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Bridgedogg1: apologies, you were right, I was wrong - there was, as WG818 has pointed out to me, a provision to the effect in the final terms of the £6mm bridging loan.

WG818: many thanks for correcting me, I’d forgotten this.

In the context of this and the recent adjustment of the conversion terms of the earlier bridging loan, it’s worth noting the following, from the same RNS:

“The proceeds of a proposed Global Refinancing, as referenced in the RNS of 14 July 2023, are expected to repay both the current outstanding of £7.3 million under the senior facility and the combined £9 million bridge facilities. Alternatively, the Company and the Lenders, by mutual consent, may either agree to extend the bridge facilities until the Saltfleetby Field cashflows can be utilized for debt service or, convert part or whole of the Bridge Facility into shares at a 25% discount to the 30 day VWAP, subject to a floor of 0.4p/share, including in an event of default, in which case it will be at the Lender's option, if neither cure nor other remedy can be agreed between the parties.”

There is clearly no floor now under the price at which the £6mm. loan converts.

Headinthesand: didn’t the 2021 CPR say that the final repayment on the senior loan was due in December 2024?

Bridgedogg1: I’m not aware of an alteration in the exercise price of the warrants associated with the £3mm bridging loan. It’s the loan conversion terms that have been changed, from a minimum of 1p, to 0.66p. Angus is over a barrel to its lenders.

Apologies for repetition in paragraph 1 of previous post..

Come, come, Ocelot. That won’t do at all, will it? Angus were negotiating with high street banks from the final quarter of 2019 until the summer of 2020 for financing for Saltfleetby. They then spent nine months negotiating (during which time they seriously upset Gneiss and had to pay them off), ending up with the famous deal in May 2021 with Mercuria, including hedge contracts, royalty and burdensome covenants. Angus were over a barrel and the RNS yesterday strongly suggests they’re in the same uncomfortable position now, this time it’s Come, come, Ocelot. That won’t do at all, will it? Angus were negotiating with high street banks from the final quarter of 2019 until the summer of 2020 for financing for Saltfleetby. They then spent nine months negotiating (during which time they seriously upset Gneiss and had to pay them off), ending up with the famous deal in May 2021 with Mercuria, including hedge contracts, royalty and burdensome covenants. Angus were over a barrel and the RNS yesterday strongly suggests they’re in the same uncomfortable position now, this time with their friends at Aleph.

It’s all very well projecting a share price six months out but by then the the most likely outcome is that the Kemexon/Aleph group will hold a majority of the shares. Mercuria will retain their hedges and covenants for a further year and their royalty in perpetuity. Small shareholders will be in an unenviable position.

It’s all very well projecting a share price six months out but by then the the most likely outcome is that the Kemexon/Aleph group will hold a majority of the shares.

In addition to the above, the new management has demonstrated a similarly relaxed attitude towards small shareholders to that of the previous lot: tell them what you think they want to hear, even though it bears little or no relation to the facts of the case.

What’s happening at Saltfleetby now? Has the new permanent flowline been linked up? Is the partly second-hand plant performing reliably? Is the gas flow starting yet to decline as predicted in the CPR? Will the next RNS on these matters precede the EGM next week, or come shortly thereafter?

Bridgedogg1: I think the point about this RNS is that Kemexon would have demanded repayment of the loan if Angus hadn’t agreed to reduce the conversion price. The £6mm loan is being re-negotiated and you may expect Kemexon to play hard ball on that too - hence the huge number of new shares for which the company is seeking permission to issue next week. Kemexon will already have 23% of the shares after conversion of the £3mm. Do the maths. They’re not going to pay a higher price to convert the £6mm debt than they’ve paid for the current conversion and if the share price in the market is lower still by then, it will be at a further substantial discount. If they want a back door takeover, it’s hard to see how they will be stopped. They’ll have control, either way.

As for issues of new equity, this is what Angus said when they took the £3mm. bridging loan:

“In line with that earlier announcement, and the Company's commitment to deliver returns to shareholders through the appreciation of the share price and distributions, the Company will resort to equity finance only to support accretive acquisitions or projects..”

