Regarding MMEX’s shareholder letter, and “terms sheet” - setting giddy, exaggerated reactions aside:
- terms sheets can be developed in two forms, binding, and non-binding. The April shareholder letter failed to specify the category in which this “terms sheet” falls. Lacking a public copy of the “terms sheet,” it is only possible to speculate as to the binding, or non-binding nature of the document.
- if the “terms sheet” is binding, it will fall into the SEC’s definition of a trigger event, and would require filing a form 8-K within four business days of the event. The shareholder letter states that the “terms sheet” was executed on March 29. The market, and SEC were closed on the 30th, so the 29th, 2nd, 3rd, and 4th fall within the four business day filing window. If MMEX’s “terms sheet” is binding, an 8-K filing is required by COB on April 4.
In the event of materiality, the material agreement (“terms sheet”) would normally be filed with the 8-K as an appended attachment. There is no “non disclosure agreement” associated with a terms sheet - in fact, these document are normally “shopped” to attempt to improve a material offer.
Today's late-breaking 8-K filing is a mis-direct - note that it references the April shareholder letter, not the terms sheet, which almost certainly means that the latter is non-binding.
- if MMEX’s “terms sheet” is non-binding, it is therefore not material. It is of little significance, similar to MMEX’s claimed LOI’s and “agreements” for Pilot Thomas.
- the MMEX April shareholder letter by appearance to an experienced investor contains a number of red-flags:
1. an unnamed “international debt fund” provides up to 80% of the projects debt component - the two elements of concern here are the fact the fund is unnamed, with no reference, and the statement infers a single fund, or lender. This is almost never done, to spread risk there are almost always a number of lenders, scaled to the debt exposure
2. JV syndicated deals almost always first execute a PE placement for the equity component. The PE placement is shopped, and subscribed before the debt portion of the syndicate is circled. The PE is never composed of asset exchanges, or “cash in” as MMEX claims. The claimed $2-million “approximate” equity investment by MMEX is almost certainly B.S. - this is easily verifiable by looking at MMEX’s consolidated cash flows.
Further, raising the additional $8-million to $9-million in “equity” would never be done through toxic lending, or other ridiculous means as MMEX’s shareholder letter claims.
3. Ignoring the O&M component is fatal - the remaining $50-million to support start-up and O&M can’t be left to the wind, as that would create uncertainty in the cash-flow timing, if the unit were to ever be built. The claim of crack spread hedging is outrageous - all refiners hedge, but this is an operational cash-flow issue to maximize margins - it requires an actual operating facility, producing actual products. It is in no way a front-end risk mitigator in project financing.
There’s more, but that’s enough for now. Mad J. has suckered unsophisticated retail investors yet again - one can easily see how the market reacted to this dubious “news,” as reflected in MMEX’s PPS. Another failed run-up attempt...
