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By Nigel Somerville, the Deputy Sheriff of AIM | 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.
Yesterday I described the FY17 results of Karelian Diamond (KRL) and a series of Red Flags to be found. Today we look at its stable-mate, AIM-listed Conroy Gold and Natural Resources (CGNR) and find a similar story. It is a car-crash festooned with more Red Flags.
Just start with the balance sheet: current assets of EUR 116,684, current liabilities of EUR 2.75 million. Let’s get this straight: at the end of May the company had a working capital shortfall of EUR 2.6 million…the market capitalisation is only £1.6 million today! Can anyone explain how that is not insolvent?
Since year end the company has raised approx. EUR 400,000 but that won’t be enough. Meanwhile, those lucky punters who paid 30 Euro cents have seen them slump to 13.25p (around 15 euro cents).
The company says it lost EUR 431,992 during the year, but the cashflow statement shows an outflow of a rather more shocking EUR 915,039 before a cash loan from lucky benefactors, the shareholders in Karelian Diamonds (where Prof Conroy also presides) and loans from directors (call that unpaid fees) rather rescued things. We also see that creditors piled up by an additional EUR 460,066. Yikes – so around EUR 1.3 million out of the door, then – over EUR 100,000 per month.
Why would Karelian Diamonds shareholders see fit to lend EUR 105,035 that hasn’t got to the company? As discussed yesterday, Karelian is horribly underwater too, and needing to get a big placing away.
Why, for that matter, did Conroy borrow it? Is it having such trouble raising money that it has to raid the tin of Karelian (which hasn't any money)?
In any case, I thought the two companies were separate entities now! It does't look like it, does it?
As per yesterday, the Auditor’s report is mossing. Good news, however – it is on Conroy’s website. I quote:
Emphasis of Matter - Realisation of Intangible Assets, Recoverability of Amounts owed from Group Companies and Going Concern
7. The realisation of intangible assets by the Group and Company and the amounts owed by group companies to the Company, is dependent on the further successful development and ultimate production of the mineral reserves and the availability of sufficient finance to bring the reserves to economic maturity and profitability. The consolidated financial statements do not include any adjustments in relation to these uncertainties and the ultimate outcome cannot at present be determined.
Ouch. Blah, blah, EUR 2.6 net current liabilities, blah blah…
The consolidated financial statements do not include any adjustments to the carrying amount, or classification of assets and liabilities that would be necessary, if the Group or Company was unable to continue as a going concern.
Any guesses as to the result of being deemed not a going concern?
To be fair, approx. EUR 2 million of current liabilities are amounts owed to directors. OK, so we can ignore them because oddly enough they are holding off demanding payment for 12 months, or until the company can pay them. But that still leaves EUR 0.6 million, and meanwhile the company’s shareholders can enjoy the directors ability to subscribe for more equity should the need arise (for example a sack-the-board EGM being called). Splendid.
If you think the EUR 0.6 million looks ok because the company raised around EUR 400,000, but on a cashburn of EUR 100,000 per month (if we include piling up unpaid creditors) that suggests the company is sitting on a disaster of MINUS EUR 0.8 million of working capital even setting aside director loans. That’s around half of the market capitalisation!
Amazingly, the stock edged higher yesterday on these results. Lord knows why!
Like Karelian Diamonds yesterday, this is a bargepole stock of the highest order.
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