Mr. Karn speaks with people every day about what SDI is proposing, and he does not have a phone log record or recollection of speaking with anyone about receiving $1 m for his “doings.”
However, he invites you to give him a call to discuss your concerns.
He suggests that perhaps you may be referring to the letter SDI has sent out to JRV shareholders pledging support to oust the Board of JRV that provides an explanation of what SDI is proposing and why.
A number of Pursell Apologists at the AGM tried to twist the proposal into something sinister, so with Mr. Karn’s permission the pertinent section is excerpted here, and you can judge for yourself:
“Until July of 2014, my company's relationship with Duncan Pursell and JRV was similar to that of a venture capital firm investing in a listed entity.
JRV does not have access to commercial finance and has been seeing declining uptake on their rights issues.
We were offering to deliver funding for underwriting a rights issue to put their scandium project into production, or for the purchase of the scandium project for a fixed sum and a net smelter royalty, or for pre-paid off take, or for development round funding, for which we would negotiate an arrangement fee in the form of the combination of JRV shares and cash.
Over the last 21 months we have made the management of JRV aware of two indicative pre-paid off-take agreements worth as much as US $10 m as well as a US $20 m development round financing facility we may be able to deliver to help put their scandium project into production.
We tried to purchase 18 m shares from the shortfall offering in order to provide the company with $900,000 to help advance their scandium project toward production and to demonstrate our commitment to the project.
All of these business relationships and agreements, as well as my contacts with scandium end-users, the intellectual property we have generated over the last five years regarding scandium, the market research regarding the scandium industry, etc. were funded by and are the property of my company, SDI.
I cannot waltz into JRV and hand over all of these assets belonging to SDI, or I will face huge conflict of interest issues that would likely land me in jail.
In order to avoid this conflict of interest issue, as well as to compensate my shareholders for their investment in me, our commercial relationships, and the IP we have developed, our lawyers and accountants have proposed that JRV buy my company, SDI, in an all scrip bid with a one-year lock-up period.
The Corporations Act of 2001 requires that JRV undertake an Independent Account's Report placing a high and low value on my company, and we then reach a price for the sale, which JRV shareholders must in turn approve by a vote.
If approved, all of SDI's assets become JRV's, and we have no conflict of interest issues whatsoever.
Our only condition would be that we are paid in JRV scrip priced at the lesser of either 5 cents per share, which is what we would have just paid JRV for the 18 m shortfall shares from the rights issue we tried to purchase, or the 30-day Volume Weighted Average Price (VWAP).
We do not have much input in the Independent Account's Report, but absent the $900,000 we had allocated for the purchase of 18 m shares of JRV from the shortfall offering and cash on hand, we estimate the price for SDI to be between $1.2-1.8 m.”
Fancypants, no one works for free.
If SDI can potentially deliver as much as US $30 m (~AUS $ 40 m) in off-take and development funding for JRV, the high side estimated valuation of AUS $1.8 m equates to SDI receiving an arrangement fee of 4.5%.
8% to 12% is the normal range for such arrangement fees, and that is dependent on the subject company’s credit rating, access to commercial finance, and various valuation metrics.
JRV does not rank highly in this regard.
That SDI is proposing payment in JRV shares demonstrates a commitment to, and a belief in, the scandium project that in fact exceeds the combined investment of Duncan Pursell and the Board of JRV.
SDI wants their arrangement fee in JRV shares because they believe they can fund putting the scandium project into production, and that is where SDI sees the upside in the JRV share price.
If they are unable to deliver funding, SDI will be stuck with a heap of JRV shares of little value that they are unlikely to be able to sell, and JRV shareholders will have suffered another dilution of 24 m to 36 m shares—less than another 1 for 2 rights issue such as those Pursell and the Board of JRV have relentlessly subjected us to over the years.
Considering how difficult it is these days to arrange project funding in the resource sector, and especially the specialty metal sector, the SDI offer seems reasonable to me.
Also, please be advised that Mr. Karn disclosed at the JRV AGM that he owns 40% of SDI, which at the high side valuation (AUS $1.8 m) means he would receive ~ AUS $720,000 in JRV shares from the sale of SDI.
You can do the math on the low side valuation (AUS $1.2 m).
I urge you to put aside the character assassination and conspiracy theories and to call Mr. Karn in order to become better informed regarding what SDI is proposing.
He talks to JRV shareholders about this every day—and support for SDI’s proposals is growing.
JRV Price at posting:
6.6¢ Sentiment: Hold Disclosure: Held
(20min delay)