ANNOUNCEMENT
20 March 2024
INDEPENDENT BOARD COMMITTEE'S
RESPONSE TO GOLDWAY'S SECOND SUPPLEMENTARY BIDDER'S
STATEMENT
The independent board committee
(IBC) of MC Mining Limited
(MCM or the Target) refers to the A$0.16 off-market
takeover offer by Goldway Capital Investment Limited (Goldway) for all of the shares in MCM
not currently owned by associates of Goldway (Offer).
As stated in the Target's Statement
dated 4 March 2024 (Target's
Statement) and confirmed in the Supplementary Target's
Statement dated 18 March 2024 the IBC unanimously recommends that
shareholders DO
NOT ACCEPT the Goldway Offer. The IBC continues to
hold this view.
Since the IBC made its
recommendation that shareholders DO NOT ACCEPT the Goldway Offer, Goldway has attempted to
discredit the IBC's recommendation, including by publication of
Goldway's second supplementary bidder's statement dated 14 March
2024 (Second Supplementary
Bidder's Statement). The IBC believes it is important to
respond to the various statements and opinions made by Goldway in
its Second Supplementary Bidder's Statement, and accordingly makes
the following comments:
1.
Comments in
relation to the Independent Expert's Report and requirements of
section 640 of the Corporations Act
Goldway has made statements in its
Second Supplementary Bidder's Statement that MCM "has breached the Act by failing to include
the IER within the statutory timeframe".
These statements by Goldway are not
accurate. The Target has not breached its obligations under section
640 of the Corporations Act 2001
(Cth) (Act) to
provide a target's statement and accompanying independent expert's
report. The Supplementary Target's Statement dated 18 March 2024
included the Independent Expert's Report
(IER) prepared by
BDO Corporate Finance (WA) Pty Ltd ACN 124 031 045
(BDO or the Independent Expert) and has been sent to Shareholders and is available on the ASX
website, www.asx.com.au,
and MCM's website at www.mcmining.co.za.
References to a target statement in section 640 of the Act include
a target statement as supplemented. The Target's Statement issued
by MCM within the statutory timeframe disclosed to Shareholders
that a Supplementary Target's Statement with IER would be
issued.
As announced on 18 March 2024,
the IER prepared by BDO has concluded that the Offer is neither fair nor
reasonable to shareholders.
Shareholders are urged to read the
Target's Statement and the Supplementary Target's Statement in
their entirety before making a decision on the Offer. The Offer is
scheduled to close on Friday, 5 April 2024 at 7.00pm (Sydney
time)/10.00am (South Africa time), unless extended by
Goldway.
2.
Comments in
relation to the Vele Aluwani Colliery
(a)
Status of
Vele
Goldway has made statements in its
Second Supplementary Bidder's Statement that the Vele Aluwani
Colliery (Vele) has been
"under care and maintenance since
January 2024" and that there has been no disclosure by MCM
of the "closure and on-going care
and maintenance costs of Vele".
The IBC maintains that MCM has
complied with its disclosure obligations in relation to Vele. In
December 2022, Vele was outsourced and recommissioned for
operations by Hlalethembeni Outsourcing Services (Pty) Ltd
(HOS). During December 2023
and January 2024 HOS downscaled operations at Vele, following which
the production optimisation strategy at the colliery (Operation
Shandukani) commenced. Representatives of MCM, HOS and Overlooked
Colliery Group (owned by Consortium member, Senosi Group Investment
Holdings Proprietary Limited (SGIH) and a major shareholder of
Goldway) had numerous meetings in December 2023 regarding the
downscaling activities at Vele. The parties agreed on the
implementation of the Operation Shandukani turnaround plan which
may potentially incorporate underground mining at Vele for
semi-soft coking coal (SSCC), typically a higher value product
than thermal coal. Further, the downscaling of operations at Vele
have been discussed and was unanimously approved by the MCM Board
at a meeting attended by Consortium representatives.
The downscaling for optimisation
process at the Vele colliery does not mean that Vele is "under care
and maintenance". Placing a mine under "care and maintenance" is a
statutory process and requires Ministerial approval once an
application for care and maintenance has been submitted, which has
not been done.
