Shares in oil explorer Aminex (LSE: AEX) surged by as much as 10% in early trading this morning after the company released its results for the third quarter of 2015.
And, alongside the results, Aminex announced the part disposal and farm-out of its Tanzanian Assets, a landmark transaction, which has drastically improved the company’s financial position.
Broken down, the terms of the deal are as follows:
- Aminex is selling a 25% interest in the Kiliwani North Development Licence (KNDL) to Bowleven;
- Aminex is farming out/Bowleven is buying 50% of the Ruvuma PSA, including the Ntorya appraisal programme;
- The farm-out terms for Ruvuma PSA will be shared out between Aminex and its existing partner Solo;
- On completion, Aminex will retain an operated 30.575% interest in KNDL and an operated 37.5% interest in the Ruvuma PSA.
Aminex will receive an initial cash payment of $8.5m as part of the deal and $5 million worth of Bowleven shares with a nine-month lock-up period. Aminex will receive a cash bonus of $0.5m on the completion of drilling of the Ntorya-2 well.
Aminex and Solo will also receive net carry of $10m on all Ruvuma PSA activity and a $4m bonus payable on achieving commercial production from the Ruvuma PSA for a minimum of 30 days. Solo will be entitled to 25% of the production bonus and net carry.
In total, the net value of the transaction to Aminex is $24.4m, roughly £16.2m — not bad for a company with a £38.8m market cap.
Making progress
Today’s deal marks a turning point for Aminex. The company will now be able to pay down debt and consolidate its assets, putting the group on a stable growth trajectory.
What’s more, according to Aminex’s third-quarter results, the Kiliwani North-1 gas well, which tested at 40 million cubic feet per day, is ready to begin production. With Kiliwani operating Aminex will have an income stream to fund further growth.
Time to buy?
The fundamental question is: is Aminex a ‘buy’ after today’s news?
Well, the company is now certainly in a much better position than it was at the half-year mark when management warned Aminex would struggle to remain a going concern without a cash infusion.
With an infusion of $8.5m in cash from the Bowleven deal, Aminex will now be able to pay off all of its debt — if shareholders approve the transaction. Aminex’s healthy cash balance will be supplemented with income from a producing Kiliwani shortly, which will put the company on a stable footing and pull the company away from the brink for good.
However, until Kiliwani begins production, Aminex will remain a risky bet. There’s still plenty that could go wrong for the company, and while today’s transaction has de-risked Aminex as an investment, the company is still an extremely speculative play.
