It is what it is. You know all to well that I was pretty scathing about the delay in varang due to a lack of spades, and yep im not exactly jumping for joy at the dilution. I cant remember getting anything back from them apart from "in due course" and "pass your comments on"
If you can remember even further back, which I doubt cos your brain is pickled, when people were saying the co were hiding things from us, I was saying its because there is no progress to report.
So I will wait for the papers to arrive and see how things stand then, cos maybe we will get the sweetener people have been jabbering about.
pfl, I will just paste Moles post.Says enough. "Punky with respect we have guessed cash flow is improving. We have not seen anything concrete for a long time on the real financials. We are piecing them together to estimate. That is one of the key missing pieces of information to judge why we need the funding and why at this price. The extra dilution in future is a different issue."
They had $350k June 31st after paying down debt the net amount raised since June is circa $2.8 million that is assuming 1st he nan account is totally empty now. Operationally we have generally lost more than this forget about asset purchases like fracing fleet etc. Cash flow has to be improving because they don't have it.
Disagree we know they are flowing gas, and they paid some debt. Other than that we do not know the sales this year or the costs we are running up. So its a bit short of the numbers I would like to see before a vote of this size. The raising could imply they are not generating enough free cash to develop and pay interest. We don't know if there is a gap or a large profit.
I stated yesterday that i agree that FRR's comms are terrible, but we already knew that. So what we have to look at is what is good for the company by trying to interpret the information that we do have. I think that most of us agree with the BoD that an acceleration of gas production is beneficial and will add value to the company. Without access to the actual cashflow forecasts (which I would not expect to be publicly available) we cannot see the funding gaps between revenue and the capex spend required to implement the acceleration programme. My assumption is that the BoD in conjunction with the project management team has developed the financing model and arrived at funding the requirement of $2.8m, after all this is their job. Next question, how to fund it? I would think first choice is to look at current sources of finance. From the reactions of YA I think that the terms offered were not acceptable to the BoD hence YA's exit. This also created a bit of a problem because the authorised share capital ceiling was reached when YA took the conversion option. This means that any fundraising involving shares is going to require shareholder approval. To some extent the BoD had already anticipated this which is why they requested us to change the quorum requirements. Remember the big issue with the AGM was about getting a quorum because of the large numbers of PIs invested in FRR. Once there was a quorum the resolution was passed easily. So what are the other non equity-linked sources of finance? Debt, if available,is very expensive for developing countries and exploration companies. It also comes with plenty of financial covenants which I doubt FRR would be able to comply with. Farmout? First you look at the possible assets and see what is available and how much they can raise relative to what is required. We only need $2.8m so (I really hope) that all of our assets could each raise a lot more than that on a typical farmout. If we reduce the percentage in the farmout it probably would not be worthwhile for the partner. What happens if we use the farmout to raise more than we need for the gas and use the surplus as headroom to fund future projects? Now we go to our strategic planning model and see what's in the pipeline:) Into this mix goes all sorts of things: Moldova, Ukraine, existing Georgian projects etc. (All of this we have been informed of by the BoD). Once again a cashflow projection is developed and a funding requirement is determined. The BoD looks at what can be raised and let's assume that the excess is sufficient to fund future capex. The BoD has to decide whether this is a better option than raising funds through equity. There are basically two equity options - rights issue and share placement - both of which require an increase in authorised share capital. Which one to choose. (see next post)
A rights issue is a big, costly exercise, particularly when there are so many shareholders, involving brokers, advisers, underwriters, accountants etc. There is a massive amount of work that goes into producing an AIM compliant public placing document. The overall costs will be about 15% of the capital raised. So to raise 2.8m on the same number of shares we as shareholders would have been asked to subscribe for new shares at about 94c. Same result, same dilution. The direct placement is therefore a lot easier and cheaper. One set of negotiations, a few site visits, and minimal interaction with the exchange. Which is where we are for the first 350m shares of the requested increase in share capital. Why the additional 900m additional headroom. Back to the strategic planning model, make an assumption on how much you can raise against projected share prices arrive at a number. Is this better than getting the cash from a farmout? If operations go better than planned yes because you won’t need to raise as much/issue as many more shares equals less dilution because a farmout is akin to a dilution, we give away revenue so less income per share. Also the farmout is fixed, the percentage is given away upfront unlike further share issues which are on an as needs basis. If things don’t go so well then the opposite of the above holds and the farmout looks the better option. Which BoD ever planned for things to go worse? Finally the dilution should not be based on the current value of the company but on the value following the raising of the capital. If the funds are used to purchase assets then the value of those assets should be included in the NAV/share of the company. It is deliberately misleading and negative to include any unissued shares in a valuation unless you have included the other side of the equation. After all that is why we have double entry bookkeeping.
If varang starts, if revenue is on the up anyway, if everything goes as they have planned for this year, then I believe the extra shares are for the funding of a move into the Ukraine and we'll all be fine. I think I am not coming across well with my views. I would vote yes for the entire share capital being raised in one hit if only they were more detailed about their plans. If all goes to plan, with a higher share price and the possibility of raising funds through placings after varang, well workovers, gas capability increase, gas capacity increase, another gas CPR (as they mentioned something about the wells providing more data for their technical studies), oil CPR etc. They are just asking for so much and giving so little. I'm really not massively negative about this. But to ask for the potential to dilute by nearly 50% they really should be trying harder. My guess, they know that they'll get the vote, due to the timing and logistics of it and who they know already that will vote yes, so they're not really bothered anyway. It probably will turn out all for the good as well. It's just shocking they could be like this though. My shares are staying put, and in all honesty, I'll let them ride me if that's my only choice in the end, and still believe I'll be smiling at the end of it all. At this current moment though, even though I thought I had a good handle on possible outcomes here and did see this as a possible route, I am surprised by their approach.
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