Member Info for OofyProsser

Balancedviewer: this will be the first and last time that I engage with you on this site. I’ve noticed that you are prone to peevish and rude outbursts here, and life is too short.

However, just this once before your input is intercepted by the excellent filter facility, Angus have given us a pretty clear indication of what the terms are likely to be. As for “if the asset is worth the cost”, I agree with you. But why take loans at annual interest of 20%, plus 3% for three months (which raises the effective interest rate somewhat) and rollover fees, if the asset is worth the cost? Why not get bank finance if it’s a sure thing? Or offer these generous terms, on what is in effect a short term convertible at extremely high interest and with an extremely low conversion price, to shareholders, who should be queueing up to buy it? These are generous terms for the Lenders and ungenerous terms for the shareholders, who may well find themselves horribly diluted again soon. At least it’s not a share placing though, so excellent, that’s all that matters - go ahead, fill your boots.

HITS: balancedviewer is onto something here. The new CEO can load the balance sheet with more loans and gas pre-payments (whatever that means when the gas is going to Shell). 20% is not much to pay for new money and the arrangers of these loans are surely well worth their 3% arrangement fees and their 3% early repayment/rollover fees after three months, it’s just good business, surely? Better than offering similar terms to shareholders, surely? The lenders are likely to become bigger shareholders themselves, it’s just that they’ll be paying 0.4p, the lowest price at which Angus has ever traded, but at least there won’t have been any dilutive share issues. These are to be avoided at all costs, the small shareholders have all written in to say so and no one ever accused the Angus Board of un-responsiveness to its shareholders. No, balancedviewer is definitely onto something. Don’t you think?

Donek: “they are not that high!” (£800,000 per month) sounds like Lucanspeak for “that’s uncomfortably close to the mark”, not “way off”, as you suggest.

Asimpleinvestor: that sounds about right. And without the diamonds, it doesn’t look very good at all. Perhaps the lenders (and Capstone) have done some work on the BP mine and see value in it that exceeds the value of Vast’s loans. The problem with these small AIM resource companies (apart from avaricious management) is that they have to pay a massive premium for loans. The value of the mines to a better-resourced, much larger company would

be much higher.

Asimpleinvestor: I think the problem with the diamonds is that they’re not there, but this post of yours is an interesting analysis. Basically, you’re saying they’ll need more equity capital to repay the debt, diamonds or no diamonds. I’ll have to have a look at the loan charge, see if Vast can sell assets to meet debt and interest payments. Otherwise it’s not looking very good in the short term, is it? Though, of course, Capstone will know a lot more about it than I do.

Asimpleinvestor: I agree with your conclusion about the costs involved in enforcing the terms of a lender’s charge on a company’s assets in the event of a default and that it’s best avoided. However, there must be a limit, or the lenders wouldn’t have imposed a charge on the borrower in the first place.

Re the diamonds, today’s RNS says this “The Company is currently concluding documentation regarding an extension to 29 September 2023 that will allow further time to finalise the settlement of its historic claims outlined in previous announcements.”

The historic (sic) claims are the diamonds aren’t they? Not the mines. This is just going on and on. The BP mine is washing its face in operational terms but not contributing to paying the debt or interest. Vast will need more money to develop it further. Placings won’t do it - the Lenders will want to be top of the queue when it comes to money to be spent by Vast and the existing debt is far too big for placings to cover. Mercuria will also want a quid pro quo for its forbearance so far, at some stage.

Capstone’s continued involvement here is the known unknown. What they’re up to is anyone’s guess.

Asimpleinvestor: no more a work of fiction, I think, than is the presence in the RBZ vault of a packet of diamonds held to Vast’s order. Vast has a debt extension of about seven weeks. What will happen if the clerk at the RBZ says he can’t find them? A placing won’t then raise enough money to repay the debt. Sooner or later the lenders are going to take a view on the diamonds and act accordingly.

Asimpleinvestor: “In 1869, a French jeweller named Jean Baptiste Tavernier sold the Pink Panther diamond to King Louis XIV for $400,000”

That's a neat trick. King Louis XIV died Inn 1715.

