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ELK Petroleum Limited (ASX:ELK) specializes in the development of enhanced oil recovery with projects situated in the wealthiest coastal oil region of the United States of America, the Rocky Mountain.
The company on 26 March 2019, announced that it had accepted a proposal from its largest shareholder, Republic Investment Management Pte Ltd, to recapitalise ELK via an unsecured short-term loan to be provided by Republic and additional financiers nominated by Republic and a proposed partially underwritten non-renounceable pro-rata rights issue.
An initial advance of A$0.5 million to be provided on or around the date of this announcement, followed by a second advance of A$0.15 to be provided one business day after ELK requests the second advance be provided and the third advance of up to A$3.35 million to be provided subject to ELK securing all required waivers and concessions from its existing lenders and nothing occurring, which is reasonably likely to result in the Rights Issue not proceeding in the manner presently contemplated by the parties.
The short-term loan will be interest-free, if the Rights Issue is completed on or before 25 June 2019 or otherwise the interest rate will be 20% per annum. The company is required to repay the short-term loan on the earlier of the date that is 30 days after the issue of shares under the Rights Issue and 25 June 2019.
Under the short-term loan terms, for so long as monies remain owing under the short-term loan or Republic holds at least 10% of the issued shares in the company (including where no monies remain owing under the short-term loan), Republic may nominate one person to be appointed as a director of the company.
In the next quarter, the company intends to launch a partially underwritten pro-rata non-renounceable rights issue under which each eligible shareholder of the company will be offered the opportunity to acquire new ordinary shares in the company to raise up to approximately A$15 million.
The purpose of the funding is to provide the company with enough capital so that it can undertake an orderly restructuring of the business in the months ahead and overcome the difficulties that the company is now facing.
It is proposed that the Rights Issue will be partially underwritten by an Australian registered broker (for up to A$12 million) and will be partially sub-underwritten by Republic and other sub-underwriters as agreed between Republic and the company. The proposed underwriting will be subject to the company securing an Australian registered broker to act as underwriter, satisfactory due diligence being undertaken and any necessary shareholder or regulatory approvals or waivers being obtained.
On the price-performance front, the stock of ELK Petroleum Limited last traded at the price of $0.014. The stock has generated a negative YTD return of 71.43% and generated returns of -79.71%, -75.86% and -58.82% over the past six months, three months and one-month period, respectively. It had a 52-week high price of $0.095, with an average trading volume of 2,398,782.
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