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Which, of course, may never be reached.
Now it could be that Scirocco doesn’t have to fork up a penny, Wentworth pays up and pushes the asset into fabulous production and Scirocco bags a total of $16 million for the asset. But an alternative reading is that Scirocco has to borrow from Wentworth to keep the lights on at the Ruvuma asset and could end up with no asset and a thumping debt sitting on the books.
I am reminded by this of the equity “loan” deals on offer from Equities First available to company directors, which were presented as the director borrowing against their shareholdings (and using part of the proceeds to buy more shares) when in fact they were essentially share sale at a huge discount, with the option to buy the shares back if they had not collapsed in the meantime.
It seems perfectly plausible to me that Scirocco could end up spending $6 million on the Ruvuma asset ahead of completion – thus taking all the risk - and Wentworth collecting the spoils.
The directors, with all of 3.2% of the company’s shares, recommended the deal, noting:
It is the duty of the Board and management to safeguard the interest of all shareholders and make decisions that we believe are in the best interest of the Company.
But one has to ask: what is the likelihood of this deal ever bringing a benefit to Scirocco’s shareholders.
Maybe I am just too cynical. But then there is the connection with Gneiss, which advised on the deal. I wonder what is in it for it, and how much of the potentially up to $16 million will end up being paid out to it!
If the name Gneiss rings a bell with readers of the fine website, they might want to wander over to this article regarding Block Energy (BLOE) before the rebels (including Gneiss owner Mr Jon Fitzpatrick) were seen off (at least temporarily) by management.
My problem here is that it seems that Ftzpatrick/Gneiss have made £2.1 million out of Scirocco/Solo over the four years to 2021. But since the start of 2017, Scirocco/Solo shares have declined heavily. At the start of 2017 they were 0.28p and now they are 0.36p. But that is up, I hear you cry! Yes it is – but take into account the 20-1 consolidation in July 2017 and it is down by a very impressive 83%.
Gneiss work if you can get it!
I have been peering into the world of AIM-listed Scirocco Energy (SCIR) – formerly Solo Oil (SOLO) – and the fruits of its relationship with Gneiss Energy (run by Jon Fitzpatrick). In part one I looked at the deal to sell off the now non-core asset of Ruvuma in Tanzania and wondered what shareholders had to gain from the deal. But there is another deal which smells all wrong to me.
I mentioned in part one that Gneiss/Jon Fitzpatrrick had made £2.1 million out of the relationship between 2017 and 2021. That’s a pretty hefty payment for a company with a current market capitalisation of £3 million – made all the worse by the fact that the share price has declined by some 83% since the start of 2017 (after one takes a 20-1 consolidation into account).
But now I want to take a peek at another deal: the £1.2 million investment into Energy Acquisitions Group Ltd (EAG) as part of a new investment strategy to invest in sustainable energy and “circular economy” (whatever that is), as approved at the 2021 AGM on 9 July. Part of the AGM dealings was to do with a reorganisation of the Board, when Gneiss boss Jon Fitzpatrick stood down as a NED – so he’s hardly an independent voice – but ties remained as the relationship with Gneiss carried on.
The deal was completed as announced on 25 August 2021, when we were told:
· Scirocco Energy has completed its £1.2m investment into EAG and subsequently owns 50% of EAG (https://www.energy-acquisitions.com/)
· EAG will use the funds to acquire 100% of Greenan Generation Limited (GGL) and its 0.5MWe Anaerobic Digestion (AD) plant in Northern Ireland
· GGL is a cash generative, operational AD plant which the EAG team believe can be optimised to enhance EBITDA margins and free cash flow
· EAG anticipates initial annual turnover of c. £1.1m from GGL
· The investment into EAG has been funded by cash on the balance sheet and the EAG team has identified further opportunities to invest in a pipeline of AD plants in the UK totalling c. £30 million in value
· This aligns with the new strategy, approved by Scirocco Energy's shareholders on 9 July 2021, to deliver value through acquisitions in the European sustainable energy and circular economy markets
· As part of this transaction, Scirocco Directors, Tom Reynolds and Muir Miller, will join the board of EAG
Well that all sounds fine and dandy: EAG is to be handed £1.2 million which will presumably be spent on acquiring Greenan Generation Ltd (GGL), which was expected to have initial turnover of £1.1 million and there are other deals in the offing. For its £1.2 million, Scirocco got 50% of EAG. Splendid.
Or was it? For a trip to Companies House tells a rather different story. For a start, Scirocco’s investment into EAG was in the form of a £1.2 million loan, via 100%-owned Scirocco Energy (UK) Limited, as detailed in Scirocco’s FY21 Annual Report (see the Strategic Report). There we are told that the £1.2 million investment
was be used by EAG to acquire 100% of Greenan Generation Limited ("GGL") and associated 0.5 MWe Anaerobic Digestion plant located in County Londonderry, Northern Ireland
So did EAG get the whole of GGL, funded 100% by Scirocco but which only resulted in Scirocco having a 50% interest?
The RNS released by Scirocco on 25 August 2021 states Scirocco Energy has completed its £1.2m investment into EAG and subsequently owns 50% of EAG, which to this “reasonable investor” might lead me to conclude that Scirocco had bought 50% of EAG for £1.2 million. But the Confirmation Statement for EAG, released by Companies House on 9 November 2021 and dated 28 August 2021 (so after the completion RNS of 25 August 2021) shows that Scirocco Energy (UK) Ltd only held 100 A Ordinary Shares of £1 each, for which it paid £1 each, according to the share allotment filing dated 24 August 2021. So where did the rest of the £1.2 million go?
