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Tom Infrith talks about the Welsh winter starting and his woodpile. He discusses the possibility of being related to a 13-year-old swimmer in the Paralympics named Iona Winifred. Tom shares his thoughts on James Parsons and why he shouldn't be appointed as chairman of a company. He also discusses the poor performance and financial situation of Coro Energy. Tom mentions IQE's focus on revenue growth rather than profitability and cash generation. Hi, it's Tom Infrith on the 10th of September with Bearcast. My Aunt Lucy says that the Welsh winter was due to start today. I'm not sure how she knows, she lives the other side of Wrexham, but she says that it's going to be cold from now onwards. It certainly feels that way. Not quite cold enough to have to start the fires yet, but an encouragement for me to go and chop the last few logs to add to my woodpile. Those of you who have asked me comments on my woodpile in a favourable way, I owe you yourself big brownie points for it. Very proud of it. I've had a couple of emails from folks asking if I am related to Iona Winifred, the incredibly impressive 13-year-old swimmer in the Paralympics. I should have been in a couple of people in my family who have been asking this, because I'm meant to be the family archivist. The answer is I don't know, but I suspect that the answer is yes. Winifred is a very, very rare name. I've encountered just a couple of Winifreds outside my immediate family during my lifetime. One of them failed to return a book to Banbury Library, I remember, and my dad had to end up paying his fine. I don't know about him. I encountered another one on LinkedIn, a lady called Emma, and we worked out how we were related. Iona comes from Tunbridge in Kent, and that's where the Winifreds come from. So I'm almost certain that we will be related. It's such a rare name. I'm looking and thinking about it. I can't prove it. But my guess is that she would be descended from either a brother or an uncle of my, let me get this straight, great-great-grandfather. He was born slightly the wrong side of the sheets in 1841, and was the first Winifred to sort of claw himself into the middle classes, becoming a liquor, a staunch opponent of drinking, and a staunch Tory. A very different sum of us in the family. I think he had brothers, he certainly had uncles, and there would be a link there. I haven't quite traced it out, but they were all based in the Kent area, and I know that my grandfather made contact with some others in the Kent area. So I suspect the answer is yes. Not that I'm going to be making any great efforts to reach out to her, but I thought she was remarkably impressive in the Paralympics. At Sherstock, I was asked by someone, should I make James Parsons chairman of this company? I won't name the company, or the individual who asked the question, in order to spare their blushes. Suffice to say, the answer is no. No, no, no, no, no. Parsons, the reason that Parsons came up as a possible chairman was the belief that he was a skilled promoter of shares. Well, yes, he did manage to ramp Found Energy, Coro Energy, shares dramatically higher, but then they collapsed. The thing is, he hadn't actually built a real business, he just bullshitted. There were no institutional investors in sound when it reached a market cap of hundreds of millions of pounds, because they saw through the bullshit. Instead, Parsons engaged in some very, very unscrupulous ramping. He used to organise drinks evenings in London at swanky bars, where he would sit there until later in the night with these morons, these mug-punters, explaining why they were going to be very rich as a result of owning sound shares, and discussing with them what colour sports car they would buy. He manipulated them and he played them, and in the end it ended in tears. I'm not sure that he would be able to ramp and promote again, because his recent form has been just so utterly dismal. There was that episode at Kivo Energy, when there was a placement done, or a placement done, or proposed, alongside board changes, which would have seen an acquaintance of Daniel Levi, Stephania, the PR genius, and James Parsons joining the board. I flagged up the interesting, colourful CV of Levi's acquaintance to AIM Regulation, and to the nomad, Roland Fatty Cornish, who should have been doing this beforehand, and in the end the placing, which had almost certainly been forward sold, had to be pulled, and the proposed new management team didn't come on board. Now I would have thought that the historic antics of James Parsons would have the regulators keeping a very close eye on him. What went on at Kivo means he's very much bound to be on their watch list. So why would you bring on board someone as a chairman with a remit to pump the stock, who you know is going to be on a regulatory watch list? Point one. Point two are events at Coro Energy. The shares are back from suspension today. They were suspended because at the AGM a few months ago, shareholders voted Parsons off the board, leaving the company with only one director, which isn't enough to have your listing maintained, and therefore they could only come back when a second director had been appointed. As it happens, there were other problems at Coro. Its inability to get out its annual reports. Well, on Friday, after hours, Coro did actually serve up its final results. Doing so on a Friday at five to five, it doesn't inspire confidence. Well, to cut through to Chase, Coro is now a Southeast Asian-based energy company. At 0.0775p, the market cap is just 3.3 million, and the results, which needless to say, are loss-making, dreadful, blah, blah, blah. Here we are, a revenue of $235,000, with general and administrative expenses of $3.3 million, you end up getting a loss. Despite a disposal gain of $1.3 million, you end up getting a loss of $1.8 million at an operating level, finance expense a net $3.2 million, and a loss before tax of $5 million. Now, I know events have moved on since the year end, the company's raised a little bit of money, etc, etc. However, the statement is explicitly clear. Notwithstanding the above, management have prepared a consolidated cash flow forecast for the period to 31 December 2025, which shows that the group will require additional