(b)
Valuation of
Vele
The Independent Specialist Report
prepared by SRK Consulting (Australasia) Pty Ltd (SRK) and contained in the IER took into
account that Vele's operations have temporarily stopped, while it
re-optimises[1]'.
Goldway's Offer Price is still
significantly below the Independent Expert's valuation range. BDO
assessed the value of an MCM Share prior to the Offer between
A$0.214 and A$0.356, with a preferred value of A$0.285 per
MCM Share (on a controlling interest basis).
The IBC believes that Goldway's
Offer Price does not, among other matters, take into account the
true life of mine Coal Resources at Vele.
It is also important to note that
since Vele was recommissioned in December 2022, all coal produced
at Vele has been sold to an associate of the Overlooked Colliery
Group, owned by Consortium member, SGIH, which is in turn
controlled by a non-independent director, Mr Matthews Senosi . The
IBC believes that HOS as well as interests associated with SGIH
would also benefit from the implementation of the optimisation
production strategy at Vele. If Shareholders accept the
Offer, the IBC is of the view that Shareholders will lose the
opportunity to share in the value upside of the Vele optimisation
strategy.
As previously disclosed in the
Target's Statement, the activities and performance of MCM are
subject to various infrastructure, operational and development
risks. Shareholders are advised to read in full section 9 of the
Target's Statement regarding risks in relation to the Offer as a
minority Shareholder and risks in relation to MCM where remaining
as a Shareholder in MCM.
3.
Comments in
relation to the Uitkomst Colliery and the Makhado
Project
Goldway has made various statements
about the assets, costs and value of MCM's mineral assets,
including the Uitkomst Colliery and the Makhado Project.
The IBC notes for the following
reasons why the statements of Goldway are misleading:
(a)
Goldway states that "[w]hen
cashflow positive, the cash generated from Uitkomst is immaterial
and insufficient to cover the administrative and corporate costs of
MCM."
(i)
Uitkomst substantially contributes to head office costs. Uitkomst
generated net positive operational cash flows (after capex) of over
R87m for the six months to 31 December 2023 and continues to be net
cash positive and contribute to corporate costs.
(ii)
Goldway's comparison of MCM's costs to cash flows being generated
from Uitkomst does not take into account the optimisation
cost reduction strategies for the Uitkomst and Vele collieries and
the one-off corporate costs incurred in connection with the Goldway
Offer.
(b) Goldway
states that the "the NPV of the
Makhado Project has decreased significantly since June
2013."
(i)
Goldway's statements of comparison are based on a definitive
feasibility study (DFS)
announced in 2013, which is based on assumptions that are
different to the economic and operating (including life of mine)
assumptions, processing and production plans and strategies that
currently apply to the development of the Makhado
Project.
(ii) In
June 2023, MCM announced a significant increase in the Makhado
Project's mineable Coal Reserves and at the same time MCM generated
a full life of mine (LOM)
plan for the 27-years of production. As previously disclosed in the
Target's Statement, the IBC is of the view that the timing of the
initial indicative takeover bid received in September 2023 seeks to
take advantage of the increased LOM plan for the Makhado
Project.
(iii) The
capital investment required for the revised Makhado Project
strategy has also decreased significantly. The peak funding
requirement for the initial DFS in 2013 was US$432.8m, with total
construction costs estimated at US$403.6m resulting in a 6-year
payback period.
(iv)
In comparison, the peak funding requirement for the revised
strategy is approximately 77% lower at US$96m, with an estimated
average payback period of 3.5 years[2].
The Offer Price of A$0.16 per MCM
Share that is being offered by Goldway is:
(a)
below the initial 5 September 2023 indicative
price range of A$0.20 to A$0.23 (Initial Indicative Offer) proposed by
the major shareholders and initial Consortium members, Dendocept
Proprietary Limited and SGIH; and
(b)
significantly below the valuation range
assessed by the Independent Expert of between A$0.214 and
A$0.356 per MCM share.
SRK's valuation of the Makhado
Project, employing a market-based approach, is higher than a
valuation using the income valuation method. The IBC is of the view
that if Shareholders accept the current Goldway Offer they will
lose the opportunity to share in the value of the Makhado Project,
subject to and once income from production is generated.
