Petra Diamonds - heading for a wipeout for equity holders? Gary Newman writes...

Tom Winnifrith Shareshow No 5 HERE: Well over 2 hours of Gary Newman on mining stocks, Harry Adams of Kefi and myself on why Cineworld has to be a stonking short

Buying bombed-out shares in companies that have previously run as successful businesses can be very lucrative if they somehow manage to turn things around, but it also offers a very high chance of losing all your money if you are proven wrong and hold to the bitter end. There are plenty of companies on the stockmarket that have been at death’s door but have managed to survive and have subsequently gone on to do quite well, but there are also a large number of others that went bust and where investors lost all their money, and there is a very fine line between the two if you do decide to take a risk on a company that finds itself in this situation. Knowing when to exit and accepting that you were wrong and it actually won’t recover is important, and will save you a lot of money potentially by limiting your risk. If you are buying right at the death then you are basically gambling, and with most companies when they reach that stage it is fairly obvious that they are terminal – yet you still seem to get PIs buying. One which I got wrong a year or so ago was South African diamond miner Petra Diamonds (PDL), as I was expecting diamond prices to at least recover to some extent when the world’s biggest mine, Argyle, closed.

Crony capitalism in action: Pity the poor British taxpayer bailing out Versarien as Chinese walk. Read HERE

I was also encouraged by that its lenders had always supported the company and, even though the situation didn’t look good, were still prepared to extend further banking facilities to it, plus it had a plan in place to significantly reduce debt over a period of a couple of years, and in time for when the outstanding bonds would need to be refinanced. On top of that, it also owned one of the most famous diamond mines in the world, Cullinan, and had spent large sums on its assets in recent years. So I did see potential for it to at the very least survive and had it as a possible recovery play based on the fact that it was effectively being priced to fail – on that basis I held shares in this one for a while myself, before eventually taking a loss. It became clear that diamond prices weren’t going to recover any time soon - even prior to the arrival of Covid-19 - and that its Project 2022 initiative to substantially reduce debt wasn’t going to work. In hindsight, I probably should have avoided it in the first place due to the discount and yield to maturity that the bonds were trading at - as highlighted by Waseem Shakoor - as that suggested that even the debt holders viewed it as highly risky and with a fair chance of not recouping their investment, even if the assets were liquidated. Since then the share price has fallen around a further 70%, and the latest news from the company this week looks very bad for equity holders, given that net debt stood at $601 million as at the end of March 2020, compared to a market cap of just £16 million.

RNS potpourri: British Land, Sainsbury's and Smith & Nephew. Read from Chris Bailey HERE

The writing was on the wall at the end of May when it released its quarterly update, and revealed that interest and capital repayments on both its senior secured notes and BEE credit facility had been missed. It did manage to come to an agreement with both parties not to trigger various clauses that could have come as a result of these defaults, but having to rely entirely on the good will of its lenders was a major concern. Petra has now notified shareholders that it has entered into a formal sales process to seek offers for either the whole business or some of the assets, but that it hasn’t actually received any approaches. It also states that it has been exploring all options for the $650 million 7.25% senior secured notes, which become due for repayment on May 1 2022, in order to maximise value for its stakeholders. Given the size of the debt and current state of the diamond market, and even allowing for the fact that Cullinan in particular could prove attractive to the right buyer, I find it hard to see how it will get anywhere close to the $950 million that the property, plant and equipment was valued at on the balance sheet, as at the last accounts.

Supply @ ME Capital – No-one is watching O’Clock admission of £224 million spoof: folks should be in jail for this says Tom Winnifrith HERE

Some will be looking at the value of the assets on paper and then even once debt is deducted will come to the conclusion that what is left is significantly more than the market cap, and therefore will view this as a buy. But what you need to ask yourself is, in the current market conditions and with any buyer knowing the financial difficulties that Petra is in, how much is it really likely to raise from a sale of the assets and will that cover the debt? I strongly suspect that it wouldn’t do and that any sale of the assets would effectively wipe out equity holders. I also see an extremely low chance that any party would come in and make a bid for the company as a whole, as that would involve taking on the debt that it currently has, and even assuming that anyone would want all of the assets, as opposed to cherry picking the best. So, barring some sort of miracle, I see the news this week as likely being the final nail in the coffin for equity holders – although given the size of the company now, and that it has been a popular target for a pump in recent times, there is a fair chance that there will be the odd spike upwards from the current level of around 2p before its ultimate demise. Personally I wouldn’t touch it though, even for a trade, as bad news for equity holders could drop at any time.

