LNGL’s Quarterly Report is due at the end of this month so I thought I’d post a few comments regarding the 3 biggest issues this company currently faces so that share holders have a broader view of the company’s position and some added insight into questions that could be raised at a future Conference Call.
First Issue, I have previously provided information regarding LNG’s financial position and its processes of raising money (Raising Capital - through the sale of equity i.e. ownership / shares) or (Raising Liquidity - through the sale of assets)
Capital is the amount of money put into the business (minus expenses) and includes share holder equity (i.e. ownership / stocks).
Liquidity (on the other hand) is the amount that can be raised through the sale assets (e.g. plant, property and equipment) which in LNG’s case is only around $11 Million.
PNB Paribas has withdrawn from facilitating debt to the company and Stonepeak have an agreed equity investment in LNG (at an interest rate between 6% and 7% and on the basis that LNG reaches FID). If another institutional investor were to facilitate debt or make an equity investment in LNG, one could assume that not only would further share value dilution occur but also interest could occur similar to Stonepeak’s.
Going by LNG’s financial reports over the last few years LNG’s quarterly expenses are around $7 Million and the upcoming Quarterly Report should indicate that LNG had around $7 Million left in cash and cash equivalents at the end of December 2019. By the time this Quarterly Report comes (given current cash outflows) LNG will likely have less than $5 Million left in cash to pay project costs and salaries. I will once again provide these salaries and remunerations from last year below:
EXECUTIVES Base Salary in Australian Dollars
Greg Vesey $846,667
John Baguley / COO $573,333
Kinga Doris / GC $455,008
Michael R Mott / CFO $555,460
Joe B’Oris / COO $458,333
NED NED remuneration in Australian Dollars
Cavicchi $ 363,226
Beresford $ 168,858
Bond $ 146,880
Steuert $ 220,459
Greg Vesey has taken over the role of Executive Chairman of the BOD after share holders voted out the previous Chairman, Paul Cavicchi in what was the first strike under the ASX two strikes rule. What I also noticed while looking at the share transactions from LNG’s BOD for last year was that the all the transactions were conversions of their share rights, except for one ‘on market trade’ where Greg Vesey sold 237,541 of his shares @ $0.25.
Second Issue; relates to the re-domiciling of LNG to the NASDAQ. It’s been 6 months since the BOD approved the re-domiciling, and we know it was proposed years before the BOD’s approval last year, so the process has been underway for a long time and as far as I am aware this process is not confidential and I believe share holders have a right to transparency on the current position of this process. I have raised several questions previously regarding this process and now have several more including:
Q1) What will the share exchange ratio be?! One of the requirements for joining the NASDAQ is that the share listing price be US $4.00 ($AU $5.80). At the current share price, this would mean that current ASX holders would get 1 NASDAQ listed share for every 29 - 30 ASX listed shares (ratio 1:30) ?
Q2) There are lower tiers of the NASDAQ with less stringent requirements that small caps can enter however one of the requirements to enter that Small Cap Market is that the Corporate Governance for these states that the company must have independent directors, which Greg Vesey is not. What affect does this have on the process?
Q3) The Company stated that one of the reasons for re-domiciling to the US is so investors who can’t currently invest outside the US can invest in LNG. I don’t know of any institutional investors in the US who couldn’t invest in an ASX listed company, certainly Stonepeak and Baupost (who recently decreased their substantial holding by over 2%) are both in the US, and other investors can purchase LNG ADR shares in the US. So in this regard, is it because US investors have to pay more to trade on the ASX, which Australian investors will have to do following a re-domiciling, or perhaps because on the ASX, LNG has an 80% negative return compared to other companies in the sector?
Q4) Share holders are supposed to receive a ‘Scheme of Arrangement’ in order to vote on the re-domiciling; so when will we receive it? What’s the holdup; it’s been over 6 months since LNG approved it.
Q5) I imagine LNG would have submitted the Form 10 to the US Securities and Exchange Commission and Scheme documents to ASIC for review. Have these documents been approved, and has LNG met Australian court requirements?
Q6) Are there any issues relating to the following LNG market statements and ASX Listing Rule 3.1
12/16 “Finalizing LNG offtake agreement efforts”
01/17 “Moving to finalize firm offtake agreements in the New Year”
03/17 “Forecast FID in July 2017”
03/17 “Construction on the Magnolia facility is expected to begin later this year”
03/17 “All three projects are in an advanced stage of development”
03/17 “Construction at Bear Head could start by as early as next year”
06/17 “Expected to have the whole facility contracted in the next 6 - 12months”
08/17 “Likely finish selling remaining capacity at the Magnolia project by the end of 2018”
10/17 “Confident of signing offtake agreements with credit-worthy buyers later this year or early in 2018 03/18 “There’s ‘real potential’ to get a final investment decision by the end of the year”
05/18 “Expected to make that call by the end of the year”
10/18 “We remain confident in our ability to reach FID whether or not China participates”
03/19 “Expected to make FID in the second half of 2019”
07/19 “Redomicilling to the US should be completed this year or early 2020”
ASX Listing rule 3.1 is the primary rule concerning disclosure of market-sensitive information. It says that a listed entity must immediately tell ASX of any information of which it is aware concerning it that a reasonable person would expect to have a material effect on the price or value of its securities.
