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Havilah shareholder had to kill GFG Alliance deal, fearing 'poisonous' division

Havilah Resources Ltd.'s largest shareholder and technical director, Chris Giles, told S&P Global Market Intelligence that he recently killed a proposed "lifeline" investment of up to A$100 million in the company from a GFG Alliance Ltd. subsidiary because it would have caused "poisonous" division, among other things.

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Havilah Resources Technical Director Chris Giles.
Source: Havilah Resources

Giles, who has a 16.45% stake in Havilah through Trindal Pty. Ltd., voted against the deal at an extraordinary general meeting on Sept. 12, 2019. Giles founded Havilah with geologist Bob Johnson, with the company listing on the ASX in 2002.

Havilah Chairman Mark Stewart said at the meeting that, while close to 60% of individual shareholders voted in favor of the deal with the subsidiary of privately held, Sanjeev Gupta-led GFG Alliance, Giles' large shareholding was "always going to be the determining vote," though the board did not know he would vote "no" before his Sept. 9 notification.

Stewart added that neither Havilah nor GFG Alliance would have entered into the subscription agreement without the support of Giles, who signed the deal in a special May 1, 2019, ceremony in Whyalla, South Australia. Giles even interviewed Gupta for a video that Havilah released and told local media he was "strongly in support."

However, Stewart said Giles shifted his stance to neutral when an independent expert report said the deal was "not fair but reasonable," as he did not understand the unfair aspect of the commentary.

"My view is that the founding shareholders have been firmly in control of Havilah since it was listed and were not prepared to lose their control even though the proposed deal was probably a once in a lifetime opportunity to turn Havilah into a mid-tier miner," Stewart said in an interview.

"The founding shareholders have an effective blocking vote and they have exercised it again despite the majority by number voting in favor. In my view, that is as clear a statement as you can get that the founders are only interested in continuing to exercise control ... and that is why Havilah has had limited success in its 20-plus years."

Mooted JV

Giles cited several reasons why he had expressed reservations about the deal "right from the start," and had always advocated instead for a joint venture approach, targeting some up-front cash to cover costs.

A joint venture would have been very easy to implement as it would not need shareholder approval, Giles said, adding that he had only signed the existing deal as there was pressure on Havilah being cash strapped.

"It was only after the independent report came out that I'd had time to canvas our major shareholders — which I couldn't do before I signed it as it was confidential that it became clear they were not in favor of it," Giles said.

GFG Alliance's deal comprised a committed equity investment of A$50 million in stages and a further A$50 million in conditional or discretionary funding over about three years to fully fund Havilah's work programs at its Maldorky, Grants and Grants Basin iron ore assets and the Mutooroo copper-cobalt project, all in South Australia.

The private industrial conglomerate would have potentially used the company's projects to feed its planned Next-Gen steel plant and its copper smelter project, both in Whyalla.

Yet Giles said the deal would have caused Havilah to "lose control over its own destiny," and was conditional on the company completing a series of technical milestones which he and senior mine planning engineer Richard Buckley believed were "totally unrealistic" and therefore a "huge risk."

The deal included a A$5 million capital raise by Havilah to fund administration costs and repay an Investec loan, via a rights issue which Giles said the major shareholders "simply wouldn't have supported. It would have been a disaster."

He said all of Havilah's major shareholders excluding himself had "strongly opposed" the deal, wanting the company to remain independent, which Giles said he could not ignore. "Had it gone ahead, they may have jumped off board, leaving the company in a terrible situation," he added.

"With a junior company, division and disunity is poison. You have to find a solution that has the majority of shareholders happy to preserve the unity," Giles said.

While Havilah has not held further talks with GFG Alliance, Giles said the company spoke to some major Australian iron ore companies and major Asian steel mills, which have shown interest in its iron ore projects.

However, Giles said Havilah first needs to drill out a resource of more than 500 million tonnes at the West End open pit at Grants, which has an exploration target of 3.5 billion tonnes to 3.8 billion tonnes grading 24% to 28% iron.