Zoltav Resources RTO – Financial Manipulation & Joke valuation

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Zoltav Resources (LSE:ZOL) the AIM listed shell last week announced a Reverse takeover in a deal to buy some Russian oil assets. The shares were suspended at 4.6p but the deal is being done at 3.5p and so here is how the maths of the shareholder structure stacks up after the deal:

© Image copyright magnera

1. Vendors of interesting Russian assets – 473,157,416 shares
2. New investment from ARA Capital (aka the Abramovich family) of £13.4 million at 3.5p – call it 383 million shares
3. Conversion of loans from ARA to Zoltav (at 2.4p) call it another 21 million shares
4. Shares in issue prior to RTO owned by ARA 150 million
5. Shares in issue prior to RTO not owned by ARA 225 million.

So post deal what the parties bring to this trade and what they get is

1. Vendors of Russian assets, sell those assets and get 38% of the equity of a company which at 3.5p is valued at £44 million and owns those same assets and cash of sub £13 million ( after deal expenses). In other words they have given away 62% of their asset for £13 million.

2. ARA gets to save a business which was almost out of cash. Treating its initial investment as dead money its latest £14 million leaves it with 44% of a Russian oil field.

3. The non ARA shareholders were sitting on equity worth nothing. Zoltav had no TNAV to speak of. And yet they will get an 18% share of this Russian oil field for bringing sod all to the table. Abramovich could have got control of a shell on AIM with sod all assets for buttons and thus done the same deal using that shell valuing the shell at buttons but did not.

Ask yourself why a smart cookie like Mr A ( I know his son is nominally in charge but seriously…) and the vendors of this asset has chosen to give 18% of the value of a company (that is the vendor’s asset and Mr A’s cash) to folks who bring zero value at all?  Why is Roman being so generous?

My critics will say that I am carping as I have been bearish on Zoltav for a while. They can say what you like. Yes I have been uber-bearish for ages – you can defy gravity with joke valuations for only so long. This is a point that I explained in detail HERE

And so what now? The shares are suspended pending the publication of a circular and then the cash ponied up the Mr A will be spent to fund a work programme on the Koltogor license where Zoltav now has a 25 year exploration and production permit. This license is located in the Khantiy-Mansisk region of western Siberia and contains the undeveloped Koltogor oil field. Zoltav has commissioned a competent person’s report to assess the volume of contingent resources; the results of which will be included in the Circular.

I am sure it will be a big number. But it will take years (and many more fund raisings) to drill, develop and bring on-stream (if it is commercial). The market cap at 3.5p will be £44 million. At this stage we have no idea what Koltogor holds. I would have thought that the sad tale of the flea-bitten stockmarket dog that is Ruspetro would have put any sane investor off these sort of plays ( even if they get to the production stage) for good. But common sense should say that such a market cap for a company with cash of £13 million (and I bet falling very fast) and some fields may well be generous.

I shall watch the readmission document closely for details of the lock-in arrangements for a) the vendors of the Russian assets and b) Mr A and is pals.

Tom Winnifrith pulls no punches when writing even when he is discussing someone like Roman Abramovich. He writes for 10 US and UK websites and can be followed on twitter @tomwinnifrith – you can also get links to all of his free articles on his own website www.TomWinnifrith.com

The premium website where all the best thoughts of Tom appear first is the Nifty Fifty. It is co-produced with infamous bear raider Lucian Miers and with Steve Moore, Tom’s collaborator at t1ps for many years. You can access the Nifty Fifty HERE

 

 

 

 

 

 

 

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