I'm posting excerpts of a text I posted on the wpx board earlier today in response to a poster claiming they had plenty of cash because management had a $4 million loan outstanding on their financial statement that they could call anytime.
the purpose of this repost is that IMHO not all management teams are created equally and that having aaa's team with plenty of cash in the bank and a $600 million total mine build is a really great thing.
also it also imho shows how important it is to read financial statements carefully and to do research.
every time I see Farhad Abasov interviewed I like him more and more, and really get the impression of how hard he is working to create shareholder value.
Please think about this reasonably.
Discovery harbour shares a director with Wpx. Jorge Patricio Varas(CEO of WPX)
Leaving aside the blindingly obvious question of "what benefit do Wpx shareholders derive from Management lending huge sums of money to an unlisted(can't find a listing or a stock quote)exploration only company, especially since when in 2012 Wpx had a widely reported serious cash crunch and had to raise money in a highly dilutive 1 share with 1 warrant deal?"
Lets look instead at some facts.
Which unlisted exploration company borrows off another junior company?
One that has easy access to bank lending or one that the banks wouldn't touch with a barge pole? (check it out on sedar yourself, oh I forgot, discovery harbour has no documents on sedar as they are unlisted)
So this company borrowed $ 4 million dollars off Wpx and what? Maybe they put it into a GIC at 2% interest just in case Wpx ever needed it and asked for it back.
Well, why then when they had the cash crunch in 2012 didn't mr Varas pick up the phone and call himself over at Discovery harbour and say "hey, the analysts are reporting that we have less than a million left in the bank and we really need the $4 million back. Would you mind taking it out of the GIC and returning it because I don't think shareholders will be too pleased if we raise raise $9.6 million at for 20 million shares at .48 cents and offer a free purchase warrant at .58 cent for every share. Plus I think that not only will they be upset at seeing the price fall below .48 cent, but the company will have to pay a 6% finders fee of half a million dollars to whoever arranges the financing".
Do you really believe that Discovery harbour has not spent the money?
The first tranch of money they lent them was nearly 3 years ago.
Did they put it in the GIC then?
Give me a break!
The loans were amended and turned into convertible debentures for what reason?
"During the year ended September 30, 2012, the Company acquired 8,452,737 common shares of Discovery Harbour to settle outstanding receivables, unsecured line of credit and accrued interest for $845,273 (Note 8(a)). The Company had 10,472,738 shares of 68,325,402 total shares issued as at December 31 and September 30, 2012."
Didn't the above occur when wpx needed money and just before they raised it in the private placement. Strange that instead of cash that everyone was saying they badly needed, they instead took shares!
Maybe, just maybe, and this is a really far out whacky idea, Discovery harbour didn't have enough cash to give WPX the $845,273 because they had spent their money on their own undeveloped exploration assets.
Crazy, I know. But please forgive my leap into the RIDDICULOUS here.
And who will give a primarily copper exploration company $4 million dollars to pay back a junior potash company?
But I suspect smart invest that you have not properly conducted your due diligence.
If you do conduct any DD in the future I would love to know why WPX's management is either lending money too or buying shares of non-potash diamond/copper exploration companies, is it because they have some of the same directors as WPX?
Also, find this one out for me. Why do WPX's management believe that its shareholders have the need or desire of owning shares in copper or diamond exploration companies?
Aren't they invested in a Potash exploration and development company?
That's an agricultural product, right?
Why do the want to see their companies scarce funds given away to companies that are looking for diamonds?
Would it have anything at all to do with the fact, and forgive me again for taking another huge leap of faith here, that NOT ONE OF WPX'S MANAGEMENT TEAM HAS ANY POTASH MINING EXPERIENCE , BUT HAS PLENTY OF DIAMOND AND COPPER MINING EXPERIENCE?
We will have to wait and see, but if my cash projections are anywhere near close, we won't have to wait very long to find our answers.
a) Investment in Discovery Harbour Resources Corp.
