A brief summary of what I see as the salient points arising from the proposed transaction:
The Transaction 1. STZ will undertake a 1:10 consolidation of shares 2. STZ will raise $5M (pre costs) at $0.20 3. STZ will issue 2.5 STZ shares for every Wolf share 4. STZ will then relist with 248M shares on issue + approx. $9M cash 5. Effectively, Wolf Petroleum backdoor lists onto ASX
Wolf Contributed Capital History 1. Registered in October 2010 2. Issued 12M shares @ $0.25 March 2011 – raised $3M 3. Issued 15.775M shares @ $0.40 October 2011 – raised $6.3M 4. Total contributed equity = $9.75M (from financials) 5. Total shares on issue = 82.78M 6. Therefore: 55M shares issued from October 2010 @ $0.008 average • Reverse calculated by knowing total contributed equity and last 2 major capital raising along with total shares on issue prior to these raisings = ($9.75M-$9.3M)/(82.78M-12M-15.775M)
Wolf Assets 1. 72,791 sq km of petroleum licenses in Mongolia (huge acreage) 2. Large scale, multibillion barrel oil equivalent potential – as per Wolf notes 3. Very little and very early stage exploration (Geophysical surveys + 2D Seismic on one of 3 blocks)
Wolf Assets Value 1. Presently valued in Wolf balance sheet at $7.5M • Cash of $0.45M • Financial asset of $2.3M which is mostly a payment of $2.2M paid to Asia Business Consultants for “various acquisition, exploration and public relations consulting services in Mongolia” - page 8 BDO report 2. MHA Petroleum Consultants (MHA) provided an independent market valuation of Wolf’s assets dated 31/8/2012: • Low Value - $37M = $0.49/share • High Value - $88M = $1.10/share • Most Likely - $54M = $0.69/share 3. BDO have used this MHA valuation to make an adjustment to the deferred exploration expenditure capitalised on the balance sheet from $4.4M to reflect range of values set out above. 4. The $6.1m net assets of STZ ($4.8m cash + $1.3m in non-current assets) have been added to the adjusted Wolf net asset figure to come up with the following potential value range for the STZ shares post the transaction: • Low - $46.3M = $0.19/share • High - $97M = $0.39/share • BDO assessed - $63M = $0.25/share
Wolf Expenditure – Jan 2011 – Jun 2012 1. 46% of contributed capital gone into the ground • 46% of contributed equity gone into expenses
Reason for Backdoor Listing 1. Unable to introduce a cornerstone investor and move to IPO • “…it was concluded that the previously contemplated strategy was unlikely to succeed. Feedback from advisors indicated that further capital raisings in Wolf as an unlisted entity would potentially be unsuccessful.” Page 4 Targets Statement • “…and the requirement for capital to fund this growth it was determined that this would be best achieved through a listing on a recognised stock exchange. It was considered that this would be best achieved through a backdoor listing.” Page 5 Target’s Statement
Directors Share Information 1. Tim Flavel – Director of Wolf & STZ(3.7M shares & 10M shares) 2. Jason Peterson – Director of Wolf (4.1M shares) & 8.65M shares in STZ 3. Matthew Wood – Director of Wolf & STZ (3.9M shares & 15.4M shares) 4. Bataa Tumur-Ochir – Director of Wolf (20.1M shares) 5. Brian McMaster – Director of STZ (10M Shares) 6. John Santich – Director of STZ (24.8M shares)
Key Events 1. On 23/8/2012 STZ agreed to provide $500,000 as a non-interest bearing loan to Wolf secured against all of Wolf’s assets – page 45 Section 9.10 Target’s Statement 2. MHA Independent Valuation Report dated 31/8/2012
Summary 1. Realistically, the only avenue for the Wolf promoters to list the assets onto the ASX 2. The value proposition – post the transaction and relisting - hinges entirely on what the market will pay for the $4.4m expended on their blocks so far. 3. The BDO valuation has lifted this $4.4M to a range between $37M & $88M using another (MHA) report as their basis. Detailed reference to this report is appended to the Target’s Statement 4. There will a significant amount of Wolf stock to absorb (refer above): • March 2011 raising: 12M @ $0.25 = 30M @ $0.10/STZ share post transaction (divided by 2.5) • October 2011 raising: 15.775M @ $0.40 = 39.4M @ $0.16/STZ share post transaction • Original Wolf promoter stock: 55M @ $0.008 = 137.5M @ $0.0032/STZ share post transaction • Nothing in the transaction documents that I can find refers to any escrow restrictions on these shares but I’d be surprised (and concerned) if there isn’t. • New raising 25M @ $0.20 as part of transaction
STZ Price at posting:
1.7¢ Sentiment: None Disclosure: Not Held
