1. Extract needs the money. From the last quarterly report, Extract had $35.3m left and was forecast to spend $13.0m in the current quarter. At that rate of expenditure, Extract will be running short of cash before the middle of 2011. This may mean that Extract is forced to cut back on explo activities and focus exclusively on the DFS. A lack of cash in the short term increases the pressure to raise funds and may well mean that dilution is higher when those funds are raised.
2. From Kalahari's announcements, we have seen that the effect of the fund raising will be to slightly dilute Rio and Itochu's interests. That reduces Rio's ability to pressure Extract's Board into a deal that is favourable to them. Moreover, by increasing the proportion of shares in the hands of financial investors, it improves the chances for a bid by a third party or for Extract to remain independent. A high concentration of shares with Rio and Itochu makes it hard for third parties to get involved (or for a bid to succeed, other than from them). That makes Extract a less attractive investment for financial investors and hence means that there is likely to be more dilution for independent shareholders when Husab is brought into production, due to a lower share price and less enthusiasm for stumping up the cash.
Won't this just go through "on the nod"?
NO! This meeting was not expected to be necessary, given that the placing is small. It was forced through under ASX rule 10.11.2. A condition of the placing was that the ASX did not exercise its discretion to force a meeting - but it appears to have done so, and so the placing can only proceed if the resolution is passed at the meeting to be held on January 31st.
Now, here is the key bit: Kalahari and associates are excluded from the vote. That means that a total of only 143.26m Extract shares (at most) are eligible to vote. Between them, Rio and Itochu own 60.82m of those. If Rio and Itochu vote against, that means that at least 60.82m = 73.8% of the shares that Rio and Itochu do not own must actively vote in favour of the resolution for it to pass. That is a tough ask.
That's why, if you agree with me that this resolution is to the benefit of independent shareholders, it is vital that you vote in favour. Every vote counts.
If you are unable to attend the GM to vote, you Proxy Forms must be received by the EXT no later the 48 hours before the GM. i.e By close of business Friday 28th January.
You can lodge your Proxy Forms by, post, Fax +61 2 9287 0309 or online at:
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