Shares in oil explorerAminex(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 companys financial position.
Broken down, the terms of the deal are as follows:
- Aminex is selling a 25% interest in theKiliwani North Development Licence (KNDL) to Bowleven;
- Aminex isfarming out/Bowleven is buying 50% of the Ruvuma PSA, including theNtoryaappraisal programme;
- The farm-out terms forRuvuma 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 shareswith a nine-month lock-up period. Aminex willreceivea cash bonus of $0.5mon 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 transactionto Aminex is $24.4m, roughly 16.2m not bad for a company with a 38.8mmarket cap.
Todays deal marks a turning point for Aminex. The company will now be able to pay down debt and consolidateits assets, putting the group on a stable growth trajectory.
Whats more, according to Aminexs third-quarter results, theKiliwani 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 todays 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. Aminexs healthy cash balance will be supplemented with income from a producingKiliwani 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. Theres still plenty that could go wrong for the company, and while todays transaction has de-risked Aminex as an investment, the companyis still an extremely speculative play.
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