Acquisition and Fundraising

RNS Number : 2705F

Alkane Energy PLC

22 May 2013

 



22 May 2013

Alkane Energy plc

("Alkane", "the Group" or "the Company")

Acquisition and Fundraising:

Acquisition of CMM assets from Hargreaves Services plc

£6.0 million Fundraising

Highlights

Alkane Energy plc, the independent gas to power company, has conditionally agreed to acquire certain of the coal mine methane assets of Maltby Colliery (the "Maltby CMM Asset") from Maltby Colliery Ltd, a wholly owned subsidiary of Hargreaves Services plc ("Hargreaves").

The initial consideration for the acquisition of the Maltby CMM Asset (the "Acquisition") is £5.5 million, payable in cash, with an additional payment of £2.0 million payable, inter alia, upon completion of the full closure of the mine, expected to be during the first half of 2014.

The Acquisition will significantly increase the Group's installed electricity generating capacity from CMM, bringing immediately operational assets and cash flow, thus avoiding the development lag of organically developed sites.

Alkane is also pleased to announce that the Company has, via a cash box placing (the "Placing"), conditionally raised £6.0 million (gross) (the "Fundraising") and agreed to issue and allot 22,222,223 ordinary shares of 0.5 pence each in the capital of the Company ("Placing Shares"). The Placing Shares were placed at a price of 27 pence per share (the "Placing Price").

The initial consideration of the Acquisition will be funded through an extension of existing bank facilities provided at the time of the Acquisition along with the net proceeds of the Placing. Excess financing will be used to provide additional working capital to support the continued investment by the Group in its core gas to power activities.

The Acquisition

·     Strategic acquisition of the Maltby CMM Asset for total consideration of £7.5 million

·     Acquisition consideration to be paid in two stages:

o  £5.5 million on completion; and

o  a final payment of £2.0 million, payable six months after the Maltby Colliery mines shafts are satisfactorily sealed as part of the planned closure of Maltby Colliery.

·     The Acquisition brings:

o  Immediately operational assets and cash flow avoiding the development lag of organically developed sites;

o  significant additional CMM capacity at a single site in South Yorkshire; methane reserves are estimated at 11.6 bcf (Source: TESLA Exploration International Limited);

o  eight modular reciprocating engines totalling 11.2MW and associated plant and equipment;

o  existing methane pumping plant, fans, and other pumping-related equipment and grid connection; and

o  ability to redeploy excess engine capacity into Alkane's Power Response programme.

Financing arrangements

·     As part of the financial arrangements at the time of, and conditional upon the completion of, the Acquisition, Alkane has extended by £3.5 million its Group banking facilities with Lloyds TSB Bank PLC ("Lloyds TSB"), as set out below:

o  £0.5 million increase in revolving credit facility to £7.0 million, extended to April 2016;

o  new £3.0 million term loan to be repaid over three years, with the first year interest only;

o  interest rate and bank covenants will remain consistent with the existing facilities; and

o  all other bank facilities and hire purchase arrangements remain unchanged.

·     Alkane has today announced a successful equity fundraising via a cash box placing. Details of the Placing, which is conditional, inter alia, upon the admission of the Placing Shares,  include:

o  The issue of 22,222,223 Placing Shares with a Placing Price of 27 pence per share;

o  Fundraising proceeds of £6.0 million (gross); and

o  significant commitment of existing and new institutional shareholders, extending the breadth of Alkane's shareholder register.

Neil O'Brien, Chief Executive Officer, commented:

"This latest acquisition consolidates Alkane's market leading position in CMM and it adds significantly to the Group's core CMM operating capacity and provides an opportunity to further develop our Power Response business. Investor support for the Placing demonstrates commitment to Alkane's growth strategy. We are committed to continue to develop the Group as the UK is beginning to see a tighter generating market and rising electricity prices." 

