Paragon Diamonds Suspension Update: anyone got 50p for the meter?

Comments

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   Herewegoagain

   21 November 2015, 06:33

   Agree with you 100%. For the past few months I’ve been telling myself PM is all talk and, as it happens, it looks like he is. I’m hugely over exposed here but, based on their previous RNS’s, believed I was on to a winner. Oh well, will the last one out please turn off the lights.

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   Tim reynolds

   21 November 2015, 07:48

   Pm starting to look like a public schoolboy belter .i cursed when i read the rns where he said he was going to demand the mining license that must have gone down like a lead ballon and sure enough a significant delay transpired. They dropped into the next rns that more documentation was required…..worse though was his rebuke in the last funding rns where he taunts the non believers ……there has been no merit in some of the rns content it has been misjudged and only served to massage this guys ego ….looks like its backfired . Fortunately i sold my physical shates last week .unfortunately i didnt bite the bullet on my ig long… There where plenty of red flags .i cant see how they will be able to progress lemphane as a stand alone as they need the plant from mothae. If they cant fund the whole shibang then its lights out .i have already deposited enough in my ig account to cover 0 p so not confident here.

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   Woody44

   21 November 2015, 09:56

   Surely Paragon and Northland must now inform the market of the identity of the £500k creditor? I’d have thought this was a requirement under Rule 10 when it was first announced but now that it has morphed into a convertible loan note, it’s clearly an AIM Rule breach not to identify the counterparty. Why the mystery? Smells bad

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   Nigel Somerville

   21 November 2015, 12:02

   There seemed to be so much going for this stock, but with three large finance deals of >$10m announced and, it appears, no cash actually arriving one wonders how sure one can be that any of the three packages will deliver the cash needed. I am amazed that the company shot itself so badly in the foot a year ago by doing (nearly) a £2 million buy-back. How the board must rue that decision.

   I had a look at some of the BBs – some might describe that as unwise, but I think that two points about this ‘death spiral’ have not really hit home:

   1) It IS a death spiral: the lender can convert in tranches, at 90% of the 3-day volume weighted price averaged over 20 days (ie 4 weeks). That means multiple placings at a 10% discount. I accept that the dilutive effect is relatively small, but if it is done in, say, £50k tranches and the share price drops to the (effective) placing price each time then by tranche 12 the share price will be far lower. And the dilution will be all the greater in terms of number of shares issued. Even if the share price drops by 5% each time (as opposed to 10%) then after 12 iterations the effect on the shares price will be very pronounced. Yes, good news could push the shares higher – but if you were the lender you would convert on a spike (it maximises the discount). As such this will act – even being charitable – as a break on any move higher.

   2) We have not been told whether this new funding package is secured on some/all of the company’s assets. We have not been told that it is unsecured either, so I would imagine that it is secured on something (if you were the lender, surely you would do the same, given that the shares are suspended pending financial clarification!). The company has two main assets – or, rather, one with another subject to a deal completing. But that completion is dependent on funding. If the death spiral funding is secured on the asset the company does own and the funding doesn’t come through, what might the lender do? I know what I’d do – and the company would be left with nothing.

   It seems to me that whilst the immediate funding requirement (just to keep the lights on) may be quite small, that in turn begs the question as to why the company didn’t sort that out before being suspended. Was it over-confidence or incompetence? The same goes for the (now apparent) stupidity of doing a share buy-back last year. Oh, how the company could have done with that £2 million now….

   The company has stated that if it remains suspended for ten trading days as from 16 Nov then the lender can call a default. What happens then? How clear a warning do you want? In the absence of clarification regarding any security offered, or the terms upon which a default would be treated (why might the company not have given that information – is it because the news was good?) it appears to me that the company could be high and dry with no assets at the end of the month. It is that stark.

   In fairness, IF one of the three large funding packages announced this year actually results in the cash arriving in the bank by 30 November (for that is 10 trading days…) then things will look far happier. But why on earth, then, did the management allow things to get so parlous in the first place?

   IF the company has such great assets, why has the management taken such high risks? To risk, potentially, a wipe-out for no reason whatsoever strikes me a ridiculous. It is for that reason that I now regard this as a bargepole stock.

   Where are the (aggregate) $53m finance packages which have been announced? I think we should be told.

   Perhaps if Mr Manduca spent a bit less time lecturing the market and government officials and a bit more time making sure the company’s finances were bullet-proof (as he could easily have done), Paragon would not be in this mess.

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   Woody44

   22 November 2015, 06:22

   Nigel, fussing over the “death spiral” funding is a bit ridiculous – you are dwelling on the trivia. The company is suspended until its financial position is clarified which means until it sorts out the rest of the cash, there will be no conversions of the loan. If it can sort this out, then the shares should trade higher as one can assume the market has been pricing in a significant discount as a result of the lack of cash. To settle the debt at a future conversion price makes complete sense. This is a binary situation and the company will either be bust, in which case any conversion price is irrelevant and you are tight to focus on security, or it will be fully funded, in which case the conversion should be at a far higher price than it was when it was suspended. I think you’re being a bit hysterical about the “death spiral” nature of the deal when it actually seems a sensible course of action. If the share price rises then the “death spiral” is a misnomer. If it falls then the company has no money and is bust anyway. I think you need new terminology. Besides this is a pretty trivial part of the whole calamity that is Paragon; the obfuscation and contradictions in the RNS announcements, as well as its lack of cash, are the red flags here.

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   Nigel Somerville

   23 November 2015, 09:47

   Woody – you re perhaps correct about an over-emphasis on the death spiral. I think the point I was making was that even if the funding arrives this package will serve to dampen a share price revival. But also because we have not been told whether it is secured on anything it seems possible that it could be and that no funding by the end of the month could spell curtains for shareholders.

   Paragon appears to have got into a hole it has dug for itself: had a share buy-back not been completed about a year ago this current cash-crunch may not have happened at all. Then there is all that funding which was apparently all lined up but which, thus far, does not look to have made it into the bank account.

   I keep wondering why there wasn’t a placing done sooner – the suspension could have been avoided. One might conclude that the management was confident (and perhaps still is) that the funding would arrive in time to avoid a car crash. Or is there some other reason why a placing was not done? As you previously asked, who is the mystery lender of the $500k, now $600k-odd?

   But with $53 million of announced funding so far this year and seemingly not a penny to show for it, it does leave one wondering….

   I think it is in the context of a needless share buy-back, the $53m and plenty of time to get a keep-the-lights-on placing away well ahead of the troubled waters in which the company now finds itself that I am just amazed that the funding seeing it through to the end of the month is of the nature that it is.

   I hope that things pan out positively for shareholders, but this whole mess seems so self-inflicted by management that I can’t imagine that I will be buying under the current leadership. A pity – it did look to have promise, but it seems that totally imprudent and needless risks were taken.