REG - MC Mining Limited - Response to 3rd Supplementary Bidder's Statement

MC MiningAnnouncement

25/03/2024 09:00

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RNS Number : 1364I  MC Mining Limited  25 March 2024

ANNOUNCEMENT
                       25 March 2024

 

INDEPENDENT BOARD COMMITTEE'S RESPONSE TO GOLDWAY'S THIRD 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 regarding the Offer, Goldway has
attempted to criticise and undermine the IBC and dismiss the findings of the
Independent Expert 1  (#_ftn1) in an effort to justify its A$0.16 price which
significantly undervalues MCM 2  (#_ftn2) . Continuing this theme, MCM has now
received a copy of the Third Supplementary Bidder's Statement dated 21 March
2024 (Third Supplementary Bidder's Statement). The IBC wishes to update
Shareholders and respond to the statements made by Goldway in its Third
Supplementary Bidder's Statement:

 

1.        Independent Expert's Report

(a)       No change to the conclusion 'neither fair nor reasonable'

Goldway has sought to discredit the reliability of the Independent Expert's
Report prepared by BDO and the independent specialist report (ISR) prepared by
SRK Consulting (Australasia) Pty Ltd (SRK).

The Independent Expert's Report is and continues to be a reliable independent
expert's opinion. The use of specific valuation methodologies by BDO and SRK,
the reasonable basis for their selection and the grounds and assumptions for
BDO's opinion are matters for BDO, the independent expert and SRK, the
independent technical specialist. Both BDO and SRK are highly experienced
experts in their respective fields and each piece of work has been undertaken
in accordance with the requirements of the Corporations Act 2001 (Cth) (Act),
ASIC regulatory guidance and professional valuation and ethical standards.

Goldway's statements in its Second Supplementary Bidder's Statement and Third
Supplementary Bidder's Statement have falsely claimed that the Vele Aluwani
colliery (Vele) is under "care and maintenance" and that Shareholders face the
"imminent risk of insolvency". These statements are inaccurate and there has
been no change in the status of the assets or financial position of MCM which
were considered by the Independent Expert. The Independent Expert has
confirmed to MCM their valuation approach and findings and that no changes are
required to be made to either the Independent Expert's Report or the ISR. The
IBC would suggest that Goldway and the Consortium members are not independent
valuation experts and have vested interests in justifying their views on
appropriate valuation approaches.

(b)       Comments on valuation methodology and reasoning

Goldway has claimed that the Independent Expert's opinion is "perplexing and
difficult to comprehend''. However, the IBC is of the view that the
Independent Expert's opinion is very clear in its conclusion (Section 14,
Conclusion of the IER). The Independent Expert considers the Offer to be not
reasonable for Shareholders "because the advantages of accepting the Offer do
not sufficiently outweigh the value differential between the value of an MC
Mining share and the value of the Offer Consideration" 3  (#_ftn3) .

Section 9.1 of the IER explains the Independent Expert's selection of
valuation methodologies used to value an MCM Share. Goldway has claimed that a
"sum of parts" valuation methodology is flawed. However, the choice of a "sum
of parts" methodology (which considers the component and underlying assets and
liabilities using the most suitable valuation approach) is an appropriate and
industry standard methodology in this case, especially for an entity such as
MCM, which has different mining assets at different stages of development.

 

Goldway has also stated that the Independent Expert has failed to address
certain disadvantages or risks of solvency, dilution, financing and liquidity
risks and cash costs associated with operating MCM.  All of these risks are
typically faced by a developer.  They are effectively recognised in the use
of the Market Value approach to valuation, and specifically by SRK in the
indexing of comparable valuations according to increasing confidence of coal
mineralisation and stage of development 4  (#_ftn4) .

BDO as Independent Expert specifically considered the liquidity of MCM Shares
and in accordance with regulatory guidance did not use a quoted market price
valuation (QMP) method due to the low level of liquidity over the assessed
period.

Further, the Independent Expert, in considering whether the Offer is
reasonable and the advantages of accepting the Offer, expressly considered
future financing and dilution risks in section 13.1.2 of the IER (the Offer
provides the opportunity to exit the coal industry).

