ERHC Energy Inc. (OTCMKTS:ERHE) Drilling Through The 1 Penny Mark?
ERHC Energy Inc. (OTCMKTS:ERHE) shareholders must be in panic to see their stock reaching further depths towards the rock bottom of the chart. Yesterday ERHE closed in the red at $0.016, a 21.4% fall which is almost a 70% loss in a month. Volumes have been in the millions lately reaching a 52-week high two days ago while the price has hit all-time lows nearing the 1 penny mark. Will ERHE be able to stop the drill to go right through that?
On Nov 5 a press release gave ERHE a short reprieve but it lasted just three sessions. The shareholders are hungry for some bits of news or statements from the management of the company that could quiet down their current fear of a dooming loss of their investments.
This fear is partly real and party generated by posts in forums, communities where they have been talking about a “death spiral” and how the toxic convertible debts of ERHE can cause lower prices at which financiers can dump their converted and well-discounted shares pushing the price even lower, yet making a lot of money out of it. A month ago ERHE was still around the 4 cents mark practically for the whole month but seemingly a press release on Oct 29 pushed the price off the cliff. The strange thing is that the news confirmed the viability of leads in Southern Chad, one of the company’s projects in Africa which sounds like good news and normally would affect a stock more positively.
The other main exploration site for ERHE is in Kenya, Block 11A which is in phase two now and they will either acquire 3D seismic or start drilling an exploration well. The company will may have to raise some money to fund these in the near future as a well drilling has a cost of $10-30 million. But what can we know about the financials of ERHC Energy Inc.? Can they finance such operations at all? Well, their last report was a 10-Q for the quarter ending June 30 which means that the numbers are not really up-to-date. Let’s see some figures that may help us understand if this panic selling is grounded or not:
- $2.7 million in cash and cash equivalents
- $933 thousand total current liabilities
- $1.1 million net loss
The company claimed in their report that this cash “should be sufficient” for more than 12 months but you really have to be a magician to finance with this background all your operational costs and a possible drilling on top of that. But then again you have the option to find some creditors and enter into an agreement for convertible notes where the conditions will not get any better than that of the currently outstanding ones. And that does smell a bit toxic.
We have no current information on the number of convertible notes but they had $611 thousand payable up to June 30 and another $317 thousand worth until Aug 14 which is a good 50% more in one and a half months. And that was 3 months ago. Well, looking at the discounts of these notes there is a potential of around 100 million shares being issued which could definitely push the price even lower. No wonder the shareholders started to panic seeing the price falling. That was simply intensified with a bit of fear mongering in the communities. ERHE’s 10-K is expected to be filed in the coming weeks but the question is how many shareholders will sit around and watch the price reaching ever lower.
Although ERHE does have the potential to bounce back in the future, you had better do you due diligence before rushing to a quick conclusion.
