As we discovered last weekend AIM is the Mother Theresa of world stockmarkets which is why recent releases from TXO (TXO) stand out so horribly amid this ocean of virtue and transparency.
TXO became an AIM investing company over 3.5 years ago. It has raised money at various times to pay operating costs (including some very large directors’ fees and related party transactions with directors’ other companies for “consultancy”) and to make investments. None of the companies TXO has invested in has made a profit, let alone returned a single penny to TXO as yet, despite lots of positive updates over the years saying mega bucks were just round the corner. The latest interims note that: "The Board is confident that TXO will become profitable in the next financial year." Of course! The board has been confident of that every year. Could this be why the share price of TXO has fallen by 95% since becoming an investment company?
As a result of this lack of profitability, or more correctly lack of any revenue what so ever! TXO regularly needs more money. It became obvious that there was an impending cash crunch when the third tranche of the death spiral funding deal it had struck earlier in the year with Bergen Global Opportunity Fund, LP ("Bergen"), an institutional investment fund managed by Bergen Asset Management, LLC ("BAM") was not received back in August when due. Details of the deal are HERE
Rather than telling the market about the problem, TXO put out a progress update on its investments, which dressed up delays as progress HERE.
“Morgan Oil Marine (Bahamas) Limited has recently confirmed that as at the beginning of September, the contract had been extended and that work on-site was continuing.” It was supposed to be all complete at end of July according to the interims “An initial 32,000 barrels have been collected, processed and sold since commencement in May and MOM hopes to complete the processing and sale of all the remaining barrels by the end of July 2014”.
Instead of announcing the Listing on AIM of one of their investee companies, Athabasca Resources Ltd (ARL), which was supposed to occur at end of September this year, it announced a JV between ARL and another investee company Oil Recovery Services (ORS). ORS is the same company that has been working with MOM in the Bahamas with “wonder technology” to separate spent fuel oil and water.
The JV is therefore between a company that has no money (ARL) and a company that has yet to prove that it has a commercial technology - “ORS believes the technology can be adapted and deployed for use in the recovery of oil bitumen from the Athabasca oil sands”. That belief is based on nothing more than wishful thinking. Given that the oil sands project is an in situ project ie the separation needs to occur underground, it is a bit like believing that something that does not work particularly well at picking up pebbles on the beach will be great for collecting rocks on the moon. But that has not stopped ARL claiming the process is 400 times more effective than steam in investors presentations. Add to that the fact that the sole director of Athabasca is Julian Hamilton Barns of Minmet scandal fame and we can all see where that one is really going.
But the naive PIs fell for it, creating a spike in share price and volumes to aid the crisis funding negotiations which were brought about by Bergen not paying the anticipated third tranche (somehow they still met all their obligations under the deal!) and £567,653 of Convertible loan notes that are way underwater were due repayment at end of Oct. Unsurprisingly, TXO still struck an awful deal for shareholders – it is hard to do anything else when you have a gun held to your head. Details are here:
"This refinancing strengthens the balance sheet with parties that understand the business and our objectives in the Bahamas, where they have strong connections. It addresses the Company's short term funding issues and reduces the prospect of further share dilution other than as a consequence of the financing plans above.”
Then TXO called a General Meeting to get authority to allot shares equivalent to 2/3 of the enlarged share capital of the company. Ie in order to bail out past failures that led to the desperate refinancing, existing shareholders end up with 1/3 of the business they thought they owned.
Now for the really shocking bit. TXO is owed money by one of its non-core investee companies, Tasmanian Oil & Gas (TOG). It is owed £226,305 to be precise (Ie about half of the convertible loan notes due) and this debt was due on 13th Oct 14, ie before the Loan Notes. Repayment of this debt would have put TXO in a much better negotiating position with regard to the refinancing, so did it call it in? No TOG is broke and has been for over a year. In Jun 13 TXO’s own broker at the time (Fox-Davies) said about TOG:
“We continue to carry no value for the TOG for now on a risk-adjusted basis due to a combination of outstanding litigation and exploration drilling risk that has a very low chance of success.
While prospective, the assets have not benefitted from a sufficiently well-rounded exploration programme, and in the past we believe Empire failed to execute a technically rigorous exploration programme to de-risk the play and enable drilling to commence with confidence. More detailed seismic is required on the leads to elevate them to prospect status, the industry norm required to identify them as targets and justify drilling; the low chance of success speaks for itself. Any value contribution to risked NAV by TOG is worth nought if it is not successful in the license hearing.”
The licence appeal was dismissed in August 2013 when the lawyers acting for TOG (at TXO’s expense as only TXO has ever put any cash into TOG) did not actually turn up to put their case.
So did TXO hold a gun to TOG’s head, in the same way it had held a gun held to its head? No! The details of the deal are here:
What is the point of increasing the interest rate when there is no prospect of any money ever being repaid by TOG, why give it another year? The company is broke, has no licence and the only thing it does have is a shareholding in Alpha Prospects, which it got by virtue of a paper swap. These shares are totally illiquid and what is the value in an option to acquire these shares from TOG at a price of 2.5p. They are not worth anything like this figure; an offer was made recently for Alpha shares that valued them at 0.27p, but the buyer walked away before the deal was done.
So why do such a poor deal when TXO holds all the aces on this one? Surely the fact that “the Board of TOG, whose directors are Christopher Foster and Geoffrey Harris, respectively a TXO Non-Executive Director and the Company Secretary of TXO” could not have had that much to do with it? And how much of a factor is “Christopher Foster is the Chief Executive of Alpha Prospects.”? Especially as “The Directors of TXO, other than Christopher Foster, having consulted with Northland Capital Partners Limited, the Company's Nominated Adviser, consider that the terms of the amendments to the terms of the TOG CUL are fair and reasonable insofar as the shareholders of the Company are concerned.”
But hang on Tim Baldwin resigned as a director of TOG shortly before this. Tim Baldwin is also a major shareholder and director of Alpha Prospects and the Nomad knew all that. What would have been the impact on Alpha Prospects of the Alpha shares held by TOG being put on the market? What would be the impact on Alpha Prospects if the 20% of TOG that they have valued at £1 million in their balance sheet had to be written down to zero, because TXO had got a decent deal for TXO shareholders? It is very clear that TXO shareholders came second best and the interests of Alpha Prospects shareholders and directors were looked after in this deal.
The Nomad is of course paid a fat retainer by TXO and the same company is also TXO’s broker, so how independent is it when judging the equity of such a deal? There was a GM which approved the giving away of 2 thirds of the company so why did they not put a resolution on the agenda so TXO shareholders could have decided what is in their best interests with regard to the TOG loan repayment – the Nomad is clearly incapable of protecting shareholders’ interests? This stinks but TXO is on AIM so nothing can possibly be wrong can it?
AI
