235mil dollar coal deal

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7 May 2008
ASX Ltd
Companies Announcement Office
Electronic Lodgement System
Dear Sir/Madam,
Re : Enterprise proposes to become a significant coal company
The Board of Enterprise Energy Limited (“Enterprise”) is pleased to announce that it has
signed a Heads of Agreement with Bandanna Coal Pty Ltd (“Bandanna”) whereby Enterprise
has agreed to acquire the legal and beneficial right to all issued shares in Bandanna, subject
to certain conditions, including shareholder approval, for consideration of $235 million as at
31 March 2008 with adjustments for accounts up to 9 May 2008 (the “Proposed
Transaction”).
Bandanna is a private company, which through its wholly owned subsidiaries has extensive
coal exploration interests with near term coal production potential in highly prospective
portions of the Bowen and Galilee basins of Queensland (see maps). It is headed by the well
known and widely respected Jeremy Barlow, formerly a principal of Barlow Jonker,
founding director of CH4 Gas Limited and currently a non-executive director of Arrow
Energy Limited. Bandanna's issued capital is held by nine shareholders.
The Bandanna group holds 11 Exploration Permits for Coal (EPC’s) with applications for a
further five (EPCA’s), including several which are currently subject to farmins both by
Enterprise and third parties (details are provided in Appendix 1). These projects include:
• The Dingo West Project, in EPC 881, where a subsidiary of Macarthur Coal Limited
(“Macarthur Coal”) is currently earning up to a 70% interest through a farmin. The
project involves the Rangal Coal Measures, and a known low volatile coal likely to
yield products of PCI (pulverized coal injection) and thermal quality. Upon successful
completion of the farmin Bandanna will retain a 30% interest in the Dingo West
Project, including marketing rights for its share of any produced coal.
• The Alpha Project area (EPCs 1048, 1049, 1179 and 1180) where the international
coal company AMCI is earning up to a 50% interest by funding up to $25 million of
exploration. These permits are located immediately to the south of Waratah Coal
Limited’s tenements in the Galilee Basin.
In the case of EPC’s 881 (Dingo West), 891 (Springsure Creek) and 892 (Arcadia)
exploration and geological interpretation are currently underway, and it is expected that this
work will result in JORC compliant resource estimates. The results will be announced when
completed, and Enterprise anticipates this will be before the end of June 2008. In addition to
Enterprise Energy Limited
(ABN 34 009 356 665)
Business Office : Suite 2, Level 1, 80 Mount Street,
North Sydney, NSW, Australia, 2060.
Telephone (612) 9923 1520 Facsimile (612) 99231528
Registered Office : C/- DFK Richard Hill Chartered Accountants,
Level 11, 32 Martin Place Sydney, NSW, Australia 2000.
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these extensive coal interests, Bandanna also holds an emerging asset base in oil shale
tenements in Queensland. This comprises three exploration permits for minerals (EPM’s) and
applications for a further two (EPMA’s). The company also holds one EPMA which is
targeting bentonite.
Consideration for the Proposed Transaction will be by the issue of 2,937,500,000 ordinary
fully paid shares (plus an adjustment for accounts up to 9 May 2008) in Enterprise, at a
nominal value of 8 cents per share. This will represent approximately 94.0% of the then
issued capital of Enterprise, prior to any new capital being raised. ABN AMRO Morgans has
been retained as corporate advisor to the Proposed Transaction and a proposed capital raising
of the order of $40 million, subject to Shareholder approval and usual commercial
considerations and market conditions.
A table of tenements and interests held by the Bandanna group, together with details of the
individual projects, are provided in Appendix 1 and Schedule 2 as well as illustrated on the
accompanying maps.
Key terms of the Proposed Transaction contained in the Heads of Agreement are:
• Enterprise calling a General Meeting of Shareholders to seek approval of the purchase
of all Bandanna shares as well as other matters associated with the Proposed
Transaction, including the requirements of the Corporations Act and ASX Listing
Rules.
