so that it is received not later than 9.45 am (Sydney time) on 24 November 2015. Proxy forms received later than this time will be invalid.
Notice is given that a General Meeting of Shareholders of Resource Generation Limited will be held at 9.45 am (Sydney time) or immediately after the conclusion of the 2015 Annual General Meeting, whichever is the later, on Thursday 26 November 2015 at Sofitel Wentworth Hotel, 61-101 Phillip Street, Sydney NSW 2000.
The Explanatory Statement to this Notice of Meeting provides additional information on matters to be considered at the General Meeting. The Explanatory Statement and the proxy form are part of this Notice of Meeting.
The Directors have determined pursuant to Regulation 7.11.37 of the Corporations Regulations 2001 (Cth) that the persons eligible to vote at the General Meeting are those who are registered Shareholders of the Company at 7.00 pm (Sydney time) on Tuesday, 24 November 2015.
Terms and abbreviations used in this Notice of Meeting and Explanatory Statement are defined in the Glossary.
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RESOLUTION 1 - APPOINTMENT OF DIRECTOR - MR LULAMILE XATE
To consider and, if thought fit, to pass the following ordinary resolution:
'That, in accordance with 11.4.1 of the Company's constitution, Mr Lulamile Xate be appointed as a director of Resource Generation Limited effective immediately on the passing of this resolution.'
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RESOLUTION 2 - APPOINTMENT OF DIRECTOR - DR KONJI SEBATI
To consider and, if thought fit, to pass the following ordinary resolution:
'That, in accordance with 11.4.1 of the Company's constitution, Dr Konji Sebati be appointed as a director of Resource Generation Limited effective immediately on the passing of this resolution.'
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RESOLUTION 3 - APPOINTMENT OF DIRECTOR - MR ROBERT CROLL
To consider and, if thought fit, to pass the following ordinary resolution:
'That, in accordance with 11.4.1 of the Company's constitution, Mr Robert Croll be appointed as a director of Resource Generation Limited effective immediately on the passing of this resolution.'
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RESOLUTION 4 - APPOINTMENT OF DIRECTOR - MR LEAPEESTSWE MOLOTSANE
To consider and, if thought fit, to pass the following ordinary resolution:
'That, in accordance with 11.4.1 of the Company's constitution, Mr Leapeestswe Molotsane be appointed as a director of Resource Generation Limited effective immediately on the passing of this resolution.'
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RESOLUTION 5 - APPOINTMENT OF DIRECTOR - MR DENIS GATELY
To consider and, if thought fit, to pass the following ordinary resolution:
'That, in accordance with 11.4.1 of the Company's constitution, Mr Denis Gately be appointed as a director of Resource Generation Limited effective immediately on the passing of this resolution.'
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RESOLUTION 6 - APPOINTMENT OF DIRECTOR - MR COLIN GILLIGAN
To consider and, if thought fit, to pass the following ordinary resolution:
'That, in accordance with 11.4.1 of the Company's constitution, Mr Colin Gilligan be appointed as a director of Resource Generation Limited effective immediately on the passing of this resolution.'
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RESOLUTION 7 - REMOVAL OF DIRECTOR - MR GEOFFREY ROSE
To consider and, if thought fit, to pass the following ordinary resolution:
'That, in accordance with section 203D of the Corporations Act, Mr Geoffrey Rose be removed as a director of Resource Generation Limited effective immediately on the passing of this resolution.'
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RESOLUTION 8 - REMOVAL OF DIRECTOR - MR STEPHEN JAMES MATTHEWS
To consider and, if thought fit, to pass the following ordinary resolution:
'That, in accordance with section 203D of the Corporations Act, Mr Stephen James Matthews be removed as a director of Resource Generation Limited effective immediately on the passing of this resolution.'
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RESOLUTION 9 - REMOVAL OF DIRECTOR - MR PAUL JOHN JURY
To consider and, if thought fit, to pass the following ordinary resolution:
'That, in accordance with section 203D of the Corporations Act, Mr Paul John Jury be removed as a director of Resource Generation Limited effective immediately on the passing of this resolution.'
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RESOLUTION 10 - REMOVAL OF DIRECTOR - MR BRIAN DAVID WARNER
To consider and, if thought fit, to pass the following ordinary resolution:
'That, in accordance with section 203D of the Corporations Act, Mr Brian David Warner be removed as a director of Resource Generation Limited effective immediately on the passing of this resolution.'
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EXCLUDED VOTES
In accordance with an undertaking to the Company, the Company will disregard any votes cast on resolutions 1-10 by Resgen Scrip Lending Pty Limited.
