There are Questions on Pallinghurst's Bidder's Statement•...

There are Questions on Pallinghurst's Bidder's Statement

• (Credibility of claims made on Pallinghurst management team/track record) - The credibility of Pallinghurst executives' track record is questionable. There are uncertainties in the management team successfully implementing their plans/proposals on CSM. Query uncertainty in successfully converting a track record to Pallinghurst and CSM. Query veracity of Gilbertson's track record.
• (Minimal CSM Director shareholdings) - Note the minimal securities holdings of CSM Directors (as follows), who have had the decision-making power in making recommendations on Pallinghurst's bid:
• Richard Carter - holds 135,000 shares (0.0592% of issued ordinary shares) ;
• Bruce Brook - holds 20,000 shares (0.0088% of issued ordinary shares) ;
• Michael Etheridge - holds 50,000 shares (0.0219% of issued ordinary shares); and
• Rodney Baxter - holds No shares / 1 m options (0.4384% of expanded issued ordinary shares).
• (CSM Board has discretion to issue 1 m shares to Baxter) - Reference to the CSM Executive Long Term Incentive Plan, under which the CSM shareholders have authorised the issue of 1 m shares to Baxter. CSM Board now has discretion, and therefore the possibility, of issuing 1 m shares (value $3.3 m) to Baxter. Unclear from Bidder's Statement whether this is 1 m shares per year over 3 years (i.e. 3 m shares - value $9.9 m).
• (CSM Board's propensity in recommending Pallinghurst's proposals) - CSM has demonstrated a propensity to promptly and readily respond by recommending Pallinghurst's offers/proposals. To date, CSM has promptly and readily agreed to Pallinghurst's proposal on the now terminated scheme of arrangement (announced on 23 February), recommended the increased offer by Pallinghurst of 25 June on the same day as Pallinghurst's increased offer and recommended the subsequent takeover bid by Pallinghurst on 20 July on the same day as Pallinghurst's announced takeover bid.

The CSM Board appears to have agreed to the Bidder's Statement being despatched to CSM shareholders within 2 business days rather than the prescribed 14-28 day period after the Bidder's Statement is lodged. There is a reason why the Corporations Act prescribes a 14-28 day period which is to provide the shareholders of a target company reasonable time to consider an offer.
• (Questions regarding apparent inadequate information) - In the opinion of Territory's Board, CSM shareholders would require further information in order to consider Pallinghurst's offer. For instance, one would expect Pallinghurst to have elaborated on the following points:


• Pallinghurst' s vision for transforming CSM into a global mid-tier mining company by offering participation in investment opportunities, information on which is not adequately provided. The basis for Pallinghurst making a claim that the various opportunities for rationalisation and consolidation will be "delivered in the coming months" is not detailed in the Bidder's Statement.
• A number of statements on Pallinghurst's intentions with CSM's operations and business opportunities, the basis for which appears to be insufficiently provided in the Bidder's Statement.
• Details on the "in-principle memorandum of understanding" with an unidentified third party, which is likely to be material given significant impact potential.
• Information on the projects referred to (but not discussed) in page 24, including a potential transaction relating to a coal deposit in Australia. Query the basis on which Pallinghurst has not given any further information at this time.
• Details of the in principle contributions for US$250 million by the Pallinghurst Investor, which is referred to without details of the arrangements (including whether there are any conditions).
• The basis for the various subjective comments made on Territory's proposal. For instance, Pallinghurst raised the issue that there may be a potential conflict of interest between Territory's financial backers but Pallinghurst may also face the same conflicts given the potential arrangements and transactions with consortium members.
• (Funding Arrangements) - Query as to what basis Pallinghurst has for stating it has reasonable grounds to expect that it will have sufficient funding arrangements in place to satisfy full acceptance of its offers when the bid becomes unconditional, which is required under a bid.
• (Funding Deed - Apparent inconsistency with claim that it is "100% equity funded") - Reference is made to a "Funding Deed" pursuant to which the "Funders" may, at their discretion, provide the funds through, inter alia, a loan arrangement. This appears inconsistent with the description of the arrangements being "100% equity funded".
• (Uncertainties with Pallinghurst Investor Group Structure and Board composition) - The structure of the "Pallinghurst Investor Group" and Pallinghurst's board composition have not been finalised.
• (POSCO - arrangement with potential new investor should be clarified) - Reference to POSCO as a potential investor in the Pallinghurst investor vehicle but POSCO's involvement and its arrangement with Pallinghurst is unclear.
• (Management Fee for Pallinghurst Resources Fund executives should be clarified) - In page 8, reference is made to CSM's access to the expertise of key Pallinghurst Resources Fund executives should the offer succeed. Have management fees been offered to these executives under the arrangements?
• (Break fee) - Query why CSM agreed to the $5 million break fee?