Gran Tierra Energy Share Discussion Threads

[yasx] 02/1/2011 19:05

All (and especially 6kenny),

I am surprised that you remained positive after the initial RNS on the 29th of Dec, but have now turned bearish. It would have made more sense if you remained bearish throughout, since there is not that much in the RNS dated the 31st that was not known on the 29th, save the introduction of the D Loan Notes.

I do not claim to have an intimate understanding of what is likely to happen (or what has happened) at GTE, but I am bound to say, having briefly glanced over it, this has not been an efficient operation since listing. The cash burn is remarkably high for an outfit of this size, and they have consistently raised funds by one way or another, much to the chagrin of long term holders.

So what is all the fuss surrounding the latest news release? Well, it seems that the disposal will be approved at the meeting scheduled for the 17th of this month and then the existing loan notes (up to and including C) will be converted into equity (we do not know the terms but very likely to be favourable to loan note holders) and the D Loan note holders will be paid off from the proceeds of the sale. But then, even though the Loan notes up to and including C Notes were not to be repaid until late 2012, it was mentioned in the previous release that GTE intends to ''apply the proceeds from the Asset Sale in repayment of the Loan Notes. GTE, however, is in discussions with Loan Notes Holders about retaining the proceeds from the sale of the Assets''. But given that this would have left GTE without sufficient capital to function, I am surprised that plums on here are rambling on about the inevitable dilution. Shareholders were told that talks with a strategic partner had broken down, and thus, and assuming the terms are reasonable, it makes sense to swap the debt for equity. I am a little perplexed however as to why they have issued the D Loan notes, since if they expect the sale to complete, and for previous loan notes to be converted into equity (thus allowing the proceeds to be retained), then surely the imminent need for such an expensive form of financing is not necessary, especially since P & W are set to make a payment to GTE of $2.1m on 3 January 2011, in respect of 2010 fees due under the Business Collaboration Agreement which is now terminated as a result of the sale agreement. Surely alternative financing could have been arranged after sorting out the other issues, rather than engaging in this hideously expensive arrangment now - maybe it is the case that they have no funds to get them through such a short period.

The asset sale acheived much more than might have been expected, generating some $17 million, of which $14 million will be due immediately upon completion, the rest deferred for a year or two. This sale is encouraging in the overall scheme of things, since this part of the business only contributed about 15% of total revenue.

Having had a brief look, it seems one of the major problems for GTE has been the incredible cash burn - but they now insist that ''an extensive cost reduction programme is underway to lower the cost base and eventually generate free cash flow''. Of course we have no evidence yet that this will happen, but at least it indicates they are aware of the fact that costs need to reduced considerably. I note from the last set of results that they recorded a significant net loss and blamed this on substantial exceptional costs associated with negotiating an investment from a strategic investor, which in any event did not materialise. For a relatively small company, this did sound fairly outrageous to me.

It all hinges now on the terms of the likely conversion of loan notes to equity . If the outcome is skewed in favour of the interests of the loan holders, it might be rather grim. I do have not enough of an idea about the Board of Directors to see how they will want to play it. I do agree that they ought to have released all the information in one single announcement on the 29th, since there was no reason that I can think of to delay it for another day or two. I have no real interest in GTE, but to me it appears that before the the asset sale was agreed, the company was looking at inevitable insolvency. With the asset sale they now have a lifeline. Thus, I cannot see how a holder who considered the shares a worthwhile investment a few weeks or months ago can now think it has suddenly all gone pear shaped. They now have a better chance that they had before. Quite how good a chance that is, is a matter for you to decide.

Always undertake your own research. I have not looked at this in great detail, and these are my views only.

[yasx] 02/1/2011 18:50

6Kenny,

That is my point - what prompted you to buy in at 9p? I do not know when you made your purchase, but looking at the last six months I cannot think of any any point when the outlook has been any better than it is now (though that is different from suggesting that it is now encouraging). If I am wrong, then perhaps you might explain why?

The loan notes were issued in 2009, and the company has been diluting investors since it listed. Moreover, the markets in which operates have been uncertain at best over the past few years. So what have you now realised that you did not know previously?

[6kenny] 02/1/2011 18:16

yas,

I never said prospects were ever favorable, I bought in at 9.25p a few months ago and when it plummeted I just wrote the money off mentally.

If this hits my buy price I will be out like a shot as I want to buy more BAO and UEN before they bust loose.

Tuesday could be carnage so will be the wrong day to try and cut loose as no doubt a long queue of people may well be in front of me!

I hope I am reading the situation incorrectly but NOONE on this bb has been able to put forward a compelling argument other than how great Zouk is.