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CHAIRMAN'S VOTING INTENTIONS
If the Chairman of the Meeting is appointed as a proxy or may be appointed by default, and the shareholder does not direct the proxy how to vote in respect of any resolution, the Chairman intends to vote against all resolutions.
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EXPLANATORY STATEMENT
The accompanying Explanatory Statement forms part of this Notice of General Meeting and should be read in conjunction with it.
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CONSTITUTION AND CORPORATIONS ACT MATTERS
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The director appointment resolutions (Resolutions 1 to 6) are proposed pursuant to clause 11.4.1 of the Company's Constitution, which provides that the Company in general meeting may by resolution appoint any person to be a Director as an addition to the existing Directors, but so that the number of Directors does not at any time exceed 10 Directors. The resolutions seek to appoint six Directors and there are 4 existing Directors. Directors appointed under this clause hold office until the next general meeting of the company and are then eligible for re-election (clause 11.4.2).
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The director removal resolutions (Resolutions 7 to 10) are proposed pursuant to section 203D of the Corporations Act 2001 (the Act), which provides that a public company may by resolution remove a director from office despite anything in the company's constitution or in agreements. There are certain obligations on the Company under this section and the Company has complied with those obligations.
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Section 201A(2) of the Act provides that a public company must have at least 3 directors and at least 2 directors must ordinarily reside in Australia.
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Section 201D of the Act provides that the company contravenes that section if a person does not give the company a signed consent to act as a director of the company before being appointed. As at the date of this notice, the Company has not received signed consents to act as director from the proposed directors.
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VOTING ENTITLEMENTS
In accordance with Regulations 7.11.37 and 7.11.38 of the Corporations Regulations 2001, the Board has determined that a person's entitlement to vote at the General Meeting will be the entitlement of that person as set out in the register of Shareholders as at 7.00pm (Sydney time) on Tuesday, 24 November 2015. Accordingly, transactions registered after that time will be disregarded in determining a Shareholder's entitlement to attend and vote at the General Meeting.
DATED: This 14th day of October 2015 BY ORDER OF THE BOARD
STEVE MATTHEWS COMPANY SECRETARY
EXPLANATORY STATEMENT TO SHAREHOLDERS
RESOURCE GENERATION LIMITED (ACN 059 950 337)
EXPLANATORY STATEMENT
This Explanatory Statement has been prepared for the information of the Shareholders of the Company in connection with the business to be conducted at the General Meeting to be held at
9.45 am (Sydney time) or immediately after the conclusion of the 2015 Annual General Meeting, whichever is the later, on Thursday 26 November 2015 at Sofitel Wentworth Hotel, 61-101 Phillip Street, Sydney NSW.
The purpose of this Explanatory Statement is to provide information which the Directors believe to be material to Shareholders in deciding whether or not to pass the Resolutions in the Notice of Meeting.
CONTENTS
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RESOLUTIONS 1-10 - APPOINTMENT AND REMOVAL OF DIRECTORS 7
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ANNEXURE 1 - CURRENT DIRECTORS' STATEMENT FOR REQUISITIONED MEETING 8
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ANNEXURE 2 - SHINTO TORII INC'S MEMBERS' STATEMENT FOR REQUISITIONED MEETING 9
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RESOLUTIONS 1-10 - APPOINTMENT AND REMOVAL OF DIRECTORS
The general meeting has been requisitioned by Shinto Torii Inc, a shareholder with an approximate 10.7% shareholding, pursuant to Section 249D of the Corporations Act. It has requested the Company to distribute its Members' Statement pursuant to Section 249P of the Corporations Act and it has been attached to this Explanatory Statement.
The ten resolutions proposed by Shinto Torii Inc include the appointment of six nominees of Shinto Torii Inc (Resolutions 1 - 6) and the removal of all four members of the current board of directors (Resolutions 7 - 10). All existing directors RECOMMEND that shareholders vote AGAINST all the resolutions put forward by Shinto Torii Inc. The reasons for that recommendation are set out in the Directors' Statement attached as Annexure 1.
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ANNEXURE 1 - CURRENT DIRECTORS' STATEMENT FOR REQUISITIONED MEETING
Resource Generation's directors'1 statement dated 14 October 2015 for the meeting requisitioned by Shinto Torii Inc
To shareholders of Resource Generation Limited
Your choice at the general meeting on 26 November 2015 is between…
UNCERTAINTY
or
AN EXPERIENCED TEAM WITH A WORKABLE PLAN
Do you want to take these risks?
