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This RNS does not answer the question that has been posed on this chat board regarding the loan (the Facility). The agreement with Wentworth states the following:
"Subject to Completion occurring, the Facility is repayable by Scirocco upon Completion by way of a corresponding reduction to the consideration payable under the Asset Purchase Agreement."
So my understanding of this is that if the deal completes, say, after the 3D and CH1 cash calls (not unreasonable to assume), then Scirocco will have to repay the amount borrowed from Wentworth. So if these costs are, say, $3.5M then effectively this deal can only ever return $12.5M. Really happy to be proven wrong, but this RNS has done nothing to calm my fears on this issue.
This is just a default clause, using shares as collateral. There is nothing in the wording of the text that I have seen that indicates when or which bit of the APA the loan is repaid from. If costs are $3m, it could also mean these are deducted from the upfront fee so SCIR receives no cash at all until FID.
BOD - can we please have clarity, in writing of this point. Is the Facility for the costs repayable regardless (as per the text of RNSs and the Circular) or is it cancelled upon Completion (as per Tom's interview answer)?
Thanks Highland matt. If it does transpire that SCIR is liable for these costs then I would suggest that we have grounds to request that the vote be repeated, as we were not in possession of all the information as the circular was misleading.
Let's hope we get some clarity on this point soon.
Why on Earth would the BoD even agree to a take a loan from WEN and have to pay it back when the asset will effectively be owned by WEN once the deal completes. The money to be paid upfront for the seismic and drill, should be at WEN's cost not SCIR's. The effective date is 1st January 2022. Therefore WEN should be responsible for all costs of the seismic and drilling. SCIR are still paying for the development costs on behalf of WEN, whether by a loan or the balance being deducted from the final consideration once the deal completes. Outrageous and poorly executed deal.
Having to pay upfront costs by way of the loan makes the below statement in the announcement of 13the June a joke.
"If the Proposed Transaction completes, Scirocco will no longer be exposed to the costs (or the potential upside) associated with the Ruvuma Asset".
You guys have been mislead by the Board. You need to take legal action.
To top it all, if SCIR can't pay the loan, which they won't be able to because they won't have any money, then WEN get to dilute the hell out of you.
If the milestones of the deal are not met, ie the drilling is not successful, then SCIR shareholders are still taking all the risk of drilling even though they have supposedly divested the asset which the BoD have said is high risk and the company can ill afford to take.
There is one question you can ask the BoD. What happens if the drill is not successful?
I bet you will have to pay back the initial $3m consideration to cover the loan plus interest. That's if the BoD haven't already spent it.
Oh it gets worse. The Facility is a loan for $6.25m. The first $3m is interest free, but you still got to pay back $3m and the second $3.25m has an interest of 7% pa. So in effect the initial $3m consideration WEN pay will cover the first half of the loan. So you will still need to pay back $3.25m plus interest.. where are you going to get that money from if milestones in the deal are not successful? SCIR will end up having to pay money rather than receiving any if it goes wrong. Never heard of an asset being sold where the seller pays the buyer, which is what is going on here. It's all fake. $16m???
PoC - WEN will be responsible for costs back to effective date if the deal completes (of course the BOD should confirm this). The loan is only there to keep SCIR solvent in the knowledge that anything in Tanz takes forever to happen.
I would be much more concerned about this weeks developments. With “The Facility” being separate to the “APA” it seems that ARA or TPDC Might not need to provide this as part of the pre emption terms…very sticky situation IMHO. Could lead to relinquishment if SCIR can’t find to completion…of course TPDC in charge of timeframes so they can just wait until SCIR fail to meet cash calls and hand it over to ARA for nothing.
All my opinion based on what is available from the company.
mrc, nope haven't seen that WEN will be responsible for costs. If the deal completes SCIR still need to pay back the $6.25m facility. If they don't then WEN can be issued with shares as per this evening RNS, even if the deal completes. Alternatively the loan will be deducted from the final consideration if the deal completes. So, clearly WEN are not paying for costs from 1st January 2022 if they are deducting monies from the final payment of the deal.
You've got to ask, why are the Board releasing RNS's at 5pm, 6pm and 6:31pm?
Why did they have the GM in Scotland? Join the dots.
The loan is secured against the Ruvuma asset. So if the well has problems or costs go up and Sirocco can't pay, WEN get the asset anyway..Lol
PoC - the BOD have not communicated it very well, and todays RNS is not very helpful. BUT when it all shakes out you will find that I am correct.
WEN are responsible for costs from the effective date IF the deal completes. If it does not complete then they can demand repayment of the loan
Mrc - I agree with you on the effective date intimating that the purchaser should be liable for cash calls post this date. Normally in contracts this would be the case. However, every document that I have laid my hands on pertaining to this transaction does not state that the loan will be absorbed by the purchaser after Completion.
I realise that Tom may have put everyone's mind at rest. However, Tom says a lot of debateable things these days...
PageofCups - I’m interested in whether or not you are a Scirocco shareholder. Thanks
You are right that if costs increase beyond the 6.25 million then SCIR need to find that money or risk relinquishing the asset.
However, that would not be in WENs interests so I expect further loan would be made to keep things going to completion.
Ultimately the costs will be borne by WEN.
Everyone should be very concerned with the possible pre-emption IMHO. PoC - what you are talking about is a distraction from the real risks at play.
mrc_mrc - it’s a shame that all the knowledge you have on the company and the Board, it is not utilised in a more constructive way that would then actually make a difference. Unfortunately posting on LSE does not bring about change.
BD - I post out of interest only. SCIR is interesting if nothing else. Any investment involves trust in the BOD. If that trust is misplaced it is very difficult to make changes, especially with a BOD that seem to have installed some large backers in the shareholder list.
Anyway I hope you can remove the BOD at the AGM. I doubt you will uncover anything you can pursue the BOD for, but if you can get some trusted parties on the BOD then at least they have eyes on the state of the business.
mrc, WEN are not responsible for costs from the effective date. The $6.25m loan is repayable on completion by way of corresponding reduction to the consideration payable under the Asset Purchase Agreement. See the RNS of 13th June.
"Subject to Completion occurring, the Facility is repayable by Scirocco upon Completion by way of a corresponding reduction to the consideration payable under the Asset Purchase Agreement. If Completion does not occur, the Facility will be repayable on the date falling 90 days after Wentworth has demanded repayment following termination of the Asset Purchase Agreement (the "Repayment Date"). If the Facility is not repaid by the Repayment Date, Wentworth may convert all or part of the Facility into fully paid Ordinary Shares, subject to applicable laws and regulations".
PoC - the key part is “by way of a corresponding reduction to the consideration payable under the Asset Purchase Agreement.”
The consideration payable will include all costs paid out by SCIR for the work programme. So this will just zero off the loan monies.
Additionally, WEN will have security over the Ruvuma asset. So if the loan is not repaid or costs spiral out of control on the well then WEN get the asset if the loan is not repaid. The conversion into Scirocco shares for all or part of the Facility is not really applicable at Scirocco's current sp, so when WEN can just take over the asset instead. SCIR are taking all the risk, yet you've been led to believe the deal mitigates risk.
mrc if that was the case, then SCIR should be paid, $16m + $6.25m. But this is not the case.
The key word is 'reduction'
Seems that WEN are having their cake and eating it and we are left with the crumbs.