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By Cynical Bear | Wednesday 9 August 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.
Xtract Resources (XTR) can’t help itself. In a carbon copy of the manoeuvre back in February earlier this year, it has announced a placing at a shockingly low price just as some positive sentiment was returning around the potential alluvials revenue. Let’s take a closer look.
Things had been looking more promising here over the last couple of months with announcements about alluvial contracts in place for both the East and West side of the Manica alluvials with potential revenue coming in as early as next month. Funds were slightly tight but the more optimistic investors probably thought that it might be able to eke out the current cash until revenues started flowing later in the year.
Then, all of a sudden, without any warning – WHAM - Yet another placing.
Xtract has issued 76 million shares at 1.7p raising £1.3 million, compared to last night’s close of 2.63p, a discount of 35%. I trust the flippers and bucket shops are suitably happy. No great surprise that the share price has taken a tumble following the announcement, currently down 19% at 2.125p.
This is huge dilution; just because we are not talking about billions of shares anymore doesn’t mean that it is not significant. This amounts to a further 30% dilution. In pre-consolidation terms, this would have amounted to the issuance of 15 billion shares at 0.0085p, compared to February’s placing of 10 billion shares at 0.0185p.
Beaufort get 7.6 million warrants at the same price too – obvs.
$583,000 of the proceeds will be used to pay off Yorkville completely so it is now finally free of those guys. Colin made some excuse about gaining certainty of the number of shares to be issued which is patent nonsense as there was a floor of 2.4p on the conversion rights of Yorkville and there was only $100,000 left able to convert in any event. The rest was being paid off on a monthly basis, apparently.
The balance of the placing proceeds will be used for pre-production costs for the alluvials and general working capital.
It is good news though that Yorkville is out. I think that means that the only debt that remains is the remaining $1 million to Auroch that was intended to be turned into a convertible at some point, so expect more dilution to come.
I must admit that I’m not totally surprised though as I’ve mentioned before about Colin Bird’s share issuance addiction. It’s almost as if he sees any positive sentiment as an excuse to get as much cash out of investors as possible.
Perhaps one day, Xtract will generate revenue in excess of its costs and won’t have to issue shares.
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