As previously disclosed in the
Target's Statement, the development of the Makhado Project requires
substantial funding and is subject to operational and development
risks. Shareholders are advised to read in full section 9 of the
Target's Statement regarding risks in relation to the Offer as a
minority shareholder and risks in relation to MCM where remaining
as a shareholder in MCM.
4.
Comments in
relation to the Greater Soutpansberg Project
(GSP)
Goldway has made statements that the
GSP assets have remained dormant and that "the GSP is a considerable distance from the
nearest port and its future viability is adversely impacted by
persistent power and rail issues".
SRK's assessment of the Makhado
Project and Greater Soutpansberg Project assets has taken into
account the attributable Coal Reserves and Resources, surrounding
infrastructure and services, geotechnical data, mining and land
access rights, and potential risks and opportunities. SRK's
analysis of implied resource multiples also recognises the
reasonable prospects for eventual economic extraction. The market
valuation method adopted by SRK only considered comparable
transactions within South Africa, which are exposed to similar
operating and infrastructure challenges.
Goldway has not disclosed in its
Bidder's Statement Goldway's plans to address the rail and
infrastructure challenges.
The IBC believes that Goldway is
seeking to justify its undervalued Offer Price of A$0.16. The Offer
Price is significantly below the valuation range assessed by the
Independent Expert. The Offer Price is also below the Initial
Indicative Offer's valuation range that certain Consortium members,
Dendocept and SGIH proposed for MCM. The IBC is of the view that if
Shareholders accept the Offer Shareholders will lose the
opportunity to share in future opportunity value to MCM of these
GSP assets.
5.
Comments in
relation to Goldway's justification of the A$0.16 Offer
Price
Goldway has made various statements
about MCM's debt position, additional Shares being issued and the
status of Vele as justifying Goldway's A$0.16 Offer
Price.
Goldway has also stated that
"[i]f successful with its Offer,
Goldway will be required to inject considerable capital into MCM to
remain solvent". The IBC notes that as previously disclosed
in the Target's Statement, after 5 April 2024 and by mid May 2024
MCM will be required to secure further funds, whether through
equity or debt or a combination of both. Whether or not Goldway
would be the entity providing capital will depend on the nature and
structure of any fundraising. Although no assurance is provided
that MCM will implement a rights issue, if a rights issue is
conducted, all existing Shareholders at that time would
receive a pro rata right to participate in the capital raising and
acquire further shares in MCM.
Goldway has also stated that
"the Bidder Parties have invested
considerable capital in MCM". As past participation in the
September 2022 rights issue indicates, Consortium members value the
mineral assets of MCM and have previously invested on the basis of
the going concern and development risks associated with a
development company such as MCM. It is not uncommon for major
shareholders to be a source of equity or other funding for a
company. It is also usual for independent non-executive directors
not to own shares in the company on which they sit to ensure
'independence' is maintained.
However, the IBC reminds
Shareholders that the A$0.16 Offer Price is significantly below the
valuation range assessed by the Independent Expert. The A$0.16
Offer Price is also below the September 2022 rights issue price of
A$0.20 per share and the September 2023 Initial Indicative Offer's
valuation range.
The IBC considers that the
statements made by Goldway are not compelling because:
(a) the
debt position of MCM is allowed for in the valuation of the
Independent Expert. The overall debt position has not materially
changed since June 2023. Further, as disclosed in MCM's interim
financial statements released on 15 March 2024, finance costs
reduced to US$755k from US$1.1m in the comparative
period;
(b) the
Independent Expert's valuation of MCM shares is on the basis of a
total of 407,890,744 shares being on issue, which includes the
issue of the additional 8.2 million Shares approved by the MCM
Board and issued to management personnel in November
2023[3]; and
(c) the
status of operations at Vele is taken into consideration by the
Independent Expert.
The Offer Price remains materially
below the Independent Expert's valuation range.
6.
Comments in
relation to the financial position and performance of
MCM
Goldway has made statements about
its concern for the cash position of MCM. The financial position
and solvency of MCM are matters for the Board's ongoing
consideration, having regard to all of the circumstances of MCM,
current cash flow forecasts and advice provided to all members of
the Board, which include the Consortium's
representatives.
As disclosed in MCM's Supplementary
Target's Statement, the interim financial statements for the half
year ended 31 December 2023 were released on 15 March 2024 and
are available to view on the ASX
website, www.asx.com.au,
and MCM's website at
https://www.mcmining.co.za/investors-and-media/announcements/2024.
These interim accounts have been prepared on a
going concern basis. Shareholders are advised to read these
accounts in their entirety.
Goldway has made various statements
about the financial position and performance of MCM, which Goldway
has attributed to the "high cost
and sub-scale nature of MCM's producing assets". The IBC is
of the view that these statements are misleading as MCM is a
developer not a producer and that core value for MCM is primarily
attributed to the potential future cash flows and development
potential of Makhado, Vele and the GSP. The IBC believes that
if Shareholders accept the Offer they will lose the opportunity to
share in the upside value in MCM taking its development
opportunities through to operation.
Goldway has also made a statement
that "[it] believes it is in the
best interests of MCM Shareholders to privatise MCM". This
statement of Goldway's opinion is inherently conflicted. In section
8.2 of the Bidder's Statement regarding Goldway's intentions in
relation to the assets of MCM, Goldway has not explained how
privatising MCM will overcome the operational and infrastructure
challenges that Goldway is seeking to justify its Offer Price on.
Section 8.2(b) of the Bidder's Statement states that the
"Bidders do not intend to make
major changes to the core assets and operations of MCM other than
to progress financing and development of its projects." The
IBC also notes that MCM is currently owed R20 million by HOS, who
is in turn owed money by associates of Mr Senosi's entity,
Overlooked Mining Pty Ltd (Overlooked). Goldway's representatives
on the Board are aware of the amount outstanding and the commitment
which has been given to repay this amount by the end of April
2024.
The Bidder's Statement did not
disclose details of these relationships. As noted above, the lack
of disclosure about Goldway's intentions on how it will develop and
operate the mining assets if the Offer is successful and how
associates of the Consortium, such as Overlooked may remain
involved is, in the opinion of the IBC, evidence of the conflict of
interest that Goldway and the Consortium Bidder Parties, and their
representatives on the Board of MCM, have in relation to the
Offer.
7.
Comments in
relation to the Vulcan NBIO
The Target's Statement provides that
if there is an alternative bidder or competing superior proposal
the IBC will update MCM Shareholders accordingly.
As announced by the Company on 11
March 2024, the non-binding indicative offer received from Vulcan
Resources (Vulcan NBIO) was
never presented to Shareholders as a binding offer capable of
acceptance by Shareholders. MCM was not aware that Vulcan Resources
would not proceed to making a formal offer until receipt,
subsequent to the announcement of the Vulcan NBIO, of Vulcan
Resources' communication that it would not be
proceeding.
As at the date of this announcement,
the only binding offer capable of acceptance is the Goldway
Offer.
However, the IBC continues to
recommend Shareholders DO NOT
ACCEPT the Goldway Offer of A$0.16 per MCM Share as the
Offer Price is significantly below the valuation range
assessed by BDO, the Independent Expert.
A Shareholder who requires the
certainty of a formal cash exit price and does not want to remain
invested in MCM may take a different view to the IBC based on the
Shareholder's individual circumstances.
8.
Comments in
relation to the status of the No Material Adverse Change Condition
to Goldway's Offer
Goldway has made statements that it
is currently investigating whether the 'no material adverse change
condition' as set out in section 13.9(c) of the original bidder's
statement dated 2 February 2024 (MAC Condition) is capable of being
satisfied.
Goldway's Offer is conditional on no
material adverse change occurring in relation to MCM before the end
of the Offer Period.
In its Second Supplementary Bidder's
Statement, Goldway stated that in the event that the MAC Condition
is breached or cannot be satisfied, Goldway does not intend to
waive this condition.
In the IBC's view, the MAC Condition
has not been breached and the reasons given by Goldway for
investigating the MAC Condition are inaccurate and misleading. As
noted above, the Vele colliery is not being shut down and has not
been put on 'care and maintenance'. As disclosed in MCM's Quarterly
Activities Report on 31 January 2024, the production optimisation
strategy is being progressed and will not result in MCM incurring
costs or expenses in excess of A$5 million (being the threshold
within the meaning of a MAC Condition event). Rather, the current
production optimisation strategy for Vele has resulted in
operational cost reductions and is designed to improve the cash
position and profitability of MCM, taken as a whole.
However, if Goldway were to take a
different view and allege that the MAC Condition has been breached
and is not waived, then, the conditional Offer would fail and
lapse. In such a scenario, Shareholders who have accepted the Offer
would not receive the Offer Consideration of A$0.16 per MCM
Share.
Goldway is required to give MCM and
the Australian Securities & Investments Commission written
notice on Friday 22 March 2024 providing an update on the status of
the defeating conditions attaching to its Offer. The date for
giving notice on the status of the defeating conditions can be
extended if Goldway extends the close of the Offer to a date after
5 April 2024. The IBC will keep Shareholders informed of any
developments in relation to the Offer, including in relation to the
section 630(2) notice of status of defeating conditions required to
be given by Goldway.
The IBC confirms and reiterates its
unanimous recommendation that Shareholders DO NOT ACCEPT the
Goldway Offer.
For questions, please contact
the Target Shareholder Line on +61 461 444 038
between 9.00am and 7.00pm (Sydney time) on Business Days (if
calling from within Australia) or between 11am - 1pm (Johannesburg
time) or 9am - 11am (London time).
The IBC looks forward to your
continuing support as we respond to the Goldway Offer.
Mr
Nhlanha
Nene
Mr Khomotso Mosehla
Chairman of MC Mining
Limited
Chairman of the IBC
This announcement has been approved
for release by MCM's Disclosure Committee.
The information contained within this announcement is deemed
by MCM to constitute inside information as stipulated under the
Market Abuse Regulation (EU) No. 596/2014 as it forms part of
United Kingdom domestic law by virtue of the European Union
(Withdrawal) Act 2018, as amended.
Forward-looking
statements
This announcement contains forward-looking statements,
including statements of current intention, statements of opinion
and predictions as to possible future events. All statements other
than statements of historical fact are by definition likely to be
forward-looking statements. You should be aware that such
statements are predictions and are subject to inherent risks and
uncertainties, many of which are beyond the control of the
MCM. Refer to section 9 of the Target's Statements for
details about risks associated with the Offer and MCM. These
forward-looking statements are based on, among other things, MCM's
assumptions, expectations, estimates, objectives, plans and
intentions and the views of the IBC as at the date of this
announcement. Although MCM and the IBC believe that the
expectations reflected in any forward-looking statement included in
this announcement are reasonable, no assurance can be given that
such expectations will provide to be correct. Actual events or
results may differ materially from the events or results expected
or implied in any forward-looking statement.
None of MCM, BDO or SRK, nor any of their respective
directors, officers, consultants or employees make any
representation or warranty (whether express or implied) as to the
accuracy or likelihood of fulfilment of any forward-looking
statement, except to the extent required by law. You are cautioned
not to place undue reliance on any such forward-looking
statements.
For
more information contact:
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Tony Bevan
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Company Secretary
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Endeavour Corporate
Services
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+61 42 1072 165
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Company advisers:
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Richard Johnson / Rob
Patrick
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Nominated Adviser
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Strand Hanson Limited
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+44 20 7409 3494
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Rory Scott
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Broker (AIM)
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Tennyson Securities
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+44 20 7186 9031
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Marion Brower
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Financial PR (South
Africa)
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R&A Strategic
Communications
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+27 11 880 3924
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BSM Sponsors Proprietary Limited is
the nominated JSE Sponsor
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About MC Mining Limited:
MC Mining is an AIM/ASX/JSE-listed
coal exploration, development and mining company operating in South
Africa. MC Mining's key projects include the Uitkomst Colliery
(metallurgical and thermal coal), Makhado Project (hard coking
coal), Vele Colliery (semi-soft coking and thermal coal), and the
Greater Soutpansberg Projects (coking and thermal coal).