By Gary Newman | Sunday 9 July 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.
When a tiny AIM company suddenly becomes popular all over Twitter and the bulletin boards, and without any real news to justify that sudden attention, then you have to question why it is happening.
More often than not these days it seems to coincide with a recent placing, especially where there are also warrants attached, and those who took part in the equity raise are desperately promoting the company as much as they can in order to offload their shares – and ideally the warrants as well – onto mug punters who buy into all the sudden hype without asking any questions about the reasons behind it.
One company that definitely seems to have fitted that description recently is long-term AIM failure Arian Silver (AGQ) – a mining outfit that I last covered as a sell back in August 2016 when the share price was around 0.9p.
Since then it has continued to burn cash without achieving anything of any real substance, much as you would expect from a company like this which has been failing for a number of years, and the only ones that have actually benefitted have been the directors paying themselves a nice salary.
The company had been concentrating on silver licences in Mexico, although still isn’t anywhere near the stage where any of them are generating revenue, even assuming that they ever will do given that they are at the exploration stage still.
Earlier in the year there had been some excitement about the Noche Buena gold and silver tailings project, but that came to nothing in the end and the company let its purchase option lapse after poor metallurgical test work results.
It did manage to finally sell its Calicanto Project for the $400,000 that was agreed back in August 2016, so at least that brought in some much needed funds – although it is worth noting that the licence had a $602,000 carrying value on the balance sheet so the total asset value of the company would have been reduced as a result of this transaction going through.
These days, if you are running a mining company that is struggling and where private investors have finally lost all faith, meaning that you can no longer raise funds to support your lifestyle as a director, then there is only really one option – buy a lithium licence!
Lithium seems to be the new way for any downtrodden, useless AIM outfit to suddenly gain a new lease of life. You simply buy any old cheap prospecting licence, preferably in an area that is already known for producing the metal, and they can often be purchased for a pittance, and then simply extoll the virtues of said licence and the possible fortunes worth of lithium that could be in the ground, and PIs will come flocking.
That is exactly what Arian did when it announced that it had acquired three lithium projects in Mexico from a private company – they must be really good ones as they cost the company a massive $200,000, and it is even to pay that in instalments over 12 months rather than upfront.
That was followed soon afterwards by positive noises about soil sampling at these licences returning 0.016% lithium grades – you’ll have to excuse me if I don’t get too excited about that at this stage.
Next came news that Align Research had initiated coverage of the company, with this of course having to be paid for by Arian, and a positive report was released, saying how great everything was, as you would expect from such a note.
So you could almost see what was coming next, and sure enough towards the end of May the company announced a placing of 120 million shares at 0.5p to raise £600,000 gross, and with a further 120 million warrants at 0.6p being issued at the same time. Given that there were around 183 million shares in issue prior to that, this was huge dilution, and even more so if the warrants were issued, although those would raise a further £720,000 in funds.
Since then I suspect that the placees have been frantically trying to sell those shares at a profit – the spike in daily volumes since the shares were admitted to trading on June 9 would certainly suggest as much – as well as attempting to push the share price high enough to be able to also cash in the warrants at enough of a profit to make it worthwhile doing so.
In terms of cash in the bank, the company had $416,000 at the end of 2016 and since then has added a further $400,000 from the asset sale, plus maybe as much as $650,000 net proceeds from the placing, so cash of close to $1.5 million in total.
But given that admin expenses alone for 2016 were $1.366 million (and pretty similar for 2015 as well), equating to $114,000 per month, then by the end of this year at the latest, all of this money will be gone – allowing for the $200,000 payment relating to the lithium option as well.
If the company decided to carry out any sort of work on its assets then that will of course cost money, so the cash will be burnt through even sooner. So although it has enough for now, I would expect a further equity raise before the end of the year, and sooner if they are to carry out any meaningful exploration work. The only thing that could postpone that is the warrants being cashed in.
Short term this may well see a spike as it is likely to be promoted heavily on any even slightly positive news, to allow the completion of the churn of placing shares and potentially those warrants if the share prices reaches a high enough level.
Longer term I can see it continuing in the same trend as we have seen previously, with regular equity raises and achieving little of any real substance, so I would avoid it.
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