“Revenues from the existing operations and the sidetrack are expected to repay both the senior and junior facilities. The Company has the option to repay the junior loan in shares at a 25% discount to the 30 day VWAP, subject to a floor at 1p and this same option is also available to the lender but only in the event of default.”

In other words, the money that was supposed to be spent on expanding the business has had to be used to service existing debt. If they’d had a placing, instead of raising this loan at 20% p.a. interest, a 3% rollover fee, and a 5% arrangement fee paid to Aleph, it would have cost them half what the loan has ultimately cost them in terms of new shares issued. And they still need a global re-financing to keep the show on the road. Is this a deliberate means of allowing a back-door takeover, is it the result of an unfortunate combination of circumstances, or is it mere incompetence?

That bridging loan of £3mm., at interest of 20%+3% rollover fee, has turned out, as expected, to be an extremely expensive (to shareholders) deferred placing. The loan was negotiated at a time when the management was trumpeting its commitment to listening to shareholders, and therefore to avoiding placings and new equity issues.

With freedom for the new, rather grey and unscrupulous, new management to issue masses of new shares once the formality of the EGM next week is out of the way, it seems quite likely that small shareholders will be stuffed again soon. Turkeys don’t enjoy stuffing but it appears that the vast majority are resigned to their fate.

If Mr. Prelea “knows the process [aka protocol] that needs to be done to release the diamonds”, I should imagine it involves him, a diamond expert and a bodyguard or two turning up at a prearranged time at the RBZ carrying in his hot little hand a bankers draft - with the payee’s name very lightly pencilled in - for £15mm or so, in exchange for which he will be given a bag of diamonds ostensibly similar to those deposited there many years ago, but which were in fact removed on the orders of Mrs. Mugabe to her Hong Kong diamond cutting establishment shortly after they arrived on the bank vault shelf. He’ll also get an export licence for them. Excellent result. He will then be in a position to negotiate more deals in Zimbabwe that will be similarly lucrative to his shareholders.

What I’m saying is that every forecast in the CPR is based on future projections. If the author of the CPR can estimate cash flow from projected future gas prices and gas flow and cost estimates provided by Angus(!), why is it not appropriate that he get similar estimates on re-financing costs from the same source?

Bridgedogg1: i sense a rather circular argument. The terms of the financing of the gas project are as important to shareholders as are the price and gas flow assumptions. The CPR says as follows: “OIL’s estimates of pre-tax future cash flows required to assign reserves are based on datasets provided by AE.” Though I don’t know what is meant by “assign reserves” in this context, it presumably includes the expected approximate terms of the debt re-financing in their estimates of future cash flows. Otherwise the conclusions of the revised CPR are not worth all that much, are they?

Angus are expecting the terms of the re-financing to be concluded by year-end. That’s six months since it was announced that they were in negotiations. It’s clearly either more difficult than they’re admitting, or there’s some other reason for delaying it. I imagine it’s to do with Mercuria’s payoff, their 8% royalty and the resulting quantum, interest rate, repayment terms, convertibility and fees on any new deal with Aleph.

Bridgedogg1: quite a lot in the CPR is informed guesswork. I could make a more accurate stab at the likely terms of the re-financing than I could at the sustainable volume and price of UK gas going forward. Interest rates are not falling, nor is Angus’s need for more money. The share price is falling and the management has done a volte face on its commitments re raising new equity capital. There’s a few pointers there for the author of the CPR.

WG818: exactly. The FCA should be all over this kind of thing but they’re asleep at the wheel as far as AIM is concerned. Angus are now constrained as to sources of finance. Lenders are not lining up to provide affordable money to these small companies and, even though the management may regard the equity market as a source of free money, they’re close to the limit as far as triggering a bid is concerned. I suppose Aleph could invent a whole lot of pop-ups and claim they’re unconnected but it won’t wash, will it? They probably don’t need further equity issues before a bid should be triggered, with all the warrants etc., and their existing shareholdings. I think Mr. Forrest would clearly like a decent price for whatever he’s got left, so a decent p&d would be nice. After that, it’s selling all the way, probably.

I don’t know what would happen if Angus declared insolvency after the re-financing. Would the Mercuria royalty still apply to a newly-incorporated successor company? Ridiculously complicated, all this, for such a small company. Vast is even worse.

