Concerns...

I’ve traded this stock because I like the graphite space and I think the project they’ve acquired has merit but I’ve sold out as I really have an issue with what the board has done with regard to investing in Sunbird Energy (SNY).

The board invested $400,000 into a debt facility into Sunbird which has some gas project in South Africa which will require some $1.2 to $1.4 billion in CAPEX and basically its future is entirely predicated on the fact that Eskom is going to enter into a gas sales agreement with them.

The problem with this is that Eskom is basically broke and has asked the SA government for 300 billion rand to bail them out of their problems (equivalent to $30 billion). This is significant enough that there is talk that the SA credit rating will be lowered on the back of this and no wonder as the total GDP in SA is US$ 380 billion (as at 2012).

IMO there is no chance that Eskom will be doing deals with anyone if the SA taxpayers bail Eskom out so has GRK blown the $400k? To me I fear that it has. At least its debt and not equity although I do note it could be converted to equity but surely no one in their right mind would do that if Sunbird’s project is going to go to nothing. Not to mention the fact that they had only $373k in the bank at the end of the June quarter with estimated cash outflow in the next quarter of $1.7 million???

GRK had to raise $639,000 at $0.003 on the 23rd July (and therefore dilute shareholders) which they probably wouldn't have had to if they hadn’t invested this $400k on the 13th June. I cannot tolerate small cap companies that invest in other small cap companies where there are clearly no synergies in their businesses (as is the case here ) when capital markets are still so tight and capital is at a premium. Company directors shouldn't have the right to be quasi fund mangers so I would really like to know why this decision was made.

DYOR