EGM - Voting No

As promised, and no real change, the base case model is flawed, and they have no answers to suggest otherwise;
This is not financial advice, but raises concerns in what I read (and didn't read), its simply discussion.
Before we vote, they need to supply;

1. finalised negotiations,
2. evidence of how we will survive in year 1-5 of operation. i.e. guarantee that funders will supply shortfall cash
3.better terms that don't leave us blind and at risk
4. review of current items that at least alter and suggest they have thought about our best interest; the use of altius as the BEE, include our shareholder loan in the waterfall after funders debt retired, longer loan terms to help with cash-flow (9 and 12 years as the funders receive free cash-flow in waterfall anyway), removal of waterfall account for first three years to pay debt down while huge risk of survival, draw down of senior debt prior high interest mezz debt form the outset, all available cash flow to pay off high mezz debt prior senior debt, include all funding costs in modelling (principal, capitalised interest, and interest payments included - i.e this could be upwards of $110M, in the first year).
5. Accurate domestic coal prices to be used in modeling not $1400 ZAR, that of high quality export coal, I understand its only $400 ZAR or less.
6. BDO and SRK to at least agree on their costing for the mine. REfer page 54 of BDO and page 26 of SRK, they are completely at odds!


There is enough information, the regulators surely cannot allow this to go on without the necessary information supplied. Unfortunately BDO has not provided the necessary information to help with an assessment. The absence and inaccuracies of some information is quite alarming. For starters, you cannot get to year 21, if there is no way getting through year 1-5. Thats a showstopper right there. Many items were addressed without finalised negotiations, this is also dangerous and not clearly labelled.


I would like some clarity to support our basecase modeling that has not been supplied or presented. Could the board collectively and in its entirety consider the following;

a) The details surrounding the Commission on domestic sales and what IDC, PIC, and Noble have asked are not provided in writing. Shareholders are required to know this value and what we are ‘giving up’ after negotiations are finalised to help with funding decision/ voting. They did not supply this information-Clearly, we cannot vote 'yes' without knowing this detail.

b) What are the new tariffs from mouth of mine to main line? i.e. not factored into modeling that have been discussed with the SPV. What is the detail (rates, commissions, related party deals etc.) of this SPV deal for us to factor in our voting? Not yet supplied, they claim its factored in, yet in my view it has not been finalised as it is an outstanding CP.

c) Where is the modeling for the first five years of operation? In my view modeling cannot possibly be complete as many items are not negotiated or finalised? How could the independent report suggest it can be ‘fair and reasonable’? Why is this important detail absent in the report after being told I would be able to review? Not yet supplied, they claim its in the report. Its not!. BDO and SRK both take a clumsy attempt at a review, but with many details missing and inaccurate. i.e they claim domestic coal price could be 1400 ZAR, research shows its sub 400 ZAR. On this one item alone its flawed and dramatically inaccurate. They also don't consider the capitalised interest/ additional debt and subsequent principal payments of our debt when considering the cash-flow. They have noted on page 54 of the BDO report that the model is 'not fair' as we don't have cash to support us in the first few years of operation. Again, it fails terribly!

d) Has the board reviewed the base case model considering deflationary values and world current affairs? What is the new plan to support our base case and when will this be provided to shareholders? We are in unprecedented times and progress should be delayed for this very reason alone. It would be irresponsible to act in any other manner. Who is the responsible party to review, test and report on our base case model considering recent events and my questions and concerns I have posed? This must be addressed, put on hold, and we must act responsibly and in the best interest of shareholders not funders, and/ or managers, directors or other related parties.Not yet supplied, there has been no review that we have been updated on. Note, Exxaro who have similar coal to us next door, have only once sold their coal above the price we need to survive.

e) What are the Interest rates, fees and charges on main railway, working capital debt, yellow goods, and contractor Stefanutti. They have not been disclosed to the market or negotiated so they cannot be embedded in the base case model? When will this be supplied? Please disclose to allow for voting? Have we considered at least three operators and what is there offering? Please disclose and related party deals/ benefits in any of our current negotiations. Not yet supplied, negotiations are not complete, and are still CP's so i fail to see how they used accurate numbers in the report. That being said, as per the report, it fails.

f) The Sedgman construction. What is this and has it been finalised? It is presumptuous to suggest the modeling can be done without knowing this final detail? Further, in light of recent events, is this now suitable in a deflationary environment, to reconsider all contracts? As a responsible manager we must adapt to changing economics and support best interest for shareholders. Shareholders are prepared to wait in absence of a successful model. Not yet supplied, negotiations not complete, and we have not received anything saying otherwise.

