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Where now for Conroy dogs Karelian and Conroy Gold?

By Nigel Somerville, the Deputy Sheriff of AIM | Sunday 3 December 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.


I’ve been wondering what comes next for Prof Richard Conroy’s AIM vehicles Karelian (KDR) and Conroy Gold and Natural Resources (CGNR). From my review of their financial results to May of this year (see HERE and HERE) it is clear that they are both in deep trouble – they are running out of money fast and the results to last May show that quite clearly. Lord knows how bad it is now.

In Karelian’s case, my guess is a shortfall of around EUR 150,000, but included in the net current assets is a debt from Conroy of some EUR 273,800 which is it clear from the Conroy accounts that it hasn’t got. So perhaps a shortfall of more like EUR 423,800. Quite how it finances itself with FY2017 ongoing cashburn of around EUR 80,000 a month is anybody’s guess, but one thing is clear – the company needs a fundraisisng of perhaps EUR 1 million just to keep the wolf from the door over the next twelve months. Against a market capitalisation of just £1.5 million that is one hell of a big ask.

As for Conroy Gold and Natural Resources, the deficit is far, far wider. In May the net current assets were MINUS EUR 2.6 million! The results saw cashburn of over EUR 100,000 a month, and since year-end the company has raised just EUR 400,000 – so six months into the new financial year historical cashburn suggests it is now a whopping EUR 2.8 million under water with regards to net current assets. Against that, the market capitalisation sits at a just £1.6 million.

There is one plus, that both Conroy and Karelian owes (current and former) directors’ fees – and in the case of Conroy it amounts to  approx. EUR 2 million. But that still leaves Conroy with a whopping hole in its balance sheet.

There is also the small matter of related party transactions: last year Conroy charged the best part of EUR 300,000 to Karelian for services rendered. It also ran up an increased debt to Karelian of a further (best part of) EUR 300,000. That rather suggests that if one goes down it could take the other with it.

So what to do?

Normally, a discounted placing would be the answer – but for both companies the amount needed s simply too big with reference to the market capitalisation. In the case of Conroy the amount needed to pay all the bills is bigger than the market value of the company. I suspect even the bucket shops would run a mile, whatever discount was on offer.

A placing to “mates” seems unlikely – Prof Conroy seems to have called that one in to save his job at Conroy and I don’t suppose the lucky benefactors are too happy at the 50% share price decline since then.

That leaves a trip to, perhaps, Primary Bid to see what they can get, But is still won’t be enough.

But then UK Oil & Gas (UKOG) did that, and so did Tern (TERN). Then they both went on to get a death spiral. In both cases – and especially Tern – the result has so far been a total disaster for the share price.

So that is what I expect next.

Of course, there is another option at Conroy. Since directors and former directors are owed more than the company is worth, if they did a debt for equity swap that would trigger a bid (in the absence of a whitewash). Take it all private, and sod the shareholders altogether.

But that would need access to funding away from the markets, so I don’t see that a s a runner.

So it looks to me like a death spiral is the only way out in both cases.

With regard to Conroy, perhaps that explains the proposed 25:1 consolidation. After all, it would look far better to report a higher share price in a year’s time, and pretend the consolidation hadn’t happened.

Whatever routes the two (heavily connected) boards take, one thing is for sure: shareholders of both companies are going to be taken round the back of the bike sheds for a beating.

Or the two companies could simply run out of (other people's) cash.

Take your pick.


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