Did they fly too close to the flame?This is what's on CommSec...

Did they fly too close to the flame?

This is what's on CommSec assessment - going into administration
Morningstar Quantitative Rating - Undervalued, Fair Value 0.22 (17 March 2021). Price at delisting 0.10
Debt/Equity Ratio 84.7% - a high warning sign. D/E ratios over 60% are higher risk
Market Cap $10.3m - low cap (higher risk)
(Debt $26m)
EPS $-0.428 (negative earnings with high debt, not a good sign)
Price Book 0.23 - this is a great number. Very low price per share compared to value of book assets
5 Year Beta 2 - high volatility stock, ideally beta should be 1 or lower

I had high hopes for their recovery after the last quarterly (30 Sep 2023), which sounded very positive.
- contract with Shell "a testament to their confidence in our long-term potential and strategic direction"
(-contract with Australian Natural Diamonds)
- increasing flow rates
- increasing sales price
- further exploration (increased reserves)
- making revenue = $12m/year on a debt of $17m Q4FY23 recorded. Indicating 1.5years to fully pay off debt.
- capital expenditure = 0.3 exploration, 0.1 dev/plant/eqt, 0.2 direction/admin and 1.3 cap raise fee (so 1.9 million Qtrly cost), however the cap raise is a once off so usual qtry costs are $0.6m.

What did I miss? Any tips?
They seemed very confident to work out a deal for delaying the $2.75m scheduled amortised notes payment despite defaulting
They were $10m ahead of original schedule for repayment having paid off $40.5m of the $55m debt. and only $14.5m still to pay.
They state "there is no guarantee (a weaver for delay of payment" will be provided by noteholders in the current circumstances", although they have successful in the past in doing this.

"And 19 October 2023, Armour has continued to engage with Shunkang regarding a proposed transaction and are continuing to negotiate key commercial aspects of a potential transaction and, whilst progress is being made, no agreement has yet been reached with Shunkang." Potential takeover.

I will go through my portfolio to derisk, look for D/E >60% and get out, and maybe look for -ve EPS.
Qtrly report didn't flag much risk of administration. It actually looked pretty good.
I remain confused as to why this went into administration and burnt all the small mum and dad investors.

Lots of learning here for me as an investor. I expect to make nothing out of my small investment here other than an education after they go into administration.
Shunkang or someone else will get this very cheaply IMO. Only salvage is to reinvest if its another IPO like EEG, AGL, KAR, etc.

Merc Out








Secured Amortising Notes Armour made its quarterly interest payment on 29 September 2023 on the Secured Amortising Notes but did not make the $2.75M scheduled principal payment and as such an event of default is subsisting under the terms of issue of the Secured Amortising Notes. Over the last 2.5 years the Secured Amortising Note debt has been reduced from $55M to approximately $14.5M and is currently approximately $10M ahead of the original principal amortisation schedule through capital raisings, cashflow from operations and asset sales. Armour is proposing, subject to obtaining necessary Noteholder consent and approvals by way of Special Resolution of Noteholders, to:  defer the 29 September 2023 $2.75M scheduled principal payment until 30 November 2023; 8 | Page  obtain from Noteholders a waiver of current breaches of certain Financial Undertakings and non-payment breaches pursuant to the terms of issue of the Notes; and  Seek an extension from Noteholders to defer repayment of the remaining full outstanding balance of the Secured Amortising Notes until completion of the proposed change of control transaction currently being progressed with Shunkang as noted above. The consents, approvals and waivers required to be obtained from the Secured Amortising Noteholders will be requested of Noteholders by way of a proposed Special Resolution of Noteholders and accompanying explanatory memorandum to be provided to Secured Amortising Noteholders shortly. Whilst Armour has been successful in obtaining similar consents, approvals and waivers from Secured Amortising Noteholder in the past, there is no guarantee that these will be provided again by Noteholders in the current circumstances.

In last annual report auditors identified concern with Note 4 - ongoing concern.

