Notice of GM re Share Capital Reorganisation
8 April 2016
Independent Resources plc (AIM: IRG.L)
("Independent Resources" or the "Company")
Proposed Share Capital Reorganisation
Dis-application of pre-emption rights
and
Notice of General Meeting
Independent Resources, the AIM listed oil and gas exploration and production company, announces that it has commenced the process of seeking Shareholder approval to undergo a Share Capital Reorganisation and will today post a Circular convening a General Meeting.
The purpose of this reorganisation is to reduce the par value of the Company's shares to 0.01p through amendments to the Articles of Association and to seek authority for the disapplication of statutory pre-emption rights for the issuance of new ordinary shares.
A Notice convening the general meeting of the Company convened for 11.00 a.m. on 25 April 2016 has been set out in the Circular. The GM is to be held at the Company's commercial offices at 12 Melcombe Place London, NW1 6JJ for the purpose of considering and, if thought fit, passing the Resolutions.
Certain sections of the Chairman's letter from Circular have been included below and amended for RNS formatting purposes. The Circular can be reviewed in full at the Company's website (www.ir-plc.com).
For more information, please visit www.ir-plc.com or contact:
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Greg Coleman |
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Independent Resources plc |
020 3367 1134 |
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Adam James |
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Panmure Gordon (UK) Limited |
020 7886 2500 |
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(Nominated Adviser & Joint Broker) |
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Oliver Stansfield |
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Brandon Hill Capital |
020 3463 5000 |
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Jonathan Evans |
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(Joint Broker) |
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Simon Hudson |
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Tavistock Communications |
020 7920 3150 |
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Extracts from the letter from the Chairman of Independent Resources plc to shareholders.
Introduction
The purpose of this document is to explain the background to, and reasons for: the Share Capital Reorganisation and consequential changes to the Company's articles of association; the Directors seeking shareholder approval to take authority to issue up to 5,000 million New Ordinary Shares for cash free of statutory pre-emption rights; and to explain why the Directors considers these proposals to be in the best interests of the Company and its Shareholders. The Directors unanimously recommend that you vote in favour of the Resolutions to be proposed at the General Meeting, as they intend to do in respect of their beneficial interests amounting, in aggregate, to 34,751,858 Existing Ordinary Shares representing approximately 8.28 per cent. of the existing issued ordinary share capital of the Company at the date of this document.
Background to and reasons for the Capital Reorganisation and the Authority and Disapplication of Pre-emption Rights
Following the oil price crash last year, in common with many other companies in the sector, the Company has found itself in an acutely difficult financial position with very limited immediate cash resources and, as previously announced, no sources of revenue pending receipt of outstanding revenues from EGPC and, if successful, any cash benefit from its current claim against North. In addition to the receipts from EGPC, the Company expects revenue benefits to flow both from the implementation of operational improvements for East Ghazalat and from the audit of North's books and records for the Joint Venture which are to be undertaken and which are more fully described in "Current Trading" below.
As at 31 March 2016 the Company had cash reserves of approximately £0.07 million (unaudited). As previously announced, the Company has been pursuing discussions with a number of sources over the availability of both debt and equity funding to address its cash position and provide additional working capital. The Company has identified an opportunity to raise additional equity but the potential providers of this finance have indicated that they would not be prepared to provide this funding if it were contingent on subsequent approval of shareholders in general meeting.
The Directors believe that, in the current difficult environment, this represents a significant opportunity to capitalise the Company at an appropriate level, whilst bearing in mind the competing demands of shareholder dilution and the requirement for future certainty in relation to the Company's funding.
In addition, the Company continues to evaluate opportunities, in accordance with its stated strategy, to purchase interests in producing fields where there is scope for value creation and production and reserves enhancement. The Company is currently conducting due diligence on one such opportunity in the Republic of Georgia. The Company has been assessing Georgia and opportunities there for some time and believes that the current opportunity falls within its defined strategy of seeking out relatively low risk producing assets with enhancement potential. It is anticipated that the further equity raised would be sufficient to fund this acquisition which, if consummated, would be of an interest in a producing asset.