• Confirmation by an Independent Expert that the Proposed Transaction is fair and
reasonable to non-associated Shareholders of Enterprise.
• That Bandanna and Enterprise are satisfied with their respective Due Diligence
investigations.
• Enterprise embarking on a capital raising of approximately $40 million (subject to
usual commercial considerations and market conditions) and seeking necessary
shareholder approval for such a capital raising, at a General Meeting of Shareholders
to be convened to approve the Proposed Transaction. Capital raised will be primarily
used for working and development capital to fund the coal business opportunities, and
ensure that Enterprise maintains its spread requirements in accordance with the ASX
Listing Rules. The existing Enterprise Shareholders will be given an opportunity to
participate in the process of raising capital, on terms yet to be finalized.
• Dr Mark Elliott, and Messrs David Lindh and Norman Zillman, current directors of
the Board of Enterprise, agree to stand-down and three nominees of Bandanna be
invited to seek Shareholder approval for appointment as Directors of the Board of
Enterprise. One of those nominees will be Mr Jeremy Barlow.
• The current Chairman and Executive Director of Enterprise, Dr Raymond D. Shaw,
will continue on the Board of Enterprise Energy as an Executive Director and in the
position of Managing Director, following Shareholder approval of the Proposed
Transaction.
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• The capital structure of the Company be consolidated on a 1 for 10 basis, following
implementation of the Proposed Transaction and issue of shares to the vendors of
Bandanna.
• That the existing farmin agreement between Enterprise and wholly owned
subsidiaries of Bandanna, specifically Arcadia Coal Pty Ltd and Springsure Creek
Coal Pty Ltd, dated 14 December 2007 involving EPC’s 892, 1131 and 1204, be put
on stand-still until after the General Meeting of Shareholders. Should Shareholders
fail to approve the Proposed Transaction, the stand-still will be lifted and that farmin
agreement reinstated.
If the Proposed Transaction is approved by Enterprise Shareholders, it will amount to the
Company undertaking a change in its activities. If the Proposal is approved by Shareholders,
Enterprise will be required to comply with Chapters 1 and 2 of the ASX Listing Rules. In
addition, trading will be suspended following Shareholder approval of the Proposed
Transaction, until the requirements of Chapters 1 and 2 are satisfied.
As a private company, Bandanna's exploration program to date has been funded either by
shareholder contributions or funds from farminees. The company has no material debt. Upon
acquisition by Enterprise it is estimated that Bandanna will have net current assets of
between $5 – $6.5 million, made up of cash and receivables, which Enterprise will acquire
when adjusting the consideration, and excluding Bandanna's exploration assets which are
also to be acquired under the Proposed Transaction. Funds raised in the proposed capital
raising will be used to fast track exploration in the properties not subject to farmin. Details of
Enterprise's post transaction balance sheet are set out in Schedule 1.
The indicative timetable for the Proposed Transaction is for Shareholder approval to be
sought at a General Meeting to be held on or before 30 June 2008, and for the requirements
of Chapters 1 and 2 of the Listing Rules to be satisfied as soon as practicable after that
Shareholder approval has been obtained. Enterprise anticipates that this may be 1 – 3
business days after approval by Shareholders. Further details of the timetable for the
Proposed Transaction will be provided to Shareholders as soon as practicable.
The current Chairman of Enterprise Dr Ray Shaw stated that this was “an extremely exciting
opportunity for shareholders of the Company. Bandanna’s strategic coal assets and farmin
arrangements are particularly attractive with the potential to provide near-term production
and exploration upside. This is a particular milestone for the Company, which, if approved,
will see Enterprise became a significant new player in the coal sector in Australia.”
As the Bandanna group has been held privately, it has not estimated the quality and quantity
of any coals or minerals within its tenements to the JORC reporting standards applicable to
ASX listed companies. Accordingly, at this stage Enterprise is not permitted to disclose any
details of exploration targets and possible tonnages because they are not JORC compliant.
However, Bandanna has engaged Resolve Geo Pty Ltd, to undertake the work required in
accordance with the JORC Code, and the results of this work will be announced to the
Market when it is complete, which is anticipated before the General Meeting of Shareholders
in June, 2008.
