nothing to say?, page-13

I've spent the best part of the last 3 days looking at the history of FRG. Be aware, I'm a long term LYC holder and voted no to the proposed transaction. I'm also of the view that both sets of shareholders are being stiffed. Plase don't flame me because I'm not a regular poster.

Looking at the FRG prospectus, only 19m shares were issued under the IPO, together with 1 for 3 free attaching options. For those punters lucky enough to get in, this was a great deal with the value of hindsight and even now you are way out in front. The future however seems to be one of dilution. At start-up there were an additional 3m shares and 14m options on issue. FRG listed on 23/9/10 with 25m quoted shares and 6.8m quoted options (out of a total of 25.3m options) that could be exercised at $0.20 anytime before 31/7/14. It seems the remainder of the options (exerciseable at $0.20) can't be exercised until after various dates in Mar/Apr 2011 or 24 months after date of listing.

The 24m performance options issued to Curtis were really only exercisable if he delivered bigtime. In reality, FRG was just another minnow looking for gold and base metals in NSW - except it also has Nicholas Curtis, responsible for turning LYC around. No surprise the SP closed at $0.37 on listing.

NC stands to gain over 40% of FRG if he delivers the big project. On 22/10/10 FRG announced to the market the potential purchase of a material project. Quite reasonably, there was no exploration work done on any of the NSW projects in the Sept 2010 quarter, yet SP had run up to $1.26 on 25/10, before slipping back to $0.845 on 28/10 after Quarterly Report was released.

Very little news was released to the market during the Dec quarter. FRG traded in a narrow channel. SP took off at end of the year, hitting $1.60 on 13/1 and again on 9/2 (little bit of inside knowledge? Hey, we all know it happens all the time. We traders make a living trying to ride these waves), before drifting until going into the trading halt 9/3 Half yearly results released 14/3.

Directors Report specifically mentioned a potential acquisition and were "commencing negotiations". At the same time, the cash flow numbers suggest very little exploration work was done on the NSW projects (wasn't that the reason for the IPO?)

The proposed LYC transaction was announced 16/3. SP dropped from $1.40 to around $1.10 and has traded sideways since.

The possibility of a company-making transaction has popped up in documentation going all the way back to the IPO prospectus. Now we have Nicholas Curtis as Exec Chairman of LYC and non-Exec Chair of FRG. Harold Lang left LYC as director in 2008 and is now a Director of FRG. The firm providing exclusive corp advisory services to FRG is Riverstone Advisory (name changed from Sino Resources), principals N Curtis and H Lang (as reported by Michael West, Fairfax).

In Sep 2004 quarterly report, LYC announced "A globally significant niobium-rich Rare Metals resource referred to as the "Crown Deposit" separate and in addition to the Mt Weld Rare Earths resource,..". Now, this asset (with unverifiable numbers of $50bn) being thrown around) is regarded as "non core" and as being offloaded to FRG for $20.7m (plus a pretty ordinary royalty/income stream)

On the face of it, I have no problems with the full development of the Crown/ Swan projects, provided the potential gains are shared by all shareholders.But after 3 days of reading I have to ask why bother with the uncertainty of gold and base metal exploration in NSW when you have a huge project that seems a real goer in WA right alongside the other one. I suspect the FRG IPO had the Crown project in mind right from the outset, because LYC couldn't develop it because of its commitment to Mt Weld. The NSW projects will just fall by the wayside as so many other failed explorations have done. In other words, the 24m performance options were always a sure bet - the most stunning example of a conflict of interest I've ever seen. Forge was created to develop Crown, nothing else.

Shareholders of FRG stand to lose a huge proportion of control of their company if the performance options vest.
Shareholders of LYC stand to lose the potential of a massive development that would add to Mt Weld in era of huge rare earth/ rare metals shortages and extend the mine life well into the future. I suspect the Swan phosphate deposit is really loose change.