Wrap Text
Independent Board Committee's response to Goldway's second Supplementary Bidder's Statement
MC Mining Limited
Previously Coal of Africa Limited
(Incorporated and registered in Australia)
Registration number ABN 008 905 388
ISIN AU000000MCM9
JSE share code: MCZ
ASX/AIM code: MCM
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'.
1
Section 8.3.2 of SRK's Independent Specialist Report, contained as Appendix 4 to the Independent Expert's
Report annexed to MCM's Supplementary Target's Statement dated 18 March 2024.
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)
2
Source: Public announcements made by MCM on 19 June 2013 (https://www.mcmining.co.za/investors-and-
media/announcements/2013) and 30 June 2023 (https://www.mcmining.co.za/investors-and-
media/announcements/2023).
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
3 As previously announced, 4,000,000 of these shares were issued to Mr Godfrey Gomwe, the Managing Director and Chief
Executive Officer, pursuant to the vesting of Options in accordance with his employment agreement, as previously approved
by shareholders at MCM's 30 November 2022 annual general meeting. A total of 4,225,542 shares were issued to certain
members of MCM's management team on the vesting of Performance Rights previously granted in November 2020 and July
2022 as part of their remuneration.
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:
Tony Bevan Company Endeavour Corporate +61 42
Secretary Services 1072 165
Company advisers:
Richard Johnson / Nominated Strand Hanson +44 20
Rob Patrick Adviser Limited 7409 3494
Rory Scott Broker (AIM) Tennyson Securities +44 20
7186 9031
Marion Brower Financial PR R&A Strategic +27 11 880
(South Africa) Communications 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).
Date: 20-03-2024 03:05:00
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