Eastern Field have posted full announcement incl their concerns on FND cashflow here:
http://www.easternfielddevelopments.com/wp-content/uploads/2018/02/Fax-to-ASX-210218.pdf
the contentious bit was this:
Eastern Field Developments Limited (Eastern Field) is extending the offer period for its unconditional 23¢ per share cash takeover offer (Offer) for Finders Resources (ASX: FND) (Finders) until 16 March 2018. Eastern Field decided to extend the offer to give Finders a chance to come clean with its shareholders on factual errors contained in its Target’s Statement and Supplementary Target’s Statement and address a lack of basic disclosure. Eastern Field has written to Finders requiring them to provide additional disclosure and for Finders’ experts to update their reports by February 23. If Eastern Field is unsatisfied with the answers provided by Finders, Eastern Field will seek intervention from the Takeovers Panel.
Specifically, Finders needs to explain to its shareholders:
1. Why Finders did not correct independent expert Deloitte’s wrong assumption that the Wetar mine would produce 7,000 tonnes of copper in the March 2018 Quarter when Finders was aware that Wetar’s production would be significantly lower. Eastern Field estimates that Wetar’s March 2018 Quarter production will be only 4,500 tonnes to 5,000 tonnes, which would result in cashflow for the March 2018 Quarter being overstated by $A20 million. The repeated failure (Finders also missed out on $A26 million2 of cash in the December 2017 Quarter) to produce at nameplate output poses a real financial threat for Finders.
2. That Finders’ inability to achieve Wetar’s production target is seriously threatening its financial position. Finders ended the December 2017 Quarter with an ~$A18 million deficit between reported EBITDA ($US6.8 million or ~$A9 million) and reported operating cashflow of $A27 million3 . The difference between EBITDA and cashflow shows Finders has funded debt repayments by stretching working capital. The expected weak March 2018 Quarter production performance will further stretch Finders’ financial capacity. Eastern Field is concerned the shortfall in production will mean that Finders will not have the necessary cash to meet its commitments to banks in 2018, let alone develop Lerokis and fund exploration to deliver a much‐needed project life extension for Wetar. This could force Finders to raise equity at a substantial discount to the prevailing market price to ease its cashflow shortcomings.
3. Why Finders guided independent expert Deloitte to assume in its target’s valuation that Wetar would produce at 7,000 tonnes or better for 16 consecutive quarters, beginning in the March 2018 Quarter, when Wetar has so far never produced 7,000 tonnes – the mine’s production nameplate capacity ‐ in one quarter. On Eastern Field’s analysis, Wetar’s production should have been 15% to 20% higher for the project to date if feasibility study recovery rates had been achieved. If those projected recoveries had been achieved, Finders would now have no net debt. If this shortfall in production due to lower recoveries continues, it would strip $A151 million4 in copper cash receipts from Finders’ cashflow. It is fanciful to use Wetar’s nameplate capacity to underpin Finders’ share price valuation when there is no realistic expectation Wetar will be able to continuously deliver on its nameplate capacity over the period ending 31 December 2021. This reality undermines Deloitte’s valuation of Finders as contained in the Target’s Statement.
Eastern Field Developments Director David Fowler said:
“We have repeatedly asked Finders to come clean on Wetar’s production performance and the impact it is having on Finders’ cashflow and balance sheet. The massive variance in December 2017 Quarter EBITDA and operating cash flow, of about $A18 million, makes it clear that Finders’ financial health is nowhere near as robust as Finders likes to make out.
“Our previous requests to Finders and its advisers to correct the public record have failed to elicit an appropriate response. This is not good enough, which is why we have given Finders until Friday, February 23, to respond to our concerns. Failure by Finders and its advisers to come clean on what is actually happening at Wetar will leave us with no choice but to ask the Takeovers Panel to intervene to protect the interests of all Finders shareholders.”
(20min delay)