From the quarterly,
"In December 2017, the Company entered into a Controlled Placement Agreement (CPA) with Acuity Capital. The CPA provides Gulf with up to $5 million of standby equity capital for a 2 years period.
As collateral for the CPA, Gulf has agreed to place 125m shares from its LR7.1 capacity, at nil consideration to Acuity Capital (Collateral Shares)"
So I looked up Acuity and how the CPA would work (reference link provided at bottom).
Here are steps quoted from the Acuity Capital brochure:
"The CPA is like having a reverse buy back on standby
1. Company specifies floor price, max shares & valuation period
2. Acuity hedges based on Request parameters in step 1.
3. Acuity pays cash to Company & Company issues shares to Acuity"
What all this means:
If there is any positive news that causes a spike in the share price, GMC are able to use the spike in share price to dilute shareholders through triggering the Acuity facility. This is ideally how GMC plan to use the facility.
If GMC get desperate for cash (which they will become at the end of March as disclosed in the quarterly), GMC notify Acuity. Acuity then short sell (based on the 125m share collateral that they have), and give GMC the money which they receive from selling these shares (so GMC can continue paying it's Directors' salaries). In turn Acuity receive more shares, so this process can repeat.
So basically, if the share price rises, there is going to be selling from Acuity in the best case scenario.
In the worst case scenario, there is selling pressure from Acuity at the current share price.
It will be interesting to see if GMC disclose the times at which they trigger the Acuity facility - if they do it signals beware mass selling about to occur (by the basis if portability of how this facility works).
If they don't disclose which times they trigger the facility, it means this mass selling could be occurring at any time.
So if there weren't already enough risks to this, now there's this one in addition.
Before investing in GMC, make sure you understand exactly how this Controlled Placement Agreement works - I would be extremely uncomfortable with this. I'm surprised this facility is actually allowed....
https://www.acuitycapital.com.au/howitworks/
