This is perhaps surprising as it indicates MEL may not have, as recommended by Section 2.8 (a) of Guidance Note 12, applied for in-principle advice from ASX about the application of Listing Rules 11.1.2, 11.1.3 or 11.2 to the transaction before proceeding with the transaction.
This may indicate that MEL is hoping to pressure the ASX into just waving the transaction through.
Of course one of the easiest methods to ensure that the ASX did not require re-compliance with Chapters 1 and 2 of the Listing Rules would have been to ensure that shareholders had sufficient information about the proposed transaction for trading to be occurring on a reasonably informed basis or to seek shareholder approval of the transaction as permitted under the Guidance Note.
Of course, the Board and management of MEL (either through ignorance or deliberately) seem to have previously adopted a relatively caliver [sic] attitude to the Listing Rules. Even with this most recent announcement, as an oil and gas exploration entity that is not earning any material revenue from operations, MEL appears to have ignored the recommendation of Section 2.8 of Guidance Note 12 and failed to provide any indication of annual expenditure that will result from the proposed arrangement with ELK.
In addition, for the AGM in 2013, in an apparent attempt to inhibit the challenge from disaffected shareholders, the Board issued papers calling the AGM, ignoring the requirements of the Listing Rules to provide 7 days notice of this intention. To further compound this failure, the Chairman then assured all shareholders at the AGM that the Company had fully complied with the requirement for the 7 days notice.
It is also well known that anti csg protestors in the Northern Rivers (perhaps with little justification) have complained that MEL may not have fully complied with the continuous disclosure requirements in relation to the provision of advice as to the extent of protestor activity in the MEL area of operation.
In the absence of significantly more information, it is very difficult for MEL shareholders to determine whether the transaction is in their best interests. While it is likely the Independet [sic] Experts' report prepared for ELK shareholders will provide substantially more detail, the purpose of this report is not for the benefit of MEL shareholders. The transaction may well represent a substantial opportunity for MEL shareholders, but on the surface there appear to be significant questions. The main asset being acquired, the Grieve EOR development, appears to have a very troubled history. It appears that ELK initially believed total field expenditure of less than USD28.6 million was required before the development became cash flow positive. Currently total field expenditure stands at USD70 million and it is forecast that there is at least two more years before first oil production and any chance that the project could become cash flow positive. Initial pressurisation of the field commenced one year later than originally planned and first oil is now forecast to be running up to three years later than initially planned.
There is no doubt that the transaction represents a significant change to the scale of MEL’s activities.
Read the full comment here.
One indication of the very low enthusiasm for the stock can be gained from looking at the last Company’s Share Purchase Plan which closed on 16 July 2014. The SPP provided for all shareholders to subscribe for up to an additional $15,000 worth of shares at an issue price of $0.12 per share with subscriptions capped at $3,000,000. There was also one free option attached to each share acquired. So 25,000,000 shares were on offer. But only 2,600,000 shares, just over 10% of those on offer were taken up by shareholders. Only two (of the five) directors took up the offer and then at less than 50% of their entitlement. Of course it didn't help that the ELK share price was only $0.13 at the time the SPP was announced and then promptly dropped below the $0.12 offer price and stayed there for most of the offer period. And the ELK share price has never been above $0.12 since.
Great vote of confidence by the apparently badly disillusioned shareholders. Further it looks like the underwriters and sub underwriters bailed, taking up only $688,000.08 of the underwritten $1,000,000. One sub underwriter for $150,000 looks like they bailed totally.
But the other interesting thing is that only one of ELK's long term posters has bother [sic] to post anything to HotCopper about the merger. Maybe they are all laying low, hoping like Christ that the merger goes through. The register is dominated by large holders, with the top twenty holders at 30 June 2014 holding 60.63% of the issued shares. This is a little down on the 64.28% held by the top twenty at 30 June 2012 but substantially up on the 39.62% held on 30 June 2005 just after listing…..
The AUD1.25 million loan due to be repaid on 8 January 2015 was from private individuals, likely to include some of same large shareholders from the top twenty.
It is beginning to look like the MEL proposal may have more to do with giving these large shareholders a way out of ELK rather than any grand opportunity for MEL. And it certainly guarantees repayment of the AUD1.25 million loan which was looking very shaky indeed. Maybe MEL is looking at these grateful shareholders to provide the proposed March funding.
It would appear that the market also shares investor doubts, as the merger announcement failed to break Metgasco's ordinary share price out of the 4 cent doldrums it has been in since November 2014.
While the Federal Government remains gloomy about the gas industry as a whole:
“Every oil and gas company in Australia will be cutting back on its exploration and development with oil prices sitting at $60” [Resources Minister Ian Macfarlane in The Australian, 3 January 2015]