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Blenheim deals look expensive for existing shareholders

By Gary Newman | Thursday 30 November 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.

Twitter and the bulletin boards were awash with people saying how great the Blenheim Natural Resources (BNR) news was this morning, but having had a good read myself I think they may have been over-egging it somewhat!

I’ve certainly never been a fan of the company myself – although I have traded it several times around all the social media hype I have always been clear on my views of the business. Although to be fair there are plenty of other AIM minnows out there operating similarly that would appear to be far more overvalued. I am also one of those who thinks that lithium is just a fad for these small outfits who are trying to cash in on the latest ‘buzz word’ and that the reality is that it is likely that none of them will ever produce any lithium, or indeed sell their assets on.

Blenheim already had interests in several licences in Mali – in an area where there has been much excitement surrounding the drilling results of others operating there, but that has largely been short-lived and included a ‘spoof’ takeover bid for one of them by a Chinese outfit. That came through a 40% interest in Mansa Lithium and 30% in Nashwan, and there has also been much excitement over a company called Xantus, which was only incorporated in August 2016, and so it isn’t easy to find out too much about the financial side of things there and whether it is really as large a player as many on the bulletin boards would have you believe.

Today the company issued four RNSs, one of which was about a deal with Future Fuels Holdings to acquire a 40% interest in Xantus, in return for 125 million shares in Blenheim – equating to nearly £850,000 based on the previous mid-price – plus it also has to transfer its 40% interest in Mansa to Xantus and that now becomes a 100% owned subsidiary, so Blenheim still effectively retain 40%. In return the company has gained an indirect interest in two highly prospective permits in Mali, and four permits in Niger. Given the stage that these licences are at that sounds expensive – the Niger licences for instance had work carried out back in the 1960s but nothing since then.

What is also very interesting is that the same RNS gives a bit more detail about the financial side of Xantus, albeit not in any detail, but it does state that the unaudited accounts to the end of October 2017 show gross assets of just $722,000. So I would argue that paying the equivalent of £850,000 for a 40% share of assets that are worth at most $722,000 on paper currently could be viewed as expensive.

It also announced this morning that it had acquired a 25% stake in Cobalt Blue Holdings – a new formed outfit incorporated in the British Virgin Islands – which may be granted six cobalt exploration licences in Cameroon. Again, there was no actual cash involved at this stage but if the deal is approved by shareholders it will lead to 550 million warrants being issued in return for this stake. Looking at the details of the warrants, 300 million of those will be at a price of just 0.1p, with the remaining 250 million at 0.65p, and that will lead to nearly 35% dilution of current shareholders – possibly less if all the other outstanding warrants from other deals and placings end up getting exercised. That again seems like an awful lot for 25% of a company which was only formed on October 16 2017 and had net assets of $2,000, even if it does manage to secure these exploration licences. Blenheim also has an option to acquire a further 24% of Cobalt Blue for £800,000 within six months.

There is of course always a chance that one of these exploration permits could come good, and I’m sure there will be plenty of hype around future drilling and with these small companies any even vaguely positive early results can see a big rise in share price. But at this stage these assets look incredibly expensive to me.

The company also released its interim results today and there was nothing of any real note within those, other than that cash burn is still at a very reasonable level and the company has plenty enough in the bank to meet its day-to-day running costs for the foreseeable future. I certainly wouldn’t be rushing to invest though given the amount of potentially cheap dilution which is coming, and suspect that if you are interested in these assets, then you will get a chance to buy in cheaper in the near future. The share price is dropping as I write this and is currently around 0.56p to buy, with a market cap of circa £5 million.

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