By Ben Turney | Tuesday 27 October 2015
Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
New World Oil & Gas (NEW) has finally announced the date of the AGM. This marks the culmination of months of hard work behind the scenes, ensuring an orderly transition for the company from being one of AIM’s most despised stocks to one with an extremely bright future. As expected, Adam Reynolds is on the ticket for election to the board, but in a surprise twist he is joined by Nick Lee of Paternoster Resources (PRS). Lee will have the full support of NWOGaction, so his appointment is almost a foregone conclusion. Fred Hodder is retiring and Peter Sztyk now deservedly faces the wrath of his shareholders. This is all fantastic news.
Sentiment towards New World has been abysmal. After years of failure and excessive boardroom greed, few in the market believed that an orderly transition at New World would be possible. The summer’s forward selling controversy hardly helped matters and the general consensus has been that New World’s directors would cling on come what may or, even worse, adopt a scorched earth policy.
However, this view failed to take into account a few critical points.
First, the position of New World’s board was hopeless. As soon as the directors decided not to participate in July’s placement and open offer, they sealed their fate. Having stripped themselves of their last vestiges of shareholder support, there is simply no way this group could have claimed a legitimate mandate to engage in any significant capital spending. Had the directors pursued a rushed drill in Belize, they simply would have opened themselves up to personal liability. The looming threat of the shareholder action group all but guaranteed that any spending of New World’s cash pile against the express wishes of shareholders would have resulted in legal claims against board members personally.
The second point the market missed was the action group’s public silence. Although we kept our members as fully updated as we could, word didn’t leak. Everyone involved in this deserves congratulations for holding the line so well. It goes to show what is possible if people work together, with the right intentions.
Earlier in the summer the action group was forced to run a publicly aggressive campaign. This time, such an approach would have been extremely counter-productive. With the certainty that an AGM was coming and safe in the knowledge that members of the company could nominate as many directors for election to the board as they wished, the board’s fate has always been a foregone conclusion. The key priority has therefore been to preserve as much of the company’s cash pile as possible. Had the action group pursued an EGM, this would have inevitably resulted in New World racking up legal fees, which would have been in no one’s interests other than the lawyers.
Instead the group has been far more pragmatic and better organised. This has meant that New World’s share price has suffered in the short term, but in the medium to long run this sacrifice puts New World in a much stronger position.
Reynolds’ and Lee’s election to the board on 17 November will be a transformational event for New World. Once the company is cleaned up it will have so much going for it. Apart from the strength of the new team and its cash pile, New World also attracts an incredible amount of retail attention for such a small stock. Sentiment towards the company has been crushed after all that has happened, but once this turns the shares could fly. Based on their track records of introducing cracking deals to cash shells, the Reynolds/Lee combination has the potential to be incredibly potent. Shareholders now need to throw their support behind these two men and if all goes to plan we could all see fireworks in 2016.
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