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SacOil Waits for Share Suspension Lift

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08 Aug 2013

SacOil Holdings Waits for Share Suspension Lift

Despite the appointment of a CE and finance director in recent weeks, long-suffering investors in oil exploration company SacOil Holdings will have to wait a while longer before the suspension of the company's shares is lifted.

The company is still working with the JSE to finalise its annual results report and its new directors are sorting through the issues that necessitated the stock's suspension in May. Tariro Mudzimuirema, the newly appointed acting finance director, says the company does not at this stage know when it will publish its financial results for the year to February.

Since the suspension of its shares on both the local bourse and the AIM in London following the sudden resignation of former CE Robin Vela and two other board members, the company has appointed business and political heavyweights to its board.

Former Reserve Bank governor Tito Mboweni is now nonexecutive chairman. Jeff Maqetuka, former SA ambassador to Algeria and former director-general of the State Security Agency, is a nonexecutive director, as are Public Investment Corp director Ignatius Sehoole, Vusi Pikoli, a former director of the National Prosecuting Authority, and Stephanus Muller.

They werejoined by executives Mudzimuirema, who was previously the finance manager, and Roger Rees, former FD of construction company Murray & Roberts, as interim CE late in July.

The only director remaining from the previous board is Gontse Moseneke, who is also a director of Encha Energy, SacOil's biggest shareholder, with 20,67% of the stock. But do the appointments mean that the company is now finally able to start delivering on the many promises it has made to its investors?

Vela told the FM in February, before his departure, that by the end of 2014 SacOil would be producing some oil from fields in Nigeria, Africa's largest oil producer. The company has not yet produced a single drop of black gold from the high-value exploration acreage it holds in Nigeria, the Democratic Republic of Congo and Uganda.

The DRC and Nigerian assets are both adjacent to regional discoveries that hold significant resources. Those previous discoveries hold some 55mbarrels of prospective resources, says FirstEnergy Capital, a London-based consultancy. "These represent material monetisation opportunities if SacOil can secure sufficient capital," says Gerry F Donnelly, an analyst from the consultancy.

SacOil's four-year oil exploration licence in Malawi lies on a part of the East African rift system, a proven exploration region that has yielded oil discoveries in Sudan, Chad, Kenya and Uganda. Exploration on the DRC's side of Lake Albert is being undertaken by SacOil's partner, Total, whose extensive experience Donnelly says may present an option for monetisation in the future.

SacOil also relies on the expertise of other oil companies that have been able to discover in the area, mainly on the Ugandan side of the lake. Last year Uganda started producing oil commercially from the fields with Tullow Oil, Total and China's CNOOC as partners.

Before it can make good on its promises, the company still has a fair amount of work ahead, the most pressing of which is the settlement of the Gairloch debt. The Nigeria-based infrastructure group bought the debt from Renaissance Capital, a Russian investment bank.

The resignation of Vela and the previous board was a result of shareholders refusing to back their plan to convert US$17,6m (about R173m) worth of debt owed to Gairloch into equity. The deal would have severely diluted investors' shareholdings and handed over control of the company to Gairloch.

The debt would have been converted into over 67% of the company's market capitalisation at the last share price of 27c before suspension on May 31. Gairloch had already agreed to accept 488m new shares at a price of 32c/share for the cash, giving it a 33,89% stake after the issuance. SacOil has 953m issued shares.

Settling the debt would have left the company debt- free and with funding capacity. "In order to create value for your investors, it's sometimes necessary to give up some of this upside," says Donnelly.Whatever form the capitalisation takes, SacOil's existing investors will incur a dilution, says Donnelly.

Source: Sikonathi Mantshantsha - Financial Mail