The Company has invested in shares of Discovery Harbour Resources Corp., a private company. The Company recorded its investment in Discovery Harbour on a fully consolidated basis until January 28, 2010. Effective January 28, 2010, Discovery Harbour issued a total of 19,315,000 common shares, which resulted in the Company’s ownership in Discovery Harbour decreasing from 100% to 10.46% and a reported gain on dilution of $442,269. For the period from January 28, 2010 to June 1, 2010, the Company no longer had a controlling interest in Discovery Harbour, but had controlling representation on the Board of Directors, and therefore had significant influence. Therefore, the investment was recorded using the equity method until June 1, 2010. Effective June 1, 2010, the Company lost controlling representation on the Board of Directors and therefore no longer had significant influence over Discovery Harbour; and the Company has been related to Discovery Harbour Resources Corp. by a common director since June 1, 2010. As a result, shares of Discovery Harbour were classified as an available-for-sale financial asset which did not have a quoted price in an active market, and were measured at the carrying amount at June 1, 2010.
During the year ended September 30, 2012, the Company acquired 8,452,737 common shares of Discovery Harbour to settle outstanding receivables, unsecured line of credit and accrued interest for $845,273 (Note 8(a)). The Company had 10,472,738 shares of 68,325,402 total shares issued as at December 31 and September 30, 2012.
Cost at January 28, 2010
Share of net loss in 2010
Carrying amount at June 1, 2010 and September 30, 2011 Investment in 2012
Carrying amount at December 31 and September 30, 2012
202,000 (41,537) 160,463 845,273
(a) Discovery Harbour Resources Corp.
On June 1, 2010, the Company advanced an unsecured line of credit of up to $2,300,000 bearing 6% interest rate per annum to Discovery Harbour Resources Corp., a private company, related through a common director. On June 8, 2010 and September 1, 2010, the Company advanced an unsecured line of credit of up to $800,000 bearing 11% interest rate per annum to Discovery Harbour. The loans were due on demand within forty five calendar days from the date written notice was delivered to the corporate offices of Discovery Harbour. The loans were measured at amortized cost which approximated its carrying value due to its short term nature for the year ended September 30, 2010. During the year ended September 30, 2011, the Company advanced an unsecured line of credit of up to $1,350,000 to Discovery Harbour. On January 1, 2011 and amended on November 15, 2011, the Company and Discovery Harbour entered into a convertible
WESTERN POTASH CORP.
Notes to Condensed Interim Consolidated Financial Statements December 31, 2012
8. Loans Receivable (Continued)
(a) Discovery Harbour Resources Corp. (Continued)
Exhibit "E" Continued
debenture agreement whereby the Company may, at its sole option, at any time until December 31, 2013, convert a total outstanding principal in an amount of $4,450,000 and any interest accrued from June 1, 2010 to December 31, 2010 in an amount of $56,964 into common shares of Discovery Harbour at a price of $0.35 per share. Under the terms, the convertible debenture is not interest-bearing and is secured by all present and subsequently acquired personal property of Discovery Harbour. As the convertible debenture was classified as held-for-trading investment, it was measured at fair value with unrealized loss of $1,078,967 recognized in net loss for the year ended September 30, 2011. During the year ended September 30, 2012, the Company advanced an unsecured line of credit of up to $1,050,000 bearing 6% interest rate per annum to Discovery Harbour, and this loan was fully re-paid by Discovery Harbour. During the year ended September 30, 2012, the Company also advanced an unsecured line of credit of $650,000 bearing 6% interest rate per annum to Discovery Harbour, and this loan was settled for 6,500,000 common shares of Discovery Harbour on September 28, 2012. An accrued interest of $14,884 on the line of credits advanced in 2012, interest accrued from June 1, 2010 to December 31, 2010 in an amount of $56,964 and receivable of $123,425 from Discovery Harbour were settled for 1,952,737 common shares of Discovery Harbour on September 28, 2012 (Note 7(a)).
The convertible debenture was re-measured at fair value with unrealized gain of $453,742 recognized in net loss for the year ended September 30, 2012. The present value technique was used by the Company to estimate the fair value of the convertible debenture using the market rate of interest 13% for debt with similar risk characteristics. If these assumptions were to change, the fair value of the convertible debenture could change significantly.
Reconciliation of level 3 fair value measurement of convertible debenture is as follows:
Balance, September 30, 2012 Unrealized gain
Balance, December 31, 2012
$ 3,824,775 163,689