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LNC linc energy ltd

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What they could do to survive, page-3

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danhold

1,994 Posts.

21

02/02/15

14:36

Post #: 14682753
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Originally posted by bigal36 ↑

Clearly if the company keeps burning cash they are not going to survive and after seeing the post that they are looking at acquiring yet another dud coal asset I personally think they need to do a capital restructure and get rid of all the directors and most of the staff.
This is a radical approach which would be painful for shareholders in the short term but hopefully beneficial to them in the long term.

This is what I would do:

(1) Restructure the debt by offering 2.5 shares for every $1 (USD) of debt to the bond holders.
This would increase the number of shares from I think 590M to approx 1.8B
This would also have the benefit of reducing PB's voting rights to approx 13% and would stop him dictating what happens to the company.

(2) Get rid of every Director

(3) Stop all development on everything except for the UCG projects that have a genuine chance of making a profit.

(4) Reduce the staff from 400 to about 30.
New CEO with experience of running energy companies - $350K per year plus 2M share options at $1.00 to give him the incentive to turn the company around and review this every year based on his performance.
New CFO with extensive project evaluation skills - $250K per year plus 1M share options at $1.00 (reviewed every year based on performance)
One highly skilled Oil person and one skilled oil assistant.
One highly skilled Coal person on 2 year contract with incentives to try and sell the coal assets.
Small highly skilled team of UCG experts (maybe 6 people) all with incentives to achieve profitable UCG deals.
Part time Chairman/Company Sec/Admin staff.

(5) Oil production costs - Contract out all maintenance/other staff related production costs.

(6) Put all assets up for sale (apart from UCG) and if no reasonable offers are received just hold them on care and maintenance until the coal and oil market recovers (do not keep spending money trying to develop them).

If they could do that this would be the new company position.

P&L next 12 months
Oil Revenue $50M
Oil Costs $15M
Admin costs $4M
Interest $0M
Net Profit before tax $31M

The balance Sheet Would be something like this:

Cash $40M plus all remaining Assets
Debt Zero

This enables the company to not only survive but to generate surplus cash whilst still trying to pull off some UCG deals.
If a UCG deal is pulled off they can then hire extra staff on a contract basis to implement it.
If the coal and oil market does improve down the track they can then either sell those assets or do a joint venture where they give up maybe 75% of the rights and the third party fully funds the development thus taking the risk away from LNC.

So in summary even though shareholders would get their shareholding heavily diluted in the short term this plan is far better than going into administration and it still gives them hope of their UCG Alaska or even the Ark dream finally happening and paying off down the tracks.

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Big Al

No argument from me here as that's how i see LNC panning out however, the $1 strike price would be too fat out of the money. You see with I.8 Billion shares on issue (post reconstruction) $1 PS would value LNC at 1.8 Mkt cap.
A 900 M market Cap would see the shares at $50 cents. Somehow, I don't think the bond holders will accept debt for equity on your terms they are far to generous to existing shareholders. Putting LNC USA into chap 11 maybe their only option I expect LNC to reneg on the next interest payment!

LNC Price at posting: 99.5¢ Sentiment: Sell Disclosure: Not Held
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0 Great analysis

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