In order to cut cash expenditure as far as possible, the Directors also intend where possible to settle obligations of some existing creditors and satisfy the ongoing expenditure commitments of the Group in equity or equity related instruments, thereby significantly reducing the cash burn of the Group.
As a result of the need to raise equity within the shortest possible timetable (and to settle certain existing obligations and satisfy ongoing expenditure through the issue of equity) the Directors have decided to seek Shareholder approval to take a significant statutory authority to issue up to 5,000 million New Ordinary Shares for cash (equivalent to 12 times the Company's issued share capital), free of statutory pre-emption rights that they must first be offered to existing shareholders.
The Directors recognise that the magnitude of the authority being sought is significantly greater than might typically be sought from Shareholders. However, as explained above, the requirements of the Company's potential equity funders as well as the need to raise additional capital in as short a period as possible necessitate the Company having sufficient Shareholder authorities in place.
The Directors currently consider that appropriate additional external funding should be available following the approval of the Resolutions but in the event that the Resolutions are not approved by Shareholders, then the Company will be unable to issue new ordinary shares to raise funds and if an alternative source of finance cannot be found in the very near term, it is likely that the Group will be unable to continue as a going concern.
Share Capital Reorganisation
Under English law, a company is unable to issue shares at a subscription price which is less than their nominal value.
The nominal value of the Existing Ordinary Shares is 0.100p, and the current market price as at close of trading on 7 April 2016 (being the last practicable date prior to the approval of this document) was 0.14p.
This, together with the scale of equity funding required by the Company and market conditions generally, lead the Directors to consider that it might well prove challenging for the Company to raise significant new equity capital at a minimum subscription price of 0.1p per share or more.
It is therefore proposed that each of the Existing Ordinary Shares be sub-divided into one New Ordinary Share with a nominal value of 0.01p and one 2016 Deferred Share with a nominal value of 0.09p.
The 2016 Deferred Shares will have no value or voting rights and you will not be issued with a share certificate in respect of the 2016 Deferred Shares. They will not be listed on AIM.
Accordingly, the 2016 Deferred Shares will be effectively worthless.
After the Share Capital Reorganisation, there will be the same number of New Ordinary Shares in issue as there are Existing Ordinary Shares.
The New Ordinary Shares will have the same rights as those currently accruing to the Existing Ordinary Shares in issue under the Articles of Association, including those relating to voting and entitlement to dividends.
Holders of options and warrants over Existing Ordinary Shares will maintain the same rights as currently accruing to them and will not be issued with new warrant or option certificates.
Authority to Allot Shares and disapplication of pre-emption rights
The Directors are seeking a general authority to allot New Ordinary Shares and an authority to allot such equity securities for cash free of statutory pre-emption rights, such authorities being limited to the allotment of 5,000 million New Ordinary Shares (being approximately 12 times the Company's current entire issued share capital.)
These renewed authorities will enable the Directors to raise urgently required additional working capital to remain trading as a going concern, without having to incur the time delay and cost of convening a further general meeting and provide the Directors with the flexibility to issue New Ordinary Shares, and rights to subscribe for New Ordinary Shares, as consideration to vendors of potentially attractive assets and/or to fund the cash consideration element and future capital expenditure of such potential acquisitions.
The Directors remain absolutely committed to reducing the cash burn of the Group as evidenced by their willingness effectively to forego any payment of salaries in cash during 2015 and 2016 to date.
The executive Directors in particular have expressed a willingness to accept future payment in equity until the financial position of the Group merits a return to payment of cash salaries. As Chairman I recognise the significant personal commitments made by my fellow directors to create a successful future for Independent Resources and I believe that this is a further testament to this commitment.
The proposed authorities will also enable the Directors to the extent required, satisfy allotments under equity-based payment arrangements or share incentive arrangements that may be established for the benefit of the Group's key personnel and consultants from time to time. Any options or similar awards to be granted under any such share incentive arrangements will be at the discretion of the Board's Remuneration Committee.
Current trading and prospects
Save as disclosed below there has been no significant changes to the Company's current trading position since its trading update to the market released on 20 January 2016.
