Speculative investors have latched on to their next ‘cash shell’ to go to the moon as new management take control of a failed business. Sovereign Mines of Africa (SMA:AIM) was up by more than 50% earlier today (6 Jan) despite the absence of any news to drive the share price.
At 0.28p, the shares have doubled in price since the appointment of Giles Clarke and Rupert Fraser on 23 December 2015.
Investors have been buying on the strength of their expertise in corporate development, hoping they will find better assets than the struggling exploration prospects currently populating the business.
The pair has initiated a review of Sovereign Mines. That shouldn’t take long given its current project isn’t very good, otherwise it would have been able to secure finance to advance the business.
It has spent more than a year searching for money to continue drilling the Mandiana gold project in Guinea but no-one has stumped up the cash, leaving the miner broke.
We believe that Clarke and Fraser will walk away from the project and treat the business effectively as a cash shell from which to start fresh. Perhaps ‘cashless’ shell is a better description of the business before the new directors and other investors rejuvenated the balance sheet with a £500,000 total injection at the end of December 2015.
Clarke has made lots of investors rich over the years. He built up Majestic Wine (MJW:AIM), Safestore (SAFE) and a business that now forms a core part of Pets at Home (PETS). Clarke is also part of the team that has turned Amerisur Resources (AMER:AIM) into one of the standout oil and gas stocks on the market.
His most recent success has been rejuvenating Kennedy Ventures (KENV:AIM) into a successful tantalum producer. That stock is a running Shares Play of the Week and is up 13.5% since we highlighted the stock’s appeal two months ago.
Cash shells have been firm favourites among short-term investors and traders over the years.
Many have shot up in value upon the appointment of a proven dealmaker – but often then fell back in value once an acquisition was made.
Some even left investors with nothing, as illustrated by Gate Ventures which was at one point the best performing IPO in 2015 before being kicked off the stock market after its nominated adviser resigned and Gate couldn’t get a replacement.