Research Note – Onzima Ventures (AIM: ONZ)

This research note is in response to a reader’s request. I should begin with a caveat – three hours of research was put into this company in order to type this article. The time cap placed on it due to the fact that ONZ is an investment company so to assess the company we must assess each individual company that is invested in. It’s a task that could go on for a long time!

Suspended.jpg

The funny thing about ONZ is that I couldn’t invest even if I wanted to due to a suspension of trading announced to the market on 17th October 2016. This followed the company in essence stating to shareholders on the 25th September 2015 that it thought its business model unviable and that it wanted to literally start from scratch, which included.

–     the disposal of the Company’s operating activities;

–     a placing to raise £750,000;

–     board changes;

–     a share capital reorganisation

–     a change of name to Onzima Ventures PLC.

So, from the 14th October 2015, the shareholders owned a brand spanking new company, with some cash to burn and the world at its feet. It became an investment company with low overheads, a big plus in the AIM world.

Fast forward to the 17th October RNS:-

  • The Company was required to implement its Investing Policy within 12 months (14th October 2015), failing which the Company’s ordinary shares would be suspended from trading on AIM.
  • As at 17th October 2016, the Company had not made an acquisition which constituted a reverse takeover under the AIM Rules or otherwise implemented its Investing Policy to the satisfaction of the London Stock Exchange.
  • The shares are now suspended, and will be cancelled from AIM should the Investment Policy not be implemented by 17th April 2017.

So, the company has just shy of six months to carry out a reverse takeover or otherwise implement its investment strategy, having failed in its first task as an investment  company – to make significant enough investments to satisfy the London Stock Exchange. That’s not to say investments haven’t been made but ONZ have not advised shareholders as to how they failed to satisfy the LSE and what more they need to do. As a potential investor we can only watch at present, and look for a time when we are a) able to invest, and b) want to invest.

So, would we want to invest? What has the company got that is of particular benefit to shareholders.

Glenwick

ONZ’s first move as a new entity was to make an investment of £50,000.00 into Glenwick plc on the 7th December 2015.

Glenwick is, as from 3rd September 2015, an investment company in natural resources focusing primarily on Australasia and North America. The company held £1.3m in cash as at the 30th June 2016 and reported a loss of £167,000.00

This investment strikes me as a bit odd. Why would you invest in a newly formed investment company with no investments of its own. Indeed much like ONZ, the shares in Glenwick have now been suspended through its failure to carry out a reverse takeover or invest significantly enough to satisfy the LSE.

Glenwick have since made an investment, announced on the 15th September 2016, in i3 Energy. I3 Energy is an investment company in the oil and gas sector.

So ONZ is an investment company which invested in an investment company which has now finally invested in an investment company. Are these guys obsessed with Inception?

Luckily enough, that’s irrelevant to ONZ shareholders. ONZ disposed of its shares in Glenwick in January, a mere month after investing, making a nice return on the sale. The question is, was this just luck selling on a spike? The reason why I think it worth mentioning is I question the due diligence conducted by ONZ when it made its investment in Glenwick. Will ONZ be as foolish again and not be so lucky. Time will tell.

N4 Pharma – The potential Crown Jewel

On the 1st March 2015  Company announced it has acquired 49% of N4 Pharma Limited (“N4 Pharma”) paying £41,000 in cash and issuing 24,272,807 new ordinary shares in Onzima  which are locked in for 2 years (i.e. N4 Pharama cannot sell the shares and put downward pressure on ONZ’s share price).

More significantly, ONZ provided a loan facility of £209,000 to N4 Pharma for the development of its business. Full details of the loan are contained in the RNS from 15th March 2016.

ONZ summarises N4 Pharama rather well “N4 Pharma is a private company that develops new versions of existing widely used drugs to provide an improved patient experience by reformulating them using their patent protected technology platforms Cocrys® and Nuvac®. Their lead product is a ‘faster acting’ version of Viagra which it is currently seeking to out-license to a large pharma co-development partner.”

