Frontera Resources (LON:FRR) shares continued to slide on Monday as the company awaits the next stage in crucial legal proceedings.
The Frontera Resources shares price has been dogged in 2018 by legal proceedings with a non-exec director Stephen Hope, arbitration with the Georgian state over a supply sharing agreement and the ongoing restructuring of debt and capital raising.
The most pressing of these matters is the Cayman Grand Court case for which defendant Hope has until December 18th to file a defence.
Frontera’s fully-owned subsidiary, Frontera International Corporation, has filled a case with the Grand Court of the Cayman Islands against Frontera non-exec director Stephen Hope and Outrider Management, the Californian-based Investment Advisor Hope himself founded.
Frontera Resources allege Hope broke his fiduciary duties as company director and conspired with Outrider for his own personal gain.
Frontera have filed damages amounting to $56.3 million against Hope and Outrider Management LLC.
For a company producing just $1.8m in revenue from oil & gas sales over a 6-month period, the near-term fortunes of Frontera and their investors are likely to be dictated by the outcome of the Cayman case against Outrider.
The case relates to the issuing of loan notes in 2016 in a restructuring of debt that involved 10% notes issued in 2011 being reissued as non-convertible notes to Outrider Master Fund. Stephen Hope, a non-exec director of Frontera Resources, has an interest in excess of 75% in Outrider Management.
The restructuring was imperative for any semblance of shareholder value as the prior agreement was causing ongoing dilution to the share price.
Despite undergoing debt restructuring, Frontera have a long-term debt pile of $35m.
Funding Operations
Frontera Resources are extracting oil in Georgia and are seeking to increase production but require additional funds to enact their operational plans and achieve the levels of production they need to fund ongoing operations.
With a significant debt pile, Frontera turned to equity investors to fund their operational cash requirements through 2018.
Frontera Resources raised funds through investment platform PrimaryBid in the form of a £2.5 million placing in February 2018.
Chief Executive Officer Zaza Mamulaishvili said at the time:
“We are delighted to have once again used PrimaryBid’s innovative platform that allowed investors who have supported us in the past, along with a growing number of new investors, to access this offer. It is very encouraging to see such interest in the company and its current operations,”
The £2.5 million was raised at 0.466 pence per share representing a 37% premium to the 0.34p share price of today.
The investor interest in the company may be pleasing to the board but existing investors could well be concerned the amount raised barely equates to one year’s worth of non-cash interest payments and the company said in their half yearly report Frontera ‘plans to continue to reduce costs and raise additional financing in order to continue to facilitate the company’s 2018 operating plan’.
This could mean further dilution to equity investors given, by the companies own admission, tapping up credit ‘markets may be adversely affected’.
Cayman Grand Court
A positive outcome form the Cayman case for Frontera Resources may see a haircut on current debt obligations or a cash consideration that could reduce the need for further capital raising.
Either of these scenarios would undoubtedly be a positive for the share price but Frontera Resources will be left in a precarious financial situation if the case drags on or is thrown out by the Cayman Grand Court.