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Which way will the proxy fight go for Resource Generation?

On paper it looks like a non-event.

JOHANNESBURG – In another twist to the fight between management and a group of large shareholders of ASX- and JSE-listed Resource Generation (previously covered on Mineweb here), the company has now accused three shareholders of “illegal collective action”. The accusations came by way of a stock exchange release on the ASX dated October 1.

The three shareholders comprise Altius Investment Holdings, the Noble Group, and Africa’s largest asset manager – the Public Investment Corp. (PIC). All three form part of the so-called “debt club” that was assembled by Altius to arrange financing for the $500m development of the Boikarabelo coal mine in South Africa’s Waterberg region. Other members of the debt club include HSBC, Rand Merchant Bank, and the Industrial Development Corporation (IDC).

This follows the request by Altius for a shareholder meeting, in which it will ask shareholders to vote on its proposal to remove all of the current directors and replace them with directors of its own nomination.

In Resource Generation’s (Resgen) announcement on October 1, it claimed that information supplied to Altius for the purposes of arranging funding was confidential and was disclosed on condition that it “would be used only in connection with the funding negotiations and for no other purpose”.

It further stated that, “This information may have been used for other purposes in breach of this condition”. The company has not elaborated on what the “other purposes” it may have been for. “I can’t. For one it’s a legal process,” says Paul Jury, Resgen’s CEO. “We have made a submission to the Australian Securities and Investments Commission (ASIC). They will determine where this goes, so I can’t say what might happen.”

In the meantime, the Memorandum of Understanding signed with Swiss financiers HAB & JPR Privee for financing the development of the mine has been put on ice. Resgen disclosed last week that any offer of financing would be conditional on continuity in the board, something which is in jeopardy based on Altius’ request. “We asked Altius to remove the request, and they have said no. The date for the meeting has not been set,” says Jury. “As a result, HAB & JPR Privee have reserved their rights, so we are trying to seek further clarification as to what the status of the deal is.”

No further progress has been made on the debt package being put together by the debt club. “We received the term sheet from the debt club several months ago. There have been indications we would receive a new one, but we haven’t received anything. They asked us to do some work on the contract mining side which is what we have been doing.”

It is the terms of the package the debt club is putting together that has apparently caused the conflict between the management team and the group of shareholders led by Altius. In the company announcement released on September 18, Resgen noted, “Terms and conditions put forward to date by the club have not been acceptable to the Company due to the excessive returns sought by some of the club members including Noble. There is no benefit to the Company in having Noble nominees on the Board in this situation.”

Attempts to reach Altius for comment were unsuccessful.

So it appears the two sides have reached the point of no return. Barring major intervention from the ASIC, the disagreement will be settled by a vote of shareholders at a meeting that will be called in November.

The lay of the land

So this begs the question as to how the voting (via proxy) will go, and how this will ultimately determine the direction the company takes in securing the funding necessary to develop the mine.

According to Bloomberg, the company has 581.38m shares outstanding. Of this amount, 461m shares (or 79%) are listed in Australia, whereas 120m are listed on the JSE.

Of the 120m shares listed on the JSE, the PIC accounts for almost the entire amount – 113.3m (or 94%) – see table below.

Rank Ten biggest shareholders of Resgen on JSE  No of shares
1 GOVERNMENT EMPLOYEES PENSION FUND PUBLIC INVESTMENT CORPORATION  113 309 805
2 RESGEN SCRIP LENDING (PTY) LTD  4 205 500
3 RBC INVESTOR TRUST CLIENTS ACCOUNT  1 091 456
4 SBSA ITF MOM RES  750 000
5 KOLAJA DUSAN  193 324
6 ZUNGU,MANDISA SAZIKAZI  154 617
7 SBSA ITF LION OF AFR GEN EQ FND  122 161
8 BNYM SA NV AS CUSTODIAN OR TRUSTEE INDUSTRIAL AND COMMERCIAL BANK OF C  86 504
9 MUIR GRAHAM OWEN  44 500
10 MADUNA SEHOLHO SAMUEL  38 911
     

Source: TimBukOne

But even as a percentage of the total (which includes shareholders on both the ASX and JSE) the PIC is the largest investor, followed by The Noble Group and Altius Investment Holdings (see table below).

Top ten biggest shareholders of Resgen

Rank Holder name No of shares Percent of total
1 PUBLIC INVESTMENT CORP 113 309 805 19.49
2 BARSINGTON LTD (NOBLE GROUP) 79 609 933 13.69
3 SHINTO TORII INC (ALTIUS) 62 124 089 10.69
4 VALUE INVESTMENTS LTD 22 727 273 3.91
5 MILLETA HOLDINGS 19 743 784 3.4
6 INTEGRATED COAL MINING LTD 18 268 053 3.14
7 YAPP PTY LTD 17 997 258 3.1
8 BANTAL SINGAPORE PTE LTD 12 195 122 2.1
9 CVC LTD 9 389 455 1.62
10 LUKALE MINING 6 784 334 1.17
     

Source: Bloomberg – as at August 20

So it appears the shareholder vote will be a non-event. Between the PIC, The Noble Group and Altius (the trio accused of the illegal action) they collectively account for 43.87% of the total vote. (The company’s BEE partner in South Africa, a company called Fairy Wing Trading, holds its ownership at the project level, not the holding company. As such it does not factor into the ownership of the listed vehicle.)

Altius – with the support of the PIC and Noble – would have to secure a further 6% plus one vote in order to appoint its own directors to the board. This obviously begs the question as to why the management team would pick a fight with such a large group of shareholders. Either way, the funding terms should be scrutinised.

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