Terms Sheet with BBIG and Bankable Feasibility Study

I have been looking back at the FMS announcement dated 2September 2019 titled “Flindersenters non-binding Terms Sheet with BBIG”.

My understanding is thatthis, if agreed by shareholders (for which Todd Corporation cannot vote becauseit is a related party – owning 90% of BBIG) would enable BBIG to earn up to 60%of the POIP. I also understand that this term sheet agreed between directors (but not yet by shareholders) would initiate creating a new entity to own POIP and from which BBIG would be able to earn 10% of this by completing a Bankable Feasibility Study (BFS) of PIOP. Please correct me if I am wrong.

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The announcement also statedthat the BFS would cost in the range of $40 to $50 Million.
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My opinion is that the feasibility study has already beendone (either fully or almost complete) and paid for by the FMS shareholders thatexisted before Todd Corporation was involved.
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Admittedly my view is based on when FMS knew it had 1 BillionTonnes of ore and not the current 1.4 Billion but I think the Board needs toexplain prior work and why it still requires $40 to $50 to be spent.
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My opinion is based on the following:
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In an announcement on 2 November 2009, FMS commenced arights issue to raise $29.6 million (before issue costs) with one of thereasons cited as advancing a Bankable Feasibility Study for the wholeresource. My understanding was that the raising was successful.

The FMS Quarterly Report ending 31 December 2014 releasedto market 28 January 2015, on page 1 states – (my highlights added)

“During the quarter, the Company raised a total of A$5,430,000 through a placement and share purchase plan. These funds will be used tocomplete by mid year, the well advanced Bankable Feasibility Study (BFS) forthe Pilbara Iron Ore Project (“PIOP”).”

and under the heading of “projects” in that report -

“PILBARA IRON ORE PROJECT (PIOP) - WA Study progress has continued on budget and as planned with completion date of the Bankable Feasibility Study remaining on targetat the end of June 2015.

Also on page 4 in that document -

The total Mineral Resource estimate for the PIOP is 1,042 Mt @ 55.6% Fe (Table 2). Significantly, 86% of the total Mineral Resource is reported in the Indicated or Measured categories. With 792.2 Mt @ 55.7% Fe in the Indicated category and 105.3 Mt @ 56.4% Fe in the measured category. For a more detailed breakdown of this Mineral Resource refer to Table 1 on page 3. The majority of this total Mineral Resource is reported to JORC 2012 standards. However, the Anvil tenement deposits have been previously reported to JORC 2004 standards and have not been updated since as the supporting information has not materially changed (refer to ASX announcement dated 14/11/2011)

The Financial Year Report 2014 released 19 September 2014on Page 4 states -

“In March 2014 the Company announced that it intended to raise $14.3m from a rights issue for the commencement of the Bankable Feasibility Study for the Pilbara Iron Ore Project (PIOP) in Western Australia. This capital raising was successfully concluded in the June quarter 2014.”

Also in the Directors report in that release on page 3 -

“Future developments, prospects and business strategies The Company intends to remain focussed on its high quality Pilbara Iron Ore Project (PIOP) in the 2014-15 financial year. The PIOP now has a potential path to market and a BankableFeasibility Study based on the Balla Balla JV proposal has commenced. The finalwork required for completion of the Bankable Feasibility Study including theinfill drilling, metallurgical test work, process design and marketing are wellunderway and are expected to be completed by the end of the 2014 -15 financialyear.

It should be noted that the above indicates that theBankable Feasibility Study is already being adapted the BBIG (Balla Ballaproposal).

Also in the Quarterly Report ending 31 December 2014 thatwas signed and released 28 January 2015 stated on page 1 -

“Study progress has continued on budget and as planned with completion date of the BankableFeasibility Study remaining on target at the end of June 2015. Three significant milestones were achieved for the project with the completion of the resource modelling phase resulting in a significant uplift in Indicated category Resource, completion of metallurgical test work and the appointment of Worley Parsons as Project Management Consultant (PMC) to deliver the Bankable Feasibility Study.”

On 11 May 2015, the TIO subsidiary “option and saleagreement” offer was made to FMS shareholders offering $55 Million and aroyalty for ore mined.

On 19 May 15 (3 1/2 months after the last quarterly reportwas released) FMS announced -

“The Directors of Flinders Mines Limited (ASX:FMS) advise that in order to conserve funds, the Company’s activities to complete the BankableFeasibility Study for the Pilbara Iron Ore Project under the Alliance Agreement, have been suspended until the outcome of the shareholders meeting in respect to the Option Agreement with Todd Corporation is known.”


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Subsequently the option and sale agreement was utterlyrejected by shareholders able to vote in the transaction.

Todd Corporation then made several takeover attempts andsubsequently achieved a majority holding in August 2016. The company then restructured the Board in October 2016. The new Directors were all appointed by TIO and several were / are also directors of BBIG at the same time. TIO used its majority to block appointment of an independent director that was supported by almost all of the 45 percent minority shareholders.
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The new Board changed focus and used the funds from afurther share issue to fund an asset maturation phase. This is despite the company having already identified in excess of 1 Billion tonnes of iron ore. At the then proposed mining rate of 25 Million Tonnes per annum, which would have taken 40 years to extract. Surely something that could have occurred after it began earning an income.
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Since this in 2016, the next mention in announcements ofthe Feasibility Study was only the current September 2019 announcement thatstates it will cost between $50 and $60 Million to perform.
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My major concern about this is that it appears that forBBIG’s right to earn into the proposed deal, they will simply use the completedor nearly completed Bankable Feasibility Study that the original FMSshareholders have already paid for.
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I believe that FMS shareholders need to carefully considerthe above when voting for directors or any scheme that reduces the control orvalue of what we own. All my opinion only so do your own research.
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I would also welcome any clarification by the company.