Mitchell Drilling, page-33

Thanks again @earlyrise

You are right. Figures given are as of June 30, and notes explain further events till prospectus date (Dec 22). As you rightly say, position as of March (right now) has to be considered.

So increase in Trade payables by 1.5 million to June amount of 786 K (approx. 0.8 million) gives us 2.3 million as of prospectus date. Note that the prospectus suggests that this amount also includes liabilities for amounts owed toward DFS. So, it might not just be Mitchell drilling, although I fully agree that Mitchell might also be a material amount included in that list.

We’ve got the research and development grant of 0.46 million, as mentioned there. Note that his has not been received in cash as of prospectus date and is still receivable. Hopefully, that has been received by now. TON’s cash flow position as of year end showed 344 K. So 344 K cash at year end + 460 K grant if received +4 million CR = approx. 4.8 million cash to deal with liabilities as of admin date.

0.46 million payments to BB as noted in prospectus. I thought this would be more, because when I checked yesterday, the terms of BB’s notice showed 599 K, with payments due ton Dec 15, Jan 15, Feb 15, and then 9 months payment in March. So, I’m not sure how around 0.6 million got reduced to 0.46 million so soon in December itself.

Note again that point (b) of the prospectus on pg 24 suggests an increase of $0.33 million in Provisions for the Mozambique capital gains tax, that I talked about yesterday. Pg 32 mentions that 1.8 million was recognized as of June 2015, and the provision was increased to 2.15 million as of Oct 2015. So, although they mention on pg 23 that those are the figures as of June, it seems that the October amount has already been incorporated there.

So thus we have liabilities of 2.1 million tax + BB’s liability of 0.5 million (I’m just rounding it up between 0.46 million and 0.6 million for convenience, taking into account payments made in December and thereafter if any, and other differences as explained above)+0.8 million trade payables as of June+1.5 million additional trade payables till prospectus date = 2.1+0.5+0.8+1.5=4.9 million total liabilities.

As @earlyrise says, the payables could have increased post prospectus date. I feel the increase in any however was not due to Mitchell as we’ve heard that drilling has stopped. So, if any increase is there, it could be due to payments towards DFS. I’m not sure how much to quantify in. Let me just take 5.5 million as a random final figure, in the absence of info, similar to the amount that earlyrise added.

So thus we seem to have approx. 4.8 million cash to pay off liabilities of 5.5 million. Of course, note that assumptions have been made above. We could have some wild cards with respect to the Moz capital gains tax, liabilities suddenly crystallising despite not being identified as contingent liabilities earlier and even further amounts towards DFS, although I’ve increased it from 4.9 to 5.5 above; so I’ve been reasonably conservative.

Based on current info as presented above (note a 100 times that I could very well have skipped some stuff), we might be just falling short by a small amount. In a worse case scenario, it could be a couple million more. So it is not entirely impossible to raise the funds if need be.

People responsible for removing BB might have to swallow their pride and request BB to give TON an extension to pay him the amount. It would be probably be better not to antagonize him any more.

@ckchristian has summarized several crucial points below and so did @insaf in a number of points today.
http://hotcopper.com.au/threads/mitchell-drilling.2719108/page-25?post_id=17199655

As @insaf has mentioned, BB had this strengths. Maybe, cash management was not one of them but that is the reason for a Board of diverse directors with different strengths. Expecting Adam Gilchrist to bowl, Glen McGrath to bat and Ponting to keep wickets would not give you the best results, and different directors need to step up based on their strengths and weaknesses. As insaf says, he might do well in his new company with directors with other skills he does not have to complement the many skills he does have. As @insaf says he is a good salesman. Some leading companies became big based on the salesman/showman ability like Musk for Tesla and Jobs for Apple. No, I'm not saying he was Musk and Jobs. Just pointing out like insaf, that he had different skills, and a board would be wise to utilise his other skills properly.

I said repeatedly that I found putting all blame on him was quite silly. What are other directors doing if only one person gets the blame? As @insaf said, BB did get most of the praise though; so it was inevitable that he got criticism too when things failed. I personally always found the criticism against him in past few months too extreme, though.

AS @ckchristian then says, the board knew that payments had to be made. I’ve summarized some amounts above; so clearly we knew that we were short of funds. As ck says, I too have been very critical of the timing of BB’s removal and the resultant circus show that followed, and was a critical link in us being insolvent now.

I can’t speak for others but in my case, some of the important reasons for not participating was the circus around that time with directors/brokers/major shareholders at each others’ throats, hiding top 20, and all the really unnecessary chaos. Many others might have not participated for similar reasons. So not only did we not get enough funds in the CR, but now have a liability towards BB, which needs to be paid off, and as ck says, BB's removal at that time was a major factor in us now going into admin. How was this not taken into consideration around that time? Why was the 11 million raising not fully underwritten when we were already so short of cash and why did we go out of our way to incur an additional liability towards BB at that time, when we were already ridiculously short of cash?

BB does not need his case to be pleaded before shareholders. Based on current info available, it looks like it the shareholders now who have to plead their case before him.

Where do we go from here?

Well, like I said, I hope that people responsible for BB’s departure, ask him for an extension in the first place, to pay off the balance amount, or at least start talks in that regard.

With regards to other liabilities, the Moz tax one is a tricky one. Are Moz government repersentatives going to be one of the creditors attending the meeting? Seems odd. I don’t know how this even becomes a liability in the first place when it should be that of Grafex, and provision has been made out of prudence.

Certain liabilities could theoretically be paid off in new shares to those willing.
Most importantly, based on current info, I can’t see how we are short of anything but a few millions at the maximum. So maybe, big shareholders might have to support a new capital raising to raise some funds, if they want their money back. Like I’ve mentioned earlier, though, I feel that many of the old top 20 are already out long ago, and that was the reason why top 20 was taken off. They might come back now at reduced prices however. Alternatively, new white/black knights might surface.

Shareholders might have to keep a close eye though as it would be a tragedy if something hasty is done by administrators who normally seem to give more priority to creditors than shareholders. How did we even land in this situation is crazy.

Note again that like I mentioned, I’ve made some assumptions. So not everything might be correct, and some things might indeed be wrong.