Metallon Corporation Limited, a South African company with a 15 percent stake in Lekoil, an Africa-focused oil and gas exploration, and production company, is said to be plotting a take over Lekoil’s management claiming it is poorly run, though there are questions about its own competence.
In November, Lekoil received a letter from Strand Hanson of its resignation as nominated adviser, from November 20, the same date Metallon wrote to the company requesting an extraordinary general meeting where it proposed major changes in the company structure and affairs of its Nigerian subsidiary.
Metallon called for the removal of Lekoil’s chairman and proposed three new directors, Michael Onochie Ajukwu, Thomas Donald Richardson, and George Maxwell to ascend Lekoil’s Board during the meeting it was proposing.
Metallon also proposed restrictions on the affairs of Lekoil’s principal subsidiary, LEKOIL Nigeria Limited over governance issues citing the fake loan incident of January 2020. Other allegations include a lack of growth in productivity at Otakikpo, unmet market expectations, the Board’s loose interpretation of the dissemination of price-sensitive information, and issues with executive remuneration.
“Metallon’s advance and proposition have been deemed an opportunistic attempt to take control of Lekoil without paying a premium for the value of the shares and the assets of the company,” Lekoil wrote to shareholders in a communication seen by BusinessDay.
Metallon said Lekoil has raised over $264m of equity from shareholders since listing in 2013 and that the company’s shares were suspended on 23 November 2020 with a market cap of $13m.
Lekoil was also accused by Metallon of spending $129 million on general and administrative expenditure and invested $210 million into Oil & Gas activities but delivered no production growth at Otakikpo since first oil in 2017.
Metallon further alleged that Lekoil’s board has continually missed the market expectations it sets, with production levels at Otakikpo averaging 5,676 barrels of oil per day (gross) in the first quarter of 2020, despite setting targets of 10,000 BOPD by 2017 year-end and 20,000 BOPD in 2020.12.23.
Metallon also took a swipe at executive compensation alleging that the CEO of Lekoil has received a total remuneration of over $10m, close to the current market capitalisation of Lekoil.
Lekoil’s board response
The board of Lekoil in response to the allegations said the company has actually raised $275.5 million of equity since listing in 2013 but its share price suffered a decline just like other oil companies. For example, Tullow Plc, a London listed oil and gas company with assets in Africa, had a market capitalization of $11 billion before 2020 but its market capitalization has declined to $450 million.
Lekoil further said of the $275.5 million equity raised since listing in 2013, $166.2million was invested in capital expenditure for the development of OPL 310, OPL 325, and Otakikpo, with only $73.3 million (which represents, 27percent) going towards general and administrative expenditure.
Lekoil admitted raising cash to develop promising assets has been difficult, and it’s a situation consistent with other exploration and production companies but it could be worse with Metallon taking a lead role on the company’s board.
On the CEO compensation, Lekoil said the alleged compensation was for over seven years and it is included in the total general and administrative expenditure. The cash component of the CEO’S total remuneration is $7.0 million with the balance being in the form of shares awards and options.
Mettalon’s record
Lekoil argues that Metallon’s poor performance in the markets where it operates, its inability to manage its own affairs make it a wrong fit to propose these changes.
Established as a private natural resources and infrastructure company in 2002, Metallon has operations in Zimbabwe and South Africa. But the company is sorely troubled with battles in Zimbabwe over foreign currency issues and debt issues.
Mzi Khumalo, a South African mining magnate owns Metallon Corp, and last year a British court liquidated its London company Gold & General, founded in 2015, to lead an African expansion, over undisclosed debts.
Metallon’s gold mining operations have fared poorly over the years and contracted from four mines in 2016 to just one at present. In 2018, Metallon was accused of violating foreign exchange control regulations in Zimbabwe and suffered a loss for the year of approximately $78 million as indicated in its annual report.
Lekoil in a response to shareholders warned that Metallon’s short-term liabilities were almost twice its revenues in 2018 and at present, the company faces winding-up petitions from several creditors, including American Express Services Europe Limited and UK’s Her Majesty’s Revenue & Custom.
In April 2019, Metallon filed for business rescue for two of its Zimbabwe-based subsidiaries, Goldfields of Mazowe Limited, and Goldfields of Shamva Limited, in order to protect the companies’ assets from being seized by creditors.
“As a result of its records, it is doubtful that Metallon has the resources to advance the development of Lekoil’s assets,” argues Lekoil.
Other concerns by the company stem from the fact that associating the Lekoil brand with a troubled Metallon could hamper its ability to raise funds to finance its assets and give the company too much control over the board if its appointments were ratified.
Lekoil is calling upon regulators and the board to maintain vigilance. “Your board believes that the Requisitioned Resolutions are no more than an ill-disguised attempt by Metallon and the other members of the Suspected Concert Party, to gain control of your Company,” Lekoil’s board and management said in a note to shareholders
