In a post I did a few weeks ago, I mentioned that Lansdowne Oil & Gas (LON:LOGP) had agreed an initial farm out agreement with a major Chinese company and that I thought that this was a great thing for Lansdowne Oil & Gas. At the time, the share price shot up 26% and investors were cheering the news. However, I also mentioned in that article that cash was clearly an issue with the company and that I would have held off investing until there was further clarity on the cash position of the company. The share price after the initial increase, sunk quite a bit from a high of £2.10 down to lows of around £1.35.
However, a new financing plan was announced Friday before last, and it looks to me as though Lansdowne Oil & Gas will now be able secure the required cash to operate as a company for the foreseeable future.
Let’s go into the RNS a bit more that was released:
The Company proposes to raise gross proceeds of £900,000 before costs through the issue of the Placing Shares. The Placing Shares will represent approximately 11.32 per cent of the enlarged share capital of the Company (following the issue of the Placing Shares, BHC Loan Shares and LC Loan Shares as defined below).
Existing shareholders are looking at just over 11% dilution. Note that in addition to this dilution, some existing shareholder loans will also be converted into shares:
Brandon Hill Capital has also agreed to convert the outstanding amount of their loan to the Company, amounting to £326,911 (including interest), into new ordinary shares at the Placing Price.
In addition, LC Capital Master Fund, Ltd has agreed to convert £680,000 of the senior secured loan (including associated interest) issued to it by the Company in March 2015 into new ordinary shares at the Placing Price, and extend the term of the remaining amounts under the Loan Note to 30 June 2019.
Existing major shareholders have decided to convert either some of all their loans into new equity. The 2 major shareholders behind the shareholder loans are Brandon Hill Capital and LC Capital Master Fund. Brandon Hill Capital will convert the remaining balance of their loans (£326K) into shares, and LC Capital Master Fund will convert £680,000 of their loan into shares. This will translate into a further dilution of existing shareholders by a further ~12-13%.
The remaining LC Loan carries no conversion rights. The total amount outstanding under the LC Loan following this conversion (including interest) will be £1,007,415
The remaining balance of the LC loan has no conversion rights at this time so will need to be repaid. The outstanding total for this loan is just over £1 mil but the due date has been extended now until June 2019.
After all is said and done, the placing + the conversion of the loans into shares would dilute existing shareholders by roughly 25%. On top of this, there will be an outstanding balance of shareholder loans of £1 million that will need to be repaid June next year.
Warrants
In connection with the Placing and the conversion of the BHC Loan, the Company will also be granting the Company’s placing agents, Brandon Hill Capital, a total of 4,718,887 warrants to subscribe for new ordinary shares in the Company at a price of 1.3 pence per share over a term of 3 years. The issue of these warrants shall be subject to shareholder approval and will be exercisable from the date of such approval.
Brandon Hill Capital has secured just under 5 million warrants to subscribe for new shares; further dilution could occur has a result, but not by much (<1%)
Summary
Given the above, there is some considerable dilution for existing shareholders as a result of the financing updated (roughly 25%). However, given the farm out agreement and the currently valuation of Lansdowne Oil & Gas (~£5-6 million), considerable gains can still be had, if the farm out agreement turns out to be a success. There is the outstanding £1 mil left in shareholder loans to think about, but this has been extended to June 2019, and if need be, can be extended again.
In short, Lansdowne’s lack of cash was initially a big risk for me, but with the new financing plan, and with a valuation still under £6m, the company definitely deserves another look. If the farm out agreement is indeed a success, investors will likely see considerable gains in the company’s share price.
As always though, please do your own research before buying/selling this share; the opinions above are only my personal views.
