@Fredwah. Thank you for doing that Director view as I was going to look into that myself today.
The other view of course is what is the outcome for Paulson & Co and Electrum as I get the sense they are very much driving this need for a transaction. These two US funds invested in Late July 2020 – AU$15m at 24cps. At the time the ASUD/USD was at about 0.72, so their investment was US$10.8m.
Their issue (once in on BRB) is how to get out, given that their 62.5m shares would not be easy to sell in a relatively illiquid stock such as BRB. So, the RMS deal largely solves for this – they swap into about 22.2m shares in a much more liquid RMS which has average daily trading volumes of between 5m and 10m shares.
Roll forward and the RMS deal gives them an outcome worth about AU$25m of RMS shares at a time when the exchange rate is hovering around the 67-68 mark. So they now a liquid investment worth US$16.8m or a 60% uplift in 3 years. I am sure that ticks all of their IRR hurdle boxes and probably delivers a healthy “carry” for the management team to share. So you can see why they so readily said yes to the deal.
Moving onto the BRB board, I must admit to two curiosities in relation to this takeover transaction.
1.What has happened to the Ularrang diamond hole assay results? These have been supposedly pending now for the past couple of months.
It makes you wonder either if they didn’t show promise and so the lab was asked to hang off completion of their assay work (nothing received, so nothing to announce). Or if indeed the opposite occurred (did show promise, but the lab asked to hang off completion) as “good” results may have given the share price a kick and made the pending deal that much harder. It makes you wonder if Ularrang may have gotten in the way of cutting a deal, so it has been kicked down the road.
2.What on earth was the Board thinking if it hadn’t engaged with Tom? Wow, talk about a strategic failure. You have one shareholder who can derail the takeover by virtue of the size of his holding and you did not see what his price would be??
Maybe they thought Tom was ready to just retire and happily swap his BRB shares (CGT free) into RMS shares and a dividend flow. I don’t know. However, they now must deal with Tom, find out what his price actually is and then recut the deal with RMS. Maybe that was the plan all along (get RMS fully engaged and “wedded” to doing a deal and then spring the renegotiation bad news on them a little later). Irrespective, it looks from afar to be a major strategic failure.
Make no mistake, Tom has the whip hand from here. Without his shares, plus those of other disgruntled BRB holders (and his actions will enliven a number of other shareholders), plus the usual ~5% of apathetic shareholders who just don’t engage and wait to receive their compulsory acquisition notices in these situations, and RMS is staring down a situation where they almost certainly will be stuck in the 80% area. That is not tenable to an efficient merged Rebecca/Lake Roe development – lots of legal complications arise, plus capacity to efficiently utilise the BRB cash is constrained.
How they sort this out to get Tom over the line will be interesting to watch. Realistically, the Board must engage with Tom quickly rather than let this go as far as the requisitioned meeting, as there will be no winners in that (Tom unlikely to have the numbers, Board and Tom just dig a bigger trench between themselves, etc).