Goldway has claimed that the "methodology in the SRK Report does not take into
account the level of coal production by MCM''. The Market Value approach that
SRK has used is an industry standard valuation approach. In section 8.3.2 of
SRK's Independent Specialist Report SRK has taken appropriate account of the
coal resources and reserves and the level of production at the various mining
sites by selecting appropriate comparable market transactions and implied
resource value multiples. As previously noted in MCM's market announcement on
21 March 2024, SRK considered ''coal confidence, coal resource estimation
differences, coal type and reasonable prospect of eventual economic extraction
''.

Goldway also referred to the 'sum of parts' valuation methodology and claimed
that deducting only the current net liabilities from the assets of the Makhado
Project as at 31 December 2023 "IS MISLEADING AND IGNORES THE CONSIDERABLE
IMMEDIATE CONTINUED OVERHEAD CASH COSTS OF MCM AS AN ENTITY LISTED ON THREE
MAJOR EXCHANGES WITH AN ATTENDANT LARGE HEAD OFFICE INFRASTRUCTURE."  It also
stated that, "it is common market practice in undertaking such a valuation
that appropriate deductions are made for the head office overhead in addition
to the net liabilities". This is inaccurate as the assets were valued by the
Independent Expert using a Market Approach, not an Income Approach.
Arbitrarily deducting the expected future corporate overheads is not
appropriate in this case as the Market Approach also does not consider any
potential future operating cash flow generated from MCM's assets. Further,
although it is common practice to deduct the present value of corporate costs
not allocated to business operations when an Income Approach is adopted,
listed company costs that would be able to be saved by any potential acquirer
in a change of control transaction are typically excluded from these costs.
Goldway has stated in its Bidder's Statement that it intends to delist MCM if
the Minimum Acceptance Condition 5  (#_ftn5) is met.

The Bidder, Goldway, also stated that the "Independent Expert only provides
two disadvantages that they have considered in arriving at their conclusion
that the Offer is "unreasonable"". BDO considered an equal number of
advantages and disadvantages when reaching its conclusion about the
reasonableness of the Offer. These are set out in section 13.1 and 13.2 of the
IER respectively.

The Independent Expert has clearly disclosed the material reasonableness
factors it considered when reaching its opinion on reasonableness. Goldway's
statement that, " t he opinion of unreasonableness was therefore based on a
flawed valuation reflecting an unrealistic transaction price that Vulcan
Resources was ostensibly not willing to pursue with no material disadvantages
capable of being identified", is a misrepresentation of the Independent
Expert's Report and reasoning.  The indicative pricing of the Vulcan
Resources did not influence or distort the separate fairness assessment
undertaken by BDO. As required by ASIC regulatory guidance, when considering
reasonableness, an expert is able to consider the likelihood of alternative
offers.

In summary, the IBC believes that Shareholders should have more regard to the
Independent Expert's Report than the misleading valuation statements made by
Goldway, which is neither an expert nor independent.

2.        Explanation of the Minimum Acceptance Condition

Shareholders are reminded that Goldway cannot act upon its intentions to
delist and privatise MCM for the benefit of the Consortium members if Goldway
only reaches a combined relevant interest of 75% pursuant to the Offer.

In order for the Offer to be declared unconditional, Goldway, together with
the 64.3% 6  (#_ftn6) shareholding of the Consortium members, will be required
to reach by 5 April 2024 a combined relevant interest of 82.19%, not 75%, of
the issued shares of MCM. Since the Offer opened on 16 February 2024, Goldway
has received conditional acceptances from only 8.29% of Shareholders, taking
Goldway's relevant interests to 71.69% as at 22 March 2024.

If Goldway fails to reach a combined relevant interest of 82.19% by 5 April
2024, then the  'Minimum Acceptance Condition' will not be satisfied, the
Offer Period will not be extended for a further 10 Business Days and Goldway's
Offer will fail and lapse on 5 April 2024. Any acceptances received by Goldway
will be rescinded (no Offer Consideration will be paid) and no legal title in
the shares will pass to Goldway.

In the event of failure of the bid, subsequent to 5 April 2024, the Board of
MCM will then be able to re-commence the capital and fund raising initiatives
that have been stymied since early August 2023 due to the conditions imposed
by Goldway in relation to its Offer. The Consortium has offered a loan to MCM
which will be evaluated amongst other funding alternatives currently being
considered.

Accordingly, the IBC reiterates its unanimous recommendation that Shareholders
DO NOT ACCEPT the Offer.