Full details of the Proposed Transaction will be disclosed to the Market and Shareholders in
the Explanatory Statement, including the Independent Expert's Report, and the Notice of
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Meeting. It is the intention of Enterprise to have these documents circulated to
Shareholders, in order that a General Meeting may be convened on or before 30 June 2008.
If the Proposed Transaction proceeds Enterprise's existing conventional oil and gas interests
will be monitored, and actions in relation to further investment in, or realisation of, these
interests will be taken after consideration of the impact of these actions on Enterprise as a
whole.
The Board of Enterprise is currently working to advance the Proposed Transaction, and
further the interests of Enterprise's Shareholders.
Yours faithfully
ENTERPRISE ENERGY LIMITED
Dr Ray Shaw
Executive Chairman
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APPENDIX 1 – DETAILS OF THE BANDANNA PROJECTS
Details of the Bandanna projects are noted below, and in Schedule 2. In the case of EPC’s
881 (Dingo West), 891 (Springsure Creek) and 892 (Arcadia) exploration and geological
interpretation are currently underway, and it is expected that this work will result in JORC
compliant resource estimates.
The Dingo West Project is a PCI deposit which is being explored and developed by
Macarthur Coal under a farmin arrangement, as an open cut mine. Macarthur will earn up to
a 70% interest in the project. The project is favorably located around the town of Dingo, and
when developed would be the closest operation to Gladstone on the Blackwater rail line. On
successful completion of the farmin, Bandanna will hold 30% of the project.
The Alpha Project is targeting thermal coal at depths suitable for both open cut and
underground mining in the Galilee Basin (EPC’s 1048, 1049, EPCA 1179, 1180) to the south
and east of Waratah Coal Limited’s Galilee Basin tenements. AMCI is farming into this
project by spending up to $25 million to earn up to a 50% interest over three years. Bandanna
will hold at least 50% of this project once the farmin is complete. Exploration drilling is
currently underway in this area.
The Arcadia Project is targeting raw export thermal coal at underground depths in the
Southern Bowen Basin in EPC’s 892 and 1204, and currently involves Enterprise as a
farminee. Exploration drilling is currently underway in the Purbrook Anticline area of these
tenements. If the Proposed Transaction proceeds, then Enterprise will hold a 100% interest in
this Project.
The Springsure Creek Project is targeting raw export thermal coal at underground depths
in the Southern Bowen Basin in EPC 891 and adjoining tenements EPC1131, EPC1140 and,
EPC 1221. Currently an exploration program is focused on drilling in EPC 891. Preliminary
results suggest the presence of a consistent coal seam approximately 3 m thick at a depth of
220 – 235m. Bandanna retains a 100% interest in EPC 891 and adjacent tenements, save for
EPC 1131 which is subject to a farmin by Enterprise. If the Proposed Transaction proceeds,
then Enterprise will hold a 100% interest in this Project.
The Fernlee Project is targeting thermal coal at open cut depths in the southern Bowen
Basin in EPC 1103, and EPC 1185. Bandanna holds a 100% interest in this Project.
The Spring Creek Project is targeting hard coking coal at underground depths in the
northern Bowen Basin in EPC 1197 Bandanna holds a 100% interest in this Project.
The Carnarvon Project is targeting thermal coal at open cut and underground depths in the
southern Bowen Basin in EPCA 1189 and EPCA 1195. This is an exploration area where
field mapping and regional geological studies suggest that there may be potential for export
thermal coal, but at this stage without drilling it is too early to estimate the size of any
potential targets. Bandanna holds a 100% interest in this Project.
Oil Shale Projects - Bandanna holds a 100% interest in three EPM’s and has applications for
a further two EPM’s targetting oil shale within Queensland. Technical reviews completed to
date in EPMA 16666 and EPM’s 16667 and 16668 indicate the presence of oil bearing shales
at reasonable yields.
