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Yep great news Shenyang have converted.
This changes the shareholding dynamic here considerably. Shenyang have as much as told CB they want out. The broker should easily place any overhang.

It also negates the 5p accelerator. A little more patience, imo last orders as we will be off soon with v little to hold us back on the financial front now.

Usual caveats

Trek

Post 1

Cobra risks

Not going to dwell on axiomatic risks like covid, exploration risk ‘finding sd all!’ POG collapsing etc. These are my own concerns. Challenge as you wish. Constructively and politely please....

THE BoD

The company is over dependent on CM albeit this is a significant risk it’s no different from many other juniors. However, Imo the quality of the BoD here will need strengthening. CM is the best geo bar none but he is meant to be first and foremost a CEO. Whilst he has operational experience he lacks more upstream experience, M&A, deal making (co profile resume). Likewise, the chairman is part time. ATM CM is doing CEO, COO and CFO! They have a secretary which is great and the NED’s are there more for main market scrutiny/compliance. Whilst a lot of the work is done by the drilling contractor, legals and JV partner whilst this keeps costs down there will be a time when the team needs strengthening.

I also think CM is pretty cheap! £125k + pension contributions and his options whilst aligned to objectives are not excessive. He should get more options imo.

TRADING-LIQUIDITY

Illiquidity means you can’t necessarily buy or sell when you want. However, apart from David Clark, NED, (6.6% https://cobraplc.com/investors/shareholders/) there are no significant investors over 3%. It is mostly PI held with nominee accounts making up the largest holdings. We could do with institutional holdings, being on main market that should eventually come. But you will find they won’t just buy ‘resource’ they will want to see a more structured BoD and full market compliance + a higher Mcap.

The ebb and flow of conversions adds to volatility.

DILUTION

A main market listing comes with additional rules around dilution protection. However, it should be noted that although main market they have opted out of chapter’s 8 to 13.

There are still a lot of warrants outstanding. That in itself may not be a problem as it’s how these companies are funded. It’s more efficient than a loan which is impossible unless you have resource, chicken & egg. So you fund, find stuff, the SP rises, warrants get converted. You find more stuff, grow the business, issue more warrants they get converted etc. It’s how it works but many investors don’t understand that companies list to raise money and ‘cry’ when they do! All said the next price accelerator is at 4.5p. If we achieve the VWAP and CM hits the button we face another forced dilution with the ‘new warrants’ kicking in but we get around £2m. Page 70 onwards in the prospectus summarises.

https://w32.3eb.myftpupload.com/wp-content/uploads/2020/10/c117157CCL.pdf

Post 2

We don’t need the cash yet as we have £1.375m from the prospectus plus cash on books from June 20 results and recent conversions which probably takes us over £2m even after the drilling. I think he should let the conversions take place gradually and only use the accelerator if/when the SP is much higher as the last call caused a 50% hit to the SP! However, it is my view that should they move forward with the Prince Alfred project during 2021 cash will be needed quicker and probably via a placing.

Investors should be cognisant that the RTO terms (Part VIII, p44 of the prospectus) with mean a maximum 29.9% dilution. Furthermore, from page 70 you can clearly see the warrant summary.

“If all the outstanding Existing Warrants, the New Warrants and the Options were to be exercised, the Company would receive approximately £4,387,355 in cash and would represent 40.40 per cent (prior to the placing warrant conversions) of the Enlarged Issued Share Capital.”

But at least investors can clearly see the funding path set out and if they need more cash then as Cobra took advantage of the gold price to raise cash (page 32 of prospectus) I see them doing the same again, and they have spelt it out pretty clearly in PART 11 and have legal provisions in section f of the articles of association.

RNS COMMS

Imo the RNS out on Christmas Eve with the results show another side to CM. Hiding bad news over Holidays you could probably get away with by blaming timing but the use of the word ‘significant’ was disingenuous. Furthermore, that virtual ‘duster’ does not imo validate the ‘pathfinder technology’. We basically have two from 3 and whilst that in itself is a good result the ‘pathfinder’ jury is still out.

SI Capital and Peterhouse are joint brokers. It is great that they have SI as a broker but because Cobr is their top pick that conflict should be tempered accordingly.

Barns, White Tank and Clarke have come in? Well the market was agnostic of Clarke and as for White Tank I read it as there were only two drills there CRBC0040 & 41. The RNS 21st Jan 2021 indicates that both were drilled significantly. Page 6 of the power point show they are two distinct areas, Fig 2 and 3 show the drill sites. All the labelling applies to Barns. There is no cross section for white tank and yet CRBC0041 is a significant find. It’s at best confusing at worse a little sloppy. They have determined the Barns’ orientation but what about White Tank.

http://www.rns-pdf.londonstockexchange.com/rns/3853M_1-2021-1-20.pdf

Post 3

LICENSE EXPIRATION.

They received extended license approval on 4th September 2020 RNS, Ongoing e-PEPR.

Prior to that the Wudinna ones were due pretty close together, H1 2022 others were closer...

EL 6317 – Pinkawillinie (expires 15 December 2020)
EL 6262 – Acraman (expires 30 September 2020)

The Wudinna area is a conservation area, the Pinkwillinie National Park. Andromeda have access rights. These were due for renewal each year for axs or 2yrs for exploration. The projects are on Aboriginal heritage sites requiring access and exploration permits. Politics and application criterion can change albeit with notice at anytime. This time it was in our favour. It actually didn’t get much of a mention but the e-PEPR sign-off was a significant risk reduction. But this could likewise go the other way.