financing to meet its obligations and intended work renewables programme in Asia beyond this date. We enjoy the ongoing support of our lenders while we continue to grow the renewables activities, but will continue to explore options which include issuing equity and disposals. Shareholders' attention is drawn to the going concern language in section 2c in the notes to the account. Well, this is a very explicit warning that Coro is going to end up issuing shares. When your market cap is $3.3 million, any fundraising is going to be messy and highly dilutive. Shareholders in Coro Energy have absolutely done their conkers. What is the person thinking of appointing James Parsons to a board as a chairman should consider the value destruction. Whatever he says about punted promoting stock, the actual value destruction of businesses he creates is appalling. Do you want to be associated with that? And the fact that the shareholders voted him off at the GM is telling. They voted through three other resolutions, but they just voted Parsons off the board, knowing, knowing that that would see the shares suspended. That tells you how shareholders in Coro Energy view Mr Parsons, and I suggested to you that that is how shareholders across the small cap world view Mr Parsons. There would have been a case perhaps four or five years ago for appointing James Parsons to a board with a remit of ramping the shares, because though I would regard him as an unscrupulous bastard who is incapable of creating actual value, at the time he was pretty good at share ramping, and he was admired and followed by some, but that's no longer the case today. So appalling has been his performance, so dodgy are his associates, and so clear is the contempt which the London market holds for Mr Parsons that I would say appointing him is not going to result in any share price appreciation. If anything, it would make the company that appointed him one that is completely uninvestable. I've done a little piece on the results from IQE today. IQE yaks on about revenue growth. That's fine. Anyone can grow revenue. The issue is profitability or rather cash generation. IQE is a case study in why you should not regard adjusted EBITDA as a metric by which you judge whether shares are cheap or not, and it is no surprise that IQE flags up adjusted EBITDA and draws our attention to it, for it was positive last year, or in the first half of this year rather, and draws our attention to it, but it is completely meaningless. For starters, IQE is a company which always capitalises a meaningful amount of costs. That means it has to pay the cash costs for them, but they're not reflected in any measure of profitability, whether it be EBITDA, adjusted EBITDA, operating profitability or pre-tax profitability. Capitalised costs don't appear in the P&L. They merely get added to the balance sheet, and over time they are amortised back to zero. But of course, if you're using adjusted EBITDA, then that excludes earnings before interest tax depreciation and amortisation. So those capitalised costs never hit the P&L at all, both in the year they're actually incurred, or in the amortisation phase, if you're using adjusted EBITDA. Then, of course, there's the fact that the company has got net debt. Well, that suggests that i is going to be a material number, and you can see again why IQE would have us ignore it. Then there is the issue of ongoing capex. Now, that's something which is not charged through the P&L. It is capital expenditure necessary to maintain or enhance the plant. IQE, under its current management, has reduced its capex in a material way, which is good for cash generation, or rather lack of cash consumption. But it's still material. It was five million in the first half of the current year. I suspect it will be reduced for as long as is needed to try and get the company through its profitability, if indeed it can ever be profitable. Whether it is sustainable at that level is just a matter for debate. It could be that capital expenditure has to go up. Past capital expenditure, of course, is something that is depreciated, the d in EBITDA. So, when you see a company with a material capex budget, and the capex budget at IQE was five million, give or take, in the first half of the year, that is likely to be reflected in the d figure. And that's why any measure of profitability, if you're thinking about profits in terms of actual cash generated, is something that should reflect the d number, also reflecting the capex. So, for all of those reasons, the idea that EBITDA, or adjusted EBITDA, is in any way a useful metric for valuing any company, including IQE, is for the fairies. The reality is, the way you should look at a company is how much free cash flow is generated. And we see at IQE that in the first half of this year, the company burned 11 million of cash. I suspect it will burn a similar amount in the second half of this year. What does that make the business worth? At the current 20 odd p, the market cap is 229 million. Now, I know there are plans to spin off the Taiwanese part of the business with a separate Taiwanese listing. That may create some paper value, but I'm not sure that it's a very good business, just like the remnants of IQE, which isn't a very good business. These are businesses which just do not generate cash. And if you are perennially cash consumptive, and you are a business which has net debt, your value has got to be more or less zero. It's not zero, it's not a lot, is it? A company's net tangible value is something like 120 million, but of course it's falling because the company burns cash. It will be 110 million by the end of this year. So the shares are trading at twice net tangible asset value. That's one reason not to chase them. You may say asset value is irrelevant, but the real issue is just that IQE never generates cash. It can talk about adjusting the EBITDA till the cows come home. The reality is it's not generating cash. Now, I did a separate broadcast on the bid for Sentiment. Obviously, that's something which makes me happy, because I'm a big shareholder in Sentiment, one of my bigger holdings. So it's good news. I had, as I intimated in the earlier broadcast, I had put a higher valuation on Sentiment, and in a way I'm disappointed. I would have hoped for at least 