3.        Statements about MCM's financial position and risks

Goldway is presenting misleading information to Shareholders in an effort to
encourage acceptance of its Offer by stating that MCM has no funding
alternatives other than reliance on the Consortium members.

As Shareholders are aware, an investment in a resource development company,
such as MCM, involves various investment, operational and financing risks. The
fact that MCM's financial statements have been noted with a material
uncertainty as to the going concern basis of their preparation is not unusual.
In fact, in November 2022, the Dendocept Group and Senosi Group Investment
Holdings Proprietary Ltd increased their shareholdings in MCM through a A$0.20
rights issue on the basis of a similar qualification in MCM's FY22 accounts.

The Directors of MCM continue to have reasonable grounds for a variety of
alternative financing sources which are in addition to Consortium members.
Once the Offer Period ends, the Board and Management will be able to pursue
these funding pathways and strategies, in particular for the Makhado Project,
without the restrictions placed on MCM due to Goldway's highly conditional and
opportunistic Offer.

The IBC is of the view that there are suitable pathways to Makhado reaching
income producing operations. MCM is considering various financing
opportunities, including alternatives to equity funding, which would not
involve any dilution to Shareholders. Shareholders who sell their Shares will
forego the opportunity to participate in the exploration and production
potential of MCM's development assets.

 

4.        Statements about MCM's assets and operations

The IBC is of the view that Goldway is attempting to use its various Bidder's
statements in respect of its highly conditional Offer to pressure Shareholders
into believing that its undervalued Offer Price is fair and reasonable, which
the IBC strongly refutes.

Goldway's statements about the operational and infrastructure risks and
challenges faced by MCM omit to fully disclose how Goldway and the Consortium
members will benefit from the mining and project assets of MCM.

Further, Goldway's statements that Vele has been placed "under care and
maintenance" are false and fail to explain to Shareholders that Consortium
associated directors on the Board of MCM have actively participated in
decisions made about the optimisation strategy at Vele.

Shareholders are referred to the market announcement released by MCM on 21
March 2024 titled, "IBC's response to the Second Supplementary Bidder's
Statement'' for the reasons given by the IBC as to why Goldway's negative
statements about Vele, the Uitkomst Colliery, the Makhado Project and Greater
Soutpansberg Project are misleading.

5.        Best and final offer and no extension of the Offer Period

Goldway has stated that the Offer Price of A$0.16 per MCM Share is its best
and final offer with no increase to the Offer Price in the absence of a
competing proposal. It has also stated that it will not be extending the Offer
Period in the absence of a competing proposal. The Offer is scheduled to close
on 5 April 2024.

The IBC will continue to ensure that Shareholders are provided with factual
information on which they can elect to accept or not accept the Offer and will
respond to any misleading statements made by Goldway in respect of the
Offer.  For the reasons set out in this announcement and its 21 March 2024
announcement, as well as in the Target's Statements dated 4 and 18 March 2024,
the IBC confirms and reiterates its unanimous recommendation that Shareholders
DO NOT ACCEPT the 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:
 Tony Bevan                     Company Secretary                   Endeavour Corporate Services          +61 42 1072 165
 Company advisers:
 Richard Johnson / Rob Patrick  Nominated Adviser                   Strand Hanson Limited                 +44 20 7409 3494

 Rory Scott                     Broker (AIM)                        Tennyson Securities                   +44 20 7186 9031
 Marion Brower                  Financial PR (South Africa)         R&A Strategic Communications          +27 11 880 3924
 BSM Sponsors Proprietary Limited is the nominated JSE Sponsor

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).

 

 

 

 1  (#_ftnref1) The Independent Expert's Report (IER) prepared by BDO
Corporate Finance (WA) Pty Ltd (BDO) and contained in MCM's Supplementary
Target's Statement dated 18 March 2024 concluded that the Offer is neither
fair nor reasonable to Shareholders.

 2  (#_ftnref2) 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).

 3  (#_ftnref3) Section 14 of the Independent Expert's Report.

 4  (#_ftnref4) Section 8.3.2 and Fig. 8.1 of SRK's Independent Specialist
Report contained as Appendix 4 to the Independent Expert's Report in MCM's
Supplementary Target's Statement.

 5  (#_ftnref5) The Minimum Acceptance Condition requires Goldway and its
associates to reach a combined relevant interest of 82.19%, not 75%.

 6  (#_ftnref6) Aggregate shareholding of the Consortium members at the
commencement of the Offer.

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