Even big investors/funds get it wrong.

Tuesday is the true test to see how the market reacts to the recent RNS that was released when the market closed (I think that should be illegal).

[knowing] 02/1/2011 18:15

Kenny it amazes me that you felt it necessary to post your downbeat comments virtually eveyday over the Christmas and New Year holidays.

Were you bored?

[yasx] 02/1/2011 18:08

All,

I agree with Valhamos. Even prior to the RNS the other day, one could hardly have thought that dilution would not occur.

If Kenny6 thinks the prospects are now grim, how on earth did he conclude that prospects were favourable prior to the asset sale? The disposal achieved far in excess of book value and is probably what will save them from insolvency.

[6kenny] 02/1/2011 17:48

Nope, perhaps arriving at that conclusion helps you sleep easy at night!

I am a disgruntled holder who feels extremely let down and mislead by the current management.

Are you assuming that all of this loan note malarky wasn't known on the 29th and was therefore mentioned in a nice innocently timed 'Posting of circular to shareholders' AFTER THE MARKET SHUT which was laced with dilution and insolvency phrases?!!

WAKE UP.

[knowing] 02/1/2011 17:32

Negative!!! Down right short I would say along with JWE.

[6kenny] 02/1/2011 16:25

smicker,

stop being so childish and keep up with this thread. I turned negative after the most recent RNS BUT I was positive after the first RNS until I read it again and again and debated and discussed the bits that you pasted!!

geez....don't people read the thread these days!

[valhamos] 02/1/2011 15:49

Like CR I can't see what the fuss is about. These are risky because they are not making profits (as yet) and are in the middle of a massive investment programme requiring lots of funding. Dilution of existing investors in these circumstances is not a surprise and has been evident for the past 12 months.

[smicker] 02/1/2011 15:41

jwe,
The subsequent rns has nothing to do with my post. Do you agree that the possibility of dilution and insolvency were well flagged in the initial rns, particularly in the portion i pasted above?

[jwe] 02/1/2011 14:30

Smicker-Read the subsequent RNS properly
Tomos-You are either ramping or simply have not read or understood the RNS on 31st.
The bottom line for those of you that can`t seem to understand it is by 15th Feb GTE will either be insolvent or facing massive dilution.Outside funding does however remain as a 3rd possible more palatable option IF avaliable

[tomoslewis] 02/1/2011 13:51

Lets not forget a shareholders vote in favour of the transaction results in a completly changed funding environment for GTE. The transaction means the current funding sources are repaid and management have to proceed on the basis that shareholders will support their actions. No shareholder is his/her right mind would vote against the transaction and therefore no insolvency, the opposite in fact. Any possible dilution will be subject to the additional funding requirements, the sale of the aviation services business improves GTE as an investment and therefore reduces the dilution effect of raising further equity.

Let's not forget the main transaction here, from the return:

Transaction highlights

-- Asset Purchase Agreement signed with Pratt & Whitney covering sale of substantially all of GTE's technology and intellectual property for non-core aviation engine wash services business

-- Subject to shareholder approval, GTE will receive total consideration of US$17.1 million, with US$14.8 million payable on Completion and the US$2.3 million balance paid one half 12 months after Completion and the remainder 18 months after Completion, provided there has been no material breach of the Asset Purchase Agreement by GTE

-- Net sales of the aviation engine wash services business for financial year to 31 December 2010 expected to be approximately US$5.7 million (including royalty payment of US$3.0 million) with book value of assets of US$6.5 million

[smicker] 02/1/2011 13:26

6Kenny, In the RNS announcement of the 29th.

The Company also intends to seek further funding and in this regard will explore all available options including, without limitation, equity investment, further debt financing or a sale of the Company. There can be no certainty that any further financing or a sale will be achieved.

I dont understand how you dont read this as possible equity dilution or insolvency.

[555557] 02/1/2011 13:23

Think it's clear you sold out 6kenny, from that moment you turned from positive to big deramper.

[6kenny] 02/1/2011 12:58

Fridays RNS was very much a surprise for those of us who have been here for more than a week! Also, VERY WRONG IMHO that this was announced when the market shut!

It should have been bundled in with the previous RNS because IMHO it is purely misleading.

Two words that stick out like a sore thumb for me.

DILUTION
INSOLVENCY


You may wish to read the RNS again CR! Tuesday could be a blood bath as people run for the exits.

[cockneyrebel] 02/1/2011 11:38

I bought a few of these last week. Surely Friday's statement isn't that much of a surprise?

I posted on my thread on Friday before the RNS that these were risky but they are priced as risky too - hardly priced as a blue chip tho are they?