For more information please contact:

Alkane Energy plc Neil O'Brien, Chief Executive Officer Steve Goalby, Finance Director	01623 827927
Altium Capital Limited Adrian Reed Andy Clarke	0845 505 4343
VSA Capital Limited Andrew Raca Liberum Capital Clayton Bush Tim Graham	020 3005 5004 020 3100 2227
Hudson Sandler Nick Lyon Alex Brennan	020 7796 4133

Background information

Alkane Energy is one of the UK's fastest growing independent power generators. The Company operates mid-sized "gas to power" electricity plants providing both predictable and fast response capacity to the grid. Alkane now has a total of 70MW of installed generating capacity and an electricity grid capacity of 89MW. The acquisition of the Maltby CMM Asset will add a further 11MW to this generating capacity.

Alkane's main operations are based on a portfolio of coal mine methane ("CMM") sites. Alkane has the UK's leading portfolio of CMM licences, enabling the Company to extract gas from abandoned coal mines.

As CMM declines at any one site Alkane retains valuable generating capacity and a grid connection which can be redeployed to Power Response. Power Response sites are connected to mains gas and produce electricity at times of high electrical demand or in order to balance the electricity grid. Alkane now operates 25MW of power response on mains gas.

The Group operates from 20 mid-size (up to 10MW) power plants across the UK, 13 CMM only, 4 mains gas only, and 3 using both fuel sources. Alkane use standard modular reciprocating engines to generate the electricity and sells this power through the electricity network. The engine units and other plant are designed to be flexible and transportable allowing additional capacity to be brought onto growing sites and underutilised plant to be moved to new sites to maximise efficiency.

Alkane has a range of core skills encompassing the entire project development cycle including planning and permitting, sourcing plant and managing the build and commissioning stage. This has enabled Alkane to establish a Design, Build & Operate ("DBO") business for third party clients in the biogas and oil & gas industries.

The Group has more than 800km² of acreage under various onshore Petroleum Exploration and Development Licences ("PEDLs"). Alkane retains a 100% interest in the majority of these PEDLs, which extend to all of the hydrocarbons recoverable from these licence areas. This includes any CMM, natural gas, coal bed methane ("CBM") or shale gas.

More information is available on our website www.alkane.co.uk 

Alkane Energy plc

("Alkane", "the Group" or "the Company")

Acquisition and Fundraising:

Acquisition of CMM assets from Hargreaves Services plc

£6.0 million Fundraising

Introduction

Alkane Energy plc, the independent gas to power company, has conditionally agreed to acquire (the "Acquisition") certain of the coal mine methane assets of Maltby Colliery (the "Maltby CMM Asset") from Maltby Colliery Ltd, a wholly owned subsidiary of Hargreaves Services plc ("Hargreaves").

In conjunction with the Acquisition, the Company has conditionally raised £6.0 million (gross) (the "Fundraising") via a cash box placing (the "Placing"), involving the issue and allotment of 22,222,223 ordinary shares of 0.5 pence each in the capital of the Company ("Placing Shares"). The Placing Shares were placed at a price of 27 pence per share (the "Placing Price"). Further details of the Placing are set out below.

Alkane is the largest independent UK operator of coal mine methane ("CMM") assets. The Maltby CMM Asset that is the subject of the Acquisition is the UK's largest operating CMM site and comprises of, or gives Alkane certain rights with respect to, the 11.2MW of methane extraction plant and related infrastructure that was used for the ventilation and extraction of methane from the Maltby Colliery during its life as a working mine.

The Acquisition of the Maltby CMM Asset will increase the scale of the CMM activities of the Group and further consolidate its market leading position following on from the successful purchase of Greenpark Energy Ltd in early 2012. The Acquisition brings immediately operational assets and cash flow, thus avoiding the development lag of organically developed sites.

The initial consideration for the Acquisition is £5.5 million, payable in cash, with an additional payment of £2.0 million payable, inter alia, six months after the completion of the full closure and capping of the mine which is expected to be during the first half of 2014.

Financing for the Acquisition has been provided via a combination of extending Group banking facilities with Lloyds TSB Bank PLC ("Lloyds TSB") and the Placing. The combination of increasing banking facilities by £3.5 million and the Placing proceeds of £6.0 million (gross) will be used to finance the initial consideration of the Acquisition and provide additional working capital to support the continued investment by the Group in its core gas to power activities.