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Planet Creek Bentonite Project – Bandanna has applied for EPMA 17568 which targets
bentonite clay at very shallow open cut depths. This deposit was discovered during
exploration for coal in the Arcadia area, and overlies one of the areas in which coal is
targeted in EPC892.
Current Activity
Bandanna are currently operating exploration drilling programs in the Arcadia and
Springsure Creek Project areas. Macarthur Coal are currently operating activities in the
Dingo West area, and AMCI are operating activities in the Alpha Project Area.
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SCHEDULE 1 – POST TRANSACTION FINANCIAL INFORMATION
Assuming that the Proposed Transaction proceeds, Enterprise anticipates that its posttransaction
balance sheet, incorporating the Bandanna group, would consist of:
• current assets of approximately $770,000, consisting of approximately $200,000 cash,
$50,000 receivables, $20,000 GST receivables, $300,000 share investments, and
other assets of $200,000;
• non-current assets of approximately $243,170,000, consisting of approximately
$120,000 plant and equipment, $7,600,000 existing exploration assets, $235,000,000
Bandanna exploration assets (at cost based on independent valuation), $450,000
current development expenditure;
• total assets of approximately $243,940,000;
• current liabilities of approximately $121,000, consisting of approximately $46,000
payroll liabilities (including salaries, superannuation and directors fees) and $75,000
trade creditors and payables;
• total liabilities of approximately $121,000;
• net assets of approximately $243,819,000;
• shareholders equity of approximately $243,819,000 issued capital (excluding
approximately $4,700,000 in carried forward losses, since Enterprise is still
ascertaining the extent if any, that those losses may be carried forward) with no
retained earnings;
• total shareholders equity of approximately $243,819,000.
IMPORTANT NOTES
This is assuming that 2,937,500,000 ordinary fully paid are issued to Bandanna, with no
adjustments, and before any further capital raising by Enterprise. Accordingly, these figures
exclude any cash and/or receivables which Enterprise will acquire when adjusting the
consideration, for which Enterprise will be required to issue further shares to the vendors of
Bandanna, and which are anticipated to be in the order of $5m-6.5m. These figures also
exclude any liabilities of Bandanna which will be taken into account when adjusting the
consideration, and which are anticipated to be approximately $70,000.
These figures are a guide only, based on the information currently available to Enterprise,
and more detailed information will be provided to Shareholders in due course. Note that these
figures are predictions only, and the actual numbers may change, particularly depending on
the level of exploration expenditure actually incurred between now and the date the Proposed
Transaction actually occurs.
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SCHEDULE 2 – BANDANNA EXPLORATION INTERESTS
Exploration Permit Number Identifier % Interest held by
Bandanna
EPC881 Dingo West 30% - following farmin by
Macarthur Coal**
EPC891 Springsure Creek 100%
EPC892 Arcadia 55-75% following farmin by
Enterprise*
EPC1048 Tahi 50% or greater following
farmin by AMCI
EPC1049 Rua 50% or greater following
farmin by AMCI
EPC1103 Fernlee 100%
EPC1131 Gemini 55-75% following farmin by
Enterprise*
EPC1140 Denison 100%
EPC1185 Fernlee North 100%
EPC1204 Arcadia 2 55-75% following farmin by
Enterprise*
EPC1221 Arcturus 100%
EPM16553 oil shale Mt Bison 100%
EPM16667 oil shale South Duaringa 100%
EPM16668 oil shale North Proserpine 100%
Application Exploration Permit Number Identifier
EPCA1179 Toru 50% or greater following
farmin by AMCI
EPCA1180 Wha 50% or greater following
farmin by AMCI
EPCA1189 Carnarvon 100%
EPCA1195 Carnarvon South 100%
EPCA1197 Spring Creek 100%
EPMA16666 oil shale Toolabuc 100%
EPMA17567 oil shale Plevna 100%
EPMA17568 bentonite Planet Creek 100%
* Farmin announced to ASX on 17 December 2007 will be subject to “stand-still” until result of shareholder
approval of the Proposed Transaction is known.
** Participating interests based on successful completion of farmin
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