News: SFG Seafarms Group Says Raised A$20 Million Under Placement, page-3

Probablylike most followers of SFG I’ve got many different thoughts and mixed feelingsregarding this latest announcement of the capital raising. But from myobservations of how things are panning out I’m convinced that Project SeaDragon WILL be developed, by Seafarms, and anyone holding shares in the comingmonths are likely to see a significant increase in share price – IMO of course!

Inhindsight the writing was on the wall with the Chairman’s address at the AGMback in November 2018 when he made specific comments with regard to: “Financing of the initial phased development of Stage 1 of the PSD development is clearly our mostimportant task now at hand. The company remains resolute in retaining the maximumequity ownership of PSD by its shareholders specifically and by Australian ingeneral.”

I didbelieve that some funding arrangement would be completed by the middle ofApril, and I posted that view a couple of months ago. I was not sure whether therewould be an interim funding at that time, and of course that’s how things havepanned out. As the past couple of weeks went by and the share price slowlydrifted lower I was more of the view that this interim funding was becomingmore and more likely – but of course, like most others I’m sure, itsdisappointing that the funding had to be done at such a low price. Especiallyas the NT Govt and Fed Govt both made very positive statements re the roadbuilding and Major Project Status in the recent past.

But I nowwant to focus on a couple of observations:

1. If someone told me that SFG would beseeking $20 million in a placement I would have imagined that the Trading Haltwould need to have been extended to a Voluntary Suspension in order to giveBell Potter time to find enough investors. Never in a million years would Ibelieve that they could raise $20 million in 2 days – just think about it, SFGis a minnow, it remains highly speculative in terms of getting the developmentfinance, and no significant Financial Institutions/Fund Managers would considera large investment in such a company at this point in time. BUT the money WASraised in 2 days! Absolutely astonishing, and it speaks volumes for the broker,but also the credibility of the company and its PSD – bearing in mind that PSDwill become one of the largest, if not the largest Black Tiger Prawnaquaculture facility in the world!

2. The on-market support after theTrading Halt was removed was very impressive. Generally the share price wouldbe expected to drop straight down close to the 9 cents price and stay thereduring the SPP period, and whilst there was some drop the price recoveredsomewhat, on reasonably large volume (for SFG that is, of 2.78 million shares).

Theseobservations suggest to me that the share price has limited downside risk overthe coming weeks – bearing in mind that leading up to the closing SPP datethere remains some chance that it could slip down closer to 9 cents. Until wesee the details its unclear what the closing date for the SPP is, but usuallyan SPP runs for around 4 weeks (especially if seeking to raise a relativelylarge amount, in this case of possibly $4 million).

Now a morecontroversial comment – but please note that I see this as a VERY importantpoint that shareholders should consider very closely:

TheChairman, who has a controlling interest in SFG, and has provided many millionsof dollars in short term debt funding over the past years, is seeking toconvert $3 million of debt, into SFG shares – subject to other shareholdersapproval at a shareholder meeting yet to be convened! He has done similar debtto equity swaps in the past, always with shareholder approval. I consider thathis seeking this debt for equity swap is very astute, and absolutely is a voteof confidence that PSD will get the development finance necessary to ensure theproject goes ahead. In the Chairman’s current Executive role, as a key playerin negotiations with parties both for offtake agreements and equity investment,he clearly is not able to make further on-market share purchases at this pointdue to conflicts of interest and inside information. But offering to swap someof the debt for equity after gaining shareholder approval is a legitimatemethod, and IMO is a RED ALERT that the company has a very high probability toachieve that major project funding.

ThereforeIMO anyone who is entitled to take up shares via the SPP at 9 cents and has thefunds should do so, we know that the Chairman is very keen to invest $3 millionat 9 cents, and we know that there is considerable support by largishinvestors.

I shouldemphasise that in fact I have remained a supporter of the Chairman of Seafarms,actually the main reason why I have been prepared to invest a fair amount inthe company – because he is wealthy in his own right through careful investingover many decades truly is a vote of confidence for other shareholders that hewill steer the company in the right direction. AND he remains very closelyinvolved to provide short term debt finance as necessary to make sure Seafarmsremains liquid and raises funds in a more controlled manner compared with mostother small companies that tend to be restrained and bullied by investingparties with regards to capital raisings (and for whom debt simply isn’t anoption!). Clearly I will vote in favour of his seeking to swap debt for equity!

Finally thefact that PSD will be developed in baby steps, with Stage 1 of 10,000 Hadivided into 3 smaller steps – to me that implies the company will take longerto full production but with considerably lower dilution to achieve fullproduction. That suggests a much higher valuation will result, albeit over alonger period. But something far in excess of $2.00/share is now more likely! Avery nice investment for someone weighing up whether to put funds in at 9cents. I probably don’t need to say that its my intention to start findinganother $15,000 from elsewhere even though lesser amounts will be acceptedunder the terms of the SPP. Personally I’d be surprised if you will ever seethe on-market share price of 9.0 cents ever again! (I know I've said that sort of thing before, but we are getting much closer to a development decision - and this latest capital raising probably puts us in funds for maybe another 6 months or maybe more than that).