180p, if not 200p. But we are where we are. People are also drawing parallels with Shanta. Bids coming in which just aren't as high as we might have hoped for. It's true. But we're not in a bull market for gold equities yet. We're in that phase of the market where companies which are in production are now, thanks to high gold prices, throwing off a lot of cash and feeling very confident, and therefore they are looking to buy other assets. And they're looking to buy other producing assets. They have a choice. If you are a company throwing off a lot of cash, like a Shanty Gold, you could either return its shareholders for a dividend, and it does pay a dividend, or you could spend it on exploration. But the reality is that would mean that mines would be coming into production in, it depends on where you are in the exploration phase, but only up to 10 years time. Well, that's a fat lie. I mean, it's good, but it's not as good as a mine coming into production tomorrow, given where the gold price is. We know where the gold price is now. Do we think in 10 years time it's going to be where it is now? It might be. It might be higher, but it might be lower. Why not seize the moment and get a benefit from higher gold prices now? And that means buying up other producers, which is why sentiment is a target. I suppose that's why we're at that stage of the cycle for purchases happening. But Mr. Markets is still not excited about mid-cap juniors. Mid-cap and junior are certainly not excited about junior miners, and therefore they are not being valued as perhaps they should be. And that's the basis of discussions when any bid approach is made. Had the climate for mid-caps been a little bit more ebullient, then perhaps we would have got 180 or two quid a share. But as it happens, we have 164 including dividends, 164 and three quarters including dividends, and that's not a bad result. Pretty much all of us should be ahead on our sentiment now, depending on when we first bought in and when we first averaged down. I'm grateful for Sohail pointing out, thank you Sohail my friend, that I first tipped this one a long, long time ago when it was a true penny share. Sohail said he bought on my tip at 12p. Sohail, you were slow, you weren't quick off the mark. I actually tipped the stock at 8p. 8p. And I told folks to take profits about 10 years later at 132. It was one of my better tips. I know if you read bulletin boards you know that I can't tip a waiter, but 8p to 132p is pretty good going. That 132 by the way was 15 years ago, something like that. So something of that magnitude. So 132 to 165 over 15 years, people were right to take their money out when I said they should first time around. Anyhow, it's happy days all round. I have speculated that of other gold companies that could be in play. Maybe I'm a little bit ahead of myself with Amarok, which is my biggest holding. It will be in play when it is in production, which will be in a few months time, but it's not now. I suppose the other thing about Amarok which I hadn't really thought about is, it's in Greenland. It's not really a sexy area. It's like owning a house in the middle of nowhere. It may be a great house, but when you put it on the market it's not going to have a lot of viewers. Eventually someone may come along and just fall in love with it and you get a great price, but it could be a torturous process. Whereas companies in Africa, they're going to get a lot more viewers. So I'd earlier suggested that if Kefi gets funding for Tulu Tapie, and I regard it as a when, not an if, but when it gets funding it could be in play. Maybe not to sell the whole company, but certainly to sell at least part of the Tulu Tapie asset. It's got the right footprint. It's in Africa, Northern Africa. In Southern Africa where the political problems in the South, let alone in the North, are actually problems, I think, are worse in South Africa than they are in the North. But in Southern Africa there are political issues. Of course there are political issues up in Northern Africa and Western Africa too, but that does seem to be the place where there's more M&A attention right now. Anyhow, happy days. One final thought on it is I suspect that people like Piero Lunera, sensible people, have most of their portfolio in blue chips and just a few fun stocks to play with. I suspect that many of us, myself included, have too much of our portfolio in smaller companies and too little in blue chips. Certainly given my age, I should have more in blue chips. I currently own Legal & General and Imperial Brands. In terms of market cap, Centermin is next, then we're down to Amarok at just under 200 million, and then a whole load of stocks which are worth an awful lot, which are valued at an awful lot less at the moment. Of course they're worth an absolute fortune. Jubilee Metals, I suppose, is close to Amarok. But there we go. But this bit changes my portfolio a bit. I'm trading out Centermin, which, okay, was capitalised at one and a bit billion. It wasn't a nothing burger, but it was a relative, it was a sort of very large mid-cap. I'm going to be changing it for a bit of cash, but also shares in an $11 billion company, a true blue chip. If Ashanti was in the UK, it would be in the FTSE 100. And that's good for me, that's good for my portfolio. Over time, myself and my stockbroker, The Dinosaur, is in agreement on this strategy, both for me, but also for him. He being even a little bit older than me and a little bit more of a dinosaur, is that we have got to reduce the amount of smaller caps in the portfolio and increase our weighting in blue chips. My aim is that at a certain stage in the next three or four years, my entire portfolio will be dividend paying stocks, mostly blue chips, with an average yield of around about 4% or a little bit more. Anglo-Gold Ashanti yields 1.6%, so it drags down the yields, but then the yield on imps and legal in general is very, very high indeed. So in terms of starting to assemble that portfolio, I'm quite happy with Anglo joining the fray. I think for many of you, or those of you who are overweight in small caps, this could be just a useful and easy way of making your portfolio a little bit more grown up, shall we say. Thank you for listening. I'll be back with another podcast tomorrow. I'll speak to you then.