Big day for CQ explorer
Wednesday 15 March 2017
Shareholders in Australian Pacific Coal (APC) which holds significant coal tenements across Central Queensland will vote tomorrow on whether to accept a finance package which even an independent review has concluded is “unfair” to shareholders - but not “unreasonable”.
In 2015, canny coal investor Nathan Tinkler along with Trepang Services bought between them 54 million shares (15%) of APC for just under $210,000.
Mr Tinkler is well known in mining circles. However, Trepang is less so, with its owners being Nic Paspaley from the famed pearling family and John Robinson who after a modest beginning in the outback town of Bourke made a fortune in construction in the Northern Territory.
In 2016 - near the low point of the downturn - APC entered into a Share Purchase Agreement (SPA) with Anglo American to buy the Dartbrook coal mine in the Hunter Valley.
However, after some delays, APC now has to deliver the $25 million in cash it needs to finalise the deal, which when completed will catapult them from explorer to coal miner.
Despite shopping the company around to global financiers last year, APC was unable to find someone to invest in them. It was thought a breakthrough had been made in October last year when one of the world's biggest coal investors Hans-Jürgen Mende via his company AMCI entered a conditional share subscription offer worth around $10 million.
However, AMCI did not finalise the deal, perhaps thinking they could negotiate a better one if APC failed to find a white knight investor for the Dartbrook purchase.
Based on the feedback they received, APC concluded the biggest issue blocking investment was the doubt surrounding Dartbrook and speculated that if they finalised it, APC would be significantly more attractive to investors.
However, in the absence of other offers, Trepang Services, Nic Paspaley and John Robinson (the financiers) have each offered to loan APC the money it needs to finalise the Dartbrook deal.
They're offering to loan the money through interest bearing convertible notes, which are cash loans that convert to equity (or shares) subject to an extensive list of conditions.
Which is where the deal gets very complicated.
Not surprisingly with so much risk involved, the financiers have set some costly terms to their loan offer. Or in other words, the finance being offered is potentially company saving, but it comes with some painful conditions attached to it.
According to expert reviewer BDO Accountants, some of the advantages for shareholders by accepting the offer are that; it will close the Dartbrook deal (which directors believe is a “key value driver for the Company), it will mean the debt and interest owed by APC to each of the three financing entities can be converted to shares rather than paid back in cash (which would probably break APC finances anyway) and further, the number of shares issued to the financiers when the loans are converted to equity is based on a share price that is 67% higher than the lowest share price for APC since Trepang entered the fray.
The downside for non-related shareholders is that depending on the conversion price above, their equity in APC will be slashed because of the billions of new shares that will be issued to the financiers, and the financiers will also have almost absolute control of the company in the future. Further, the interest rate charged on the loans is between 10% and 16% which will put a hole in future company cash flows. The financiers will also have security over the company's assets.
Adding another level of complexity to the deal is that even if shareholders reject the finance, the financiers could still supply the money to finalise the Dartbrook deal because of their dominant shareholding in the company.
If they are forced to do that, the terms and conditions get harder to meet for APC.
With well-known shareholders such as Paul Byrne, the Tinkler family, and a suite of Queensland companies on the share register, it will be an interesting vote.Before the Dartbrook deal presented itself, APC's most valued tenements were its Cooroorah tenement between the Curragh and Jellinbah mines near Blackwater, and the Hillalong tenement adjacent to Hail Creek mine west of Mackay.
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