The next focusIR Investor Webinar takes places on 14th May with guest speakers from Blue Whale Growth Fund, Taseko Mines, Kavango Resources and CQS Natural Resources fund. Please register here.
David7015
Yes I am certain there was a failed equity raise. They don’t have to RNS it, although it was mentioned in despatches in the RNS announcing the Riverfort deal “The Directors have assessed a number of financing options for the Company including an equity raise and believe that the Facility is the best option available to the Company at the present time in order to further fund its progress.”.
I’ve suggested multiple times that someone attempt to verify this through their own connections but have not heard back from anyone to either confirm or deny this. I guess confirmation may be counterproductive.
Horse
It says that the 3 month and 6 month drawdowns are “committed”. I presume that means by both parties
Interestingly, the 4th drawdown which can be made from 6 months is subject to Riverfort being owed under £1m.
That means they have to have recouped £1.6m from share sales in 6 months. If it’s written into the terms, it’s not unreasonable to believe that that is the expectation from both parties.
6 months equates to circa 125 trading days. That’s £12,800 of additional sells on average on every single one of those days. On top of the natural selling.
Today there were net sells of circa 8000 shares. What difference would a further 14K sells have made.
Every. Single. Day. For 6 months.
Trading4good
No the terms of this CLN are very different and very much worse than you would normally expect to see.
In these terms, they simply sell for any price they like and if they don’t recoup their money, they get given more and more shares to sell until they recoup the whole lot. It is win/win for them.
Elcap
Perfectly fine with me. As long as everyone here is making educated decisions, my work here is done.
We will all have different beliefs as to the relatively likelihoods of various possible outcomes and should make our own decisions based on those beliefs.
Let’s try and work this through logically and rationally.
Presumably nobody disagrees that Riverfort will, at some stage, sell their shares.
The question is whether they will do this quickly or slowly.
It’s a question nobody knows the answer to for sure. I and others, who are familiar with Riverfort’s MO, believe that quickly is the most likely option.
The long-term stalwarts here are suggesting they may sell them slowly. The rational justification for this is that Riverfort stand to make more money on their investment if they hold the shares and the shares go up.
The problem with that hypothesis is that it isn’t logical. Riverfort’s business model isn’t to go around looking for companies with amazing prospects and then offering them finance on terrible terms. That business model doesn’t work. Those companies can get less potentially destructive types of finance.
So either Riverfort have seen that SAR has incredible potential and been so blown away by that that they have decided to change their business model to take advantage of that opportunity.
Or it’s just busines as usual for them and they plan to sell their shares at the earliest juncture, irrespective of the share price.
They then still make money on their 4.5% + £50K fee. And the lower they drive the price, the lower price subsequent warrants are issued at.
Let’s hypothesise that they can get the SP down to 10p before their final tranche of CLN is executed. They then get warrants issued at 13p.
Then once they’ve finished converting and selling, they will have a whole stack of warrants which will hopefully (from their perspective) benefit from the “seller out bounce”.
So it’s either the first option which is utterly destructive to shareholder value or, in the best case scenario, they sell slowly. There is still a £2m share overhang so the SP is unlikely to jump significantly. In that case, let’s be generous and say the SP recovers 20% from here.
You guys need to assess the likelihood of the first or second option and the likely resultant share prices.
So I might think that brutal selling is 90% likely and that I would expect it to result in a 20p share price. And that there is a 10% chance of slow selling which might end up with a 120p share price.
So my calculation would say that the overall expected share price is 20p x 90% + 120p x 10% = 30p.
Someone who is bullish might say it’s the other way round and that the upside is 200p. So their calculation would be 200p x 90% + 20p x 10% = 182p.
I would implore everyone to do this sum based upon their percentage likelihoods and expected prices in each eventuality. If the resultant price is less than the prevailing price you should sell. If it’s more, you should hold or buy, depending on your cash position and the opportunity cost of your capital.
Sadoldgit
You are misunderstanding or misrepresenting what I have said. I have simply said that as a retail spreadbet investor, I can only lose the funds in my account. Eg if I sell SAR on 20% margin and there is a move to the upside, will only lose 20% of the value of the original shares I sold.
Some interesting reading for you all, in case you aren’t totally up to speed about how death spiral financing works, and the ramifications for the borrower - https://www.investopedia.com/terms/d/deathspiral.asp
Parrot Talk
I think we are on the same wavelength. The deal done with RF keeps the lights on but is potentially disastrous in the short-term for the share price.
Clearly, if Sareum comes up with a blockbuster therapeutic then in the longer term, shareholders will do well, albeit less well than they otherwise may have done as a consequence of the horrific dilution which may take place if Riverfort keep converting, selling and then converting again at a lower price.
ParrotTalk
Yes being offered the placing does involve getting made inside. Once the placing gets cancelled, insiders then get cleansed.
As I suggested earlier, I’d say the best evidence would be for a trusted poster to make contact with a broker who offers placings. Any broker should do…SAR couldn’t raise the money, so in desperation opened it up to every man and his dog.
Watch and see.
Riverfort know what price the city turned down. They don’t believe the shares are worth £1 any more than the city did.
They will make money on a falling SP. That’s what death spiral loan providers do.
What this means is that the share price decline will be slow and painful rather than a short sharp shock that they would have had, had the managed to get the placing away at a 50% discount. Sadly the city wasn’t willing to pay that much.
Is it Tuesday that Riverfort get their shares and start selling? At least that gives shareholders a chance to sell before the real action begins.