Short Term Trading Weekend Lounge: 18-20 Nov

STTCOMP GPH, FA Long
Market Cap: $17M
Cash: $6M
Current SP: 7.8c

Goldphyre Resources is a company in the Potash (Potassium) industry which is an important ingredient in agriculture. The goal is to produce a low capex SOP resource in WA. Currently SOP is 100% imported from overseas and is therefore often far too pricey for Australian farmers to use, even though its a premium product unlike its widely used MOP substitute.

The Lake Wells project has far less capital expenditure than its competition due to the fact that they have developed a bore field brine abstraction operation. This allows Goldphyre to avoid the vastly more costly trenching method used by its competition for brine recovery. Establishing a network of bores is significantly cheaper than developing trenches to produce the equivalent volume of brine.

Two of the four bores have been successfully installed and the production flow rates on these have been tested and are exceptional. This ultimately confirms that the company have a viable project with a minimal payback period. The results of the test production for the final two bores is expected to be released any day now and that will allow Goldphyre to upgrade its Inferred resource to an Indicated resource.

On a peer comparison metric, GPH is cheap as chips. With a ~70Mt SOP resource at 8.05kg/m3, the market cap of GPH is a measly $17M. Their nextdoor neighbour and biggest rival SO4 has an 80Mt SOP resource at 8.74kg/m3 and currently sits at a market cap of $80M. Clearly, something is distorting the price here...

That brings me to Hartleys. Hartley's on the 30th June produced a research report outlining that they had a 27c price target for GPH, which was at the time roughly a 13c premium to the current trading price. Then in August Hartley's were announced as the underwriters to a $6M options financing (exercise price 8c) and agreed to buy up any options that were not exercised at the expiration date of 30th September. Hartley's throughout this entire period was buying up as much stock as they possibly could which has been later confirmed by broker reports. It was thus in their best interests to have a SP as close to 8c by expiry date to ensure that they could buy up as many of the options as they could get their hands on.

They wanted this for two reasons:
1) Given their attitude towards buying loads of stock in the company, they obviously would've loved to get their next parcels for the least amount possible.
2) They were being paid 6% commission on any stock they were able to buy up as part of the underwriting.

Hence, it was clearly in Hartley's best interests to have the SP as low as possible come expiration date.

By the time the options expired on 30 September, Hartley's had bought $1M of stock on market for the year and picked up an additional $2M of stock in the underwriting. You would think $3M of stock in a company with a $17M market cap would be enough for them...nope. Since the expiry, Hartley's has been playing games with share price - selling into any buy orders and then quickly churning parcels of trades at lower prices amongst themselves to ensure the price stays as low as possible, while at the same time buying anything that comes onto the market from disjointed sellers. Often days it has been Hartley's taking 100% of the trades for the day just buying and selling amongst themselves. Clearly they are manipulating the share price, and its been for good reason as they collected another net $1M of shares since the options expiry (represented by the broker data).

Hartley's currently sits with $4M of stock (avg. price between 9-10 cents) in a company worth $17M - clearly something is going on here. Hartley's is not in the business of losing money and there is only one way out for them. This involves pumping the share price higher and generating interest in the stock up to a level where they can slowly start reducing their holdings and selling at a profit. For them to do this, they would likely need a SP of around 20c before they would start selling. They simply can't dump $4M of stock onto the markets with the SP where it is now - the SP would literally go to zero off the volume and its not Hartley's game to do that.

An additional point - Creasy owns 20% of the company and no doubt has plenty of peddling influences inside the company. I can't imagine he'd be holding onto it if he thought it were a loser.

Big things are in the making for GPH and it all points to one thing - a substantially higher SP in the short term. Ludicrous peer comparisons, Creasy onboard to help with any takeover offers from SO4 next door for GPH's higher grade zones in amongst SO4's bulk resource, Hartley's manipulating prices for months with no way out other than garnering a far higher SP; it all just points to a brilliant ST trade.

Whew there we go, my first STT tip complete. Good feeling hehe...
GLTA. DYOR.