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Frontera – another “speeding ticket” RNS on the way? Sell.

By Nigel Somerville, the Deputy Sheriff of AIM | Wednesday 15 February 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

I think Tom Winnifrith missed a cracking entry for his Dirty Dozen AIM-listed resource stocks whose share prices might head north for no good reason. Certainly, the history of Frontera (FRR) suggests so from its share price performance over the years. Plenty of Red Flags to look at here! This morning the shares are indeed on the rampage (up 168% last seen) in the wake of a board appointment RNS. As we shall see, there seems to be little reason to celebrate that, and with one “know of no reason” RNS already issued this week, I fancy another is on the way.

The board appointment RNS states:

Frontera Resources Corporation (AIM: FRR), an independent oil and gas exploration and production company, is pleased to announce that Stephen McCaughan Hope has been appointed to the board as director of the Company with immediate effect.

 Mr. Hope is founder and managing director of Outrider Management, LLC ("Outrider"), a SEC-registered Investment Advisor based in California…….

…… Outrider Master Fund LP, of which Outrider Management LLC is general partner, holds the majority of the loan notes which were restructured and issued by Frontera International Corporation, a wholly owned subsidiary of the Company, with a maturity date of 1 August 2020.   Mr. Hope is managing member of Outrider Management LLC.

Right, so it looks as though Mr Hope has been appointed to the board on a watching brief as Outrider looks to protect its investment.

Now then, to those loan notes….We were told on 29 December 2016 that:

Frontera… pleased to announce that, further to the announcement of 25 July 2016, it has restructured  the 10% notes (the "Old Notes") issued by Frontera Resources Holdings LLC ("FRH"), a wholly-owned subsidiary of the Company, on 1 August 2011.  This restructuring has been effected by exchanging the Old Notes which had maturity date of 1 August 2016, to new notes ("New Notes") which have maturity date of 1 August 2020.  The New Notes are issued by Frontera International Corporation, a fully-owned subsidiary of the Company, and bear interest rate of 10 per cent.  if paid in cash or 12 per cent. if paid in-kind with additional notes at the Company's election.  The New Notes, which are not convertible into ordinary shares of the Company, are secured and, in aggregate, have a face value of $30,063,276 and an effective date of 1 August 2016.  Other than the terms described above, the terms of the New Notes remain materially unchanged as previously announced. In furtherance of the restructuring, all previously announced legal proceedings related to the Old Notes will now be dismissed.

(my emphasis)

Oh, er, hang on, weren’t those legal proceedings brought by holders of notes who the company had tried to leg-over by binning the subsidiary which had issued them? Here is what the company stated on 25 July 2016:

On 21 July 2016, Frontera Resources Holdings LLC ("FRH"), a wholly-owned subsidiary of the Company, initiated liquidation through a Chapter 7 proceeding in the United States. As at 31 December 2015, FRH had approximately $30 million of 10% convertible notes due 1 August 2016. These convertible notes were issued by FRH on an unsecured basis and without a parent company guaranty, with FRH as the sole obligor and without recourse to the Company.  

As FRH's schedule of assets in the proceeding lists a potential claim against the Company for repayment of the notes, for which advice has been taken and which the Company denies, the Company has initiated an associated adversary proceeding seeking a declaration confirming that the Company is not liable for their repayment. This matter is now under the jurisdiction of the court and, as of this date, neither the court nor FRH's Chapter 7 trustee has issued a timetable for proceedings…..

I put it to you that the appointment of Mr Hope is anything but a sign of confidence in the company, more a case of keeping a very close eye on it.

Shares in Frontera have, it seems to me, gone utterly bonkers this morning. On Monday, with the shares peaking at 0.115p the company said it knew of no reason for the movement in its share price. I should coco.

Now we are up at 0.395p, yet there is no announcement that I can see which would cause this rise. Does someone know something, or is this all just hot air which will force another “know of no reason” later today?

Truly, Tom Winnifrith’s Dirty Dozen will have to pull all the stops out to beat this one!


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