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In The Q - Q Resources (QRES)
12/4/2010
(119264)
In The Q
Warning – do not read this unless you can use a modest amount of money you are prepared to lose. What follows is highly speculative and way outside the normal parameters of this site.
Does that have you quaking in your shoes? Or has it simply whetted your appetite? That is the trouble with dire warnings – they can be taken literally, or as a sign that they are talking about something rather special where high risks walk hand in hand with potential high returns.
Believe me, buying shares in Q Resources (QRES) is, in theory, very risky. It is a start-up with modest assets, a dummy board (not to be confused with a board of dummies), with plans to dig into mining in Africa. Good gracious. Mining and Africa is a pretty perilous proposition with any company, but with a start-up, the dangers multiply.
And yet … and yet for those ready to gamble with a modest amount of money they can afford to lose, the chances of an unusually high return from backing Q at 13p (actually 12p to 13.75p) are – well – unusually high.
Q has caught my eye because of the success of Cove Energy (COV), which was first recommended here on August 12 at 23.5p (Heavy Friends) and has subsequently been recommended again at lower and higher prices. Suffice it to say that anyone who took a gamble on Cove will be well pleased with the price at 61p now.
One of the early directors of Cove was Ivan Murphy. He left early in December. Nothing much was said at the time, but he clearly had other things on his mind. Prime among them was Q, which is an attempt to do something similar to Cove. He has been working on Q for maybe eight or nine months, and is non-executive chairman.
Q is simply a cash shell, created by placing 54.5m shares at 6p each, raising £2.95m after expenses. The idea is to acquire or invest in up to five metals or minerals projects in Africa, add value, then sell them on – roughly the same plan as Cove has started to follow in oil and gas.
Quite soon, Q is likely to announce that it has recruited a chairman and a chief executive with experience in mining in Africa. That will add operating skills, but the main asset Q will bring to the party is access to funds. Cove has already managed what looks like the deal of a lifetime by buying key assets of cash-strapped Artumas. Q hopes it can find similar prospects which are already some way along the development cycle and which can be transformed by introducing more cash.
Murphy is a senior executive with Gazprombank-Invest (MENA), which has been appointed a consultant to Q. This is 70% owned by Quantic Group, and 30% by part of Gazprombank, the Russian gas giant. The chairman of Quantic is Rui de Sousa, chairman of highly successful oil group Soco International and a director of Gazprombank-Invest (MENA). And de Sousa will also act as a consultant to Q.
In fact, he is in it up to one small corner of his wallet. Through Quantic and various other names he is part of a concert party which could have 55% of the equity, assuming the exercise of certain warrants. Quantic is a private investment group operating in oil and gas and merchant banking across the Middle East and Africa.
Poke about in the fine print of the AIM admission document (do look at it on the www.qresourcesplc.com website) and you will get the picture. What with warrants to initial subscribers (exercisable at 6p in 2010), warrants to Quantic (exercisable at 12p within 18 months), and options, this is a nice little vehicle to make some pretty rich boys considerably richer, if it works.
What the promoters need to do is to find a few credible mining chaps to decorate the main board, spot a few cash-starved miners whose promising prospects have stalled for a lack of money, and build the business fast with deals, shunting the share price higher as they go. The presence of Gazprombank and Quantic, with cash and connections, is the oil for the machine.
Do not assume that Q will do as well as Cove, stuttering for a while then taking off. Cove has had experienced oil industry directors from the start, a still wider range of connections, and hit a terrific first deal. Q is untried by comparison.
That said, Q could be fun. The shares soared over 10p on first dealings last Friday. Today (Monday) they went to 13p with over 300,000 shares changing hands on the buy side and on the sell side. So Q’s little pile of cash – just under £3m- is already valued at more than £6m.
But news of good board appointments could attract interest, and a good first deal could really impact the share price. Murphy has already been quoted as saying that he hopes for a deal in a few months and is looking for companies worth £50m to £100m. Inevitably that would be a reverse takeover and would mean the shares being suspended to allow a substantial fund-raising (hopefully at a decent premium to the initial 6p).
It seems that the some of the institutions who backed Cove and have done so well are aboard Q, and others are watching. For once, small investors have a small edge over the fund managers here. Relatively few funds have articles which allow them to invest in such a small company, so some big boys have to wait for the first deal.
It is also clear that there is a thinnish market in Q. The Quantic concert party has over 50% of the current issued equity, the board had 10%, and there are three or four other holders with quite sizeable stakes. So the share price will tend to be volatile, driven by relatively small deals. Though there will be some profit-taking in any share which has doubled overnight, the bulk of holders will be there at least until the first deal, and probably for a year or more. A thin market is great when prices are rising.
Do not go near this one unless you are prepared for possible sharp moves. Use a stop loss, but make it very wide – maybe 50%. It ought to be good, but it is dangerous. The risk factors cover three pages of the prospectus (loads of ways of saying we’ll be dead if we screw it up). And don’t plan to settle down and live with this one for life – it is a trading stock.
Remarkably, there are already five market-makers aboard, so someone is expecting plenty of action. Have fun – but never say I didn’t warn you.
Ends.
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