g) Why did IDC increase interest rates on Mezz to 16-18%. Refer the deal at 11-12%, as outlined to shareholders on the ASX on the 16th April 2018. Deflationary means lower interest rates not higher? Further, the hooks are now wider and deeper from IDC and they received a disproportionate deal? The difficulty is understanding how IDC’s funding became more expensive that they had to increase interest rates by 6% on Mezzanine funding, give them offtake commission on domestic, allow JSE and shares in RES (not finalised), provide 10% of Ledjadja all while we lose other elements to PIC and Noble... Why the 10% to IDC and not proportionate to funding? Not yet supplied, the first ANN stated only the Senior debt, and so enabled them to throw in the hooks this time round.

h) There is a suggested commission to funders if we don’t go ahead with the loan after the EGM. Why are we rushing this EGM without finalising any detail, it is placing our company at risk for extra costs in the way of commission? Correct as per the IR, setting us up to fail.

i) The costs of funding (interest rates) are exorbitant along with the conditions are quite debilitating to RES shareholders. How did we also lose 23% of our shareholding in Ledjadja all while terms and conditions of the loan favoured the funders? Further, why have we placed ourselves in a vulnerable position whereby not only does the base case model fail, but we have also placed ourselves in the vulnerable position whereby PIC, IDC and Noble can take over the entire business. i.e. its inevitable given the details presently provided to shareholders. Funders paid no money for their 23% in share ownership, as funding was provided at a premium. Not yet supplied,

j) There is Incomplete negotiating that allows transfer to list on JSE, and shares to be transferred from Ledjadja to RES. Why is this not finalised? We require this information to determine a vote. Not supplied as yet, yes, we are going in blind!

k)Debt/ costing discrimination-no increase in subsequent debt/costs to BEE partner. i.e. in any commercial arrangement with an increase debt or expansion it is expected there is a subsequent financial burden (cost). RES shareholders should not be paying the way for FWT, while PIC and IDC take from shareholders only in the new shareholder agreement. Particularly when PIC, Noble, and IDC have established a deal to circumvent this dilution by owning shares in Ledjadja. It should be fair and reasonable distribution of debt, costs and dilution. We are currently providing interest free loan to BEE partner and cover all costs and expense without any financial burden to the BEE partner (they take all upside and wear no costs). I understand the privileges of a BEE but overlooking this cost and subsequent dilution of shares is another form of non-support to shareholders best interest. How many times can we do this prior to us owning 0%, meanwhile FWT maintain full shareholding at no cost. I'm not sure why Altius cannot be a BEE, surely that's in our best interest!

If FWT cannot afford to pay for this expansion, new negotiations must be sought in a different manner, or the funders must agree to less, or FWT to decrease dividends or like in future years to offset new funding. I understand the debt is at company level, but they have lost no value in terms of dilution in this entire process. Compare RES shareholders. Under SA law for BEE partners, unfortunately for us this is considered fair and standard practice.

l) There is no evidence this can be complete, as unrealistic, non-commercial roadblocks are in place in the way of CP’s. How can we possibly vote yes? CP’s need to be removed prior to our voting. Not yet supplied, they have not been removed.

m) Deflationary climate and long-term turmoil in world markets that ensure our modeling fails with current capitalised interest in the first few years at margins that cannot be commercially viable... Current and expected future coal prices would not support these interest rates that increased dramatically in the past 18 months due to PIC/IDC negotiations. Companies often do this in a roadshow to major investors, so I am attempting to have them supply an online version. I have again been re-assured this model works, but it doesn't as per BDO and SRK page 26. Awaiting evidence!

n) PIC sold shares and in the funding deal they received shares. I would care for a formal written investigation to support shareholder confidence? To add, PIC/ IDC ask for JSE transfer, and one could infer they wish to circumvent FIRB 20% ownership rules. Was the sale, to circumvent 20% ownership rules? There are laws for major shareholders, and ignorance isn’t an excuse. Please respond to allow shareholder confidence in voting. Not supplied as yet - insider trading in my view.

o) I would like to understand Papi’s commission structure on the railway and how much this has saved the company and details surrounding this matter. In light of recent events I have to confirm that we are not being pushed into any funding arrangement to support any individual on the board, or management. Not supplied as yet, not supplied.