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Unable to get away an equity placing AIM Listed penny dreadful oil producer Sefton Resources (LSE:SER) today announced that it has started to draw down on its Darwin Death spiral (sorry Equity drawdown facility). But the amount drawn down is pitiful. Okay the lights do not go out on March first but death is merely postponed. And with the shares issued at just 1.1044p a mere £648,855 (pre costs) was raised.
First up – is this dilutive? Heck yes. That is another 59 million shares in issue. IN other words the company has just increased its shares in issue by 11.3% to raise a pitiful £648,000 (before expenses). Let’s call that £600,000. But with the shares having been listed at 95p and now trading at a share price of 1.125p investors are used to dilution.
Where does this leave the cash position. Well let’s ignore Sefton’s debt of c$12 million. Cash without this share issue would have been down to sub £250,000 by January 31st. Given the fact that second half output will be well down on the first half ( where is the goddamn profits warning Sefton since on September 11th you promised a second half improvement?) then it is hard to see how the company can have done any better in H2 than in H1. That means that it will be breakeven at best. Chuck in c$2 million of capex (promised by Chairman Jim Bob Ellerton) and £200,000 of acquisition costs and hey presto the company is almost out of cash.
My detailed analysis of how close Sefton is to the edge is revealed in detail HERE
Thus the £600,000 will last how long. It is hard to see any meaningful cash from Kansas before April. That is either the pipelines (currently unused) or the old abandoned oil wells Sefton just bought. Thus in Q1 2013 Sefton will probably run at circa breakeven ( at best). Chuck in the normal capex needed to maintain California output and that £600,000 will be largely ( or entirely) gone by March 31st. Thus lights out is postponed from February to April. Great.
So why would Darwin ( part of Henderson) subscribe for shares the Bulletin Board morons ask? Well it has not really done so. This is a death spiral. That means Darwin has already sold the shares ( to the same Bulletin Board morons who keep averaging down on this useless enterprise). That is how a death spiral works. It is in effect a rolling short and only companies that cannot raise cash via a placing resort to this desperate measure.
The point is that as volumes dry up as even the most deluded on BB loons realises that the game is up and as the share price drifts lower Sefton will be able to raise ever less via its next and subsequent tranches of Death Spiral.
Jim Bob says that it has “tested” the Darwin Death Spiral. No Jim Bob. You test the truth. The amount you can draw down is related to trading volumes in your stock over a set period. You drew down the maximum you were allowed. As trading volumes dry up you will be able to draw down less and less going forward.
To watch the Sefton downfall video featuring Jim Bob Ellerton and the Darwin Death Spiral click here
Those who still believe the rubbish spouted by Jim Bob and the IR gopher Doctor Doolittle better get used to it. Sefton will soon have to draw on the next tranche of Death Spiral. There is now a rolling short in operation and anyone with half a brain cell should sell now. Having taken a month to draw down 4% of its Death Spiral facility Sefton will in effect now have to run a roiling DS just to keep going.
Target price 0.01p. Sell.
Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s writings follow him on twitter at @tomwinnifrith
