Richard Jennings is a member of Guerilla investing and as such has exercised his right to write.
It seems the squeeze continues in Finnaust Mining (FAM) shortly to be renamed Bluejay mining as the boys have a continued hold on the price and its recent melt up. For newbies to this story, Align Researchs short recommendation at 7.5p last year was silenced by the Company but , post the RNS yesterday we are undeterred in our negative stance.
Buried within yesterdays RNS detailing the issuing of 108m shares to Bluejay, which is effectively a further award of stock to FAM management Rod Mcillree and Greg Kuenzel being the main beneficiaries – are the following very interesting share sale disclosures by FAM directors and shareholders that had previously not been disclosed:
Shaun Bunn On market disposal of Ordinary Shares 300,000 6.45 pence 19 September 2016
Shaun Bunn On market disposal of Ordinary Shares 100,000 5.4 pence 18 August 2016
Shaun Bunn On market disposal of Ordinary Shares 200,000 5.37 pence 17 August 2016
Shaun Bunn Acquisition of new Ordinary Shares in a placing for cash 300,000 5.0 pence 13 July 2016
Shaun Bunn On market disposal of Ordinary Shares 75,000 5.0 pence 26 May 2016
Shaun Bunn On market disposal of Ordinary Shares 150,000 5.0 pence 25 May 2016
Shaun Bunn On market disposal of Ordinary Shares 350,000 5.0 pence 24 May 2016
Jeremy Whybrow On market disposal of Ordinary Shares 400,000 5.5 pence 17 May 2016
Garth Palmer On market disposal of Ordinary Shares 100,000 5.25 pence 16 May 2016
Garth Palmer On market disposal of Ordinary Shares 100,000 5.00 pence 13 May 2016
Garth Palmer On market disposal of Ordinary Shares 150,000 3.90 pence 12 April 2016
Jeremy Whybrow On market disposal of Ordinary Shares 300,000 3.8 pence 11 April 2016
Jeremy Whybrow On market disposal of Ordinary Shares 300,000 3.52 pence 8 April 2016
Garth Palmer On market disposal of Ordinary Shares 300,000 3.55 pence 8 April 2016
Jeremy Whybrow Off market disposal of Ordinary Shares 3,125,000 2.0 pence 8 March 2016
Jeremy Whybrow Off market disposal of Ordinary Shares 1,345,549 2.0 pence 8 March 2016
Jeremy Whybrow Off market disposal of Ordinary Shares 250,000 2.0 pence 8 March 2016
Jeremy Whybrow Off market disposal of Ordinary Shares 250,000 2.0 pence 8 March 2016.
In relation to shareholder and Bluejay vendor Jeremy Whybrow it seems he purchased @ 5.47m shares at 2p in March of 2016 and sold a total of 5.97m shares at prices between 2p and 5.5p between March and April 16. What is surprising to me is that at the time of the last sale at 5.5p in May 2016 there seems to have been 484m shares in existence and, at face value, the April sales looks to have taken him below a disclosable percent threshold. I cannot see any disclosure re this in the RNS record.
With regards to Gareth Palmer, a total of 650,000 shares were sold between 3.55 and 5.25p. As he is FAMs Company Secretary I believe that he would have been, usefully, excluded from disclosing these but still it begs the question why sell circa £27k of stock when you believe the company is worth multiples of this?
On Bluejay vendor Shaun Bunns part a net amount of 875,000 were sold (adjusted for the 300k purchase in the July placing) and it looks like, coincidentally, he skirted the less than 3% threshold breach that is a disclosable requirement by virtue of the small purchase at 5p in July 16. Again, however, I pose the question; why sell stock if you believe there is multiples of upside?
What the sales illustrate to me is that opportunistic exits have been taken where net cash has been put in. Bunn, Whybrow, Kuenzel and Mcillree were all issued many millions of shares for nil consideration on their part when the Bluejay acquisition was originally made at the beginning of last year.