Background to, and reasons for, the Acquisition

Alkane is one of the UK's fastest growing independent power generators. The Company operates mid-sized gas to power electricity plants providing both predictable and fast response capacity to the grid. As at 31 December 2012, Alkane had a total of 70MW of installed generating capacity and an electricity grid capacity of 89MW.

Alkane's portfolio of CMM sites allow it to extract methane under licence from abandoned coal mines. In 2012, CMM activities contributed 62% of Group revenues. As CMM declines at any one site, Alkane retains valuable generating capacity and a grid connection which can be redeployed to Power Response. Power Response sites are connected to mains gas and produce electricity at times of high electrical demand or in order to balance the electricity grid.

For its gas to power activities the Group uses standard modular reciprocating engines to generate the electricity and sells this power through the electricity network. The engine units and other plant are designed to be flexible and transportable allowing additional capacity to be brought onto growing sites and underutilised plant to be moved to new sites to maximise efficiency.

Alkane's stated strategy has been to grow its installed base of gas to power electrical output whilst developing scale in its complementary businesses, such as Power Response. Achieving the Group's medium term capacity target and providing longevity of generating output requires Alkane to exploit both its existing gas exploration licences and obtain or acquire new licences from the Department of Energy and Climate Change ("DECC") or via corporate activity.

Over the past two years the Group has acquired and successfully integrated Seven Star Natural Gas Ltd in May 2011 and Greenpark Energy Ltd in April 2012. These transactions added to Alkane's market leading position and also have provided access to additional CMM licences and other portfolio developmental opportunities.

The Acquisition will provide Alkane with a further increase in the scale of the Group. The Maltby CMM Asset will add 11.2 MW of installed CMM capacity in the form of immediately operational assets and cash flow. This avoids the development lag of 9-18 months between Alkane identifying, developing and funding the construction of new sites prior to them generating revenue which is inherent in the Group's organically developed sites. Following the Acquisition, Alkane will seek to optimise the CMM capacity of the Maltby CMM Asset and is expected to move excess engine capacity into the Group's Power Response business over time.

Information on Maltby Colliery

Maltby Colliery Ltd is a wholly owned subsidiary of Hargreaves Services plc, an AIM listed company. Until 2012, Maltby Colliery was one of the UK's last working deep mines which at its peak produced more than 1.2 million tonnes of coal each year and employed more than 500 people. In late 2012, Hargreaves encountered serious geological and safety problems at the Maltby Colliery due to unsafe levels of gas inflow and hydrocarbons. Following an extensive review Hargreaves ceased production at the Maltby Colliery resulting in the opportunity for Alkane to acquire the Maltby CMM Asset.

The Maltby CMM Asset

The Maltby CMM Asset is a natural addition to the Group, providing additional operational CMM capacity with a close geographical fit to Alkane's existing operations. The methane reserves of all of the Maltby Colliery workings acquired via the Maltby CMM Asset are estimated at approximately 11.6 bcf (billion cubic feet) (Source: TESLA Exploration International Limited).

Through the Acquisition, Alkane will acquire eight 1.4MW reciprocating engines with a total capacity of 11.2MW and associated plant and equipment. The engines are fully modular and can be redeployed within the Group's current and future project portfolio which would otherwise have had to have been funded via capital investment from the Group's existing cashflow as part of its organic development programme.

In connection with the Acquisition, Alkane has entered into a 15 year lease agreement (with a conditional break clause after a minimum of seven years) to allow it access to the required land and buildings from which to operate the Maltby CMM Asset. As part of the Acquisition process, Alkane and Hargreaves have worked closely together to optimise the mine closure programme and CMM resource at the site.