What is reassuring is that N4 Pharma was founded by Nigel Theobald, a successful healthcare entrepreneur with over 25 years’ experience in the healthcare and biotech industry. His most notable achievement is holding the post of CEO at Oxford Pharmascience Group Plc (AIM:OXP). Nigel Theobald commented at the time  “The funds will allow us to accelerate the formulation work for our novel sildenafil co-crystals (Sildenafil is the generic drug name for Viagra) and  undertake the initial proof of concept studies for our faster acting positioning. The erectile dysfunction market is worth over $4bn. Viagra came off patent in Europe in 2013”.

Sure enough, on 20th April 2016, N4 Pharma filed 45 patents relating to the reformulation of Sildenafil with the aim of making it fast acting (Viagra currently takes approximately 1 hour to get to work). Now I may not be a pharmacologist, but I am male so I am appreciate the benefits that a fast acting form of Viagra would bring to those suffering from erectile dysfunction.

N4 Pharma has furthermore filed numerous other patents over the past several months.

The issues with N4 Pharma that spring to mind are:-

  • N4’s financial position is unknown
  • Progress of the reformulation is unknown
  • The speed at which the products will reach market are again unknown.

So there’s a lot of potential here, but also a lot of risk.

Regency Mines

ONZ participated in Regency Mines fundraising in March 2016 at a placement price of 0.6p, jumping on board the AIM obsession with the Horse Hill Development. This obsession may well prove fruitful for several companies involved so I’m not shunning the development itself. But an investment choice should not be made on the back of Regency’s stake in Horse Hill alone, and maybe ONZ were more thorough in their due diligence here. RGM does have several other interesting projects, the most notable being:-

Westport Energy Plc

Westport Energy is a UK based company currently finalizing the acquisition of gas assets located in the Pacific Northwest. The assets are expected to include several existing methane gas wells with significant acreage and development potential.

Regency is seeking to make an equity investment in approximately 10% of Westport (in addition to the shares in lieu of 7% fee as mentioned below) following its planned IPO later this year and looks for Westport to fund development of the properties via a combination of debt and equity sources.

Regency has subscribed for 21,875 shares of Westport for £175,000 via a pre-IPO funding round.  Once the asset has been acquired, Westport intends to seek a listing on the London market and Regency will subscribe for a further £350,000 as a keystone investor of the planned IPO. Regency further expects to receive a 7% fee to be taken in shares of Westport in consideration of a partial lock-up of its investment for one year.

So Regency is looking at a 17% share in Westport, subject to future dilution in the fundraising efforts to bring the assets online. As the assets include existing wells, dilution could be minimal.

 

Western US Oil Project

The project consists of a single wellbore located in the Western United States that has been drilled and uncompleted and is expected to be sold by tender to the Company and its partner.

Regency has partnered with a local operator with knowledge of the region and the asset. Regency is trying to secure this asset and an associated farm-out agreement, giving the project scaleability. The partners would then complete the well and bring it into production. If successful Regency will own a 75% working interest in the wells and a 60% net revenue interest.  Regency has agreed to carry its partner for 25% of the cost of the completion of the first well.

Regency states by way of background to the asset “The well in question was drilled, logged and cased at a cost of $4m yet was never perforated and put into production due to financial difficulties encountered at the parent company of the then owner.  The operator has calculated that this well offers more than 420,000 barrels (gross) of oil recoverable in multiple stacked pay zones with 150,000 barrels recoverable (gross) in the two deepest zones that would be initially targeted.  Purchase and completion of the initial well is expected to cost Regency less than $1m”. This will require further funding on the part of Regency, causing dilution on ONZ’s share.

Mambare Nickel Project

This was always Regency’s motherload project, but has been placed on hold pending improvement in nickel prices. Regency held a 50% interest in the project, but due to DNI’s inability to meet approved expenditure calls, Regency has issued default notices followed by a buy-out notice. Regency and Direct Nickel ar currently in negations over DNI’s share.

