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Takeovers Panel decision casts doubt on A$100M lifeline for Havilah Resources

Havilah Resources Ltd. faces an uphill battle getting SIMEC Mining's A$100 million funding deal approved at a Sept. 12 shareholder meeting that experts say is a lifeline for the junior, after a negative Takeovers Panel decision on Sept. 3 sent its share price to a 12-month low.

Havilah secured a subscription agreement in May in which Sanjeev Gupta-led GFG Alliance Ltd.'s SIMEC committed to a staged-equity investment in the junior of A$50 million and a further A$50 million in conditional or discretionary funding over about three years, with GFG possibly ending up with a 51% stake in the junior after five years.

On Aug. 22, Havilah asked the Takeovers Panel to restrain co-founder and former director Keith Robert "Bob" Johnson — who is against the deal going ahead — and "certain other" shareholders from voting on the transaction Sept. 12, claiming they obtained 38.51% of the company by means that contravene ASX rules.

Havilah claims Johnson has been sending correspondence to shareholders about the deal, but on Sept. 3, the Takeovers Panel said it would not investigate its claim, sending its share price to 12 Australian cents per share that day, a 52-week low.

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The 38.51% makes it extremely hard for Havilah to ensure enough minority shareholders vote to approve the deal in a Sept. 12 extraordinary general meeting.

If shareholders reject the offer, Havilah will have to raise money with either a heavily discounted rights issue or placement, or potentially sell an asset at a discounted price, none of which are the appropriate or best options for existing shareholders, sources say.

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Havilah Resources CEO
Walter Richards.
Source: Havilah Resources

Before the Takeovers Panel decision, Havilah CEO Walter Richards told S&P Global Market Intelligence that while "unique," the deal positions the company to transition from explorer to mid-cap miner without being exposed to funding constraints, with more certainty and less risk.

He said the deal was a "once in a lifetime opportunity" for a junior that's been around since listing in 2002, and some investors are understandably upset given its current share price performance since hitting nearly A$3 per share just before the global financial crisis.

An analyst with knowledge of the stock said in an interview that Havilah's existing minority shareholders who Richards has been trying so hard to convince in the past fortnight will have to accept the deal if they want the company to continue as a going concern.

The analyst, who wished to remain unnamed, said that considering Havilah's cash position, balance sheet and its limited sources of funding given existing minority shareholders are likely tapped out from all the capital raisings already done, the GFG deal is "as good as it gets."

As at July 31, Havilah's cash at bank was A$3.8 million, with A$2.5 million drawn on an Investec standby facility, resulting in a net cash position of A$1.3 million.

The analyst also said shareholders who are worried that Havilah is "giving away" its projects, whose net present values reach into the hundreds of millions, need to realize that significant monies also need to be spent just getting to production, which is why GFG's offer is not only the only thing, but the best option available.

An independent expert's report issued July 9 said the transaction is "not fair but reasonable" to Havilah shareholders.

However, it also concluded that the security component of the deal is fair to shareholders, given that the value of the proceeds that would be provided to SIMEC in the event of insolvency is equivalent or lower than the value of the liabilities that would be settled.

SIMEC's package will fully fund the work programs for Havilah's iron ore assets which have significant scale potential, based on its Grants Basin project's exploration target of 3.47 billion tonnes to 3.79 billion tonnes at 23.9% to 27.6% iron, which was obtained courtesy of SIMEC-funded drilling.

The subscription agreement financing will also fund Havilah's copper prospects in the Mutooroo copper-cobalt district.

Havilah has issued nine notices since Aug. 13, most recently on Sept. 5, on the "transformational" nature of the GFG deal — including video clips from shareholder meetings — in the lead-up to the Sept. 12 general meeting when shareholders will vote on it.

Gupta said in an Aug. 26 letter, which Havilah posted on the ASX, that any future supply contracts with Havilah will be done on a commercial, "arm's length basis," and that the junior's projects would continue to be managed by Havilah senior management.