Welcome to the tenth edition of Expert Adviser, published quarterly by G+T’s Perth corporate advisory team and developed specifically for advisers active in the local market.

Quarter In Review

The final weeks of the dreaded 2020 saw a flurry of small-cap IPOs, and some very large secondary raisings, rushed to market to capitalise on positive sentiment, particularly in the resources sector.  Elsewhere, however, there were signs of fatigue, as shown in the failed IPO by law firm HWL Ebsworth.  The IPO market has returned strongly after the Christmas shut down period with the pipeline of new market entrants being replenished during Q2FY21 by a range of demergers and spin-outs now underway. We expect the demerger trend to continue as a means of daylighting value in under-appreciated assets, given the uptick in commodity prices and continued strong capital markets environment. The secondary ECM market remains healthy, with the clean energy thematic expected to stoke the fires as shown by ESG institutional lead demand for Vulcan Energy’s $120 million placement to develop its zero carbon lithium project. 

The public M&A market continued to mature during 1HFY21 in its navigation of COVID-19 uncertainty, particularly on the East Coast of Australia in sectors like technology and infrastructure (refer MIRA’s bid for Vocus and WAM Capital’s bid for Amaysim). Closer to home in Perth, advisers continue to remark in the financial press that explorers who have raised capital under upscaled COVID-19 capital raising limits and not yet hit pay dirt may be forced to execute on strategic inorganic growth opportunities to show momentum to stakeholders during 2HFY21. Outside the Cardinal bidding frenzy and the now completed Northern Star / Saracen JV tie-up, we have only seen two other regulated M&A deals in the metals and mining sector announced for FY21 (and both in the gold space, being AuStar Gold and NTM Gold). With binding bids on high profile sales processes due during 2HFY21, we expect to see some significant negotiated acquisitions announced to supplement IGO’s well timed acquisition of a stake in the Greenbushes operation. 

M&A readiness should be front of mind for target company boards. In particular, FIRB analysis for targets remains critical to assess bankability of offer terms and to utilise ‘regulatory’ safe harbour for hostile bids, particularly if the target is in the critical minerals space or the bidder has links to foreign government investors.  We expect foreign investors will now be more likely to seek FIRB approval even if it is not strictly required, to disarm FIRB of its 10 year call-in power.  For more information on this please refer to our brief overview of the changes to FIRB regulation in the ‘Cross Border Developments’ section below and more detailed analysis in our ‘Quarterly Publication Review’. 

Recent Deals

GenusPlus IPO
We advised the Western Australia-based specialist power and telecommunications provider GenusPlus Group on its successfully completed $32.8 million initial public offering and ASX listing, giving the company a market capitalisation of approximately $149 million at the time of quotation.  

MBO of Western Plant Hire 
We advised Executive General Manager Luke Mateljan and Chief Financial Officer Malcolm Azzopardi on their successful acquisition of mining services business, Western Plant Hire (WA) Pty Ltd. Mr Mateljan and Mr Azzopardi have held senior positions at Western Plant Hire over the past decade and recently teamed up with private equity led by Mr Peter Hutchinson to effectively transact the management buyout. 

Panoramic’s divestment of Panton
We advised Panoramic Resources Limited in relation to the sale of an 80% interest in its Panton PGM Project, north of Halls Creek.  The resource consists of high grade platinum and palladium mineralisation within a number of stratiform reefs. The transaction included the negotiation of a shareholders agreement and buy-out option for the purchaser to acquire the remaining 20% interest. 

Eclipse cryolite acquisition 
We advised Eclipse Metals Limited on the acquisition of 100% ownership of exploration tenure covering the Ivittuut cryolite deposit and mine located in southwestern Greenland. The Ivittuut Mine is notable for having been the world’s only commercial natural cryolite mine (used in aluminum production).  

Deal Mechanic

ASX lifts guidance on earnings surprises

In December 2020, ASX announced updates to Guidance Note 8 on continuous disclosure requirements in relation to earnings guidance. The ASX has retained the overall framework of its existing guidance in the update. However, for the first time the ASX has expressly stated that a listed entity should make an ASX announcement to update the market on its forecast earnings where it is different from consensus earnings forecasts by a specified percentage of 15%, even where the company has not issued any earnings guidance or forecast. These changes are of increased relevance to the many ASX listed entities who withdrew their earnings guidance shortly after the onset of the COVID-19 pandemic and have not since reinstated issuing earnings guidance: see our earlier publication (COVID-19: Continuous disclosure obligations – How ASX200 entities have responded).  

