Hyperdynamics was out this AM with the first update in months on the progress of their negotiations for the right to drill in the Guinea Concession, and the news has put some legs under the stock for the first time in a while.
In short, HDY disclosed today that the minister of mines of the Republic of Guinea feels the arrangement is completed, and the process of getting it approved can now begin.
As I understand it, this could be a lengthy process or brief- my guess would be lengthy. After all, you are dealing with a third world African government- the beuracracy has to be a bit stiffling.
Nevertheless, the fact that progress is being made is a positive sign, and I now feel as if this stock might be worth the risk to own.
Of course, there are a couple of major negatives. The supply side on this stock as it relates to the $6 million financing helps defray any urgency. Here’s the chart from today about 1 hour before the close:
The huge surge on volume is not holding very well. This is likely because the financier is dumping stock as fast as they can print it. We won’t be able to tell how much was converted until the calender Q3 10Q is filed.
I looked back at the last couple of million share plus days. On March 10th the stock traded over a million shares and ran from $2.10 to $2.80 and closed near the high end of its range. Today, it ran from $1.69 to $2.70 and is now below $2.20. Clearly, the surge brought major sellers out of the closet.
Secondly, today’s news gives us no indication of how long this process will take. I believe there are at least four steps at different levels of government, including a vote by the National Assembly. On the surface, this would appear to be a lengthy process.
In light of today’s news, I believe this stock is worth a few speculative dollars. I will not be a buyer right now. I believe I will wait for the volume to quiet down and the stock to trade a bit lower. The excitement will probably be over for a while.
A little patience may pay off here. Comments and questions are welcome.
after talking to the company, my understanding of the recent financing is that the financier only has a conversion option if the company is in default, which they are not. In this case, this would not be a source of excess supply. if this is the case, then this is more of a scenario of ‘sell the news’ on the sell side vs ‘panic buying to reestablish exited positions on the buy side
Editor: Where do you think they are going to get the money to make the monthly payment? Are they going to get it from the money they just borrowed? They have virtually no revenues. Perhaps I am wrong. We can simply look at the number of shares I&O in the September q, and compare it to the number in the June period. If the number remains the same, there are no conversions going on. If it has gone up, there are. We will see. Someday the shareholders will have to pay the piper for this dea. Cornell is not company friendly- they are the loan sharks of the microcap world. Believe me, they are finding a way to sell paper. We’ll see in a month or so.
PSA is signed.
Editor: Great news for shareholders.
Well. It sure looks like you guessed wrong on this one. PSA signed on 9/22. After hours trading at $3.39. Undoubtedly, they have plans ready to go, so it will be like trying to catch a rocket now on the pps. Likely to still be a bargin at the open on Monday.
Editor: I don’t know if wrong is the right way to characterize it. I stated I would prefer to be out for the time being. I also stated if I was out when they signed the deal, I would have to pay more for the stock. I also stated this would be a multi year project with lots of opportunities to invest. I also stated the financing would create significant excess supplies. So far, it seems all of those observations are right. The stock is not trading that great in light of the news. Plenty of opportunity to invest at a reasonable level.
Did you see the news on Hyperdynamics after the close on Friday? Why don’t you comment after they file an 8K! This is the time to bring out some good news on HDY after you have been so critical lately. Thanks, Bubba
Editor: I don’t know if critical is the right word. Just realistic- instead of the hype I have been looking at the facts. This is great news for shareholders, but some of the negative factors still exist- mainly excess supplies of stock from the recent financing. This will be a very long term process, and there will be plenty of opportunities to accumulate at reasonable prices. The stock is really backing down now after making a nice move.
I plan on waiting until HDY hits $20 to buy. By then the risk will have been reduced, a major oil company should have signed on, Cornell should be out of the picture and the management should no longer be a bunch of bozos. I am doing this based on your always informative suggestions. Are you still glad you are not “in”? Do you still think patience will pay off here? Looks like you were right about this stock all along. Nice job. Please give me the OK about when I should buy. I don’t want to get in too early.
Editor: I believe I will send Cornell a thank you note for allowing me to get a position at a reasonable price. Considering how good the news is, one would think the stock would be trading at $4. $2.60 is not bad, but I wouldn’t be surprised to see $2.25. If it’s going to $20 as you say, what’s the diffence if you own it at $2, or $2.50? Big deal. Thanks management for doing a deal with the biggest scum bag financier in the microcap world. You did everyone who wants to own this stock, or own more, a big favor. How many shares do you own, and at what price?
Now that the PSA has been signed, how long do you think it will take HDY to begin production and making revenues? Where do you see this stock going after production begins?
Editor: You might have a look at the next BLOG entry where I addressed those issues. I couldn’t get it done until yesterday afternoon. In short, I think it will be some time before we know if there is a lot of oil under that ocean floor- probably at least a year.
Reply to Gordon’s comment. Cornell not only has convertible debentures at $2.00, but also warrants at $2.50 for 955K shares, $3.50 for 715K shares and $4.00 for 430K shares. They are most likely exercising and selling the shares from the warrants.
As far as the editor’s comments, HDY management knew that they were not going to have any revenues immediately after getting the loan. Given the option between paying the $175K monthly payment with the $6M they have already gotten (according to their S1 on 6/30), or defaulting, I think the choice is obvious.
Editor: Sure, they can make the monthly payment. However, The terms allow them to convert the debt into shares at $2 when not in default, as long as they don’t own more than 5% of the I&O. They will never own more than 5% as the shares are sold the moment of conversion. It’s the way all these deals are structured. Cornell’s game is to get their prinicpal back as soon as possible, make their interest, and keep the warrants as their upside. As you can see from the excerpt from the 8K, the holder, in this case Cornell, has the option to convert into $2 shares anytime they want. The good news- I’ll bet the company’s debt has been reduced considerably.
Here’s your proof: