Hi Ferrari, in response to your question from a week or so ago...
I wrote to the company on Sept. 8 re FEX. Below is the their response reproduced here with permission. I make no comment... I'll just leave it up to you guys to make up your own minds.
ME: First I am not happy that FEX is to be spun out of FMS anyway however I understand the reason for this. But I do not understand why I, and other long-term shareholders get nothing while directors and "others" get generous free parcels of shares and options.
FMS RESPONSE: (A1) The current capital structure of FEX includes shares provided to Directors and management in consideration of their time and effort to set up the company as an independent entity and progressing the IPO of FEX.
Other shareholders include seed capital investors who have provided FEX with capital as consideration for their shares and promoters who have provided professional services to FEX as consideration for their shares
ME: Further to that, the voting proxy form bundles together the spin-off and the free shares so I can't vote against the free shares without voting against the whole transaction.
FMS RESPONSE: FMS believe the JV structure and IPO with FEX is the most efficient way to receive a benefit for its diamond and phosphate tenements whilst divesting the day to day management and operation of these tenements into a new entity.
FMS believes the benefit to shareholders of adjusting its focus to become a pure play iron ore company will be orders of magnitude greater than the potential value of the non-ferrous tenements.
ME: To make matters worse there is no explanation or justification of the free shares (35% of the total to be issued).
FMS RESPONSE: Refer to answer (A1), the shares in FEX have not been issued for no consideration
ME: If everyone were to pay for their shares they could be priced at 10 cents per share instead of 20 cents. This would raise $6.1 million. In addition, it would clearly show that the directors of FEX truly believed in the company's future prospects.
To me, failure to do this only adds to the unfairness of the transaction as noted by the independent adviser.
FMS RESPONSE: FMS notes the independent expert reports finding that there is only gain to FMS shareholders for its non-ferrous mineral rights at the top end of the valuation range. We make the following points; 1) Valuing exploration tenements is a difficult task, and we note the IE used the Multiple of Exploration Expenditure Method which is highly sensitive to the Prospectivity Enhancement Multiplier used. In reality the true value of these tenements can only be assessed with future success/failure and hindsight.
2) The IE did not assess any value to FMS of focusing time, resources and market perception of being solely focused to the exploitation of its Iron Ore assets (as it is not a scientific task). FMS believe that the benefits of focusing its operations purely on Iron ore will be orders of magnitude greater than the sums discussed in the IE valuation report (positive or negative).
3) Given current FMS resources and intent on becoming a pure play Iron Ore company, its only other option would be to relinquish or sell its non-ferrous tenements ? actions that would take time, money and most likely yield a result to lesser benefit than the negotiated JV terms.
ME: Can you please explain why there are free shares being granted to directors and "other shareholders" but not to long-term shareholders?
FMS RESPONSE: Refer to answer (A1), the shares in FEX have not been issued for no consideration
Long term shareholders still retain a direct interest in the tenements via their shareholding in FMS. FMS will retain a 49% interest in the tenements which may be reduced to 25% on further expenditure in these tenements by FEX.
FMS Price at posting:
13.7¢ Sentiment: Buy Disclosure: Held
(20min delay)