If this share is in your portfolio, watch out - It could be the next JSE company to go bankrupt!
In October 2014 I warned investors reading my MoneyMorning column against investing in three specific JSE listed penny stocks.
Of those three Evraz Highveld Steel lost 66% of its value, you'd be lucky to sell the shares in Chempsec if you hold any.
And Firestone Energy is nearing bankruptcy…
It's closer than ever to close its doors. And still I get investors asking me whether they should buy the share.
That's why I'm warning you against it today.
Firestone Energy is a small coal exploration company with an asset in the Waterberg. It’s been punted wildly as a hot buy. But this company is standing at the precipice.
Don’t believe any of the promises – this company will lose you money
The company’s managemet keeps making promises of big returns.
You see, the company discovered a big coalfield in the Waterberg.
And exploiting the coalfield would make a boat load of cash.
So, every couple of months management announces that it’s in discussions for a coal sale agreement to Eskom. And as soon as this is signed they’ll coin it…
In 2009 the company announced via a SENS alert on the JSE: “Firestone Energy ON TRACK TO BECOME THE NEW FORCE IN COAL”. The share price was 43c back then.
Then on 30 May 2011 the company announced to the world that it is “On Track for First Production in 2012.”The share price hit 19c at this time…
Since then the company has made a number of promises of signing a coal sales agreement with Eskom.
But nothing has happened yet.
Still, every now and then I get an email in the line of: “Francois, won’t Firestone Energy’s share price shoot the lights out if it signs this sales agreement with Eskom?”
The thing is even if this agreement is signed the company will probably still lose you money.
But as things stand now an investment in Firestone Energy is CERTAIN to lose you money.
Why Firestone Energy is about to go bankrupt
Just a couple of weeks ago Firestone Energy told investors its negotiations for a coal supply agreement with Eskom are progressing well, and then I had another couple hundred investors questioning whether they should take a punt on the company.
But throughout all these years I've been clear about one thing.
Firestone Energy doesn't have the money needed to build the big mine it's planned. In fact, on many occasssions I've made it clear I believe the company will go bust.
And sitting here I can now report that Firestone is in big trouble. The company is at the point of going bust...
You see, when last Firestone reported financial results the company had a full R28,000 cash left to its disposal.
And at this stage it doesn't have any mine that makes money - it only spends money on salaries of its management team and on exploration.
The company also has a boat load of debt.
And that's where the problem comes in.
Firestone doesn’t have any money but needs to repay a half a billion rand loan!
You see, Firestone has received a notice from its bankers at Standard Bank that it needs to repay a $43 million loan facility it has with Standard Bank before 9 April 2015.
But the company doesn't have the ability to repay the $43 million.
Thanks to this development trading of Firestone shares have been halted yet again. This isn't the first time and not the last.
In the meantime the company's management will be scrambling around to negotiate a new loan agreement with anyone willing to help them.
If Firestone can't get a new loan facility on time the company will be liquidated.
And, even if it does get a new loan agreement in place you can be certain that it won't be a favourable one. The terms will be tough and the interest high.
More importantly, even if the company survives this spell the funding it then needs to build the mine it wants to build will be huge. It won't be able to borrow this money easily which means it'll probably issue a ton of new shares to pay for this.
Let’s just say you’ve been warned about Firestone Energy…
Here’s to unleashing real value
Editor, Red Hot Penny Shares