JV deal

LAM have a spending target to obtain and max earn in of 75% in Wudinna. Hagstrom are contracted to drill 10000m for 66.6/33.4 cash/equity. Assuming stage 3 earn in is reached then we move forward on a JV basis with Andromeda. So far the ball is with us in terms of delivery. Hagstrom get paid on completion. Andromeda then meet us with 25%. But there are no terms beyond stage 3, RNS 30th Nov 2020. The pace we want to move at may not be aligned with Andromeda’s. This ratification will be a big SP lift.

Cobra are dependent on contractors for drill delivery and labs for assay analysis. There is a huge demand for both and also delays exacerbated by covid (30 Nov 2020 RNS) in Oz atm. Cobra need to do another deal to speed up operations. They would benefit from breaking down assays on site and not being dependent on contractors for drill slots by having a higher degree of autonomy either through aligned contracts or shared ownership of ops equipment.

For now we await further updates from Cobra: Further assay results, Clarke infill drilling and more detail around the remaining drill program. Investor fatigue is always a risk during quiet periods but I think most of the risks are convertible opportunities and it will be worth the journey.

I will leave you with this....

“Wudinna is an exceptional opportunity within an established gold system in the Central Gawler Gold Province of South Australia. It offers multiple layers of value creation potential through brownfield development of existing gold deposits, with further upside from 22 regional prospects with multi-million-ounce resource potential and four IOCG (Olympic Dam style) copper-gold targets.”

Trek

Part 2

The announcement last week also noted the economic recovery of valuable hydrocarbons from sludges had also been demonstrated in 2020 with Lukoil. With annual sludge production from refineries estimated at over 100mbbls per annum and a higher recovery rate over 70%, this is another multibillion opportunity for Grafysorber. Further to this, a number of sources* estimate global volume of oil sludge waste in tanks, lagoons and pits around the world at around 9bn tonnes. Recovering the c20% usable hydrocarbons from this with Grafysorber could extract up to $0.5tr of easily accessible hydrocarbons.
? We iterate our view that Directa Plus is an underappreciated, undervalued and more mature and lower risk play in the UK listed environmental technology and nanomaterials space. The accelerated commercialisation of its patented Grafysorber technology (granted in EU and USA) alone could be worth many multiples of the current valuation. We appreciate that commercialisation with the conservative international oil and gas sector will not be immediate, but with commercial results such as that with OMV and Lukoil proving the value proposition, monetisation could happen sooner than is reflected in our model (which only assumes steady growth through Setcar).
OMV Petrom Contact
The contract with OMV Petrom relates to oil recovery from existing high-volume emulsions stored in the OMV Petrom Tank Farms in Romania. The project was paused in 2020 as a result of the pandemic but resumed in November 2020 and this month saw the treatment capacity increased to 2,000m3 of emulsion per month. The extension has been agreed on the basis of the positive results to date of the Grafysorber® technology.
Grafysorber
Directa Plus’s patented Grafysorber® technology is a commercially-available graphene-based solution for treating water sludges and emulsions containing hydrocarbons and is at least five times more effective than current technologies – adsorbing more than 100 times its own weight of oil-based pollutants. In addition, Grafysorber® is sustainably produced, non-flammable and reusable, with the adsorbed hydrocarbons recoverable.

Trek

Directa Plus has had its contract with OMV Petrom extended and increased. The contract, initially awarded in July 2019, was for the provision of decontamination and oil recovery services using the Company’s proprietary Grafysorber® technology. The initial value of the contract was €150k (of which €75k was delivered and invoiced in 2020) and this has now been increased to €410k, the balance of which is expected to be fulfilled by June 2021.
? On the basis of the better than anticipated trading from Directa Plus in 2020 (revenues of €6.5m compared to our forecast of €5.5m, which reduces the perceived funding risk), and appreciating the global potential for Grafysorber following the results with OMV Petrom and Lukoil (discussed in more detail below), and with the OMV contract significantly extended today, we increase our DCF based price target to 160p (from 122p) through a reduction in our discount rate to 13% (from 16%).
? Comment: In its trading update on 11 January 2021 Directa Plus announced that its project with OMV Petrom has been successful in treating high volume emulsions from upstream drilling activities and transforming a waste stream into valuable hydrocarbons clean enough to return to the refinery for processing. In our report on the trading update we estimated that the proposal to increase capacity to process 2000m3 per month, as confirmed in the contract extension today, this production capacity would recover hydrocarbons worth around $150k per month. With such impressive performance transforming the waste into value, it is unsurprising that OMV has rapidly agreed an increase contract value to around €55k/month for Directa Plus’s subsidiary Setcar.
? The potential value of the Grafysorber environmental technology globally is very significant indeed and we believe this is not yet appreciated by the market. Estimates for global water/emulsions produced from the oil and gas industry vary greatly, at one end IFP Energies Nouvelles estimates it around 300 million m3 pa (1,890mmbbls pa). At the other end the EIA estimates around 3 barrels of water/emulsion are produced per barrel of recovered oil, leading to an annual figure that could be as high as 12,400mbbls pa. Assuming a similar hydrocarbon recovery rate as with OMV of c25% (as calculated using information from the 11 January announcement), and a discounted oil price of $38/bbl (30% discount as per a low-quality crude to be conservative), the potential annual value of oil that could be recovered globally by the unique Grafysorber technology from treating emulsions is estimated to be between $18bn and $120bn per annum.

Trek

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