Where a listed entity is found to have not had a reasonable basis for such statements, then it will usually be held to have misled the market and be liable under section 769C of the Corporations Act.
Forward-looking statements will trigger an obligation under listing rule 3.1 when the entity knows sufficient information to reasonably indicate that a material prior statement will not eventuate as predicted.
Third Issue - SPA’s; On 16th September 2019 LNG announced it had a deal to supply 2mtpa of LNG to DOE, after which, an initial bounce in the share price, an ASX query and a trading halt occurred. LNG then stated that they didn’t believe the announcement was ‘price sensitive’, yet on a number of occasions since they refer to it as a major event. As far as major events go, a look into past events provides some comparison eg:
1) Remember when LNGL was ahead of Golden Pass and Sabine Pass Train 6 in development
Now the Golden Pass Project has reached a FID and Cheniere’s Sabine Pass Train 6 has reached a FID
2) Remember when LNGL was 15 months ahead of Rio Grande, Calcasieu Pass and Driftwood in approvals and GV said “any prediction from those LNG developers as to when they will receive all the necessary permits and approvals is purely speculative and unreliable”.
Now NextDecade’s Rio Grande Project signed an SPA agreement for 2mtpa with Royal Dutch Shell and secured $50 Million funding from Abu Dhabi based sovereign investor Mubadala Investment Co; Venture Global’s Calcasieu Pass Project reached a FID (with 20 year SPA’s with Shell, BP, Edison, Galp, Repsol and PGNiG); and Tellurian’s Driftwood project signed an MOU with India’s Petronet for up to 5mtpa.
I’m expecting two Market Releases from LNG between this week and next week. First we should see that FERC has approved the Supplemental Environmental Impact Statement of LNG’s extra .8mtpa liquefaction capacity.
Then I expect the Quarterly Report will focus on the DOE (Delta Offshore Energy) MOU agreement which LNG now says is a major step towards FID. Several times since September 2019 we have heard this MOU referred to as a “significant advancement” and “major achievement” towards FID.
It’s been a month since DOE received approval for its amendments to the gas to power plant project. At the time they received it GV said they will immediately begin completing the terms for a SPA, yet in another Market Release he gives the timeline as being in May 2020.
I imagine the Company will try to focus their rhetoric on DOE while spot prices are still soft, global LNG in storage is at high levels, demand is subdued and outstripped by supply and global scientists and meteorologists predicting even warmer winters. These have been the excuses given by the Company as to why forecast projections haven’t materialised, along with the trade war.
Regarding the trade war, remember when GV said he was selling on a “first come, first served basis” and was “confident in our ability to reach FID whether or not China participates”
IDG are now down more than 60% on their $28 Million investment. I wonder if they would they be approving of another country (other than China) taking what it thought might be their share of LNG, after all IDG was planning all sorts of LNG infrastructure in China and thought their 9.9% share of the company would guarantee them supply. I also wonder what affect does China’s big State owned energy companies merging their infrastructure have on IDG’s plans.
That’s Magnolia, as for Bear Head, it is still a stranded asset without any gas supply and the only progress I have seen are extensions to the projected timelines.
When it comes to the 3 big questions for LNG
1) Raising cash - Down to $5 Mil and it’s hard to imagine anyone paying a premium price for shares like IDG did?
2) Re-domiciling - What’s the holdup, it’s been over 6 months?
3) SPA’s - I’ve heard it all before!
Back in May 2019 GV stated in a Conference Call that LNG would have clear, concise communication with share holders, so look for answers to these questions at the next one. Some of the questions I have posted here are not new to current investors but remain unanswered and may not be known to potential investors.
One day, if I see a return on my investments in LNG, from an executive team whose average base salary is above $10,000.00 a week and a BOD whose average remunerations are between $3,000 and $4,000 a week, I may get some peace knowing I no longer have to post questions and information that support me and other share holders in making informed decisions, and now that the executive team have lost their incentive bonuses, hopefully I have provided a little more incentive for them to get the job done.
In the meantime I’ll be wondering if I’m the only person who considers all this while sipping on my special blend of coffee!!
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