Ann: Revised Nyrstar Proposal , page-22

The first offer was not serious. In takeovers the first offer is rarely agreed to by the directors of the target (refer to recent Kraft and Cadbury transaction). It is customary for the first offer to be a low-ball offer. I bet Nystar knew they had no chance of pulling it off with the first offer of 13.5c.

The offer from Nystar is not final.

I noticed they were taking potshots at Grant Thornton in their revised proposal. A bit rich really saying that Grant Thornton did not use industry consensus zinc and lead prices given that Nystar did not state what their own sources were. They also took a swipe at CBH saying:

There is no certainty that Rasp will be developed under the Toho proposal and even if it is developed, it is unclear how CBH would fund its 50% share of the estimated project capital given the limited institutional ownership of CBH;

According to the Toho proposal:

In addition, Toho has committed to support CBH to secure debt funding for the development of the Rasp Project;

So are they saying Toho cannot secure debt funding for Rasp on behalf of CBH as that is what they are certainly suggesting? Lol!

Toho will have to make a "knockout" offer. Nystar have put a 19.5c cash offer for each share. Toho have not provided a cash offer.

Grant Thornton stated in their report (page 17 of notice of meeting):

We note that the minimum value of the CBH Shares post Proposed Transactions on a minority basis required to ensure the Non-Associated Shareholders are not disadvantaged financially by implementing the Proposed Transactions is 17.8 cents. In the event that the fair market value of the CBH Shares on a minority basis post Proposed Transactions are below 17.8 cents, then the
Proposed Transactions would not be fair.

So what Grant Thornton are saying is that each share is currently worth between 17.8 and 22.7 cents. If the proposed Toho transactions are undertaken, the value of each share would decrease to 16.3 and 20.1 cents.

Clearly, as a result of the Toho transactions, existing shareholders are being diluted and losing between 1.5 and 2.6 cents in value per share i.e. this value is being transferred to Toho. If the Toho transactions were being dressed up as "value adding" for existing CBH shareholders, they quite clearly are NOT from the perspective of Grant Thornton's valuations.

The initial Nystar offer was for 13.5 cents. If shareholders accepted this offer, they would lose between 4.3 and 9.2 cents a share. Clearly the Toho transactions then were better than the Nystar proposal because they resulted in a smaller loss to existing shareholders' equity. However once the transactions would have been approved and processed, the value of each share on the ASX would decrease keeping everything else equal. In terms of share price, existing shareholders would have been losers under the Toho transactions if all things stayed equal and possibly under the old Nystar initial proposal too if share price stayed above 13.5 cents.

However with the Toho transactions, there would be potential in the longer-term for CBH to add more value to equity and provide upside. However, upside would not be guaranteed and shareholders would still face an uncertain future. The Nystar takeover would eliminate future upside and provide an immediate and certain outcome for all shareholders.

Taking the Toho transactions would virtually eliminate any prospect of takeovers of CBH in the future other than by Toho. Shareholders should keep this in mind while considering each proposal (see pages 7-8 of notice).

The latest Nystar offer of 19.5 cents means that existing shareholders could actually profit by up to 1.7 cents a share or lose up to 3.2 cents. In terms of the last traded share price, CBH shareholders can actually gain 1.5 cents a share immediately. The downside with the Nystar takeover still is that shareholders do not participate in any future upside of CBH assets unless they accept Nystar shares in lieu of cash and participate in the upside through Nystar's share price.

Currently in the short term, Nystar's proposal is better than the Toho transactions at least as far as the share price is concerned. CBH holders will get 19.5 cents and that will be the end of that. Under the Toho transactions, CBH share prices would decline keeping everything else equal.

Given my shorter term nature as a shareholder, I would prefer the Nystar proposal as it allows me to crystallise a share price which is far higher than recent share prices. Longer term shareholders may opt for the Toho transactions, but my interpretation is that in the immediate term, it will lead to a decrease in the share price with possible future upside when Rasp is built and/or minerals prices significantly improve.

Given that the new Nystar offer is currently above the current share price, it puts a lot of pressure on Toho to make a proposal which actually addsvalue to existing shareholders rather than dilutes it. This might mean offering a better price for 50% of Rasp, a placement at a significantly higher premium or a full takeover of CBH like Nystar such that the market reflects the better value in a share price which is higher than 19.5 cents.

As long as the share price remains under 19.5 cents, there is virtually no chance of the Toho transactions being approved. I think 23-24 cents a share might do the deal, but Toho may want to deliver a "knockout" blow to preempt any further bids from Nystar so anything north of 23-24 cents a share cannot be ruled out. And it goes without saying, what is good or bad is all relative to everything else.