Details of the Acquisition

The Acquisition will occur in two stages. The first completion relates to the key assets of the Maltby CMM Assets (other than the pumping assets which remain in the ownership of Hargreaves so that they can comply with certain statutory obligations regarding the closure of the mine) and will occur on the admission of the Placing Shares to trading on AIM ("Admission") (which is expected to be on or around 24 May 2013) ("First Completion"). The second completion relates to the pumping assets and will occur once Maltby Colliery has been fully closed and the mineshafts filled and/or capped (currently scheduled to be 2014) ("Second Completion"). The exact timetable of the Second Completion is unknown and subject to the satisfaction of the conditions precedent, which are out of the control of the Company, but is expected to occur by October 2014.

The consideration payable, or which may become payable, by the Company pursuant to the Acquisition agreement (the "Acquisition Agreement") is as follows:

·     Cash proceeds payable to Maltby Colliery Limited (the "Vendor") of £5.5 million, payable on First Completion; and

·     cash proceeds payable to the Vendor of up to £2.0 million (subject to certain downward adjustments based on the timing of the closing of Maltby Colliery by the Vendor), payable within six months of Second Completion.

In addition to the above payments to be made on First Completion and Second Completion, Alkane will pay the Vendor an annual rent to lease the site required to operate the CMM Asset, and may further be required to pay to the Vendor a royalty based on the output of the CMM Asset. During the first ten years after First Completion this royalty shall be calculated based on the output above an agreed methane production target at £15 per MWh, with any royalty thereafter being £15 for each MWh generated (regardless of any target), with both such payments, if made, subject to annual RPI increases.

Second Completion is conditional upon, inter alia, the following:

·     The Vendor putting adequate stoppings in place within Maltby Colliery;

·     the Vendor filling two of the three mineshafts at Maltby Colliery and capping the third mineshaft (so as to allow extraction of coal mine methane); and

·     confirmation that all security over those CMM assets which are to transfer on Second Completion having been released.

Warranties typical for this type of transaction and certain indemnities in relation to pre-completion liabilities have been included. There are typical time and financial limitations which apply to these warranties and indemnities.

A mechanism has been included in the Acquisition Agreement whereby the Vendor and the Company will co-operate in the ongoing closure of Maltby Colliery. If there is a breach of the agreed mine closure timetable in the Acquisition Agreement by the Vendor in the period prior to Second Completion, there are mechanisms whereby the Company and the Vendor can agree alternative ways to progress the works. Should the Vendor not complete the full closure of Maltby Colliery by 1 October 2014, then (unless due to force majeure), the £2.0 million payment payable on Second Completion will be reduced by £5,000 per full week of delay. If it is not possible for the Vendor to adequately close the mine, the Company has rights to undertake any necessary drilling in order to extract coal mine methane.

Alkane has entered into a 15 year lease on an area of the Maltby Colliery on which the Maltby CMM Assets are situated. The lease can be terminated at any time after seven years if Hargreaves wish to redevelop that part of the site. In such circumstances, a compensation payment would be payable to Alkane to compensate for loss of cash contribution that would have been received during the remainder of the term of the lease. The obligations of the Vendor are guaranteed by Hargreaves.

Funding

Bank facility

As part of the financial arrangements put in place at the time of the Acquisition, Alkane has agreed to extend its Group banking facilities with Lloyds TSB by £3.5 million, as set out below:

·     £3.0 million by way of a new term loan with repayment due April 2016. The interest charge for the term loan is 3.0% above LIBOR with the first year being interest only; and

·     a £0.5 million uplift in the revolving credit facility ("RCF") to £7.0 million, with the facility extended for an extra year to April 2016.

Interest rates and covenants for the extended facilities will remain consistent with the existing facilities with covenants in place in respect of growth of net worth, EBITDA levels relative to outstanding debt, interest cover, minimum electricity pricing levels and the proportion of output under contract. All other bank facilities and hire purchase arrangements remain unchanged.

