Borislav Tonev

El Capitan Precious Metals, Inc. (OTCBB:ECPN) Shooting Up on Positive PR

by Borislav Tonev November 13, 2013
ECPN.pngIt has taken an awful lot of time for El Capitan Precious Metals, Inc. (OTCBB:ECPN, ECPN message board) to get to where they are today. According to the company history page on their website, El Capitan Precious Metals was established back in 1996. Since 2011, they have been a publicly traded company, but because of the lack of revenues and the millions of dollars spent without any actual results, the share price has been digging a hole in the ground throughout the last couple of years. Now, though, it seems that they are finally on to something.

Last Thursday, they announced that they have completed the sale of a recovered dore bar that is determined to contain 1.04 ounces of gold per ton. The press release doesn't mention how much proceeds ECPN is about to receive from the transaction, but that doesn't seem to be all that important.

Unlike other mineral exploration penny stocks that want to dig out precious metals from properties that supposedly have prolific reserves, ECPN have set themselves the task of exploring the El Capitan project, proving that it does indeed contain gold, and then selling it to a large mining company, thus making some money and raising the shareholders' value. The announcement from November 7 should serve as proof that ECPN's properties are worth digging into and should draw the attention of some of the larger mining enterprises.

Predictably, the news also drew the attention of investors. Four consecutive green sessions pushed the price up from $0.24 per share, all the way to $0.39. Trading volumes increased as well - nearly 1.3 million shares changed hands yesterday pushing the trade value up to $498 thousand.

Unfortunately, this brings something of a problem. As we mentioned, ECPN have invested quite a lot of money into drilling, examining, and researching the reserves of their properties. Not surprisingly, this has led to some financial difficulties. The latest 10-Q covering the second quarter of 2013 reveals the magnitude of the situation:

  • cash: $245 thousand
  • current assets: $376 thousand
  • current liabilities: $161 thousand
  • no revenue since inception
  • quarterly net loss: $355 thousand
  • accumulated deficit: $201 million

We've seen worse balance sheets, but it's clear that the cash on hand is nowhere near enough to get the whole thing going. That's why, back in 2011, ECPN entered into equity purchase agreement with Southridge Partners II, LP according to which Southridge are obliged to purchase up to $5 million worth of common stock. Selling of shares is done whenever the company needs working capital and the newly issued stock is valued at 94% of the market price.

That doesn't seem like huge discount, but when you have in mind that until not that long ago, the share price was quite a bit lower, you'll see that the opportunity for a profit is immense. The SEC filings tell us that, as part of the agreement, between August 20 and October 10, more than 6 million shares were sold, all of them valued at under $0.10 per share. We probably don't need to tell you that if they are to be let loose on the open market, they will bring Southridge quite a lot of quick and easy money. They will also put immense pressure on the ticker, which is, we reckon, something well worth considering before making your final decision.

As is, by the way, this legal complaint filed by the SEC against Mr. Stephen Hicks (Southridge's manager) and his former 07WTER.pnghedge funds.

On the bright side, there doesn't seem to be a paid promotion running for ECPN at the moment. As the chart for Alkaline Water Company Inc (OTCBB:WTER) suggests, these sort of campaigns could have an absolutely devastating effect on a stock. Let's hope that ECPN will manage to stay away from the pumpers.

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