Finnaust Mining and the curious case of large shareholder stock sales
It seems that the squeeze continues in Finnaust Mining (FAM) – shortly to be renamed Bluejay Mining as “the boys” appear to have a continued hold on the price as evidenced by its recent melt up and ballooning in its valuation to circa £60m as at todays date (based on an 8.8p stock price & 727m new share count post the Bluejay stock issue).
Buried within Monday’s RNS detailing the issuing of 108m shares to Bluejay (and which is effectively a further award of stock to FAM management as CEO Rod Mcillree and director Greg Kuenzel are vendors of Bluejay and so the main beneficiaries) are the following very interesting share sale disclosures by FAM shareholders that had previously not been disclosed to the market:
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 that he purchased a total of @ 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 in FAM 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 FAM’s Company Secretary I believe that he would have been, usefully for the company, excluded from disclosing these sales but still it begs the question why sell circa just £27k of stock when you believe the company is worth multiples of this, particularly when taking a salary for living expenses too?
On Bluejay vendor Shaun Bunn’s part, a net amount of 875,000 were sold between May and September (adjusted for the 300k purchase in the July placing) and it looks like, coincidentally, he skirted the 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 by key shareholders have been taken where net cash had previously been put in by them. And taken in relatively short order post their placing participations too. Bunn, Whybrow, Kuenzel and Mcillree were all issued many millions of shares for effective nil cash consideration on their part when the Bluejay acquisition was originally made at the beginning of last year and they remain well ahead.
The real issue to me however are the sales by both Western Areas and broker SP Angel.
On Western Areas part, see below from Monday’s 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 Area’s 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 company’s 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 to act – that of being a cornerstone investor in what was a then relatively modest raise of just over £5m?
Without blowing Align’s 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 illustrate the chasm between us and most other City brokers and research houses:
“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 physical shares as this disclosure reveals:
On market disposal of Ordinary Shares 1,584,244 4.54 pence 3 May 2016
At the time of SP Angel’s sale, FAM was putting out RNS’s in relation to Pituffik with the clear intention of increasing the stock price. To have the broker selling into this would leave a bitter taste in my mouth as a shareholder 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 today’s date I still cannot see a JORC estimate.
Here’s a final parting thought – the Enterprise Value of Finnaust at just under £60m adjusted for the new shares being issued 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 these days.
We continue here at Align to believe that FAM is a classic squeeze on a limited free float and that anyone other than directors and the Bluejay vendors remaining long at this point (a sale of 1 share by them is all but impossible I believe without setting off questions by other shareholders) are closing their eyes for one ginormous leap of faith. We also continue to posit that true value lays around a market cap of £15-20m when compared to many other quoted mining peers considering their comparable 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 market cap would equate to around 2.5p per share.