Auditors Report (FY23) Note 4. Going concern
The financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of business. For the year ended 30 June 2023, the Group generated a pre-tax consolidated net loss of $21,661,000, operating cash outflows of $7,527,000 and net current liabilities of $43,880,000. The Group had cash and cash equivalents of $337,000 as at 30 June 2023 and has net assets totalling $41,913,000. The Group has achieved relatively stable production during the year ended 30 June 2023, resulting in $14,973,000 of revenue The Company has Secured Amortising Notes (Secured Notes) on issue with a remaining face value of the Notes outstanding at 30 June 2023 of $17,217,200 (original face value of the Secured Notes at the time of issue was $55,000,000). The Secured Notes had as at 30 June 2023, a principal and interest repayment schedule to 29 March 2024. In addition, as at 30 June 2023, Armour had not met certain Financial Undertakings pursuant to the Terms and Conditions of the Secured Amortising Notes including the Debt Service Cover Ratio, the Leverage Ratio and Minimum Cash Balance. Accordingly, the debt has been classified as current for accounting purposes. Armour provided notice to the Note Trustee that it breached its covenants in December 2022, which continued through the remainder of the year. Following the end of the financial year Armour received the necessary approvals for additional amendments to the terms of the Notes. These amendments allow Armour to issue Armour Convertible Notes, dispose of non-core assets and amend the Maturity Date to 30 November 2023. The approvals and consents received also waived any breach or non-performance of obligations by Armour to the date of the resolution. The above conditions give rise to a material uncertainty which may cast significant doubt over the Group’s ability to continue as a going concern and therefore the entity may be unable to realise its assets and discharge its liabilities in the normal course of business.

The Directors and management have assessed the Group’s ability to continue as a going concern and are confident in the Group’s prospects. Several key factors support this assessment:
1. DGR Global Limited has provided a formal letter of financial support to Armour that it will provide funding to ensure Armour is able to discharge its liabilities in the ordinary course of business.
2. Armour has entered into an agreement for the 13-month supply of gas by Armour to Shell, which provides Armour with a material increased realised gas price and thereby underlying revenues from December 2023. The price for December 2023 is $12/ GJ in line with the government price cap, with an uplift in price for calendar year 2024.
3. The cash generating ability of the Kincora Project is anticipated to increase as the Group moves ahead with its 2024/25 drilling program. This program is expected to materially increase production levels, leading to a significant increase to revenue.
4. The Group has the ability to manage capital and liquidity by taking some or all of the following actions: a. Raising additional capital or securing other forms of financing, as and when necessary, such as that approved at the Extraordinary General Meeting held 2 August 2023. Capital raised will be executed to meet the levels of expenditure required to meet the Group's working capital requirements. b. Reducing its level of capital expenditure through farm-outs and/or joint ventures. c. Managing its working capital expenditure, and d. Disposing of non-core assets.
5. Refinancing of maturing debt facilities. The Directors and management are dedicated to the successful execution of the Group’s strategic plans, which include increased drilling activities, expanding investor collaborations and realising revenue growth. These initiatives are intended to mitigate the material uncertainties regarding the Group’s ability to continue as a going concern.

Should the Group be unable to continue as a going concern, it may be required to realise its assets and liabilities other than in the ordinary course of business, and at amounts that differ from those stated in the financial statements. The financial statements do not include any adjustment relating to the recoverability and reclassification of the recorded assets amounts, or to the amount and classification of liabilities that might be required should the Group not be able to achieve the matters set out above and thus be able to continue as a going concern.

"Other Debt Facilities The remaining face value of the Secured Notes outstanding at 30 June 2023 was $17.2 million (original face value of the Secured Notes at the time of issue was $55 million). As at 30 June 2023 Armour had not met certain Financial Undertakings pursuant to the Terms and Conditions of the Secured Amortising Notes including the Debt Service Cover Ratio, the Leverage Ratio, Minimum Cash Balance and defaulted on the principal payment due 29 June 2023 payment. The quarterly interest payment was called on from funds in the Interest Reserve Account held by the trustee. Subsequent to year end the Secured Noteholders approved a variation to the repayment schedule which sees Armour paying out the Notes by 30 November 2023 and also waivers were received for any previous breach and other non-performance of obligations. The Tribeca Environmental Bonding Facility was repaid in full on 15th November 2022."