The real smoking gun to me however that shores up the observations in our note and which seems ever more prescient now are the sales by Western Areas and broker SP Angel.
On Western Areas part see below from yesterdays disclosure:
Disposal of Ordinary Shares by way of a vendor placing
45,000,000 7.0 pence 8 December 2016
Acquisition of new Ordinary Shares in a placing for cash
5,000,000 2.0 pence 8 March 2016
And here is a statement from a research note commissioned by the company last year in relation to Western Areas role:
‘Cornerstone support. FAM has access to a wealth of technical and financial support through 60% shareholder Western Areas Ltd, a A$500m market cap, low-cost nickel producer with a robust balance sheet – a valuable strategic partner, in our view. Western Areas: Cornerstone Shareholder
Western Areas Ltd (ASX: WSA) being a major shareholder is a considerable positive, in our view, providing a wealth of technical and development expertise, plus WSA has a track-record of supporting FinnAust in fundraisings. Western Areas is one of the success stories of the Australian mining scene, having been built from a $5m IPO in 2000, to a market capitalisation of over $1bn at its peak in 2014. Western Areas produces c.25ktpa Ni, and is a debt-free dividend payer (3.5% yield in FY15) with a robust balance sheet (cash of A$38m at the end of December 2015).’
Bear in mind that only weeks before the sale by Western Areas of a material proportion of their holding that SP Angel the companys retained broker (and hence conflicted) – came out with a Buy note and 15p price target. Again, for a supposed debt free, net cash company with a stake in a business that is being touted as having multiples of value why would a supposed cornerstone shareholder actually cash out and, perhaps more pertinently, not act as they were touted as that being a cornerstone investor in what was a relatively modest raise of just over £5m.
Without blowing Aligns trumpet here in illustrating the major difference in our approach when attaching a Conviction Buy recommendation to a covered stock and then locking ourselves in for a minimum of 6 months, the following disclosure really does show the chasm between us and other City brokers:
“As at the date of this document, SP Angel did not hold any Ordinary Shares, but has an interest in warrants to subscribe for Ordinary Shares as follow:
Grant date Expiry date Exercise price per Ordinary Share No. of Ordinary Shares
4 March 2016 4 March 2017 2 pence 1,000,000
4 March 2016 4 March 2018 4 pence 1,000,000
4 March 2016 4 March 2019 6 pence 1,000,000
15 April 2016 15 April 2021 2 pence 625,000
8 December 2016 14 December 2021 7 pence 2,165,357
SP Angel in fact sold their shares as follows:
On market disposal of Ordinary Shares 1,584,244 4.54 pence 3 May 2016
At the time the company was putting out puff RNSs in relation to Pituffik with the clear intention of increasing the stock price. To have the broker selling into this leaves a bitter taste in my mouth and is most certainly not the way Align works.
I also note the statement from CEO Rod Mcillree last September:
“The completion of a maiden JORC resource, together with results from the environmental impact assessment, will position us well for our next leap early next year into permitting of an exploitation licence in H1 2017.”
As at todays date I still cannot see a JORC estimate.
Heres a final parting thought the Enterprise Value of Finnaust at just under £60m adjusted for the new shares being issues is almost the same as Genel Energy (incorporating the net receivables due to GENL of approx $400m) truly an indication of the disjoint in valuation in parts of the market.
We continue at Align to believe that FAM is a classic short squeeze and anyone other than directors and the Bluejay vendors remaining long at this point are closing their eyes for one ginormous leap of faith. We also posit that true value lays around £15-20m as compared to many other quoted peers considering their stage of development and that the company is still around 18 months away from the possibility of sustainable (and as yet not quantifiable) cash flows. This would equate to around 2.5p per share.
Richard Jennings, CFA
Director
Richard initially qualified as a stockbroker back in 1991 going on to complete both the Securities Institute examinations, winning the “Award for Excellence” in 1995 before embarking on the CFA program which was added to his roster of investment qualifications in 1999.
