The stupid thing is that the more Fenix paid for FN the more...

The stupid thing is that the more Fenix paid for FN the more would be the $7.3m profit on acquisition.

What this profit on acquisition has also created is intangible assets of $28.7m on Fenix’s balance sheet.

This comprises $18.5m for customer contracts (there was only one customer – Fenix), $1.1m for assembled workforce (never heard of this one before – a real plus for creative accounting) and $9.1m for goodwill – i.e. what Fenix paid over and above what could be allocated to customer contracts and ‘assembled workforce’.

If you haven’t fallen off your chair yet, you have a think, hey, what is the life of those customer contracts? Is the life equal to the Fenix LOM – particularly as no increase in resource/reserves from exploration, which is in its infancy. 5 years LOM? 2028? Exploration has risks, right? And to buy in additional resources costs money also, right?

So, what happens in the forthcoming financial statements for Fenix? Do the intangible assets maintain their value at their current amounts over the next 5 years?

So, in 5 years time when the LOM is exhausted, based on current information, are the intangibles still worth $28.7m? Or would the auditors be annually re-assessing each of the intangibles based on the future LOM and the level of trucking for Fenix?

If nothing happens on new reserves/exploration and LOM remains the same surely the auditors would be seeking some amortisation of the intangibles – that is the customer contracts and the ‘assembled workforce’ intangibles. Then the goodwill, this is re-assessed every year by an ‘impairment’ test, which, if the other two intangibles reduce then surely goodwill will also reduce similarly. Taking all 3 is a potential $5.7m p.a. hit to the P&L.

How will the company describe this? Oh, easy, that will be non-cash. It doesn’t matter.. It may even be excluded from EPS calculations by the market.

Well, that would be right. It is mostly non-cash. Fenix mainly issued shares to buy FN. All 90m of them – prospectively. And out of the $28.7m intangibles calculation, 60m of the shares were only valued at $6.4m – that’s 10.7 cents per share – which leads the question to what are the real intangibles? If you use the 28.5 cps used by the auditors for the 30m initial shares that $6.4m would be $17.1m – another theoretical $10.7m to the intangibles?

Could that $7.7m profit on the JV really be illusory? Could this be a quirk of the amount paid for the JV 50% interest and accounting standards?

Could this be in the same category as inflation (current cost) accounting?

I reckon this story is not going away. I reckon this story will rear its ugly head every reporting date, as well as in-between.

The narrative on cost per wmt ($10 pre-tax) is a lot different when looking at EPS (after-tax and after dilution).

Thank you mrposhman for your detailed insights and thank you mal, rooks and wiz32 for calling out the FN (dud) deal.

The company lost respectability deal when stating the FN deal is EPS accretive. It is not.

The real beneficiary here is Craig Mitchell. Why? The interim executive chairman will spend a lot of his time defending the FN deal while CM has benefitted financially (with 14% of FEX heading his way) and does not have to respond to anything.