Gold ends Q2 on a high, Centamin, Ariana and a breakout? Read from Nigel Somerville HERE

Filed under: Petra Diamonds, Shareshow, Versarien, British Land, Sainsbury, Smith & Nephew, [email protected]

Can Rolls Royce strengthen its balance sheet and recover longer term? Gary Newman reviews...

09/29/2020

Pensana Rare Earths - following massive upgrade of resource at Longonjo, where next for the shares?

09/28/2020

Kefi Gold & Copper - interims but more significantly Hawiah Preliminary Economic Assessment...

09/25/2020

Red Rock Resources - Australia NI 43-101 report, target price increased says HotStockRockets...

09/24/2020

Greatland Gold - potential to become a producer but current valuation bonkers? from Gary Newman...

09/23/2020

Johnson Matthey - geeking out on hydrogen. Chris Bailey writes...

09/22/2020

Jubilee Metals - further positive. From the N50 website...

09/21/2020

OptiBiotix - an exclusive worldwide licence agreement, still a strong buy?...

09/18/2020

B.P. Marsh & Partners - trading update, still a buy?...

09/17/2020

Bluebird Merchant Ventures - less than 30 days to share price takeoff? From HotStockRockets...

09/16/2020

One of the three cheapest small cap shares to buy today?...

09/15/2020

Shanta Gold - a buy? A HotStockRockets review...

09/14/2020

San Leon Energy - moves look unreflected in the share price says HotStockRockets...

09/11/2020

Biffa - still where there is muck, there is brass says Chris Bailey...

09/10/2020

EasyJet & DS Smith - both buys?...

09/09/2020

The prospects for the FTSE 100-relegated ITV reviewed by Chris Bailey...

09/08/2020

Chaarat Gold - a review from HotStockRockets...

09/07/2020

Red Rock Resources - set for 1.26p or more before Christmas? A Tom Winnifrith HotStockRockets review

09/04/2020

Ariana Resources - what now following cracking news from Arzu South?...

09/03/2020

Wood Group - a recovery buy?

09/02/2020

Xtract Resources - additional mining agreement & big news considers HotStockRockets...

09/01/2020

Ariana Resources - cracking Q2 numbers from Kiziltepe says Nigel Somerville...

08/28/2020

Jubilee Metals - ore supply and processing agreement continues expansion, Buy?...

08/27/2020

Golden Prospect Precious Metals - a buy?...

08/26/2020

Kefi - the start of a transformational two months when shares could double?...

08/25/2020

Horizonte Minerals - why I have bought more shares writes Gary Newman...

08/24/2020

Red Rock Resources - update potentially very significant says HotStockRockets...

08/21/2020

Gold, Golden Prospect Precious Metals, Centamin, Ariana Resources & more from Nigel Somerville...

08/20/2020

Eurasia Mining - so much for the dividend and asset sales! Nigel Somerville writes...

08/19/2020

Shanta Gold - relatively cheap? Gary Newman reviews...

08/18/2020

Galileo Resources - Kalahari Copper Belt exploration here goes says HotStockRockets...

08/17/2020

Pensana Rare Earths - emphasises woke nonsense but still further upside says HotStockRockets

08/14/2020

Gold Buying boots on but what did I buy? Nigel Somerville writes...

08/13/2020

AA plc - hedge fund-style shareholders v. private equity potential acquirers writes Chris Bailey...

08/11/2020

Falanx - trading statement suggests remains a buy says HotStockRockets...

08/10/2020

Goldplat - term sheet for Kilimapesa mining sale, still a buy says HotStockRockets...

08/07/2020

San Leon Energy - Nigerian oil export system investment delight understandable?...

08/06/2020

Centamin - cracking Interims. A review by Nigel Somerville...

08/05/2020

KEFI Minerals - remains a buy after Q2 update considers HotStockRockets...

08/03/2020

Power Metal Resources - recent tip gains but more to come? HotStockRockets updates...

07/31/2020

Surely the boat has sailed for Trainline plc says Tom Winnifrith...

07/30/2020

Is gold a bubble? A review by Tom Winnifrith...

07/29/2020

Novacyt - the desperate share-ramping continues says Tom Winnifrith

07/28/2020

Hydrogen will play a big part in power generation but AFC Energy? Gary Newman writes...

07/27/2020

Rishi is no magician and Purplebricks is still toast in the end argues Tom Winnifrith...

07/24/2020

Avacta - COVID-19 test update. So what? Tom Winnifrith writes...

