Stans Energy Corp V.HRE.H

RE:RE:my cynical view of the funding relationship

[Kaliahk]

I dont check in often.  My investment in Stans is now worth 5% of what I paid so not much to see.  However, I thought I would reply to an old post and give some insight on how I think things may go down.

As I explained in my prior post, I think that the funding agreement could result in a bill for legal services of around $60 million to Stans. The new agreement as I understand it is that the funder will be paid 3 to 4 times its investment out of the proceeds.  So at 4 times the payoff of the first funder is $30 million.  The additional funding needed to pay to get to a decision may well be another $7.5 million or another $30 million to the second funder.  So that is how I get a total of $60 million to the funder for its $15 million investment. It could be as low as $45 million.  The balance of the recovery goes to Stans.  So best case scenario with 200 million shares outstanding is a recovery of about $0.80 on the dollar.  However, in a best case scenario there will be appeals and significant collection efforts required, causing additional legal expense. Stans shoud  probably fund that by issuance of shares intead of paying 4X for the funder to do so.  My wild guess would be that Stans might pop to $35 or more when such an award is announced and fall back some after that.  At $0.25 Stans would dilute its shares another 20% to raise $5 million for attorney fees for collection effortrs and appeals.  So we are talking about maybe $0.65 net proceeds per share.  To get a voluntary payment eventually out of the Kyrgyz might take some further compromise, so maybe Stans ultimately nets $0.50 per share.  Not too shabby and probably justifies a $0.25 to $0.35 share price when that happens.  If you aren't in at $1 like me that could be life changing money depending on how many shares you own.

The worse case scenario is losing but I have never considered that much of a possibility.  I seriously doubt that athe Kyrgyz are going to make their corruption claims stick.

A middle ground, and what I am concerned about, is if the recovery is limited to actual dollars invested and lost.  Not sure where the figure of $125 million in cost invested came from, I don't believe that Stans ever raised that kind of money to invest (perhaps that is there asserted value of the physical plant and claims following their investment at the time of the claims cancellation).  I suggest you all look at the Sedar management reports.  IIRC from what I could tell there was less than $30 million actually invested in Kyrgyzstan.  And Stans still owns the processing plant.  Recovering for lost profits of a non-operating business is also difficult from a legal standpoint (at least under US law).  I wish the arbitration briefs were available so that I could make some educated guess about how this issue might be resolved, but I have been unable to find them.  As it is I can just have suspicions about the Kyrgyz arguments and applicable law.  My concern bottomline is that Stans sees no money unless it recovers an award of more than about $60 million plus cost of appeals and collection, and is out of business.  If the middle ground is the $125 million in "costs invested", this would be $65 million to Stans.  Reducing this by dilution (40%) for the costs to recover and some write off to get a final payment and you are at a net of about $0.20 per share.  I have no clue as to actual share pricing but I could see this might justify a $0.10 or $0.12 per share price.  However, a company with $50 million could pursue a lot fo other projects without much dilution in the future, so if you like doing business in Russia with this management, it might be worth hanging onto.

So here is how I see it:

Recovery of less than $60 million = out of business ($0.00/share price ???)
    "               $125 million = in business, minimal dividend ($0.12/share price ???)
    "               $210 million = in business, possible significant dividend ($0.35/share???)

Just my negative, poorly researched biased view, so you guys will do your own due diligence before getting too carried away on any news.  This is no longer any kind of significant holding for me and I have no plans to change that.  DYODD
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