Hemisphere Energy (HMENF) Update - July 1

[dan_s]

HME.V and HMENF have been moving higher on close to double the average daily trading volume. I believe a committed seller is now out of the way and that the stock should move to my current valuation of $1.50US for HMENF soon after the company announces Q2 results in mid-August. Their press release will include an update on this year's capital program, which is primarily the polymer flood of the G Pool within Atlee Buffalo.
If WTI averages $75/bbl in 2022, a reasonable 12-month price target is $3.00US.

Higher oil prices, three new wells and success of the polymer flood should significantly increase the Company's Proved Reserves (P1). HMENF is currently trading at less than half of the PV10 of their P1 reserves based on their 12-31-2020 year-end reserve report. There is no justification for this stock to be trading below PV10 value and investors are just starting to figure it out.

HMENF is trading at $0.8150US (up 12% today) at the time of this post.

[Fraser921]

Warrant expense:

The Company issued 13,750,000 warrants to a third-party
lender on September 15, 2017 in conjunction with its term loan. Each warrant entitles the holder to
purchase one common share of Hemisphere at an exercise price of $0.28 per share prior to September
15, 2022. (prepaid so cash to company is nada) > Freaking expensive loan

The warrants contain a cashless exercise provision at the option of the holder and are now
classified as a liability that is revalued every reporting period with the change in fair value recognized in earnings.

Loss in fair value of warrant liability 1,486,766 >>q1

stock price .20.. 12/31/2020, .43 c 3/30/2021.., .89 c 6/30/2021

stock price June 30th 0.89
Warrant shares 13,750,000

Cost of loan canadian 12,237,500

in Us dollars 1.239815 9,870,424

They calculate the liabiity based on Black Sholes model but the stock price gained .56 cents in the qtr from .43 to .89.This increase has to be relected in the q2 P&L. Since the iabilityis now 9.9 m and the previous ITD amount booked was 1.5 m the delta of 8.4 m has to be charged to the P & L (all non cash of course, so on a cash basis no impact).. And the amount is discounted based on the Black Sholes model inputs , im guessing 3-4 m impacts > so don't be surprised

[dan_s]

Keep in mind that the money from that loan from Cibalo is what got Hemisphere to the position they are in today. At the time of the loan the stock was trading at around $0.28Cdn. A "kicker" of warrants is common on loans to small-caps. Cibalo took a lot of risk backing Hemisphere with that loan and they deserve a nice return. Go run a 5-year chart on HME.V That big "hockey stick" increase in the share price this year would not be there without the loan from Cibalo.

My forecast assumes that the warrants will be exercised in 2022.

This is a capital intensive business and small-caps have to do what they have to do to get money.

[Fraser921]

Good points, thank you

[dan_s]

Plus, I know the accounting rules require Hemisphere to record a liability for the warrants since they are now so far in the money, but when Cibalo exercises them Hemisphere will get cash of $0.28/share ($3,850,000) which should be enough to cover 50% of Hemisphere's 2022 capital budget. Only in "GAAP Accounting World" is that a liability.