East Ghazalat (Western Desert, Egypt)
The Company, through its joint venture with Nostra Terra plc ("JV") which owns the asset, remains in discussions with North over the notice of default which North served in respect of unpaid cash calls for November and December 2015, the JV's detailed Dispute Notice in response and the notice served by the JV regarding undertaking detailed audits of the asset in respect of its 2013 and 2014 financial years. The JV continues to challenge North on its performance as operator of the East Ghazalat field including early resolution of the cost overcharges of USD$575,000 identified in the 2012 audit which the JV considers to be immediately payable to it by North.
The Company continues to process the regulatory clearances necessary to enable the JV to initiate timely collection of revenue receivables from EGPC. Currently the JV is not receiving any revenue receivables from this asset but the Directors remains confident that this situation will be presently remedied.
Ksar Hadada (Tunisia)
As announced on 7 April 2016, the Company's Tunisian subsidiary assumed 100 per cent. of the contractor interest in the onshore Ksar Hadada hydrocarbon exploration permit, Tunisia (the "Permit") and has formally requested that ETAP submit an application to DGE for a one-year extension to the Ksar Hadada permit.
Outlook
The lower oil price environment continues to present a number of opportunities for IRG which will continue to seek acquisitions of assets which meet its demanding return on investment targets. The Board are assessing a number of potential opportunities and are continuing to pursue various potential sources of debt, equity, and alternative forms of asset backed, financing to assist with the future development of East Ghazalat and other potential investment opportunities. A key pre-condition to proceeding with these opportunities is that the Company solves its near term cashflow issues.
The Directors have re-affirmed the Company's underlying strategy and they believe that it will deliver significant value to shareholders based on the Company's key strengths which comprise:
· highly quality, committed management team with over 170 years' aggregate operational and commercial experience in Independent Resources' target markets;
· a clearly defined strategy of generating substantial economic value by acquiring lower risk producing and near-producing hydrocarbon assets which carry significant potential upside in operational and financial performance to be derived from the increased management resource and focus which Independent Resources will devote to these assets;
· a realistic universe of target acquisitions which meet Independent Resources' stringent target returns and where Independent Resources' management have identified there is a strong prospect of consummating a successful transaction;
· a rigorous screening process for identifying target assets, including scope for operational upside and ability to meet demanding financial performance targets; and
· a commitment to generating investor value.
As outlined above the Company has not yet received cash receipts from its interest in East Ghazalat and continues to incur cash outflows to meet working capital and corporate overheads. The bulk of the net cash proceeds of £0.7m from the Company's issue of equity in November 2015 went to satisfy the Company's cash contribution of US$0.5m to the JV to meet the initial consideration in respect of the East Ghazalat acquisition plus associated loan interest and acquisition costs. IRG continues to be cashflow negative and had £0.07 million of cash remaining at 31 March 2016 (unaudited).
The Company is energetically pursuing improvements in East Ghazalat's operating and financial performance and timely collection of revenue receivables from Egyptian General Petroleum Corporation, a national oil company of Egypt, ("EGPC"), in order to improve its cash position.
The Company remains extremely cost conscious and seeks to keep operating costs at a minimum whilst tightly managing its cash resources and until there has been a very significant and sustained improvement in the company's overall financial position the Directors have agreed not to receive any future remuneration in cash.
On 26 February 2016 the Company raised approximately £93,500 before expenses through the issue of 77,981,175 Ordinary Shares at a placing price of 0.12p per share. These shares were placed with on the Company's behalf by the Company's broker Brandon Hill Capital Limited to a group of institutional and retail investors. The net funds received by the Company from this placing were approximately £82,000.
The Company continues to face however a severe cashflow shortage pending receipt of outstanding revenues from EGPC, and any cash benefit from its current claim against North should that prove successful. In addition to the receipt from EGPC and from the claim against North, the Directors expect revenue benefits to flow both from the implementation of operational improvements for East Ghazalat and from the audit of North's books and records on behalf of the Joint Venture of which notice has been given to North and which are to be undertaken as soon as practicable.
If the Resolutions are passed at the General Meeting the Company intends to proceed with an early fund raising to allow it to cover both its near term working capital needs and projected expenditure arising from the proposed acquisition, should the transaction prove to be viable.
