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Highlands Natural Resources: Results out - fun over - bubble bursting - get out

By Cynical Bear | Thursday 22 June 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.

I’m no longer surprised how stocks that, in my view, are inherently worthless or at least worth a fraction of their current share price can stay at such a high price or so long but I think the bubble is bursting, and gravity is taking hold, at Highlands Natural Resources (HNR) with a shocking set of results released yesterday. Let’s have a look at the “highlights”!

The results focussed on its three main projects, namely DT Ultravert, the Helios helium play and, the current priority, East Denver.

DT Ultravert has been very quiet for a while. In fact, we now know that the agreement for a re-frack of a well announced in late-October 2016 never actually took place and despite loads of marketing since apparently no further agreements have been reached. Hmmm, must be an incredible piece of technology; thank goodness, it now has a patent on it!

Helios was the incredible helium opportunity with which there was a spot of bother when someone dropped a tool down one of the holes which put an abrupt end to that; however, it is still hoping to progress this in H2 2017 apparently. Course you are.

So the focus for now is on East Denver, with its farm-in arrangement with Renegade first announced in July 2016, at which point discussion with financing partners was also mentioned. This was eleven months ago and still no sign of any finance.

Apparently the cost for 24 wells is $120 million, so $5 million a pop, which is about $119 million more than the company has in its bank account right now so it is understandable why it is looking for funding. It doesn’t surprise me that in the commentary in the results it talks about potentially needing to fund a larger portion of the early costs to de-risk the investment. Makes perfect sense but who is going to provide, say, $10 million to this company to undertake that initial work….and at what price?

The cash position is horrendous. Although it raised about £8 million in the year, cash at 31 March 2017 was down to under £2 million and with ongoing expenditure since year-end, it clearly states that more funding is required just to keep the lights on, let alone for East Denver.

With hindsight, the fact that Highlands Natural managed to raise £7.5 million through sleight of hand and the disposal of 30 million warrants to an “institutional investor” as well documented on this site (HERE) was genius as it pretty much needed every penny. Interesting that those warrant disposals all happened between June and October 2016 at a time when the board was ramping the DT Ultravert and Helios opportunities left right and centre, both of which are now seen as secondary to Denver.

When I started my Sub-Standard XI back in May 2016, Highlands was the star of the team with a share price at that time in excess of 60p. Unfortunately for shareholders here, normal service has now well and truly resumed and having traded in a range from about 25-30p for some time now, I see it closed down 9% yesterday at 23.75p and I can see it dropping quickly from here as the cash runs out and it splutters around looking for funding. Death spiral finance anyone?

Reckon it will be sub-10p by the end of the year.

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