The final transformation of Calgary-headquartered Madalena Energy Inc. will be on full display Wednesday when the company holds its annual meeting.

For those in attendance, the meeting will show that over the past two-plus years, thanks to the actions of some activist investors, the company has moved from one with assets in both Canada and Argentina but managed here to one whose assets and management are all based in Argentina.

The company’s remaining link to Canada consists of a local Calgary office, two Canadian directors (one of whom is new to the company while the other has been on the team since 2010) and a listing on the TSX – Venture Exchange.

But if recently announced plans materialize, the company’s TSX-V listing will be one of the two markets where investors can buy and sell shares. Madalena plans to seek a listing on the Argentina Stock Market – known as MERVAL.

The charge was led by David Tawil, the president of New York-based
 Maglan Capital, which according to the circular prepared for the meeting is also Madalena’s largest shareholder with a 19.14 per cent stake. (At the same meeting in 2016 Maglan had a 17.4 per cent stake and in 2015, its stake was 13.3 per cent.)

Assets

Reached Tuesday, Tawil said his firm became an activist “because we were looking for new leadership,” in large part because the bulk of the company’s assets were in Argentina — not the ideal situation for a Canadian-managed company.

“Obviously a local management team and leadership would be appropriate for efficiencies, for knowledge of the local markets and for the need to have good connections in Argentina.” Maglan was also seeking a lower cost base (hence the need to focus on Argentina.)

So Maglan, which has been a shareholder for more than four years, pushed for a new chief executive, a process that started in late 2014 when it issued public letter. In April 2016, less than 18 months later, Kevin Shaw, the former chief executive, departed and was replaced by Steven Sharpe, who became interim chief executive. Sharpe was recently appointed chairman. It was speculated at the time that Madalena’s failure to raise $23 million of equity was behind Shaw’s departure.

Management

In seeking a new local management team, Madalena linked up with Jose David Penafiel who headed Hispania Petroleum S.A., a private family-owned Spanish company. In May a series of strategic deals between the two was announced — part of which was the provision to Madalena of a US$23 million credit facility. When those deals were announced, Penafiel became chief executive and Sharpe stepped down.

“That joint venture (with a partner that has a farm-in agreement with British Petroleum) was the hallmark of Sharpe’s tenure,” said Tawil.

At the time, Madalena said, “this transformative transaction provides Madalena with sophisticated leadership, financially aligned with shareholders and experienced in working in Argentina and with committed growth capital.”

Twail said there’s an alignment of interests because the bulk of the US$23 million facility is convertible into Madelana shares. The other alignment, he noted, is that new directors will be “entirely compensated with stock options.”

While Twail said the transformation was “quite phenomenal” from a results perspective, it hasn’t yet been a winner from an investor’s perspective. Over the past three years, the shares have trended lower ranging from a high of $0.485 to a low of $0.07 with an average price of $0.2403. They closed Tuesday at $0.17.

But Tawil believes better days are ahead. “This company will now see a very steep upward trajectory in terms of operating performance, earnings, production and stock price.” His target price is $1.70.

Financial Post
bcritchley@postmedia.com