PROOF_990CRN3476_NoM_v1.pdf
ACN 072 595 576
NOTICE OF ANNUAL GENERAL MEETING
and
EXPLANATORY MEMORANDUM
and
MANAGEMENT INFORMATION CIRCULAR
Date of Meeting
31 May 2016
Time of Meeting
11.00 am (Perth time)
Place of Meeting
Ground Floor, 20 Kings Park Road, West Perth, Western Australia
As at and dated 29 April 2016
IMPORTANT INFORMATION
This Notice of Meeting, Explanatory Memorandum and Management Information Circular is an important document that should be read carefully in its entirety. A proxy form is enclosed. If you are unable to attend the Meeting, please complete and return the enclosed proxy form in accordance with the specified directions.
CHAIRMAN'S LETTER
29 April 2016 Dear Shareholder
I am writing to invite you, as a holder of Shares of Mawson West Limited to attend the Meeting of Shareholders of the Company to be held at 11.00 am (Perth time) on 31 May 2016 at Ground Floor, 20 Kings Park Road, West Perth, Western Australia. The Meeting will serve as the Company's Annual General Meeting for the financial year ended 31 December 2015. In addition, however, an important purpose of the Meeting is to consider and, if thought fit, to approve Resolution 6 relating to the 2016 Galena Financing and Debt Restructuring Package between the Company and Galena Private Equity Resources Fund LP, as announced by the Company on 2 March 2016.
As you may recall, the Company, Galena and Trafigura entered into a financing package in December 2014, and Galena provided the Company with a further financing package in October 2015. Those financing packages allowed the Company to ramp up the Kapulo Mine and to operate it until now. However, the continued weakness in the price of copper has resulted in unprofitable and unsustainable mining operations at the Kapulo Mine. In particular, at current prices, the Company was producing at levels insufficient to cover its operational and financial obligations, and was also depleting Kapulo's short mine life (4 years) to generate little to no free cash flow. Consequently, the Company determined that the best course of action, as announced on 2 March 2016, was to place the mine on care and maintenance in order to preserve the asset until such time as the price of copper recovers sufficiently to permit profitable mining. This process has been under way, and mining ceased at the end of March 2016, while milling operations are continuing into April 2016.
However, the process of placing the Kapulo Mine on care and maintenance involves significant costs to the Company, projected to be in the order of US$20,000,000 through to a projected restart, costs which the Company could not meet without additional financing. Moreover, the Company would have required additional financing even if it had not determined to place the Kapulo Mine on care and maintenance. In particular, the current price and operating environment contributed to a rapid deterioration in the Company's financial position, such that it was having difficulties satisfying its existing liabilities in a timely manner and faced the prospect of a working capital deficiency and potential insolvency unless actions were taken to remedy the situation.
As a result, the Company held discussions with Galena, as the Company's majority shareholder, and with Trafigura, as the Company's senior secured lender, through which they ultimately agreed with the Company's decision to place the Kapulo Mine on care and maintenance and furthermore agreed to financing arrangements which would permit this to occur and also allow the Company to address its working capital deficit. In particular, as announced on 2 March 2016, subject to certain terms and conditions, Galena agreed to advance the secured loan Facility for an amount up to US$20,000,000 to the Company's subsidiary AMC on an interest free basis. The terms of the Facility are summarised in the Explanatory Memorandum.
In partial consideration for the Facility, the Company issued Galena the Warrants, which are exercisable to acquire up to 2,744,200,000 Shares of the Company at an exercise price of C$0.01 per Share until 31 December 2017. The exercise of the Warrants is subject to the receipt of disinterested Shareholder approval, which is to be sought at the Meeting. Subject to the receipt of such Shareholder Approval, the Warrants will be exercisable pro rata based on the amount of the Facility which has been drawn down at the time of any exercise. On receiving Shareholder approval for the exercise of the Warrants, which must be obtained prior to 31 May 2016, Galena will be required to exercise the Warrants which are then exercisable based on the amount of the Facility which is then drawn down within 10 business days of the receipt of Shareholder approval of Resolution 6. The Warrant exercise price payable will be set off against the outstanding amount of the Facility. Further exercises of any remaining Warrants are at the discretion of Galena.
On exercise of the Warrants, Galena will be issued up to 2,744,200,000 Shares in the Company, which is equal to 354% of the number of Shares issued and outstanding at present, depending upon the amount of the Facility which has been drawn down, increasing Galena's interest in the Company from approximately 77.1% to approximately 95%, assuming the full exercise of the Warrants. As a result, Galena has advised the Company that it intends to consider alternatives for taking the Company private following the exercise of the Warrants, including by possibly compulsorily acquiring all of the remaining shares in the Company if its interest in the Company exceeds 90%. More information about Compulsory Acquisition is set out in section 4.4.
This means that by voting in favour of the Proposal, you will be facilitating Galena's ability to compulsorily acquire your Shares in Mawson West.