WG818: yes, it’s an 8% royalty on gross turnover. I don’t know for sure what that means re tax and who will be responsible for the tax on that 8%.

Yes, the oil assets are all dead ducks. So is the Global Re-financing, which appears likely to be little more than a repayment of the Mercuria share of the senior loan (and the start of their royalty) and a change in the terms or an extension of the Aleph loan. Or a conversion to equity (that commitment to no new equity issues didn’t last long, did it?) It’s a bit of a puzzle as to why, in the circumstances, it’s taking six months to complete the re-financing. It should be a simple matter. Maybe they’ve belatedly looked at the cost of that royalty compared with their present arrangements and are having second thoughts!

Angus is still a single-asset company. Whatever they may say, all of the management’s time and the company’s money should be concentrated on keeping it operating as efficiently as possible and in arranging the most economic finance for it that they can. I have the impression that Mr. Herbert thinks that equity finance is free money.

Cynderlad: no, it doesn’t mean that 100% of revenues will accrue to Angus. Mercuria will have an 8% of turnover royalty on all future production from Saltfleetby.

Ocelot: It’s pretty clear that Mr. Herbert had not done his homework before making that statement about fracking in his interview with Malcy. It’s pretty academic though, surely? Angus won’t have the money to drill and develop Balcombe unless there’s a sustained rise in the gas price and a sustained flow of gas at Saltfleetby. I doubt Angus/Balcombe is bankable and Mercuria would want an even higher return than they negotiated on their Saltfleetby loan if they were to get involved. The alternative would be be more massive equity issues.

WG818: they don’t need a placing. They may have decided more loans as part of the global re-financing are what is required. Those loans will be convertible at very cheap prices into new shares, of whose issue the vote at the EGM at the end of this month will approve. Small shareholders will be hanged if they do and hanged if they don’t. Angus need the money.

Higher gas prices will help the P&L but it may be too late. How’s this for a scenario?

1. A short p&d takes place, enabling Mr. Forrest to get out of a substantial number of his remaining shares. His and others’ selling then gets the share price back below 0.55p.

2. The EGM approves the creation of a massive number of new shares

3. The Global Re-Financing results in more debt with generous conversion terms to Aleph and their associates

4. As a condition of the above, Mercuria gets repaid and their 8% of turnover royalty applies immediately. Mercuria bows out and collects its royalty money as long as the Saltfleetby plant is in production

5. Issues emerge over the equipment and the gas flow, requiring heavy additional investment and further financing. The share price falls sharply again

6. Aleph etc. exercise the conversion options on their loans at their new, low, conversion price, giving them substantially more than 50% and requiring them to bid for the rest

7. In view of the inability of the company to raise sufficient further capital, the Board and its advisers are pleased to recommend acceptance of the terms offered for the minorities. Enough shareholders accept the terms to allow Aleph to buy the remaining shares compulsorily and take Angus private.

Just saying..

Ocelot: Angus and its principal shareholders/lenders already have in place the perfect Non-Executive Chairman for their purposes in the person of the Earl of Clanwilliam. I’d be surprised if they want to replace a man with such a record as his at a time like this.

Sageman, well, nothing they say seems to be quite right, does it? There’s a nasty financing/cost overrun round every corner. There’s been no mention in their latest comments on a “global refinancing” about Mercuria’s participation, so it looks as if it’s going to be just another rollover of the Aleph debt, with more equity options. And it already appears that the warrants/debt conversion options may give their friends at Aleph control of the company at prices substantially below current levels. Then there’s the spending plans for a third compressor, possible new well etc to be financed in the new year. They don’t yet seem to have finished the expensive work on the permanent flow line. Then there’s the expected fall in gas flow, starting soon, of 10% p.a. and the 8% of turnover royalty once the senior debt is repaid. And regular maintenance is expected to close the plant for 35 days or so p.a. The recent share price weakness may not be the result of small investor selling. In my opinion, if you don’t trust the management of a company, you leave it alone.

Sageman: the problem is the finances and an abiding sense among experienced AIM company observers that something has been going on here for a year or two that is not, nor is meant to be, in the interests of retail investors. Trust has gone.