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A glimmer of light at the end of the tunnel for Ferrum Crescent?

By Gary Newman | Friday 6 October 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’ve not exactly been a big fan of Ferrum Crescent (FCR), but there could now be a slight glimmer of hope for anyone trapped in this serial underperformer.

Things had looked very bleak for any existing investors when the company announced that one of the resolutions at its forthcoming general meeting, on October 18, sought shareholder approval to raise up to A$2.7 million (£1.6 million). Given that at the time the company was only valued at circa £1.5 million, with shares trading around the 0.06p area, this would have meant huge dilution for existing holders, especially given that the share price nearly halved in the days subsequent to that announcement, and I dread to think at what price it would have eventually had to raise the money at. This put the company firmly in bargepole territory, which I covered in my piece on it a few weeks back.

There have been several significant developments since then though which look slightly more positive for investors, and don’t necessarily involve getting diluted into oblivion.

The first was the resignation of executive chairman Justin Tooth, and that was accompanied by the news that the company wouldn’t be looking for a direct replacement and that non-executive director Grant Button would be taking over, but wouldn’t be claiming a salary for doing so. That alone will save the company a fair bit of money, as for the year up until the end of June 2017, Justin Tooth 'earnt' a little over $200,000 in salary and fees.

Although given that the company incurred admin expenses of nearly $1.6 million for that 12 month period, and made a loss of around $2 million, it will still be burning through cash at a rate of nearly $120,000 (over £90,000) per month, and that is ignoring any sort of exploration expenditure.

Those accounts revealed that the company had just over $500,000 in the bank at the end of June, and subsequently raised £193,000 at the start of September via an equity issue at 0.09p. By my reckoning that should have left it with around $350,000 in the bank at the end of September at the very most – but in reality it would have been less due to the drilling activity during that period. So at the very most the company will have enough cash to last for the next couple of months, maybe even less.

What has now become clear though, following the issue of an RNS, is that Ferrum has changed its strategy with regards to raising further funds, and it has cancelled the resolution seeking permission to raise A$2.7 million.

It is interesting that the RNS states that the board now believes that it is possible to ‘build value’ at its Toral lead-zinc asset in Spain for less than it originally expected, and that the full amount originally envisaged may no longer be required. The wording of the RNS suggests to me that the company may be looking to sell the asset on if it gets a chance to, given that it talks about building value, rather than in terms of developing it.

One way of keeping costs down, including not necessarily needing a fulltime CEO, would be for the company to pretty much end up as a shell, at which point it would then be able to decide upon the future direction that it takes. That though doesn’t solve the problem of needing more funding in the shorter term, and under ASX rules (rule 7.1 in particular) if the company wants to raise any really significant amount via equity it is still going to have to seek shareholder approval to do so. I must admit to being a bit surprised that it hasn’t put something in place at the general meeting to at least give it the option of raising money over and above the 15% of issued share capital that it is currently restricted to within a 12 month period.

The reaction to the news of the fundraising resolution being scrapped once again showed just how fickle the market can be, as suddenly social media was full of people waxing lyrical about how wonderful the news was – no doubt having just bought a few themselves for a quick trade! – and the shares closed the day around 50% up at 0.058p to buy. I suspect a few who had been trapped in here also couldn’t believe their luck at getting a chance to sell.

I’m not about to hammer the company further as it is already on its knees, and I feel that at least some credit has to go to the remaining directors in the stance that they have taken to reduce costs – it would have been easy for someone to step into the CEO position and to then raise money to pay themselves a juicy wedge, as has happened in the past. It is though hard to see where the funds are going to come from to really make much progress with its assets, barring some totally unexpected spike in share price which allows it to raise money at a higher level, or an investor coming onboard and providing funding.

In the meantime, I certainly wouldn’t be rushing to put any money in here, especially after the rise we’ve just seen, but at least now there is some hope for anyone trapped in here. Who knows we may see the company completely reinvent itself in a different sector, as has happened to many others on AIM over the years.

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