07/23/2020

We all love gold... so invite the Canadians back? Chris Bailey writes...

07/22/2020

President Energy - a recovery buy? Gary Newman reviews...

07/21/2020

ECR Minerals - a speculative buy? A review by HotStockRockets

07/17/2020

Burberry & ASOS - fashionista trading update face-off

07/16/2020

Fevertree - a Trading Statement lacking financial specifics… & a recovered £2.7 billion valuation

07/15/2020

Centamin - Q2 report, well ahead on this tip but still a buy considers Nigel Somerville...

07/14/2020

Red Rock Resources - spin-off potential, and more than one...

07/13/2020

KEFI Minerals - about to rip? The HotStockRockets team writes...

07/10/2020

Gold cracks $1800 - what to do now and is it Ouzo time yet?...

07/09/2020

Whitbread - why you should not worry about a -80% Q1 revenue move writes Chris Bailey...

07/08/2020

It has been a torrid time for pubs but Marstons should recover strongly reckons Gary Newman

07/07/2020

Highland Gold Mining - update on COVID-19 response, continuing as planned...

07/06/2020

DS Smith - respectfully Mr Market you are wrong says Chris Bailey...

07/03/2020

Pity us poor British taxpayers bailing out Versarien plc says Tom Winnifrith...

07/02/2020

Petra Diamonds - heading for a wipeout for equity holders? Gary Newman writes...

07/01/2020

easyJet - data breach is not in my top three worries and I own the shares says Chris Bailey...

06/30/2020

San Leon Energy - 2019 results & now about to capitalise on a strong position?

06/29/2020

KEFI Minerals - reduced Tulu Kapi project funding requirement, buy says HotStockRockets

06/26/2020

UK Oil & Gas - do not get spiked & is that a dodgy deal I smell? writes Peter Brailey...

06/25/2020

Cranswick - future FTSE-100 constituent? Chris Bailey reviews...

06/24/2020

Why Amigo Holdings is a zero considers Tom Winnifrith...

06/23/2020

BP - new CEO sounding loony... or being very clever?

06/22/2020

Novacyt - corona update, this is all about executive greed and share ramping now says Tom Winnifrith

06/19/2020

Kingfisher sings a song of recovery... but can do so much more says Chris Bailey

06/18/2020

Two UK shares which cannot defy gravity forever says Tom Winnifrith

06/17/2020

Metro Bank - potential acquisition two drunks propping each other up?...

06/16/2020

Cora Gold - a buy suggests HotStockRockets

06/15/2020

Hummingbird Resources - a diversified gold production buy?...

06/12/2020

Nearly a 10 bagger tip... but evidence of alternative energy bubble?

06/11/2020

Avacta - its covid game soon to be up says Tom Winnifrith...

06/10/2020

Columbus Energy - another potential share price catalyst...

06/09/2020

Biffa - still brass in muck says Chris Bailey...

06/08/2020

Union Jack Oil - for a hat-trick of wins?...

06/05/2020

Volvere - 2019 results... & 2020 opportunities...

06/04/2020

Hochschild and Hertz... A review of two old timers by Lucian Miers

06/03/2020

Big themes still at Playtech says Chris Bailey...

06/02/2020

Centamin, Ariana Resouces & Gold - was that the correction, in double-quick time?

06/01/2020

Asiamet - negotiations for deal on KSK helps shares, target increased...

05/29/2020

Bluebird Merchant Ventures - further project funding progress, increased price target...

05/28/2020

Burberry shares remain fashionable to me says Chris Bailey

05/27/2020

Imperial Brands - still an Income buy?

05/26/2020

Columbus Energy - project & funding update suggest still a buy?

05/22/2020

Marks & Spencer - never the same again? Chris Bailey reviews...

05/21/2020

OptiBiotix - sales trajectory sparks shares, but still an even stronger buy?...

05/20/2020

A whole sector that is a short?...

05/19/2020

Tri-Star Resources - sale of first Antimony BUT...

05/18/2020

KEFI Minerals - still significant upside offered by its asset base...

05/15/2020

OptiBiotix - now Taiwan agreement adds to confidence...

05/14/2020

Some gold and gold stock takeaways from Nigel Somerville...

05/13/2020

Is Trainline ever going to make sensible profits?

05/12/2020

Another reality pill - this time for BT Group

05/11/2020

Jadestone Energy has the strength to ride out low oil prices says Gary Newman...

05/07/2020

Hummingbird Resources - a buy says HotStockRockets...