Ocelot: the loan covenants are not the main problem. The problems are, first, the amount of money owed, which will rise with the proposed new £20mm. loan, and the interest on it, which will be similar to the facilities it replaces, at best. Second, the opex costs on the plant, which continue to rise. Third, the fact that the depleted Saltfleetby gas field will soon start to flow at an increasingly slower rate, according to the CPR and the Wingas report in 2012 - the latter of which also predicted 10% downtime p.a. for maintenance. The new management’s discussion of dividends and diversification is mere Lucanesquerie without a sustained rise in the gas price.

Asimpleinvestor: thanks for this. I was referring to the cartoon pink panther, which appears behind the opening and closing titles and which went on to become a popular TV cartoon character in its own right.

Asimpleinvestor: the Pink Panther was a pink panther in the film’s introduction and postscript.

Robday: “waste”:not “waist”. Just saying.

Sageman: companies pay their debts from operating profit, not turnover. Angus’s operating profit currently doesn’t cover debt service costs, according to the latest Q&A. The new CEO dodged the question on opex as well. Without a sustained high gas price, they’re still dependent on their lenders, whose short history shows that they require a quid quo for every act of kindness - though Angus management has been unenthusiastic about revealing details of these to their shareholders.

Does anyone believe there’s a packet of diamonds waiting in the Reserve Bank vault for a representative of Vast to pick up? Anyone?

If Vast can’t meet the terms of the Mercuria loan, there will be a price to be paid.

Well said, 360phil.

... apparent. Not apparently.

WG818: thank you for this clarification/correction.

Bubblepoint: they simply wouldn’t have got the £12mm. loan without the hedge contracts. A great deal for Mercuria, as very quickly became apparently I agree with you completely re timelines [and costings], it’s been a fiasco. Lucan has been sacrificed, let’s hope Mr. Herbert gives a better account of himself.

WG818: “All owners are obliged under their agreement to assist in any application to extend.”

I’ve assumed that “owners” meant the landowners with whom Angus or its predecessors signed leases from the outset. Am I wrong in this assumption? I may be but I don’t know what it means otherwise.

Bubblepoint: the hedges were a condition of the Mercuria/Aleph loan. Angus couldn’t have got the building of the plant started without it. What the Lucan management got wrong was turning down bank finance at the end on 2019 and grossly underestimating the cost of the equipment they’d need. They expected to buy second hand bits and pieces and put them together cheaply, but the regulations didn’t permit it. Re the sidetrack itself, I realise that you know more by far than I do about drilling, but it’s pretty clear from the efforts of previous owners of the site that drilling sidetracks here has been very complicated and expensive. Angus found gas in the end by just going on and on throwing money at it. I’m not sure, as I’ve pointed out, that the sidetrack was a commercial success. And the initial purchase of the Saltfleetby licence for £1, with £2.5mm. for an abandonment reserve, would have been a financial disaster without the totally unforeseen rise in gas prices. Owing to the management’s subsequent failures, the people who have benefited from the gas and the high prices so far have been the lenders and, particularly, Mercuria, who are the counterparty in the hedge contracts.

WG818: I doubt they’ll have much trouble getting certified for gas storage if the winter gas price is significantly higher than summer prices, going forward. The issue is cost and finance availability. As you’ve pointed out, the Wingas report estimated the cost of preparing the site for gas storage at £200mm in 2011. So assume £250mm+, today, probably quite a lot more. Angus will need a partner with deep pockets. In any case, many depleted offshore fields are far larger than Saltfleetby. I think the only factor that will change the equation strongly in Angus’s favour is a big rise in the gas price again - which is perfectly possible. It may need to come soon, though.

WG818: I’ve interpreted that clause about the farmers being obliged to support any application for an extension as meaning that they have no choice under the agreement they signed with Angus at the outset but to support Angus’s application for an extension.

Do you think Angus would have started the sidetrack if they’d known it would take six months and cost them £12.5mm+ to bring into production, with interest charged on their short term loans at 20%+ and 3% arrangement fees, etc?

HITS: I’d agree with you if the sidetrack had been financed through cash flow or through the equity market, but another £12.5mm+ of costs, some of it at 20% (and rising) interest, doesn’t seem to me to resolve their cash flow issues, it merely delays their impact by a few months. In two years, by when it should be washing its face, gas production, according to CPR and Wingas, should be about 20% lower than it is today. And there’s at least five weeks’ production to be lost in maintenance per year as well, which no one seems to be taking into account in their forecasts. It’s all there in both the above reports