MMEX, with Friday’s close at 0.0027 crossed an interesting pricing threshold.
MMEX is a super-dilutive OTC shell corporation, which has no assets, no business operations, no employees, no suppliers, no customers, no production capability, no management team, no technology team, no intellectual property, and no proprietary technology. MMEX does however have almost $40-million in cumulative shareholder loss and liability, and more than $2.1-million in current debt… Friday the 20th, the market said MMEX is worth 0.0027 (27/10,000 of a cent) per share, and that seems to be on a steady down-trend.
Using a good market price for high-quality Cottonelle Toilet paper, at $19.99 for a 48-double roll pack, and 154-sheets per roll, a single square of toilet paper is worth 0.0027043 - more valuable than a share of MMEX!
Cottonelle toilet paper has a more stable price, is a solid investment, and it is thousands of times more useful than MMEX!
There are now 28 business/trading days, and 39 calendar days between Monday’s market opening, and the May 31’s “deadline” to close project financing. MMEX needs to raise nominally $10-million just to close the capex portion of the $50-million project finance deal. There is currently no public information, or evidence as to MMEX’s progress in raising the required $10-million equity component.
Setting aside the amount of the equity raise for the time being, let’s dissect the statement from the April shareholder letter:
MMEX plans to continue raising equity funding for Phase I through:
- private placements
- additional convertible debt placements
- “our equity line, to the extent available”
Examining each:
- a Private Equity (PE) placement would be the usual approach for the equity component of a project financing, syndicated deal. PE has an associated process, and timeline - PE placements usually take 45 - 60 business days from start to finish, which varies depending on the size of the raise, and the characteristics necessary for the target investors in the placement - an investment grade placement takes longer to complete, for example, if it must meet governance committee requirements associated with institutional investors (IRA’s, PE funds). In this process, there is a PE placement memorandum that gets shopped - these PE memorandums are often widely circulated in the PE and investment community, to attracted investors. There is an associated subscription agreement, that among other things states the minimum size of a single investment in the placement. At present, there is no evidence in the investment community regarding any PE placement memorandum or solicitation for MMEX - call your broker or investment advisor, and ask him/her to find it for you - that is simple DD. There is generally insufficient time between now and May 31 to execute a PE placement, so that route seems unlikely.
PE placement processes vary considerably, the aforementioned is just the general shape of a PE placement.
- The billions and billions of shares of dilution that would result from MMEX attempting to raise “equity” through additional convertible debt placements is a laughingstock statement. This pales so far beyond reality it makes one wonder why it even appeared in print. Even at 0.01 per share, these toxic loans generate on average 30,000,000 shares of dilution for every $100K raised. At the current price, for every $100K, it amounts to about 100,000,000 shares.
- MMEX, as a consequence of de-listing from QB to Pink, lost access to its primary planned “equity” line - that was the Crown Bridge deal MMEX blew $80K on. It can’t be exercised now that MMEX is back to Pink. The only remaining “equity” line was the Vista “long-term” debt line MMEX maxed out, the one that has been diluting everyone out of existence to the tune of 220,000,000 shares.
Private placement / Private Equity is something I have a solid grasp on, especially for the energy sector.
MMEX has created one interesting set of problems for itself. If I give MMEX benefit of doubt, a foundational problem is the phased approach to entry into the sector.
Any competent sector investor knows that there is no technical risk in this business. It is all concentrated execution risk. There is no doubt that a refinery, rudimentary or complex, can be built - all of the technology is known, and completely de-risked. On that basis, MMEX should have proceeded to enter in a single-project step - a complete, complex refinery, at a sufficient scale to be market competitive, 100,000 bpd or larger.
The phased approach MMEX elected creates more problems. One of them is the economics of the investment. The Phase I capital portion is too small for project funding, and too large for traditional lending for MMEX - its lack of access to traditional capital, and the relatively small scale create problems. Pushing Phase I to include both the capital component ($50-million) and the O&M (another $50-million) brings MMEX’s Phase I to the edge of what is economical for project financing.
The private equity / private placement associated with an 80/20 structure on a $50-million deal is problematic. At 20%, the PE placement is only $10-million. There are generally two branches on these deals - short-term, high-gain (10X cash-on-cash), or long-term steady gain deals. Real investors like to put enough money to work in a placement to be economical - a $5-million subscription is small in this business, leaving room for only two subscribers at $10-million. There are PE deals cobbled together from small, chump-change investors in the $50K - $100K range, but that is a lot of work, and suggests that one is dealing with pain-in-the-butt unsophisticated retail investors. Net of net, the placement is too small to be interesting - and because the return horizon is decades, not just a couple of funding cycles, the ROI model is a problem.
I suppose it is possible to put together a placement from “Mom & Pop,” but that is a painful way to go about it - and “Mom & Pop” are likely angry in the end, with lawyers…
It just isn’t obvious how MMEX works at all, even giving it the benefit of doubt.
A real PE placement would have to be structured to attract the right investor profile, return horizon, etc. They would take a hard look at the debt-side of the deal, around the question of “what exactly am I investing in,” given the much larger debt component, and the return horizon. That unnamed “international debt fund” would have a big sniff test to pass. If any of the PE subscribers were to be institutional, the bar to invest would be very high.
So, the figurative walls are closing in around MMEX - as MMEX proponents are so fond of stating, “Tick-Tock” - from this day on, each business day that passes brings these walls closer in. Investors should expect news of more toxic notes, to keep MMEX afloat (bad news), and the big disappointment - “unforeseen delays,” “additional milestones,’ and related excuses as to why the project financing doesn’t close.