According to Scirocco’s FY21 Annual Report (see Note 22), the Group lent EAG £1.2 million, and the parent company lent Scirocco Energy (UK) - a 100% owned subsidiary - £1.2 million. On both transactions, £44,000 of interest was payable, which leads me to the conclusion that the loan was made via the subsidiary – with the subsidiary ending up with £100 worth of shares in EAG (50% of the equity).
That appears to be clear enough to me: Scirocco bought half of EAG for £100 and lent it £1.2 million. Not that this was made clear in the announcing RNS! What happened next is, however, a bit of a mystery.
Whilst we have been told that EAG acquired the whole of GGL, we are not told how much was paid and to whom. According to Companies House, the last results for GGL were for the year to Mar 2020 (in which we see that net assets were MINUS £253,961 and net current assets were just £17,480, with creditors falling due after more than one year of £1.97 million). The paid up share capital was just £90 and there was no share premium account. So how much did EAG pay for the 100% ownership of GGL? Sadly, the Confirmation Statement dated February 2022 shows no updates to the share register, so we don’t know. Nor is there any sign of the issuance of new shares by GGL.
But I do note that EAG mortgaged its shares in GGL to KKV Secured Loan Fund Limited (based in Guernsey), although I couldn’t find how much for. Might it be possible that the monies due from GGL after more than one year was covered (at least in part) by this? Might it have been backed up by some of the £1.2 million paid out? I have no idea.
What I do know is that paying £1.2 million for a 50% interest in a company, when it looks to me as though the £1.2 million was used to acquire the whole thing, does not makes sense to me. Surely Scirocco could have just bought the whole of GGL for itself. Is that really looking after shareholders’ best interests?
Was this deal also the fruit of the relationship with Gneiss? Yes. And I note that during 2021 payments to Gneiss by Sirocco totalled a very tasty £606,000, up from £225,000 during 2020. How much of that came from the £1.2 million invested/lent by Scirocco into EAG?
Truly Gneiss work!
Article by Nigel Somerville, I wish I’d come across these guys before I started investing in AIM as Would’ve ran a mile, gov couldn’t do better than paying these guys to keep an eye on it.
Re, can anyone help.
Found the article folks via share prophets.
Thanks anyhow.
Can anyone help? I’m trying to find an article written by someone called the sheriff of aim mentioned to me by a friend, apparently it relates to scirocco energy. Thanks in anticipation.
Did anyone notice that the Ruvuma asset has an impairment on fair value revaluation of £3,846,000.
This means that the carrying value has been reduced by that amount as the proceeds of £11,828,000 are going to be lower than the carrying value. We know that the proceeds for the Ruvuma deal are 16m USD and I used HMRC’s exchange rate on the 31/12/2021 which is 1.3465 to calculate what the gross proceeds should be and I arrived at £11,882,658 which compares to the £11,828,000 shown in note 10 of the accounts. We know from the RNS that J Fitzpatrick is going to receive a success fee which is stated to be within market norms but who knows what a market norm is! The fair value less costs to sell must not include J Fitzpatrick’s success fee!
AGE
Why mrc_mrc you are speculating yet again!
AGE
Lol love the new handle
Welcome back MT
We need to stop squabbling amongst ourselves and post comments that are factual and remain polite and courteous to other members of this group!
Every one is entitled to their opinion and they should be back that up by with facts and not speculation!
AGE
Thank you BD. That is good to hear.
I can assure holders, lots happening behind the scenes.
Just saying it was unfair to single him out mrc,
Nothing personal
Posting facts and opinions that don’t fit your world view is not trolling AA (assuming your post was targeted at me).
I’ve called the events here rather well. I know you don’t like that, but don’t shoot the messenger!!
It's unfair to single him out while allowing professional trolls free to clog up the board.
And they'll say it's all the pesky shareholders fault.
They have complete control 44RJ.
They have made sure there are enough voting shares in friendly hands.
A lot of assets have been sold, and the cost of these sales has left nothing for shareholders.
I can now see a risk of the company completely folding if the loan is not obtained soon (leading to relinquishment). Such relinquishment would be seen as SCIR pulling out of the deal I would think, and could trigger payments to Gneiss (which SCIR don’t have funds to pay in full).
Well, it looks like they've won... Markettimer's banning has absolutely killed off any challenging and stimulating discussions regarding the direction of travel of Scirocco Energy Plc. Yep, great way to entice new investment...
I never liked markettimer he was way too impertinent asking so many akward questions!
GE
That’s the brilliant thing I suppose. Spending shareholders money to protect themselves (and by extension they would argue, the best interests of shareholders)
Don’t you guys know what’s good for you??
This is where the Finance PR earn their money. Good old gentle Ben
Everyone should be very careful on here. Looks like the Company are cracking down?
PS, Gneiss are to my mind the best oil and gas consultants. Worth every penny IMHO. And our BOD are doing a fantastic job. Just look at that AD plant they bought a bit of. And so charitable giving 50% away to a couple of other dudes. These troublemaking shareholders should be ashamed of themeselves.
Someone must be upset.
I wonder why.
I mean they have nothing to hide do they?