PetroMatad, part of TheShareHub ‘heads up’ picks for 2018 (tipped at 7.12p) raised £13.7m in what looks like a pre-planned capital raise despite the apparent 16hr turnaround. The placing comes as a bit of a surprise as PetroMatad was fully funded for the 4 x high impact exploration campaign in Mongolia. There was no obvious reason for this capital raise at 10p a share which represents a 17.7% discount to the average daily vwap for the 30 days up to 12 June 2018. With 4 x wells, the company would have had several opportunities to secure further funding even with a duster or two. However, when you look a bit closer at the takeup of the 10p placing offer, you will note the following:
Concert Party Holding
Following Admission and the issue of the New Ordinary Shares to Enkhmaa Davaanyam, the Petrovis Group (being Petrovis Matad Inc, its underlying shareholders and their family members) will hold 196,849,199 Ordinary Shares representing 29.73 per cent of the Company’s enlarged issued share capital.
Prior to the fund raiser, the Petrovis Group held approx 27.81% or 146m shares based on holdings from the company website. After this fund raiser, the ‘family’ now hold 197m shares. That’s a whopping increase of 51m shares (assuming Petrovis new shareholding) which accounts for almost 38% of the new shares.
This capital raise looks timely just ahead of the first drill. It reminds of when GKP did a capital raise at 9p a share of which the CEO and connected parties (family) took on the bulk of the issue. A few weeks later and the company announced a multi-billion barrel discovery.
PetroMatad have bolstered the drill plan of 4 wells to 6. The total resources targeted is closing in on 1 billion barrels. I’m not convinced that the extra 2 x wells is a good enough reason to justify this discounted ‘family’ rated placing. That said, there is always something to be said with regard cash balances and outright exploration companies. Having a solid cash balance can enhance the value of any future farm in deals and should the company achieve this on the 2 x new wells, the value generation will undoubtedly be evident to all. Equally, if drill 1 or 2 comes in with gusher style discoveries, this placing at 10p will look rather fortunate for all involved and quite unnecessary.
With 4 x wells in 2018, shareholders will not be disappointed to see another 2 x wells planned for 2019. Just a shame the company didn’t issue the other 62% of shares to their extended family… their existing shareholders. An open offer deal could have been sorted as there are no major timeframe concerns on the new cash required.
Roll on the first well in July. Even if that’s a duster, there are another 5 wells coming shortly after which should underpin the share price considerably. As with all exploration, there is a risk all 6 drills come up dry so don’t underestimate the risk involved with your investments on outright explorers.