Long but informative. Comments are appreciated except from 2 From Notes to the Consolidated Financial Statements of 2017
2017 Annual Financial statement
12 (iii)
During the spring and summer of 2016, the Company completed a private placement of senior unsecured convertible debentures of C$9.7 million in a series of settlements. ... The debentures also carried a conversion option, in whole or in part, at C$0.67 per share. ...These debentures matured September 11, 2017
12 (iv)
On October 21, 2016, the Company resolved to reprice the conversion option on (iii) to C$0.30 and become subordinated to the C$12 million senior secured convertible debentures which were issued from October 24, 2016 through November 3, 2016 (second tranche of debentures)...
...The C$12 million senior secured debentures (second tranche), mature 18 months from issuance...The senior secured debentures also carry a conversion option, in whole or in part, at C$0.30 per share
Conversion of Debentures and warrant excercises(From Oct 1 st to 31 Dec 2016): 8,272,622 (6,399,997 + 1,872,625) shares. Most probabely have been done in the yellow highlighted box.
Outstanding number of shares:
Sep 30 2016: 96,139,006
Dec 31 2016: 109,349,415
--> 13,210,409 shares were created in that 3 months (Blue box) which means 14% dilution. But it was a coordinated dilution and free money was given to the creditors.So by 14% coordinated dilution price droped from 84 cents back to 30 cents.
BMF acquisition was before Oct 1. Announced as a good news and public rushed to buy --> price increased from ~30 cents to 84 cents before repricing the conversion option to 30 cents!
Discussion:
If in Oct 24, GLH diluted the market by a factor of 2 and supply the market gradually (at the market price and heavily discounted) it could rais $14M and price still sit above 30 cents. Instead the board decided to give free money to the creditors by repricing the conversion option and receiving another $12M loan. In less than 2 months the creditors scooped out ~50% of the loan in gain (it needs some details that I skip) while still GLH owed them ~$19 M [9.7 (1st trench) +$12 M (2nd trench) - $2.4 M (8.3 M Debenture conversion at 30 cents)].
Question:
Who made such a stupid decision?
Lesson:
Let do not forget marketing figures who were observing all but suddenly become optimistic and encouraged general public grab the opportunity right before the scam. Today they are pessimistic so do not take them serious!
Chris Parry
