Many shareholders have posted on various threads of their concerns primarily about the proposed consolidation of EGO's shares and its effect upon value of their shareholding should EGO's shareprice fall post consolidation. It has been the opinion of a number of shareholders they believe a fall in shareprice and the value of their shareholdings will almost inevitably follow a consolidation and some have experienced a loss in value of their shareholdings in other companies that followed the path of consolidation.
To this end Doc and I proposed in the thread entitled “Consolidation and shareholder concerns” and invited shareholders to post their views and opinions in reply, with the view that a meeting with EGO's board be held before the end of June.
Present at the meeting were:
Chairman & Non Executive Director - Tony Iannello
Chief Executive Officer – Ken Aitken
Chief Financial Officer & Company Secretary – Rachel Rees
Shareholders – Doc and myself
A prepared agenda together with an abreviated compilation of common shareholder views and concerns ex Hotcopper was provided to EGO's board representatives.
Speculation about responses to questions are shown in italics and are purely views of both Doc and myself and should NOT be taken as as fact or advice.
Nothing market sensitive was discussed or entered into by the board representatives.
AGENDA
Consolidation
You have advised the market the company intends to consolidate its shares before or at the next meeting of the AGM
Have you a specific timeframe?
What consolidation figure 20,50:1?
Why not wait until this time next year?
Why prior to AGM when no information re drilling results and survey known?
In my experience that whenever a company consolidates its shares, the value of shares post consolidation works out to be markedly less than pre consolidation.
Likewise the company's market cap will also be comensurately less leaving it wide open for a predator to snap up the company cheaply. Shareholders will inevitably suffer, particularly the smaller shareholders.
Historically the market has viewed Empire as a penny dreadful stock, consolidation will not change that view. That viewpoint may change if very significant news is released either before or immediately after consolidation.
That significant positive news may protect the share price and the company's market cap from a disasterous fall in value.
Could be a prime T/O Target at a reduced price?
Sale of unmarketable parcels.
When will it begin?
There are small shareholders who purchased EGO shares when they were valued significantly higher than at present and they are now in the predicament of having their holding marked as unmarketable. Yes, they could have purchased additional shares but perhaps they could not for financial reasons.
Will Empire advise shareholders holding unmarketable parcels they can OPT OUT of the sale?
Usually there are restrictions on the price paid per share in the sale of unmarketable parcels. Does the company's constitution provide for a minimum price paid for these parcels?
Farm-In
You have not sufficiently explained why a consolidation of the company's shares is necessary particularly at this time apart from making the company more attractive for a farm-in arrangement.
It seems obvious to me EGO has been approached by interested parties either as farminees or who could be cornerstone investors.
Is a consolidation so necessary at this time for these interested parties to make their interest something more?
WHY, given the probability of a significant fall in the share price post consolidation.
Has the company a “plan B” if shareholders do not approve a consolidation.
Has Alcoa been approached for financial backing or other arrangements as an alternative to a farm-in where EGO would lose a significant percentage of its large interest in the Perth Basin.
Alcoa are very keen to invest and buy all gas
Alcoa need to shore up all it’s gas contracts before 2020
Alcoa would be ideal partner to go forward with instead of selling 45% to farmin, Please explain why a farmin would be better than the continued gas tranches with Alcoa?
Should the farm-in go ahead will the production licenses at and the plant Red Gully be excluded from the farm-in?
What are the Asian or AWE rumours, is there any substance to these guy’s coming in?
Red Gully Plant
Is Empire still considering selling the plant? If so why, when and what asking price?
What are the advantages of selling versus retaining the plant?
Are there disadvantages to retaining the plant?
Whether the plant is sold or retained, is there a plan to extend the plant. This needs to happen if the company is to grow. What cost is it to expand the plant per 10TJ a day
Cost of LPG Stripper when do you want to do this?
Legals
What is the current situation re past directors?
Board
What is Mr Garret's involvement. What skills can he bring to EGO?
RESPONSES and SPECULATIONS
Consolidation:
Response:The board is recommending consolidation should proceed but will not be doing it prior to the AGM. A resolution will be presented at the AGM for a consolidation which then goes to vote and will be carried out early in Q1 2016.
EGO indicated they are not considering the broker report option of 50:1.
We requested they do not do an aggressive consolidation. Agreed.
Note: Other matters concerning timing, ratio of consolidation etc were not entered into.
Speculation: The board has the numbers to carry it through at the AGM.
Like many shareholders we understand that consolidation should proceed at some stage however it seems there are moves behind the scenes regarding a farm-in partner which may be released to the market at some stage before the AGM which are the reasons the board wants a consolidation of EGO's shares at this stage.
Sale of Unmarketable parcels:
It was announced on 15June.
Farm-In:
Response: Still actively looking for a partner to farm-in.
Speculation: On looking at the EGO's financials, the announced drilling activities going forward and its debt to ERM it seems very likely a farm-in partner with the financial wherewithall has been found but will require a substantial percentage interest of EGO's holdings.
The 4/5 well drilling program, 4kms of pipeline work from RGN to Red Gully, Red Gully plant enhancements and upgrade total to roughly $60M.
Each well will cost about $10M, Pipeline $2M, Red Gully plant, the balance and then there is the initial ERM debt and any increase to it due to the top up mechanism. EGO does not have that sort of money. Income from Tranche 2 and condensate sales alone cannot fund the full ongoing drilling program and other matters mentioned above. It needs funds from outside its income stream. A farm-in partner with funds is the likely source.
Legals:
Response: EGO's board is continuing to pursue the former directors. It has been an expensive exercise and legal action is continuing.
Speculation: It seems EGO will not blink first.
Red Gully Plant:
Response: Sale of the Red Gully to pay off debt to ERM is not a priority, EGO is looking at other means of addressing debt.
Note: Other matters concerning the plant were not entered into.
Speculation: It seems likely to be announced at the AGM the debt to ERM will have been paid.
How? Part of farm-in agreement perhaps. The board does not want the ERM debt and top up to affect its drilling program or upgrades to the Red Gully plant.
Board:
Mr Garratt,what does he bring to EGO?
Response: None, all skirted the subject completely, just talked about the team. Ken in particular talked about and emphasised the very experienced team EGO has assembled.
He is particularly excited with having Rachel on the team and how she was involved in bringing a $100M company to over $1B. She is also involved in all the legal action.
Speculation: Mr Garratt is actively involved discussions regarding the farm-in.
There are too many directors for a company of EGO's size. Brett Heading was appointed as Chairman of Invion Limited on 29April15. It may be that his task at EGO is nearing completion and with Mr Garrat bringing his skills and expertise to EGO to complete the farm-in.
On doing some research it does appear that Ken has not been idle in preparing for EGO's near future drilling activities.
Mike Adam – Operations and Engineering Support
David Reverdito – Senior Drilling Engineer
Nathaneal Buma – Well Engineer
Finally to re-iterate:
The speculations are exactly that, they are our personal views and should not be interpreted as fact or advice.
PLEASE DO YOUR OWN RESEARCH
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