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Paternoster Resources - the Elephant in the valuation room

By Tom Winnifrith, The Sheriff of AIM | Monday 10 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.


Yesterday I explained at length HERE why I would not touch Paternoster Resources (PRS) shares with a bargepole - they look cheap in relation to asset value but are not. Indeed I think that the real realisable NAV today is far lower than the last, March 31, stated NAV. Let us just look at an unlisted investment as a case study - Elephant Oil.

According to the calendar 2016 annual report from Paternoster

Elephant Oil Limited, is an oil and gas exploration company focused on West Africa, which holds a 100% interest in Block B, onshore Benin, on the prolific West Africa Transform Margin. Elephant Oil Limited continues to progress its work programme on Block B in Benin. The company is currently preparing for seismic acquisition while also in discussion with various prospective partners on Block B.

That sounds okay. But let us now go to companies house where the last available annual report for Elephant - a company founded by disgraced Gavin Burnell of Globo infamy, which is never a good sign - is for the year to January 31 2016. i.e. the most recent financial data we have is now 18 months old.

That report showed a FY cashburn of £385, 850. okay some of that was movement in working capital but even if we strip that out the cash spunk from operations was £247,023. At the year end the balance sheet showed cash at hand of £27,181 and net current LIABILITIES of £250,654. In other words it was insolvent.

The directors address the issue of a going concern by noting that the loans due within a year (£474,934) are due to either Burnell or a company controlled by him (Woodland) so one assumes that he will just extend the maturity and not pull the plug. Indeed if we treat them as long term liabilities net current assets would be £224,280. On the other hand included in that number is a loan due from Elephant Oil Benin of £203,934. One suspects that money may be a tad slow in coming in so if we, perhaps, treat that as not being likely to appear within twelve months net current assets head back to just £30,336 which given the £20,000 pcm cash spunk might be an issue.

So the directors stated:

"Although the company's assets are not generating revenues and an operating loss has been reported, the company has raised a further £100,000 on April 4 2016 in order to meet its day to day working capital requirements."

The fact that Elephant had to raise that cash in April 2016 suggests that the cash from Benin was not exactly flooding in and thus net current assets/cash was effectively, as calculated above, zero by then. But that also implies that within another five or six months from April 4 2016 the company would be in deep shit again - that is to say by September 2016.

On that basis of the April 4 2016 fund raise the board said that Elephant was a going concern when publishing its accounts on 10 November 2016. Hmmmm I rather doubt it, don't you?

Over at Companies House we see that the company has raised no further equity since April 2016 although shamed City pariah Gavin Burnell of Globo infamy has left the board.

It seems to me that based on 2016 cashburn and the last stated balance sheet that this company must by now be insolvent. The idea that it has the funds to "continue to progress its work" as paternoster claims is laughable. Yet Paternoster's 7.7% stake in Elephant forms part of its claimed NAV. Whatever....

I am sure that Paternoster's well paid directors Nick Lee and Amanda Van Related Party can justify everything. 


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