If Resource Generation's board is removed and replaced by nominees of Altius2 and Noble3:
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The funding4 proposed by the debt club (which includes Noble and is arranged by Altius which has a financial interest in its acceptance) may not materialise as it is highly conditional
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With the debt club funding, a 6-12 month delay is likely while 50 conditions precedent are satisfied before any funding will be made available
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A number of the conditions imposed by the debt club are impractical and/or unachievable
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You will be accepting additional risks as the debt club's funding proposal is based on variations to Boikarabelo's business case that have not been validated
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Plans that have been developed meticulously by highly qualified mining and engineering professionals will be discarded in favour of expeditious and untested alternatives.
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You will be endorsing Noble's plan to sign mining and construction contracts with its preferred contractors without competitive tenders
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You will be handing over control and supervision of the construction of a major coal project to a group of fund managers, equity investors and commodity traders
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The social and labour program to which Resource Generation is committed may not proceed
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The terms of the preference shares to be issued to Noble and PIC5 as part of the proposed debt club funding package will materially reduce Resource Generation's capacity to pay dividends, transferring value from shareholders to Noble and PIC
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Your interest in the Boikarabelo mine will be worth substantially less
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Brian Warner (chairman), Paul Jury (managing director), Stephen Matthews (executive director), Geoffrey (Toby) Rose (non-executive director)
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Altius is the parent company of Shinto Torii which has requisitioned the general meeting
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Noble Group is a 13.69% shareholder in Resource Generation and has marketing arrangements with the company
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Based on Noble's final offer dated 21 July 2015; all references in this document to the debt club funding are based on this offer
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PIC (Public Investment Corporation (SOC) Limited) is a 19.49% shareholder in Resource Generation
Background
The Boikarabelo project is owned and operated by Ledjadja Coal (Proprietary) Limited, a South African company, in which Resource Generation has a 74% shareholding. Resource Generation's partner, with a 26% shareholding, is Fairy Wing Trading 136 Proprietary Limited, a South African BEE (black economic empowerment) company.
Ledjadja's board consists of two representatives of Resource Generation and two representatives of Fairy Wing, and one of Fairy Wing's directors, Themba Langa, is Ledjadja's CEO.
Resource Generation identified the potential of the Waterberg region, which accounts for 40% of
South Africa's remaining coal resources, seven years ago. Since then Resource Generation has invested AUD157 million in the Boikarabelo project.
Ledjadja has acquired all necessary land access for the mine and its infrastructure and has obtained all regulatory consents. A construction camp for up to 1,320 people has been constructed and power and water services have been connected. Earthworks have begun and bridges have been constructed for a 40 kilometre rail link to Transnet Freight Rail's network. Ledjadja has also completed 13 kilometres of a 58 kilometre pipeline to a nearby effluent treatment plant, which will supply water and is part of the mine's social and labour plan.
The South African BEE subsidiary of FLSmidth & Co has completed a detailed level of design for the coal handling and preparation plant, the largest item in the capital budget, and has been contracted to provide engineering, procurement, supply and construction management of the plant.
In mid-2014, Ledjadja expected production to begin in mid-2016, subject to securing debt funding to complete construction and buy mobile equipment. The first tranche of this finance was secured in August 2014 through a loan facility with Komatsu Financial Limited Partnership for the mobile equipment fleet. Noble had agreed to provide loans totalling USD122.9 million for the mine's rail link and site infrastructure but only
$US20 million was provided.
The weakening coal price unfortunately delayed credit approval from the debt club for the balance of the capital requirement. In June 2015, the company believed it was close to an in-principle agreement with the debt club for a multi-layered funding package, but then Noble withdrew its commitment to provide part of this package.
In July 2015, Noble submitted to Resource Generation a revised term sheet based on financial and operating models which differed significantly from term sheets and models that had been proposed previously.
Detailed analysis of Noble's financial and operating models identified discrepancies and risks that Resource Generation's board was not prepared to accept. These included subcontracting mining operations, at unsubstantiated costs, to a company chosen by Noble without competitive tenders.
Resource Generation's board also was not prepared to accept Noble's revised financial model which would have resulted in a substantial transfer of value from shareholders to Noble and PIC.
Resource Generation has been seeking alternative debt funding in parallel with its negotiations with the debt club. One prospect, that had been the subject of detailed discussions for several weeks, materialised the evening before Altius' requisition was received. This has resulted in a memorandum of understanding from a Swiss company to provide the funding to construct the mine on terms that are substantially more attractive to shareholders than the debt club's proposal. The counterparty has reserved its rights to cancel its funding in the event of a change in Resource Generation's board.