The project contains a JORC Indicated and Inferred Mineral Resource Estimate of 162.5m tonnes at 0.94% Ni and 0.09% Co.  With only 3% of the 80 sq km main plateau target tested by drill to date, the Company has long indicated that the project potentially holds one of the world’s largest nickel laterite deposits.  The project also comes with a license to utilize Direct Nickel’s laterite treatment process, which offers extremely low operational costs as well as the ability to better match the scale of the plant to overall project size.  The DNi process has been tested for over a year at 1 ton per day test plant scale proving its commerciality and preparing for its use at Mambare and other lateritic deposits.

This project is a potential company maker, but has been on hold for a couple of years now due to suppressed nickel prices, which had a knock on effect on Direct Nickel’s ability to proceed with the joint venture.

Motzfeldt

To completely quote Regency here

“Regency owns 100% of the Motzfeldt project in Greenland, and as previously stated is one of the world’s largest undeveloped niobium-tantalum deposits.  Located near the southern tip of Greenland the project offers ready deep water access as well as being proximal to a large international airport.  SRK Consulting Ltd published a JORC Inferred Mineral Resource Estimate on the project of 340MT @120ppm Ta2O5 and 1850ppm of Nb2O5 and 4600ppm ZrO2.

With minimal holding costs and the value of several million dollars of historic exploration expenditure at Motzfeldt, Regency considers the asset a useful part of its portfolio and continues to seek opportunities to partner and monetize these assets as appropriate.”

Again the project is huge, but it requires a willing buyer/joint venture operator which to date has alluded the company.  I myself had shares in Regency once upon a time, and I was burnt in that investment. However Regency has changed its strategy in recent years, working towards projects with quick revenue potential which I see as key for an AIM company’s survival (or should I say, the investors survival).

Jubilee Platinum

On the 22nd March ONZ invested in Jubillee Platinum (JLP). The investment having been made at 2.7p, the share price sits at 3.7p at present representing a significant increase.

Whilst this investment represents a holding on only 0.4% of JLP, the latest production figures from JLP are strong, with revenue for the quarter up 88% to £2.09m, and with a 660k ton per annum processing plant due for completion in December.

Results to year end 31st December 2015 show a loss per share of 0.5p. With production up so significantly in recent quarters coupled with a recovery in platinum prices throughout most of the year, the next set of results will make for interesting reading, which probably goes some way towards explaining the upward trend in the share price.

Perhaps JLP will make an interesting research project?

But is it a good idea to invest?

PROS

  • 49% stake in N4 Pharama – with huge potential
  • 4% interest in Jubilee Platinum
  • Circa 2.1% share of AIM listed Regency Mines

CONS

  • Company has failed to satisfy the LSE since changing its activities in October 2015, resulting is share suspension.
  • The company has limited cash reserves. Cash at last report (30th June) is only £369,000.00
  • N4’s strength as a company is relatively unknown to shareholders – there’s plenty of hype but it could turn out to be smoke and mirrors.
  • I do not rate  some of the investments made over the past year very highly, particularly Glenwick.
  • Company’s main prospect for value increase comes from a third party company over which ONZ has no control.

So would I invest in ONZ? I hope that by the time the shares are open for trading again there will be further progress with N4 Pharma and if things are positive on that front, then maybe its worth a punt – if N4 Pharma can commercialise a fast acting Viagra then the upside is huge.  In the meantime, ONZ’s investments are free to be sold to keep the company afloat without further fundraising for the short-mid term, so risk of dilution is limited. This is clearly a company for those with strong stomachs, with high risk and high reward.

Personally I’m now too risk adverse to purchase ONZ. But for the brave…

 

Would you like me to research another company

 

I’m happy to take requests to research other companies, whether it be FTSE or AIM – just leave me a message on the contact page and I’ll either get back to you with a rough time frame , or do crack on with it straight away.

 

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