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Primeline Energy to buy-out associate and raise US$20mln for exploration

Published: 14:47 11 May 2015 BST

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Primeline Energy (CVE:PEH) has unveiled plans to buy-out its associate Primeline Petroleum Corp (PPC), and raise US$20mln for future exploration.

PPC is wholly owned by Primeline Energy chairman, Victor Hwang, and it has minority stakes in the company’s projects (between 12.25% and 25%).

Hwang financially supported Primeline Energy between 2010 and 2014 through interest free loans, which as part of the new arrangements will now be converted into Primeline shares.

Dr Ming Wang, Primeline Energy’s chief executive, has described it as a “huge step forward” for the Toronto listed company.

“The merger with PPC will greatly simplify our corporate structure and the conversion of the shareholder loan strengthens the company’s balance sheet.”

“We thank Mr. Hwang for his generous support over the past 5 years to allow us to succeed, against the odds, with the development of LS36-1 field.”

Wang added that the producing LS36-1 gas field continues to perform well. 

“The company is building cash and is looking forward to November when we are start to paying down the debt facility which funded the base development,” he said.

Primeline has agreed a term sheet for a US$20mln funding deal with Hong Kong based fund manager GEMS, which will see convertible loan bonds issued to the investor.

Wang told investors that the new investment will give clarity on Primeline Energy’s financial position for the foreseeable future.

“It means the company can soon bring forward details of our exciting exploration programme in Block 33/07 anchoring on the production facility and cash flow in LS36-1 gas field,” he said.

An initial US$10mln will be issued first, with draw down anticipated before the end of July, and a second US$10mln tranche is anticipated before the end of the year.

The bonds will have an initial three-year term, and could potentially extend for a further two years. They carry interest at 7% per year, paid partially (4.5%) as cash and partially in shares.

Bonds can be converted into shares 12 months from issue, at GEMS’ option. The first tranche will be convertible at 70 Canadian cents, while the second will be convertible at 85 cents.

GEMS will have the right to appoint one voting member to the Primeline Energy board of directors.

“GEMS is a credible partner and we believe working with them provides external validation of the Company’s prospects over the coming months,” Wang said.

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