InfraStrata raises £1.5m to continue development at Islandmagee

Natural gas storage development company InfraStrata announced on Thursday that it has raised £1.5m before expenses, through a placing of 125 million new ordinary shares at an issue price of 1.2p each.

The AIM-traded firm said it was continuing to make progress with all potential equity providers for the Islandmagee gas storage project, with detailed negotiations underway with “numerous parties” who were at various stages of their due diligence and term sheet discussions.

It said the initial review of the additional funding offer that was received in the week of 17 December, as it reported on 27 December, had now been completed.

Due to the nature of that additional potential equity provider and their indicative terms, InfraStrata said it had agreed that they would now proceed to the next stage and undertake detailed due diligence work.

It said specialist advisers had already been appointed by the potential equity provider, with work having commenced, which was expected to take around six weeks.

InfraStrata said it had carried out the placing in order to maintain the project schedule, momentum and to utilise experience and work to date.

The placing would provide funding for various preparation and enablement works for the project, in readiness for construction of phase one - two gas storage caverns - once the final investment decision was made.

In particular, the net proceeds of the placing were expected to be used for land purchase and associated easement payments at £0.4m, engineering design works to facilitate the £65m savings identified in the FEED work at £0.35m, pre-construction commencement documentation and further land surveys at £0.32m, and initial on site enabling works at £0.3m, for a total of £1.37m.

The directors said they considered that investing further in the project at the current stage would empower the firm to negotiate a stronger equity retention position in the project.

By analysis of the critical path of planned construction activities, the company said it had identified scopes of work that could de-risk the project for potential investors, which in turn was expected to add to an increased valuation of the project.

As part of InfraStrata’s equity negotiations with all potential parties, recovering costs invested to date was one key commercial element of the deal, with those additional costs to be included within that calculation.

“The board is looking to conclude equity negotiations to fund project construction as soon possible once the latest potential equity provider has completed its due diligence,” the board said in its statement.

“This proposed deal and eventual partner will most likely be for the life of the project and therefore it's essential that all relevant issues are considered in detail at this stage.

“The project remains on track to undertake FID by the end of the first half of this year and whilst the company is striving to meet this target, there is no guarantee on the timing to conclude discussions with the potential equity and debt providers or that acceptable terms will ultimately be forthcoming or agreed.”

InfraStrata said negotiations on the offtake agreement were also progressing “well”, and were on track to link in with the project equity provider in due course.

The company added that it had now been able to validate all third-party assumptions in its financial models, including the outline terms on which debt would be available to the company should it be required, depending on the equity-to-debt ratio preference of the selected project equity provider.

“Whilst considering the undertaking of an equity placing at this stage, we have analysed the effect of further dilution versus the reduction of project risk, aiming to facilitate a better equity retention position in the longer term,” said chief executive officer John Wood.

“We have undertaken the placing on terms we believe are in the best interests of the company at this time and I am pleased to confirm that no warrants will be issued as part of this placing.

“I understand that many shareholders are concerned about dilution, but we believe this placing is in the best interests of our long-term goals.”