Ouch. It'd be interesting to be a fly on the wall of that boardroom - director duties and all.
They are on the fast track to financial distress, they still have no more processing locked in, and they don' have money to do the exploration they said they'd do in their prospectus. This Quarterly has confirmed by need to ask at least two serious questions at the AGM. I'll be speaking to ASX and ASIC about both if the company doesn't provide satisfactory answers.
AGM Question 1: On what basis does the board of Coolgardie Minerals believe the Company is solvent? I'd prefer them to shut up shop now and take what's left than keep accruing debt and hand the whole project to SMS and the other creditors.
Here's my logic:
- Operating Cash Flow: They are forecasting a circa $1M deficit by December and the balance of risk seems to be on the downside. They forecast $5 million revenue in the December Quarter. They also say they expect $10M from NST between 1 October and 31 March. With ore production expected to start 28 October, there's 5 months of production during the agreement - roughly $2M per month. The $5M forecast therefore seems a bit rich, with $4M being closer to the right number, especially when you consider likely ramping up as they come into ore.
- Financial Cash Flow They limped across the line in the IPO so an equity raising in the next couple of months would be a disaster and I imagine the banks wouldn't touch them without a source of revenue beyond NST.
- Investing Cash Flow: They claim $1.6M and 'no bank debt'. Call me a sceptic - I am! - but that leaves a lot of room for other liabilities. I wonder what their accounts payable looks like right now? They reported $1.2M in debt as of 31 May and would have been accruing accounts payable for pretty much everything between June and September to cover bills, so I'll eat my hat if the $2M in operating and investing costs they reported this quarter have cleared their accounts payable.
- Question over revenue: There's still no news on where they next ore will be processed. Remember, their cash keeps walking out the door for months after they stop mining thanks to their 'extended payment terms'. It's critical that they lock in a processing future because by their own admission they go cash flow negative by December and by the virtue of the extended payment terms they go several millions more negative after revenue ceases.
AGM Question 2: Did CM1 deliberately mislead investors by baiting us on exploration and switching to using IPO proceeds to pay creditors and start mining prematurely?
- Only $30k scheduled for next quarter and no holes last quarter - that'll be six months with nothing but a review done on exploration. Hardly the $1.65M of exploration in the prospectus. Also, bear in mind that a very substantial proportion of the cashflow they attributed to exploration this quarter would have been paying debts that accumulated pre-IPO.
