On Friday AIM listed Max Petroleum (MAX) admitted to suffering yet more delays on its flagship well. But worse still it also admitted that it was $54 million in debt and would soon breach its headroom debt facility of $58 million. The company says that in current market conditions ( plus regulatory changes in Kazakhstan – what in Hades that means I know not what) it is finding it impossible to raise equity. And so it must go to its banker (Macquarie) or any other banker. I see that the BB loons are still blathering on about the cash Max generates and its exploration upside. Oh please….
Yes: Max generates some cashflow from production but not a lot. And certainly not enough to cover the remaining costs on its flagship well let alone its PLC costs (on which it has never skimped). And its exploration assets may be worth something. They may even be worth 12p a share as some folks reckon. Somehow, I rather doubt it.
But Max is heavily in debt and has stated quite explicitly that it cannot raise fresh equity. And so it must borrow more just to keep going. That means that its bargaining position with the banks is pretty much the same as that of Greece: “We are bust so lend us some more and you might get it all back. Or some of it. If you do not lend us any more than you just have to seize our assets as we cannot repay.” In other words, in effect, the bank owns Max and the equity is more or less worthless.
This is so simple even the dumbest of BB moron poster should be able to understand: Max has heavy debts, is haemorrhaging cash and cannot raise equity. And that means that the current market cap (still £40 million) is a joke.