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“See the guy at the end of the bar? Did ya notice that he has taken nary a sip? See how his head is leaning over his glass? Look closer. He’s not drinking. He’s just crying.
You see, he bought shares in Bumi (LSE:BUMI) about a-year-and-a-half ago. Put his life savings in, as I understand, because it was was hyped by Nat Rothschild. Yes sir, he bought in at 990 pence when the stock was floated in July 2010. It was April 15th, 2011, as I recall, when he was down there, cheeks rosy as a royal sunset and a smile as wide at the English Channel, buying rounds for everyone, because his shares were up 40% with no end in sight. What’s that you say? Why is he crying? Well, because he stayed in, and the share price which had been falling all year, fell again from 172.60 this morning to 121.00 within a space of 52 minutes! He may not even realize that it has bounced back to 147.00, as, more than likely the bottom feeders were jumping in, hoping to pick some of the meat off the bones. The end he was expecting may be in sight, but it’s not the end he was hoping for.”
Bumi’s share price has plunged 86% this year alone, the worst performance on the FTSE 350 mining index. The company’s ability to repay debt that is weighed on the stock issued has now become a serious concern. Originally admitted to the LSE as Vallar, the company name was changed and listed as Bumi in June 2011. Bumi operates primarily in Indonesia and is the world’s largest exporter of thermal coal.
The 30% drop in the share price this morning came following the company’s announcement that an independent investigation has been launched to investigate allegations of potential financial irregularities, particularly in the Indonesian operations. Other alleged corporate irregularities are under investigation as well. The investigations are focused on the development funds of PT Bumi Resources Tbk, Indonesia’s largest coal producer, of which Bumi owns a 29% stake. This is the second investigation into the company’s corporate governance since the company’s listing as Bumi. Both have involved the Indonesian business practices. The previous investigation led to Rothchild’s resignation as co-chairman (althought he remains on the board) and has created ill-will between Rothchild and the Indra Bakrie, co-chairmen and representative of one of the most powerful families in Indonesia.
The allegations come at a particularly bad time, as thermal coal prices are dropping, thus tightening cash flow. Bumi has been attempting to pay down or refinance its high debt load to relieve some of the financial stress. The allegations alone could be enough the short-circuit attempts at refinancing. The severity of what the investigations uncover could impact the entire future of the company. The request for the investigations was termed as “urgent” in nature.
Analysts are just beginning to weigh in on the future of the company. One has predicted a tailspin the will devastate investor confidence. The genuine, long-term investors stand to lose a bundle. The nimble in-and-out day trader times could go down with the rest of them
Fast forward: “See all those guys at the end of the bar, crying in their beer? The jumped into Bumi went it was already like a wounded WWII plane spiraling down toward the “drink.” It went down so fast that they never had a chance to pull out of the dive.”
At the end of the story, the lesson learned may be “Buy low. Sell high. But don’t by low only because it is low. Buy low because the reasonable prospect is that it will go higher.”
