I attended the General Meeting at the end of last month to try and get some sense on where CCE might be headed. I have given what was said at the meeting that lasted nearly 2 hours some thought over the last week or so, and have decided to share my view.
It is clear that the events of the last few months have been nothing short of an unmitigated disaster. The EMC venture clearly failed on a lack of management due diligence, Davidson then sold out of his position as quickly as he could trashing the price completely. The fact that the EMC venture bled cash flow rather than supported the project at Albany was the last straw that eventually led to the company going into voluntary administration. These events are in the past, and although shareholders have suffered some significant financial pain, myself included, it serves no purpose to dwell on them other to have a good vent. I have considered the current situation in the cool light of day and whether something tangible might be salvaged from this train wreck.
I propose to provide a report on the General Meeting from my notes as best I can together with some commentary arising from further questions of management.
CCE offered the presentations that have already been released to the ASX, which everybody will have read, so I will not dwell on them. The current CEO is the technical boffin behind much of the IP work that has been completed over the years and it is clear that this is still valuable, although not all the patents will be maintained only those that are relevant to what CCE is looking to achieve. This assessment is currently being undertaken by the company with support from patent lawyers. CCE's modus operandii has also changed, not only will CCE revert to its original expertise in wave energy, but it will no longer build expensive prototypes, but rather use digital engineering techniques to progress its designs. The change is not as revolutionary as its sounds as many major engineering projects are developed on this basis. The design is to be refined so that the energy of a wave can be predicted just before the CETO buoy is impacted, improving the energy performance of the system. This work has already begun and is more of a computer algorithm based on the vast amount of data that CCE still holds. The work will include artificial intelligence for machine learning and also use the local super computer. I realise that this may sound like pie in the sky, but the fact that existing data is going to used gives me some confidence, also relations with ENEL Green Energy and EdF in Europe remain strong.
The Albany project failed because of insufficient funding, but also because of other events that are not much discussed. First the tax refunds that had been funding part of the project were suddenly no longer available as a consequence of the idealogical war on renewals in this country. The second reason was that the Minister's association with EMC gave the State Opposition an ideal opportunity to carry out a political wedge. It was mentioned to me that the State Opposition were very keen on the project having been given a tour of the work in Albany as well as numerous high profile site visits over the years, but the temptation to embarrass the Minister was too great. I expect that the decision will come back to haunt the Minister in the future for not supporting renewable projects, but that is another story. CCE continue to hold the licence for the Albany site such that no other operator can step into the void left by the cancellation of the project.
It is my strong impression that the business model going forward is to concentrate on Europe, working with major infrastructure operators to build and run the wave energy platforms, receiving a royalty for the use of the IP and technology that CCE owns. Those parties will obviously want the administration of the company out of the way before proceeding further. I note that directors have converted quite significant loans, almost $ 6 million, into shares, when a failed recapitalisation would give them the IP and accumulated technological know how on a plate as main creditors. The bulk of the EMC creditors are being dealt with through the Administration process; the IP and the facilities at Rouse Head in Fremantle together with the Garden Island Microgrid, have been ring fenced within the assets of CCE, rather than at a consolidated level with the assets of EMC. The Garden Island facility is generating income and has a value of around $ 4 million, from memory, which will be reflected in the accounts if the recapitalisation is successful. Northam is to be sold and the proceeds paid to the Administrators.
This brings me to whether it is worth participating in the recapitalisation of CCE. Should the recapitalisation fail, then it is game over and CCE would be permanently delisted, resulting in a 100% loss. Should a shareholder participate then in the event that the minimal amount to be raised, amounting to $ 5.5 million, is not realised, then the funds would be returned to participants as outlined in the prospectus. Should the recapitalisation succeed at the minimum amount then CCE would have sufficient funds to operate for 18 months until the end of 2020 or so, but without relying on any tax concessions and without taking into account the value of the operating asset on Garden Island. Those assets would also be sufficient to repay the new Convertible Notes due in 2021.
On the basis of my assessment I have decided to participate in the recapitalisation, but I hasten to add that my decision is not a recommendation to anyone. I have merely decided to share the outcome of my decision, so PLEASE DO YOUR OWN RESEARCH.
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