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Some Points On Point Loma Resources

|Includes: FMTNF, Madalena Energy Inc (MDLNF)

Point Loma Resources (OTC:FMTNF; TSE: PLX) is a very small energy company active in Alberta's Western Sedementary Basin that has caught the attention of several Seeking Alpha authors (see Long Player's article here, and Value Digger's here).

Point Loma has used its stock to acquire an asset base in Alberta: buying Madalena's (OTCQX:MDLNF; CVE: MVN) Canadian petroleum and natural gas assets near Paddle River (28 June, 2016: news release). In exchange, Madalena received 6.2 million shares of Point Loma and some debentures (more on which below). Up to 10% of these shares were immediately tradable, with the rest being saleable in tranches every six months (20 Dec., 2016: news release).

Because Point Loma's stock has a fairly small float, the sale of blocks of stock like Madalena's can move the price significantly. Such sales have to reported to the regulator through sedar.com, however, which means that it is not difficult to see what their affect on the stock price are. Here is a list of sedar-reported sales and their effect on the prices.

Date Shares sold Open Calculated price1 Day Vol. Implied Δ (open/low)
Jan. 11 50,0002 $0.42 $0.4135 81,500 n/a
Jan. 12 574,0002 $0.48 $0.4135 921,000 -14.5%
Jan. 23 605,0002 $0.42 $0.3825 704,098 -10%

Jan. 25

330,0002 $0.42 $0.3825 384,250 -10%

The first two blocks of Point Loma stocks that Madalena sold caused a significant, though temporary, drop in the stock price. Owners of Point Loma stock should be aware of this, given that Madalena still has 4.65 million shares remaining according to the latest of these Sedar reports (Jan. 25, 2017). Those who are considering a purchase may want to watch for such drops.

Another issue that arises from the sedar reports is the convertible debenture that was part of the price Point Loma paid for Madalena's wells. According to one of the sedar reports of Dec. 21, 2016, these convertibles have a strike price of $0.50. This point may be material, since the strike-price is now below the current stock price. At this price, those $3 million will eventually become 6 million shares, which is a notable dilution in a company with 24 million shares outstanding. Indeed, it looks like $500k of debentures have already been converted.

Again, the exercise of the convertibles may result in temporary movements in stock price, if (as is likely) the stocks that it creates are sold. Those following the stock need not be caught off guard by this.

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1 Sedar reports the sum for which the block of sales was sold, which are calculated here.

2 Sedar reports 624,000 shares sold on Jan. 11 and 12, and 936,000 shares sold on Jan. 23 and 25; I distribute them pro rata according to each day's volume.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.