05/06/2020

Goldplat - quarterly update, production getting back on track...

05/05/2020

RISK WARNING & DISCLAIMER - FiveFreeShareTips.com tips are provided by independent authors via a common carrier platform and do not represent the opinions of FiveFreeShareTips.com. FiveFreeShareTips.com does not accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at FiveFreeShareTips.com and via emails you receive from [email protected] are for your general information and use and are not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by the tipsters or FiveFreeShareTips.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Trading shares involves the risk of loss. The tipsters and FiveFreeShareTips.com shall not be liable for any losses or other damages incurred. The value of investments can go up or down and the past is not necessarily a guide of future performance.

Five Free Share Tips?

. . . . . . . . . .

Well actually it will be six. One every week day and one on Sunday, each landing with you at 11 AM sharp.

The Details

Unlike other services (which may always have a vested interest) we pride ourselves on our impartiality and cover all small caps including AIM. the Standard List, The Wider Main Market and NEX.

We cover small caps, penny shares, FTSE 350 stocks and blue chips. We look for red hot penny shares, Warren Buffett style value investments with yield and growth stocks. There is no technical analysis in our work just solid fundamental analysis from a team of experts with decades of stockmarket experience.

You will not agree with all we publish but if you are interested in small caps you cannot afford to ignore it either. Yo'll never be charged for the free share tips from Five Free Share Tips and given the star writers involved you know that they will move share prices.

There's no telephone number or postal address required and there is no charge, ever, for your Five Free Share Tips membership. Just free shares tips every day apart from Saturday And each day's share tip will not just be a few thoughts cobbled together but will be detailed analysis from experts.

Our experts do not just earn their living from writing. All own shares. If they own shares in a stock they cover they will declare it and will not sell until after advising a sell to our readers. And why not our tips are so good that why shouldn't our readers put their money where their mouth is?

Don't just take our word for it! Judge us on the calibre of our free share tips and join today to start receiving them from September 1 2017. If you don't like what you get delivered to your inbox unsubscribe and you will never hear from us again. So why not give it a go? Sign Up Now

The Team

We've put together a panel of top tipsters, including:

Tom Winnifrith, in his 27th year writing about shares, noted fraudbuster & dubbed "The maverick Tipster"

Chris Bailey, City whizz kid turned financial guru, rated as one of the top 50 commentators on shares on twitter, founder of Financial Orbit

Steve Moore, has worked with Tom Winnifrith for all bar 3 weeks of his working life - a noted commentator on value stocks

Malcolm Stacey, The Grandfather of Share Blogging, the founder of ShareCrazy & a best selling autthor of stockmarket books

Lucian Miers, the Bard of the Boleyn, one of the UK's best known short sellers

Gary Newman, writes about value investing on AIM, speciality is in share tips on oil and mining companies

Nigel Somerville, The Deputy Sheriff of AIM, an expert in forensic analysis a skill used to bust frauds but also to tip true value investments

The team from HotStockRockets, specialising in AIM and small cap shares which will fly on a three month view

Sign Up Now

UK Investor Show 2018

Remember to book your place at the UK Investor Show 2018. The UK’s top investment show taking place on Saturday 21 April 2018 at the Queen Elizabeth II Conference Centre in Westminster, London. The show will feature a unique line-up of top speakers including Nigel Wray, tech queen Vin Murria, Dave Lenigas, Mark Slater, Tom Winnifrith, Adam Reynolds, Ed, Croft, Nick Leslau Luke Johnson and Dr Johnny Hon as well as 135 exhibiting small cap companies.

To reserve your ticket, visit UK Investor Show.

Risk Warning & Disclaimer

The hot share tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the share tips contained here should seek independent advice from a Financial Conduct Authority authorised Stockbroker or Financial Adviser. We cannot be held liable if individuals suffer losses through following share tips contained on this site or emailed out as free share tips. The value of investments can go down as well as up. The past is not necessarily a guide to future performance. Investing in shares can lose you part or all of your capital although the potential returns are theoretically unlimited. The difference between the buy share price and the sell share price for smaller company shares (penny shares) can be significant. Profits from dealing in shares may be liable to tax - the level of tax and bases of relief from tax are subject to change. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Some of the shares recommended on this site will be smaller company shares. By their nature such investments can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares (or 'small caps'/'penny shares'). FiveFreeShareTips.com & its sister site ShareProphets.com defines a smaller company share as any stock traded on AIM or NEX or which has a market capitalisation of less than £300 million.