Why the proposed debt club funding is not in shareholders' best interests:
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The preference shares will give Noble and PIC a 902% return over 13 years, resulting in a bullet payment liability of approx. ZAR6.7 billion (approx. AUD700 million) for Ledjadja that will have a negative impact on the value of Ledjadja and Resource Generation's share price
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Resource Generation's ability to redeem the preference shares in year 13, as required by their terms, is uncertain
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Noble will receive interest of up to 18% per annum on the cost over-run facility it is proposing to provide
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Conditions are onerous, including excessive and expensive hedging
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Altius will receive a success fee of 2% (approximately USD 10 million) of the funding package, so has a vested interest in ensuring the debt club's funding package, however onerous, is agreed
Why doesn't the current board just do what Noble wants? Why does the board disagree with Noble's approach?
Resource Generation's board is strongly committed to the success of the project and to acting in the best interests of the company and its shareholders.
Each board member is well aware of his duties as a director: one of those duties is to act diligently and exercise reasonable business judgement. In exercising this duty, the board has been supervising the development of mining plans on the owner/operator model and these plans have been reviewed and approved by an independent technical expert. This gives the board confidence that the plans are
workable, and contracts with third parties have been signed based on these plans, following competitive tender processes consistent with the company's procurement policies. Funding has been sought based on these plans.
Noble has proposed that third party contractors be engaged to provide all equipment and plant and manage the operations on a contract basis. Ledjadja asked to see a cogent plan with suitable supporting material, but Noble failed to provide these and has proposed that its nominated contractors be engaged without a tender process.
A board acting in good faith with diligence and exercising reasonable business judgement could not accept Noble's proposals as presented without supporting material. The directors would be open to claims of breach of directors' duties and do not wish to be in that position. Also, Noble's proposals are high risk so are not
in the best interests of the company and its shareholders. These are the reasons that the board has not accepted Noble's proposals.
Resource Generation did ask Ledjadja to start an open tender process for contract mining at Noble's request, but this process has been suspended pending the results of the general meeting so as to be fair to the tenderers. If the board is changed, the board understands the tender process is likely to be cancelled and Noble's nominated contractor is likely to be awarded the contract.
Rebutting Altius' claims
Altius prepared a Members' Statement for distribution with the notice of general meeting, which is annexure 2 to the notice. Altius makes certain claims which Resource Generation believes misrepresent the facts.
Altius' criticism is particularly strange as Robert Lowe, Altius' CEO, and Leapeetswe (Papi) Molotsane, one
of the candidates nominated by Altius to join Resource Generation's board, have been receiving consultancy fees from Ledjadja to provide the services that Altius is claiming have not been provided. It would seem, therefore, incongruous to say that there has been a failure to provide services when it was Altius and Papi Molotsane who were commissioned to provide them.
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Inability to secure debt funding
Altius' claim that Resource Generation's board 'has provided limited interaction and little assistance to the debt syndicate to negotiate a funding agreement' is incorrect. The company has conducted extensive and detailed negotiations with the debt syndicate and in June 2015 understood that agreement was close on a funding package that could be presented to shareholders.
As mentioned in the Background above, Noble then withdrew its commitment to provide a critical part of the package and provided an alternative funding proposal. Following detailed analysis of this alternative
funding proposal, Resource Generation's directors identified discrepancies and both material operational and material financial risks that they were not prepared to accept. These issues were so serious that acceptance of this proposal would have breached the directors' fiduciary duties.
The directors reject Altius' claim that Resource Generation has 'failed to respond appropriately to shareholder concerns'. They also reject Altius' claim that its proposed new board would be better placed to secure debt funding.
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Advancing the stalled South African project
Altius claims that the Boikarabelo project would benefit from 'local South African representation' on its board. As mentioned above, 50% of Ledjadja's directors (Debbie Ntombela and Themba Langa) are South African and Mr Langa is CEO. Ledjadja's board and management team combine extensive experience in the resources industry in both South Africa and Australia, and Resource Generation's representatives on the Ledjadja board have a track record of delivering successful coal mining projects.
Ledjadja's management have demonstrated their ability through developing infrastructure for the mine's construction, and they have an 'operational readiness plan' to speed up the path to production as soon as funding is received. In addition, a mining plan and a process flowsheet have been developed to optimise the recovery of coal and deliver low operating costs for the life of the mine.
Excellent relationships have been established with local communities and contractors. Ledjadja has introduced an extensive social and labour plan, including health care initiatives and skills development so members of local communities can secure a range of jobs at the mine. As part of this plan, Ledjadja has constructed part of a pipeline associated with an effluent treatment plant, yet to be constructed, to the local community of Lephalale.
Resource Generation's and Ledjadja's commitment to support local communities contrasts with the alternative financial and business model proposed by Noble in July 2015 which did not allow for an equivalent social and labour plan.