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By Gary Newman | Tuesday 5 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.
No matter how long you have been around the AIM market, there are often moves which seem to make little or no sense, especially amongst the smaller companies.
Late on Friday, after the market had closed, Lionsgold (LION) – previously known as Kolar Gold - issued an RNS revealing that it had issued an additional 25 million shares at 0.8p, as well as one-for-one warrants at 1.2p, following an approach from ‘high net worth’ individuals.
Interestingly, the warrants are exercisable up until the end of 2018, but there is a clause stating that should the share price exceed a five-day volume-weighted average of 3.6p, then the company can force them to be exercised within the following seven days, thus raising further funds for the company.
Now this news came just a day after the company had announced a placing to raise £550,000 via the issue of 68.75 million shares on the same terms as the subsequent placing, although 41.25 million of those shares can only be issued following shareholder approval at a general meeting on December 29.
So you have to wonder why the company suddenly agreed to raise nearly 40% in additional capital just because they’d been approached by a group of private investors. Judging by the reactions of many shareholders who were posting on social media, the majority weren’t exactly happy about what had gone on – especially given that the share price had closed the day at 1.25p on the Friday, so the secondary shares being issued to this group were in excess of a 35% discount to where the price had been trading that day.
Logic would suggest that at best the share price would stay fairly flat, or most likely fall, and there was a fairly weak opening on Monday morning, but for then some inexplicable reason it rose by 150% to close the day at 3.1p, giving a market cap of close to £8 million – or nearly £11 million taking into account the new shares (but excluding the warrants).
Included in the second raise was a statement from the directors saying that they new of no reason for the rise that day – the one that took the share price up to 1.25p – so it makes little sense that it is now trading at so much higher.
The game here is would imagine is for people to try and flip the shares for roughly a 300% profit if they are able to do so at the current share price. It will also be interesting to see what the company does now in response to the further share price increase, as it could well fancy triggering all those warrants at the 3.6p level and seeing an additional £337,000 coming into its coffers.
When it comes to what the company actually does, it has a 21.15% equity holding in Geomysore Services, a private company in India, which is targeting production from Jonnagiri project in late 2019. This has an indicated and inferred resource of 351,000 ounces, and an economic feasibility study was recently published showing probable reserves of 151,000 ounces and a net present value of $28.2 million, with up to 25,000 being produced each year – although more than $39 million will need to be invested in order to reach production. Geomysore does have other early stage licences, but this is by far the most interesting one.
It also has a stake in Kalevala Gold in Finland – having paid €500,000 plus €150,000 in shares for a 28.3% stake, plus an option to earn-in up to 50% by spending a further €1 million on drilling and sampling – and recently announced that pilot plant testing had been approved by the government.
This approval is for 200 tonnes of gold ore to be processed, but it is still awaiting approval for the 5,000 tonne bulk sampling programme which is planned for next year.
It also has an interest in Fintech via a 37.7% holding in a company called TRAC Technology, which has IndexGold, and has been developed so that people both in the UK and India can trade physical gold and silver, and this does generate revenue for the company.
The last set of accounts for TRAC were far from exciting with net assets of around £4,000, but they were only up until the end of March 2016, and since then the IndexGold platform has been launched so they may well have improved significantly, but it will be interesting to see how much revenue is being generated from it.
It is a similar story for Lionsgold, as a lot has happened since the last set of financials up until the end of 2016, and during the period covered by those interims the company was refinanced and there was a complete change of the board, with Metal Tiger founder Cameron Parry taking over as CEO.
It wouldn’t be that hard to justify the company as looking interesting at its market cap level prior to the big spike, although it wouldn’t exactly be easy for its mining projects to gain funding, and if they did, then production would still be a couple of years down the line.
But taking into account the rise in share price to over 3p, and the diluted valuation of around £10 million, I would expect a significant pullback at some point in the near future – it just depends on how long those trying to flip their shares and warrants can keep it buoyant whilst they offload!
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