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
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Last time and date of receipt of Forms of Proxy |
11:00 a.m. on 21 April 2016 |
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General Meeting |
11:00 a.m. on 25 April 2016 |
References to the time in this document and Notice of General Meeting are to British Summer Time (BST).
DEFINITIONS
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"Act" |
the Companies Act 2006; |
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"AIM" |
the AIM market of the London Stock Exchange; |
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"AIM Rules" |
the rules applicable to companies whose securities are traded on AIM published by the London Stock Exchange; |
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"Articles of Association" |
the articles of association of the Company; |
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"Company" or "Independent Resources" or "IRG" |
Independent Resources plc, a company registered in England and Wales with registered number 5483127; |
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"2016 Deferred Shares'' |
the proposed new deferred shares of 0.09p each in the capital of the Company to be created pursuant to the Share Capital Reorganisation; |
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"Directors" or "Board" |
the directors of the Company; |
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"Existing Ordinary Shares" |
the 419,905,876 Ordinary Shares of 0.1p each in issue; |
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"East Ghazalat" |
the East Ghazalat concession constituted by Law no. 9 of 2007 of the Arab Republic of Egypt which authorised the Concession Agreement for Petroleum Exploration and Exploitation in the East Ghazalat Area of the Western Desert; |
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"EGPC" |
Egyptian General Petroleum Corporation, an Egyptian national oil company; |
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"FCA" |
the Financial Conduct Authority of the United Kingdom; |
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"Form of Proxy" |
the form of proxy for use by Shareholders in connection with the General Meeting; |
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"FSMA" |
the Financial Services and Markets Act 2000 (as amended); |
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"General Meeting" |
the general meeting of the Company convened for 11:00 a.m. on 25 April 2016, or any reconvened meeting following any adjournment thereof, notice of which is set out in the Notice; |
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"Group" |
the Company and its subsidiaries; |
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''ISIN'' |
International Securities Identification Number; |
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"JOA" |
the joint operating agreement between North and the JV which governs East Ghazalat; |
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"JV" |
the joint venture company owned by the Company and Nostra Terra; |
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"London Stock Exchange" |
London Stock Exchange plc; |
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"New Ordinary Shares" |
the proposed new ordinary shares of 0.01p each in the capital of the Company resulting from the Share Capital Reorganisation; |
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"North" or "the Operator" |
North Petroleum International Company S.A., a subsidiary of China ZhenHua Oil Co. North is the owner of a 50 per cent. interest in and operator of East Ghazalat (China Zhenhua Oil Co. is the wholly owned oil and gas arm of China North Industries Corporation ("NORINCO"), a Chinese state-owned company); |
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Nostra Terra" |
Nostra Terra Oil and Gas Company plc; |
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"Notice" |
the notice of the General Meeting; |
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"Ordinary Shares" |
the ordinary shares of 0.1p each in the capital of the Company; |
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"Overseas Person" |
persons resident in jurisdictions other than the United Kingdom who may be restricted by law and therefore persons who should, if this document and/or the accompanying Form of Proxy come into their possession, inform themselves about and observe such restrictions; |
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"Panmure Gordon" |
Panmure Gordon (UK) Limited, the Company's nominated adviser; |
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"Resolutions" |
the ordinary and special resolutions set out in the Notice; |
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"Shareholders" |
the holders of Existing Ordinary Shares or (following the Share Capital Reorganisation) New Ordinary Shares from time to time; |
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''Share Capital Reorganisation'' |
the proposed subdivision of each of the Existing Ordinary Shares into one New Ordinary Share and one 2016 Deferred Share to be effected at the General Meeting, further details of which are set out in the Letter from the Chairman of the Company in this document; |
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"UKLA" |
the FCA acting in its capacity as the competent authority for the purposes of Part VI of FSMA; |
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"United States" |
the United States of America and its respective territories; |
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"US$" |
United States dollars, the lawful currency of the United States of America; and |
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"£" |
Pounds Sterling, the lawful currency of the United Kingdom. |
This information is provided by RNS
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