A balanced view, page-5

Hi Philley,
I am a retail investor like most others on HC, and not experienced to give any advice, so please verify anything that follows with your own research.

See: www.asx.com.au/education/investor-update-newsletter/201308-how-can-majority-holdings-affect-your-investment-decision.htm and http://www.mallesons.com/Documents/A_guide_to_takeovers_in_Australia.pdf

The main thresholds in share ownership that I am aware of are:
5%: a shareholder becomes a major holder and must declare purchases and sales at every 1% threshold.
20% : when a shareholding crosses this threshold with on-market purchases a takeover bid must be made, unless it is below the 'creep' provision
3%: is the 'creep' provision whereby an investor can increase their shareholding every 6 months without invoking any takeover provision
50%: The shareholder becomes a majority shareholder
75%: Is the threshold whereby a shareholder could unilaterally accept a "Scheme of Arrangement" (a board-approved takeover arrangement)
90%: A shareholder can compulsorily acquire the remaining shares of the company.

With this in mind, there are advantages to having a majority shareholder: Access to capital, protection from takeover by third parties and so on. But, also disadvantages if the major holder falls out with the board.

There a very few publicly listed companies that I know of where a majority shareholder owns over 70%, this would bring them very close to the 75% threshold where they can unilaterally accept Schemes of Arrangement and so on.

The other problem when reaching high majority ownership, is one of the liquidity of the trading shares. If we want any institutional investors, who would probably like at least 5% of such a small company to give them major-shareholder status, going over 70-ish% then leaves very little extra shares for trading liquidity. We can all see the problems with the liquidity of CSD at present!

SPM would be very aware of the problems that CSD has had in raising capital in the present climate. CSD listed just before the GFC when the floor fell out of the market for mining small-caps and tin has never been so attractive so as to attract any 'hot' money. To date, I think Ralph and SPM have developed a healthy and mutually beneficial arrangement. Money does not come cheaply to small-caps, and in the circumstances (as I pointed out yesterday) I think things look very reasonable when we view it from a capital contribution perspective.

I don't think it would be healthy for the $16.5m to be converted to CSD shares, and in my opinion I doubt SPM would want to either. This relatively, short term loan would have been designed to give time for the MOU to be implemented, give Mt Garnet a longer trading history to ascertain cash flows, time for the DFS to be completed so that the $16.5m note can be replaced by other debt arrangements. Possibly including additional debt (and capital raising) to fund the expansion/conversion of the mill to tin production.

Sorry for being very long winded in my replies ... it's one of my failings. I hope this helps Philley.

On another note, I know everyone is very passionate about CSD, and I note from my original "balanced view" posting that I received very kind encouragement from both sides of the current argy-bargy. So please all be kind to each other when you disagree with other postings. There are a silent majority that rarely post, and read these threads to gain extra knowledge on their current or intended investments. Let's not scare them off!

Cheers
Pecs.