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Range Resources

Trinity Exploration & Production

Informed Discussion. No ramping. No deramping.

Trinity Exploration & Production

Post Mon Jun 25, 2018 2:30 pm

The following is from Malcy's blog today. Hopefully Trinity's good fortune will lead to new contracts for RRDSL.

"Trinity has announced what looks like a smart refinancing with a $20m raise comprising a placing of $11.1m, a subscription of $6.9m and an underwritten Open Offer of $2m, all at 15p, a 28.2% discount. The placing was oversubscribed and brought in welcome new institutions and the Directors and senior management added as did 88.2% of the holders of Loan Notes who have undertaken to convert at the issue price (effectively re-investing rather than cashing out). Total raised from Directors and Senior management was $3.1m giving them 22.7%, still plenty of skin in the game, something that I am, as readers know, particularly keen on, this level is way more than a lot of companies in the sector.

The raise means that both the BIR & MEEI debts alongside loan notes not converting at the issue price will be repaid in full at a cost of $5.5m and the company will be debt free. This funding, with the sorting out of the Loan Notes does take away the invisible overhang at 6p which had been playing on investors minds and obscuring the upside potential. As a reminder, come January 2019 the Loan note holders would have the ability to convert at c.6p/share bringing significant dilution but no new cash into the business. This deal brings in new capital to simultaneously fully cleanse the balance sheet and invest for growth at less dilution than would have occurred should the loan notes have been able to convert come January 2019.

More importantly it means that the TRIN management can accelerate the onshore drilling programme and grow production by >10% y/y in the short term and with many, largely fixed operating costs, can self-fund the drilling programme after 2020. In addition the company will be able to ‘ selectively pursue acquisitions and other value accretive opportunities that become available in the future’. This should include progressing the highly promising East coast Galeota licence I know the management is keen on.

Although at first glance the refinancing looks expensive by way of the discount, the shares have spiked recently and it is by far the best call for the longer term. With some inevitable dilution as a result my previous target price of 36p may come down a touch but certainly by less than 10% still giving a substantial upside for what is one of the best stocks in the energy sector. This fundraising completely clears the decks, acknowledges the past but puts TRIN on a good path for the future."
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