companies mention working capital as a standard reason for a raise, but if indeed the company actually has enough funds for that then it shouldn’t be included as it gives the impression of burning through cash to run the company faster than it really is, especially in light of the fairly low cash burn here. What I think will also be interesting is to see if we get any updated holdings RNSs as a result of the latest placing.

In terms of investments, Blenheim is looking to get into lithium and that alone is enough to make me cautious as this is the latest ‘fashionable’ natural resource and many small AIM companies have been, and are, seeing their share price pumped to crazy levels off the back of potential resources in the ground that might not ever even be mined!

As I’ve mentioned before, if these licences were really that valuable and had so much potential, then they wouldn’t all be getting snapped up by AIM minnows for peanuts! Plus I’m less bullish than many on lithium prices going forwards, as the only way we’ll ever see lithium batteries becoming more commonly used is if the cost of them can be reduced even further than it already has been.

In terms of the investment itself, it is paying the owner of the Jersey registered company £200,000 plus 75 million shares for a 30% stake in Nashwan, which currently holds two prospecting permits in Mali. These are on the Bouguoni area which has seen a lot of hype following a bid by the Chinese for one of the companies at a more advanced stage of appraising its licences, but that was subsequently withdrawn and it is hard to know if it was ever even a genuine bid.

An exploration drilling campaign won’t be cheap, looking at what other companies in the area have spent, and Nashwan owner Harry Sutherland is only committing to putting £100,000 of the money he was paid for the 30% stake back into the prospecting and exploration costs.

Alongside that Blenheim also has an extended option to invest in the Dieba exploration permit by paying Xantus Inc £175,000 plus issuing 60 million shares. This option runs until June 30 2017, assuming there are no further extensions. Given how much some seem to go on about what a great company Xantus is, it is a bit surprising that it would sell a stake in the project if it thought that it was that good, especially to such a small company which isn’t exactly awash with cash, especially not for engaging in several projects at the same time.

One positive is that the company has at least used some of the funds raised to clear the outstanding £275,000 of convertible loan notes, and is now totally debt-free.

Being fair to the company and assuming that nothing has changed in the meantime, the fact that it only had admin expenses of £116,000 for the six months up to the end of October 2016 is a positive. That means that the company is burning through less than £20,000 per month and it can hardly be accused of acting as a gravy train for the directors.

I certainly wouldn’t be considering this as an investment at the moment – I can see a trade from these levels as there is bound to be some hype over the licences as and when they come, especially if you can buy closer to the placing price – as the odds aren’t in your favour, given that a massive majority of these small miners promise the earth but only a fraction of them will ever actually mine anything or sell their licences once they’ve proven them up.

But I would say that despite my view, if you were desperate to stick your money into a company of this type then this certainly doesn’t look particularly expensive when compared to its peers. Currently its market cap is around £2.4 million at a share price of circa 0.6p and a reasonable chunk of that is in cash, but it is just a matter of how quickly it starts to burn through that money once any sort of operational work begins.

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