Last Tuesday, the management of Bridge Resources Corp. made its first press release for the last five months.
The news has been related to the recently disclosed financial reports for the year ended March 31, 2011. Also, a reference has been made to the willingness of BUK to achieve first production in Idaho, planned later this year.
Although the news could have evoked some, at least temporary, upward move of the company's stock ,on the Canadian and on the American markets the share price collapsed.
No doubt, the sell-off of BUK and BUKRF has been correlated also with the overall market panic. According to E.S. Browning from The Wall Street Journal, “Monday's Dow decline was its biggest percentage drop since December 2008 and its sixth-largest point decline ever.”
In such a market situation, when the fear returned for the U.S. banks, managers of Bridge Resources Corp. have the non-easy mission to convince investors that the company may bridge the gap between its development plans and its available resources.
On Tuesday, on the TSX Venture Exchange BUK noted its new 52- low, maybe resulting from investors' accumulated over months scepticism towards the company's shares. BUK closed the market at $0.025 per share, following the trend from the previous day when BUK touched the bottom on a heavy trading volume exceeding seven times the daily average for the company. The trading session on Monday will also be remembered with a record. More than a million shares changed hands to confirm the lowest price for the company's stock over the last five years.
Last week, the company encouraged readers to review the recent financial statements of Bridge Resources Corp. with its announcement. Looks like the presented there information did not seem to be so encouraging. On March 31, 2011 the company reported:
- Net loss of $77.51 million
- Deficit of $170.15 million
- Working capital deficiency of $57.66 million.
As stated also by the company's auditor, in addition to the above mentioned net loss for the year ended March 31, 2011, the company’s current liabilities exceeded its total assets by USD $57.7 million.
The main source of revenue of BUK for the reported period has been the recovery and sale of backout gas volumes produced before the Durango well was shut down. Since the full recovery of these backout volumes occurred in the beginning of this year, the company does not own any revenue generating assets.
In addition, in mid-March this year BUK finalized the sell of its wholly-owned subsidiary Bridge North Sea Ltd. (BNSL). According to the agreement, BUK agreed to sell 100% of the shares in its subsidiary BNSL for a cash consideration of $8.85 million and a pre-tax 25% interest in the future operating income from the Durango field. What looks impressive is the fact that Bridge Resources Corp. booked a net loss of $37 million on the sale of BNSL. The proceeds from the transaction have been classified as restricted cash in the company's financial reports. At present, they are held in the company's Debt Service Reserve Account.
The above mentioned loss may be found in the company's write-down of exploration and development costs for the year ended March 31, 2011. In this period, BUK wrote down exploration and development costs for $63.78 million. The majority of the impairment of property was done to reflect changes in the valuation of the Durango well in relation to the sale of BNSL, the subsidiary holding the Durango licence. The remaining write-down, as the company states, “is a result of the relinquishment and expiration of licenses and leases in the North Sea ($25,788,553) and the abandonment of wells in the Western Idaho Basin ($1,009,064)”.
Despite all these facts, which most probably supported the bearish mood towards BUK, the reported by the company plans for restructuring and the potential of its Idaho assets may still reassure the investment community that BUK is underestimated. In mid-July, Bridge Resources Corp. send for approval a conditional use permit to the Payette County, Idaho Commissioners. The permit is necessary for the construction and operation of the proposed by the company gas processing plant. This month, during the next meeting with the Payette County, Idaho Commissioners expect consideration and approval of the aforementioned permit.
As known, in the United States Bridge Resources Corp. holds a 50% interest in near 100,000 gross acres in the Western Idaho Basin of Idaho and Oregon. The company has drilled eleven wells. Seven of them have been completed as gas wells.
At present, in connection with a Senior Facility*, a Lending Syndicate (Syndicate) holds a first security charge over the company’s Western Idaho Basin assets. It also retains the right on any remaining cash in the company's Debt Service Reserve Account. BUK is currently negotiating with the Syndicate to change the terms of the Senior Facility. It should be considered that there is no guarantee for such an amendment.
It is a fact that the mission of the company's management to bridge the gap between BUK's development potential and its available resources is not impossible. It remains only to ask: “How can this be executed with the reported zero amount of unrestricted cash as of the end of this March and in between the negotiations with the Lending Syndicate?”.
Maybe, there is still hope for BUK. In June, the company engaged Cappello Capital Corp. to support the company with its efforts to raise capital for several potential initiatives.
* Senior Facility- On March 31, 2011 BUK had in place a senior facility for $44.23 million with a lending syndicate led by the Royal Bank of Scotland. The primary purpose of the Senior Facility was to fund the development costs of the Durango well, which was included in the sale of BNSL during the year.
As of March 31, 2011 the company was in default of certain Senior Facility operating covenants. Upon default, the facility became payable on demand. The Senior Facility is secured by a first floating charge over all Western Idaho Basin property, a guarantee from Bridge Resources Corp. and Bridge North Sea (Central) Limited, a first charge over the Debt Service Reserve Account, and the Company’s US assets, including the Western Idaho Basin.