Aside from the obvious facts on MMEX that make it ineligible for any project financing, there is a central issue that seems to be missed by retail MMEX investors.
Project financing is a specialized area in finance, and this structure is used for industrial projects, like a refinery for several reasons - the biggest factor being risk concentration related to capital requirements.
Considering just what MMEX has proposed for its Phase I rudimentary topping unit, the company has estimated a $50-million cost. This does not include the start-up costs, or operating costs (losses) associated with running it. A reasonable proxy for MMEX’s start-up and operating costs, amortized by quarter from industry data is about $10-millon per quarter. This means MMEX would have to generate at least $10-million in revenue each and every quarter just to break even at an operating level - this does not factor in debt service or other costs MMEX or an SPV would incur.
One problem MMEX faces is that Phase I, as it is scoped, lives in a grey area on the basis of the amount of capital required. $50-million is too much capital for conventional finance, especially for a company like MMEX. It is under the $100-million where project financing becomes efficient from a cost of capital perspective. So MMEX has a built-in structural problem just on the basis of how it proposes to enter the sector.
In a project finance scenario, an SPV, or orphan company is created which owns the project from inception, until the joint venture sponsors debt is repaid - this usually takes 10 - 20 years, even for a successful project. Because MMEX lacks any competence in the sector, the Phase I project, a rudimentary topping unit, could never operate in a cash-flow positive manner - thus the SPV would never be able to service the debt. The project would be bankrupt. The kind of financiers that do project financing understand this, and would never undertake a high-risk, guaranteed loss project like MMEX’s Phase I.
There are so many structural flaws in MMEX’s “plan” that is effectively shot off both feet, and both hands before ever making any forward progress - not that it matters, because MMEX never intended to build a refinery anyway.
Combining all of the inherent flaws in MMEX (no IP, no proprietary technology, no luminary team, no suppliers, no customers, toxic debt, etc.) with the structural flaws in its plan makes MMEX completely dead in the water - there is no chance it is a candidate for $50-million or more in project financing for Phase I, let alone half a billion to a billion for its proposed Phase II.
