InfraStrata (INFA) is launching a review of the strategic options open to the Company to maximise value for shareholders. Accordingly, the Company is undertaking a careful evaluation of its business plan, operational assets, development strategy, the market valuation of its gas storage asset and its capital structure.
The Company has been in discussions with interested parties to provide the remaining £2.2 million funding required to complete the entire Front End Engineering Design (FEED) and a commercialisation work programme for the Islandmagee gas storage project (the "Project"), as previously announced. The Company has explored many sources of potential finance in debt and equity, through its own sources and those of its advisers, seeking terms that are expedient and reasonable for the Company and its shareholders. The Company stated in announcements on 27 February 2017, 19 April 2017 and 4 May 2017 that there could be no guarantee that the Company would be successful in its discussions with potential investors and that it may need to consider using the remaining funds available to it to explore other options including a sale of the Project and/or its assets. Exploration of potential funding sources and discussions with some potential investors continue, but as the Company stated on 19 April 2017, following completion of the Concept Evaluation phase of the FEED, existing funding would only extend to a point in Q4 2017 to meet minimum corporate and Project expenditure but without funding any additional work to further progress the FEED. Therefore, with the Concept Evaluation phase of the FEED programme substantially completed and without the necessary funds to complete the next phase currently, the directors of InfraStrata (Directors) consider it necessary to explore other options for the Company and are therefore launching the strategic review.
The UK gas storage market is in a state of significant change with the well documented problems at the largest facility, Rough. The Directors believe these changes may increase the long-term strategic value of the Project and control of the asset may therefore be more attractive to market participants with balance sheet resources to take the development forward into construction.
On 9 May 2017, the Company received a letter that sought to requisition a general meeting whereby two shareholders claiming to hold 5.1% of the voting rights in the Company (the "requisitioners") proposed resolutions for the appointment of two directors to the Board of the Company and removal of all the current Directors. On 11 May 2017, the Company announced that the requisition was invalid as the named shareholders were not on the shareholder register. On 19 May 2017, the Company received a new valid requisition from nominee shareholders representing the same underlying shareholders as the previous requisition and accordingly, InfraStrata intends to convene the general meeting requested in due course. The exercise has been a significant distraction for the Board and as well as incurring time and costs for the Company, has provided uncertainty at a critical time in discussions with potential investors and a deterrent to other funding options. The Directors are seeking to engage with the underlying shareholders who requisitioned the general meeting to understand their plans and strategy for InfraStrata.
The Company has applied the net proceeds of the placing completed on 3 March 2017 of approximately £740,000 to repay £200,000 drawn down on a loan from Baron Oil plc and complete the Concept Evaluation phase of the FEED at a cost of £350,000 as well as to meet management costs and necessary payments in relation to the Project (for example, renewing land options). The Company's current cash position stands at £175,000, which will allow for expenditure on a care and maintenance basis until the beginning of Q4 2017. However, after allowing for anticipated expenditure necessary to conduct the strategic review and requisitioned general meeting and a temporary reduction in management costs which will be kept under review, on current forecasts the remaining cash balance provides working capital to early August 2017. The key assumption contained within this forecast is that given the Company's limited cash resources, the costs associated with any purchase of the Company's assets would be funded by the acquirer.
The cash currently available to the Company stated above excludes €1.6m of funds held pursuant to the EU grant (EU Grant), which is subject to restrictions on its use, most notably the requirement that matched funding is obtained from other sources for the FEED and associated works and, until such time as it may be released for its specified purposes, remains the property of the EU. The Directors are of the view that none of the EU funding received as a prepayment should be expended until the entire FEED and related commercialisation programme can be funded in full. The EU Grant will need to be returned to the EU if the programme does not complete, unless otherwise agreed by the EU.
As to the results of the Concept Evaluation phase of the FEED programme, whilst the consultants' report is not yet finalised, initial findings have identified a phased approach for the development of the salt caverns to potentially improve the time to market of an initial tranche of capacity, which may enable the Project to generate revenues earlier than currently anticipated. Adopting this phased approach may result in some loss of economies of scale and an extended timeline for full build-out, but it would reduce the capital expenditure requirement in the earlier stages of development. Concept Evaluation also identified potential opportunities to reduce capital and operational costs however these will require full evaluation during the FEED itself and there is no certainty at this time that they will result in overall cost reductions. As part of the Concept Evaluation programme the detailed design parameters for the FEED study have also been developed.
Given the current position of InfraStrata and the quality of its gas storage asset at Islandmagee, continuing with the original strategy to complete the FEED and a commercialisation work programme to take the Project to final investment decision and construction remains a viable option with the necessary funding. Nevertheless, the strategic review will be wide-ranging. The strategic options may include a subscription for the Company's securities by a third party or a farm down or disposal of the gas storage asset. The Directors are seeking any non-binding offers, which may be in the form of a £2.2 million investment in InfraStrata to complete the entire FEED and commercialisation work programme, a proposed acquisition of InfraStrata's 90% interest in the Project (via its wholly owned subsidiary InfraStrata UK Limited), a sale of the Project asset (owned by Islandmagee Storage Limited) subject to the approval of Project partner, Mutual Energy Limited, or a corporate transaction involving any or all of InfraStrata's subsidiaries.
There is a data room available for interested parties, to which access will be granted following execution of a non-disclosure agreement for those parties who can demonstrate financial capability.