Takeover offer analysis, page-9

Bidder's Statement is out tonight and my key takeaways are as follows with relevant information from the statement also included in italics:

ALTO’SCURRENT DIRE FINANCIAL POSITION:
As at 31 December 2018 AME’s financial circumstances were dire, with a cash balance of just $261,000, being insufficient to cover liabilities and provisions that aggregated $456,072 as at that date. This situation implies a negative working capital position, leading to questions over solvency. The recent AME rights issue raised $329,165 (refer AME ASX release of 18 February 2019), well below the targeted level of $2.38M (in each instance, before costs) and AME has not placed the substantial shortfall despite declaring its intent to do so over six weeks ago. The last date for placement of AME’s shortfall is 18 May 2019. AME’s 31 December 2018 quarterly cash report suggested a likely cash outflow for the first quarter of 2019 of $720,000 again raising going concern issues.

ALTO’S LACK OF APPEAL:

Capital market sentiment for AME, as reflected by its recent failed non-renounceable rights offer, is negative; as it is presently for most junior gold explorers. By contrast, at about the same time, MDI’s non-renounceable rights offer was fully subscribed.

ALTO’S DISRESPECT (MY OPINION ANYWAY) FORSHAREHOLDERS:On 19 March 2019, AME made a release to the ASX headed “Major shareholders representing 32.12% do not intend to accept the Middle Island offer” of 5 MDI shares for every one AME share.The MDI Directors note that those major AME shareholders referred to in the ASX release are associated with or connected to current or former AME board members.

The statements were made without the benefit of reviewing MDI's Bidder's Statement, thereby effectively pre-empting an AME Board recommendation and potentially undermining the opportunity for all other AME Shareholders. As a result, on 10 April 2019, the MDI Directors amended the initial proposal for the Offer by reducing the minimum acceptance condition from 90% to 50.1% in order to ensure that AME Shareholders were still afforded a reasonable opportunity to assess the Offer presented by MDI.

FUTURE FUNDINGPLANS:

Contingent on the successful outcome of the Offer, MDI have a high level of confidence that they have broker support to raise up to $5M, via a placement, to provide funds to pursue the Sandstone Gold Plant re-commissioning decision. In addition, and again contingent on the successful outcome of the Offer, MDI Directors intend to undertake a simultaneous share purchase plan to ensure all MDI Shareholders, including AME Shareholders who accept the Offer, have an opportunity to participate.

MDI’S RATIONALE FORTHE DEAL:1. Significant growth potential through the consolidation of ownership of highly complementary assets.
2. Based on the closing prices of AME and MDI Shares on the date of announcement of intention to make the Offer, the offer represented a premium to AME shareholders of 61%; at the date of this Bidder’s Statement the premium was 17.64%.
3. The Combined Entity will have potential near-term production at a modest capital cost and a genuine prospect of funding future exploration from cash flow.
4. The prospect of recommissioning the Sandstone Gold Plant provides AME Shareholders with a realistic short-term, proximal and cost-effective processing solution for the AME Sandstone Tenement deposits; there is no other credible option.
5. MDI offers management stability, seasoned corporate and technical expertise with a clear, credible and focused development strategy and vision. 6. Substantial reduction in the combined administration costs with significant exploration and production synergies.
7. Expected increase in market profile, market capitalisation, greater liquidity and improved access to capital markets to fund growth opportunities.
8. MDI is confident the consolidation of assets will support the raising of up to $5 million to pursue a decision to re-commission the Sandstone Gold Plant.
9. Rejecting shareholders may find themselves holding unlisted shares.
10. No Superior Proposal or alternative offer has emerged and it is unlikely that one will.
11. You may be eligible for CGT rollover relief.