Placing

The Company is pleased to announce that the Company's joint brokers, VSA Capital and Liberum Capital, have, on behalf of the Company, conditionally raised £6.0 million (gross) via the Placing. The Placing has been supported by a combination of existing and new institutional shareholders, extending the breadth of Alkane's shareholder register. Under the Placing, Roger McDowell, Non-Executive Chairman of the Company, has subscribed for 185,185 Placing Shares at the Placing Price. Following this subscription Roger McDowell now has a beneficial interest in 1,000,185 ordinary shares in Alkane, representing 0.81% of the enlarged issued ordinary share capital of the Company following the Placing.

The 22,222,223 Placing Shares will be placed at a Placing Price of 27 pence per share. The Placing Price represents a 7.3% discount to the closing mid-market price of 29.125 pence per ordinary share on 21 May 2013 (being the last practicable date prior to the date of this announcement). The Placing Shares represent approximately 18.0% of the issued share capital as enlarged by the Placing. The Placing is not underwritten and is subject to, inter alia, Admission. Completion of the Acquisition is conditional upon, inter alia, Admission.

The Placing will be effected by way of a cash box placing (as described below) which means that the statutory pre-emption rights contained in section 561 of the Companies Act 2006 will not apply. The Placing Shares will not be issued for cash and so are not required to be issued on a pre-emptive basis.

The Placing is proposed to be effected in the following manner. The Company and VSA Capital have subscribed for or will subscribe for new ordinary shares in a newly formed subsidiary ("Newco") of the Company incorporated in Jersey. Monies received by the brokers from the placees pursuant to the Placing shall be used by the brokers to satisfy their undertakings to subscribe for redeemable preference shares in Newco. The Company will allot and issue the Placing Shares to the placees in consideration of the brokers transferring their respective ordinary shares and redeemable preference shares in Newco to the Company. Accordingly, instead of receiving cash as consideration for the issue of the Placing Shares, the Company will own the entire issued share capital of Newco, whose only asset will be its cash reserves, which will represent an amount equivalent to the net proceeds of the Placing.

The net proceeds of the Placing will be used to finance the initial consideration of the Acquisition, and, along with the additional bank facilities extended at the time of the Acquisition, provide additional working capital to support the continued investment by the Group in its core gas to power activities.

The Placing Shares will be issued credited as fully paid and will rank pari passu in all respects with the existing ordinary shares, including as to the right to receive and retain all dividends and other distributions declared after Admission. This will not include the Company's maiden dividend which was declared on 13 March 2013 and is due to be paid on 31 May 2013 to shareholders who were on the shareholder register at the close of business on 19 April 2013.

Following Admission, the issued share capital of the Company will be 123,585,247 ordinary shares of 0.5 pence each in the capital of the Company.

Admission and dealing arrangements

Application has been made to the London Stock Exchange for Admission of the Placing Shares. It is expected that Admission will become effective and that dealings in the Placing Shares will commence at 8:00 a.m. (London time) 24 May 2013.

Financial effects of the Acquisition

The Maltby CMM Asset is being acquired via an asset purchase agreement on a cash free and debt free basis with the financial benefits of the Maltby CMM Asset being for the benefit of the Company from the time of First Completion. The unaudited, management estimate of the net assets which are the subject of the Acquisition are estimated to be between £3 million to £5 million, with the final quantum subject to a formal review as part of the Group's next audit.

Neil O'Brien, CEO, commented on the Acquisition:

"This latest acquisition consolidates Alkane's market leading position in CMM and it adds significantly to the Group's core CMM operating capacity and provides an opportunity to further develop our Power Response business. Investor support for the Placing demonstrates commitment to Alkane's growth strategy. We are committed to continue to develop the Group as the UK is beginning to see a tighter generating market and rising electricity prices." 

For more information please contact:

Alkane Energy plc Neil O'Brien, Chief Executive Officer Steve Goalby, Finance Director

01623 827927

Altium Capital Limited Adrian Reed Andy Clarke	0845 505 4343
VSA Capital Limited Andrew Raca Liberum Capital Clayton Bush Tim Graham	020 3005 5004 020 3100 2227
Hudson Sandler Nick Lyon Alex Brennan	020 7796 4133
www.alkane.co.uk

 

END

 

 

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