The Board of GGG notes the announcement made by Auzex Resources Limited ("Auzex") on 6 May 2011 which outlined the Auzex Directors' plan to dual list on AIM, raise $25 million and demerge its non-Bullabulling assets.
GGG response to this Announcement is as follows:
Offer Defeating Conditions Triggered
GGG's Takeover Offer for Auzex ("Offer") contains a number of conditions, including some defeating conditions which result from the actions of Auzex Directors. The Auzex Announcement triggers a number of these defeating conditions which enable GGG to withdraw its Offer. Presumably, Auzex Directors made the Announcement knowing that it would trigger some of the defeating conditions. At this stage GGG Directors have determined that based on the actions of Auzex Directors, GGG will not automatically withdraw the Offer but reserves its right to do so. To withdraw the Offer at this stage would be to only disadvantage Auzex shareholders in not being afforded the opportunity to accept the Offer and participate in the benefits of the Merged Entity.
GGG will assess additional information regarding the various proposed corporate transactions as and when it is released noting that comprehensive information will need to be provided to Auzex shareholders. Also, these transactions are only proposals at this stage and require shareholder approval which may not be obtained. Based on the above the Offer is still live.
Defence Reaction
Auzex's Announcement appears to be a reaction to GGG's Offer rather than a well thought out strategy. The Auzex proposal as it stands, is not only costly but also time consuming and importantly does not address the consolidation of Bullabulling under one corporate entity. If successfully implemented the Auzex proposal would create two separate companies, both dual listed on AIM and ASX and both owning 50% of Bullabulling. This we consider unnecessary, harmful to overall shareholder value through duplication of costs and a defence tactic by Auzex Directors to frustrate the Offer to Auzex shareholders.
Lack of Information
The Auzex Announcement stated the Board of Auzex's intention that in conjunction with its proposed AIM listing, it intends to raise up to $25 million at "a price substantially above the implied current price of GGG offer of A$0.73".
The Announcement also contained this heavily qualified statement:
"All statements of intention in this announcement are statements of present intention only. Auzex and each of its Directors reserve the right to make decisions in light of the prevailing circumstances at the time of their decision and to change earlier decisions, all in their absolute discretion."
There is, however, no detail as to whether the money has been raised and if so at what price and in what time scale. Unless there have been agreements to this effect, which should be released to the market under the continuous disclosure policy, the Auzex proposal as it stands offers no certainty whether AIM listing can be obtained, whether the money can be raised, the price at which the money is raised and the timing of this.
Furthermore there is no clarity if the demerger of non-Bullabulling assets happens after or conditional upon the fundraising.
The proposal therefore adds another level of uncertainty to the process of consolidating the Bullabulling asset under one company.
Dilution
At the closing price at 6 May 2011 of A$ 0.665, the Auzex proposed capital raising of $25 million represents approximately 28% dilution to current shareholders (26.5% dilution at the implied value of A$0.73) and yet there is no detailed information on the use of proceeds. It is unclear how much of this money will be spent on Bullabulling, how much is for Auzex's other assets, and how much is for the AIM listing and other corporate matters.
This is in contrast with GGG's Takeover Offer which is at a 39.3% premium to the Auzex share price as at 14 March 2011 when GGG announced the Offer.
We consider further dilution to the enlarged group unnecessary as GGG currently has sufficient cash to pursue an aggressive drill programme.
Australian Domicile
As stated in our Bidder Statement, post consolidation of Auzex and GGG, the directors of the Merged Entity will assess the best way to hold the Bullabulling asset. We therefore will consider holding the asset through an Australian subsidiary of the Merged Entity and/or re-domicile the Merged Entity to Australia.
Management
We note that Auzex has lodged a 194,000 metres drilling programme with the WA Mines Department. Whilst agreeing that we need to accelerate the drilling of Bullabulling, the submission to the WA Mines Department has not been considered by the Joint Venture Committee and therefore GGG considers that such an action by Auzex is in breach of the Joint Venture Agreement. On such a matter Auzex has no formal authority to act for, or to create or assume any responsibility on behalf of GGG or the Joint Venture Committee.
We also note that in several announcements and in its 2010 Annual Report, Auzex has represented itself as the Manager of the Bullabulling Joint Venture. GGG highlights that there is no formal agreement appointing Auzex as the Manager of Bullabulling.
Relevantly, in February 2010 when GGG entered into the Option Agreement with Auzex to acquire 50% of Bullabulling, it was envisaged that the Joint Venture would set up a Perth-based entity to independently manage and develop Bullabulling. GGG has put forward an Operational Agreement to reflect this which Auzex is and remains unwilling to discuss. The Joint Venture Agreement requires that the Joint Venture should appoint a Manager as soon as reasonably practical after the commencement of the Joint Venture, and, at this stage, this appointment has not been made. GGG considers any statement by Auzex that it is the Manager of the Bullabulling Joint Venture to be misleading.