CR

[minky65] 02/1/2011 11:16

6kenny - The market makers already knew what was in Fridays announcement thats why the shares didn't fly after Wednesdays news (yes they did go up but not by as much as you would expect considering the price that they got for the aviation devision).This is my take on things as they stand at the moment but Yes you are right Tuesday could be interesting , especially if PI's panic (institutional investors were not buying last week so wont be selling).

[6kenny] 01/1/2011 19:40

It will become very clear on Tuesday morning as we see how the market makers react to the after hours RNS.

[tomoslewis] 01/1/2011 18:21

I think it is easy to get carried away when reading the legalistic document such as the circular to shareholders. Things should become clearer over the next two weeks.

[tullynessle] 01/1/2011 17:26

6K

The four Posts (2342-2345) contain information provided by Zouk on their website, including the fact that Zouk "are able to support companies in many area of business development by assisting management in processes including...." - see "Link and List of processes" at the end of this Post.

IMO only, and provided that Zouk have implemented their business development strategies with GTE, then the future success of GTE and the reputation of Zouk, as applicable to GTE, are aligned.

Personally I will support Resolution (1) to approve the sale of assets in the aviation business of the Company.

Hopefully more information will be provided about the fund raising prior to
General Meeting on 17th January, 2011.

Note:
Is there any reason why any Placing cannot provide for participation by other GTE investors through a "clawback" provision?





Link and List of Processes - Refer to Paragraph 1.



•Refining business strategies
•Establishing robust structures and processes for financial and sales reporting
•Expanding businesses into new geographies, products and customer segments
•Supporting organizational growth with key senior hires
•Building strategic alliances
•Securing further equity and debt funding
•Preparing and executing IPOs or trade sales

[6kenny] 01/1/2011 16:32

jwe,

I think most banks and OTHER 'traditional' methods and means of gaining finance are/would be extremely put off my lending to GTE based on 2 primary reasons:

1) history of burning immense cash piles and not 'trimming the wick' much earlier in terms of reducing the head count.

2)the management seem incompetent(IMHO) at being able to run a business and perhaps that is why the 'strategic' investor(s) walked away after closer inspection?

My glimmer of hope is that they mentioned the sale of the company a couple of times in the previous RNS.

I could be misreading this situation entirely as they do seem quite anal in their RNS releases...

They almost say things like...'However, if we stop breathing we will die

If we don't wipe after we dump it could get smelly

etc,etc.

[jwe] 01/1/2011 15:51

Kenny-Although i`m an obvious bear here i thing going bust is less likely than dilution.However the Loan Note holders hold all the trump cards here and are likely to extract a very favourable(to them)price.
There is one other more optimistic possibilty which has not been discussed that is GTE will find outside funding in time to pay of the ABC notes by mid Feb .That,imo,whist unlikely given the recent past, is certainly a better senario for holders and could avoid dilution.Any supplier of funding(a bank would be ideal but they have presumably exhausted that avenue)may well want to see the P&W deal finalised first

[6kenny] 01/1/2011 15:07

Don't be deceived into thinking that this can't go bust because it has big investors involved who bought in at much higher prices.

Those same investors can buy it from the administrators and get their money back plus more moving forward.

I am not sure about anyone else but I found the title/subject of the last RNS highly misleading...Posting of circular to shareholders...

It then goes on to outline possible and potential grim consequences for shareholders even though the previous RNS had comments like...'We are well positioned to take advantage of this' etc,etc.


If you are worried about losing your investment then I suggest you join me in contacting GTE and demanding some answers before it is potentially too late.

[tullynessle] 01/1/2011 04:55

Interesting News Release dated August 2010 and entitled "zouk sells stake in SiC Processing AG"

The following is an extract from the document...

Extract:

"The initial funding round in October 2007 provided the company with the capital and resources to drive an international expansion programme and triple processing capacity. As a result, the company was able to realize its true potential: revenue increased at 58% CAGR from €24 million in 2006 to €150 million (expected) in 2010. Nordic Capital's acquisition represents the next stage in the company's development which will see the company continue its strong growth trajectory and cement its position as the global market leader for slurry recycling.

"The realisation of SiC Processing is a great success story for zouk and the Cleantech Europe I investors, providing a clear demonstration of the returns that can be generated by zouk's cleantech investment strategy," said Dr. Alois Flatz, Partner at zouk. "It is also a great example of how value can be created through an active investment approach coupled with a strong and trusting business partnership."

Thomas Heckmann, CEO and Founder of SiC Processing stated, "zouk has proved to be an excellent strategic investor and exactly the partner we required to build SiC Processing into the global market leader it is today."

[tullynessle] 01/1/2011 04:42

Zouk portfolio