In connection with the 2016 Galena Financing and Debt Restructuring Package, the Company's existing Prepayment Facility with Trafigura was also amended such that principal and interest payments due under the Prepayment Facility will cease until such a time as mining operations at the Kapulo Mine are recommenced. Trafigura will then have priority for repayment of the Prepayment Facility from the first US$15,000,000 of available cash flow from mining operations at the Kapulo Mine. More information about these arrangements is set out in the Explanatory Memorandum.
BACKGROUND TO THE 2016 GALENA FINANCING AND DEBT RESTRUCTURING PACKAGE (INCLUDING THE PROPOSAL)
In January 2016, the Company received advice from its Technical Committee recommending that the Company place the Kapulo Mine on care and maintenance to preserve the resource and the Kapulo Mine's value until the price of copper recovers, and that this exercise would require funding projected to be in the order of US$20,000,000, including the settlement of approximately US$14,000,000 in current payables subject to ongoing discussions with the Company's creditors.
With this objective in mind, as announced by the Company on 2 March 2016, the Company and its subsidiaries AMC and Mawson West Investments entered into a binding agreement with Galena relating to the 2016 Galena Financing and Debt Restructuring Package.
RESOLUTION 6: APPROVAL FOR THE ISSUE OF SHARES TO GALENA ON THE FUTURE EXERCISE OF WARRANTS
Shareholders are being asked to consider, and, if thought fit, approve the issue of up to 2,744,200,000 Shares to Galena as and when Galena exercises the Warrants the subject of Resolution 6.
There are advantages and possible disadvantages to the 2016 Galena Financing and Debt Restructuring Package. A summary of these are set out below and in further detail in sections 5 and 6 of the Explanatory Memorandum.
Why Shareholder approval is required
The Company is seeking Shareholder approval at the Meeting for the purposes of section 611 (item 7) of the Corporations Act, Chapter 2E of the Corporations Act, requirements under the rules of the TSX and for the purposes of the Canadian Multilateral Instrument 61-101. More details about the requirement for Shareholder approval of the Proposal is set out in section 16 of the Explanatory Memorandum.
SUMMARY OF ADVANTAGES OF THE 2016 GALENA FINANCING AND DEBT RESTRUCTURING PACKAGE AND THE PROPOSAL
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Provides the Company with access to funds to meet its existing liabilities, to place the Kapulo Mine on care and maintenance and fund the Company through to eventual recommencement of the Kapulo Mine, when the copper price recovers sufficiently to permit profitable mining.
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Permits the Company to avoid the prospect of a working capital deficiency and potential insolvency.
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Protects and preserves the value and resource of the Kapulo Mine in a difficult market with depressed copper prices.
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Provides the Company with access to funds to apply against repayment of the Facility.
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Approval of the Proposal reduces the financial exposure risks related to accelerated repayment of the amount under the Facility.
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Your Non-Conflicted Directors fully support the Proposal, and believe it to be the best option available to the Company and its Shareholders. Jesus Fernandez is a nominee director of Galena and has abstained from making a recommendation to Shareholders.
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The Independent Expert has concluded that the Proposal is fair and reasonable for non-associated Shareholders.
SUMMARY OF DISADVANTAGES AND OTHER CONSEQUENCES OF THE 2016 GALENA FINANCING AND DEBT RESTRUCTURING PACKAGE AND THE PROPOSAL
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The Proposal will result in the dilution of the existing interests of Shareholders (other than Galena) on the issue of the Shares on Galena's exercise of the Warrants.
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After the Shares have been issued to Galena, Galena intends to consider alternatives for taking the Company private and, if its interest in the Company exceeds 90%, it will be entitled, but not required, to undertake Compulsory Acquisition of the remaining Shares in the Company it does not already own. This means that by voting in favour of the Proposal, you will be facilitating Galena's ability to compulsorily acquire your Shares in Mawson West.
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The Company's level of debt to Galena, relative to the value of the assets and equity of the Company, as well as the level of Galena's shareholdings in the Company, makes the Company an unattractive investment opportunity for third party investors.
IMPLICATIONS IF RESOLUTION 6 IS NOT APPROVED
In relation to the Warrants (where Resolution 6 is not approved by Shareholders):
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Galena may, in its sole discretion, declare the amount drawn down on the Facility due and payable (subject to Galena funding any amount remaining to be funded under the Facility prior to so declaring);
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the Facility being due and payable would result in a cross-default under the Galena Existing Loan Facility and the Prepayment Agreement with Trafigura; and
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the Facility being due and payable, as well as the Galena Existing Loan Facility and the Prepayment Agreement with Trafigura being due and payable as a result of a cross-default, the Company would be insolvent.
In circumstances where Galena is entitled to accelerate the repayment obligation in this manner and elects to do so, and if Mawson West is unable to repay the amount owing under the Facility, this would impact Mawson West's ability to comply with its other debt-related obligations, including the Prepayment Agreement and the Company's existing loan facility with Galena, and accordingly its ability to continue as a going concern. See section 7.1 of the Explanatory Memorandum for further details.]