IER valuations for merger of equals 

The recent completion of the Northern Star and Saracen merger underlined to the market that the rationalisation of mining JVs unlock synergies for shareholders, justifying nil-premium combinations. Interestingly, the scheme booklet reveals that the independent expert report produced by EY and SRK relied on ‘the market approach’ as its primary valuation method (ie having regard to recent trading in Northern Star shares on the ASX and adjusting for the exchange ratio). This is notable given variations in market practice which had previously emerged, and a developing practice that undertaking full DCF analysis of both bidder and target is required in “merger” scenarios (with a 15% threshold for the target company’s holders being considered as the indicator of a “merger”).  In fact, under ASIC Regulatory Guide 111, it is open to experts to adopt the market based approach if certain conditions are met (see para [32]). Given the difficulty of travel logistics overseas due to COVID-19, which have complicated the task for experts seeking to undertake site visits, the fact that ASIC and the Court were content with this approach is a welcome development.  However, as noted in the IER, there were some specific aspects of the deal which made the use of the market-based approach appropriate, and this will not always be the case. 

Fact sensitive approach confirmed re director recommendations

Due to the Federal Court decision in Re Gazal [2019] FCA 710, the judicial position regarding voting recommendations made by directors receiving a benefit in connection with a scheme has become more nuanced for advisers in this area. The scheme in question in Re Gazal was ultimately approved by the Court but Justice Farrell noted that scheme proponents cannot count on that always being the outcome when an interested director elects to make a recommendation. Post Re Gazal, it is common place for scheme implementation agreements to include provisions allowing for a director receiving a benefit to either not make or to withdraw a voting recommendation. We are now confident in the position, at least in Western Australia, that local judicial opinion has endorsed what is deemed the ‘fact sensitive’ approach to directors recommendations in a series of similar decisions (Re Pacific Energy Ltd [2019] WASC 143; Re Zenith Energy Ltd [2020] 266; Re Exore Resources Ltd [2020] WASC 285). That is, there needs to be a reasonable commercial rationale for the benefit and proper disclosure must be made, but shareholders would ordinarily ‘expect’ directors to make such a recommendation, even when they may receive a substantial financial benefit.

Takeovers Panel reinforces Cardinal decision

The Takeovers Panel declined to conduct proceedings in Cardinal Resources Limited 03 & 04 in relation to Cardinal’s claim that two equal $1.00 bids by Shandong Gold Mining and Nord Gold (each last and final in the absence of a higher competing offer) led to the auction for control of Cardinal being deadlocked. These decisions demonstrated the Panel’s desire to hold bidders to their last and final statements for market integrity and certainty purposes. In the review decision, the review Panel upheld the initial Panel’s reasons and conclusions, reinforcing support for a stricter interpretation of ASIC’s “Truth in Takeovers” policy as an adjunct to the policy objective of an “efficient, competitive and informed market”.  Directors of companies engaged in takeover activity will need to carefully craft the terms of their “last and final statements” to capture all possible circumstances in which they may wish to make a further offer or otherwise depart from their prior statement, for example where there is an “equal or higher” competing offer, rather than just a higher competing offer. 

Cross border developments

After nine months of $0 thresholds for all foreign persons, the long-awaited changes to Australia’s foreign investment rules as set out in the FIRB legislation, came into effect on 1 January 2021. We look at the changes in detail in our Quarterly Publication Review below, but two key areas are of note to advisers in this area: 

• The monetary thresholds will now return to normal. In a complex area of law, the relevant monetary threshold differs depending on the type of transaction, the nature of the acquirer and the country of origin of the acquirer, but the standard monetary threshold is A$281m which applies to most business acquisitions and acquisitions of interests in Australian developed commercial land by private foreign investors. 
• Thankfully for the Australian debt markets, the existing moneylending exemption under the FIRB Legislation remains more or less intact – which means that lenders (and their security trustees) entering into new moneylending transactions and taking security will generally not need to concern themselves with the FIRB legislation for any lending transaction to which the FIRB legislation did not previously apply.

Quarter Publication Review

6 key changes to Australia’s Foreign Investment legislation (FIRB)

After nine months of $0 thresholds for all foreign persons, the long-awaited changes to Australia’s foreign investment rules as set out in the Foreign Acquisitions and Takeovers Act 1975 and the Foreign Acquisitions and Takeovers Regulation 2015 (together, the FIRB Legislation), are set to come into effect on 1 January 2021.  Stay tuned for our updated publication “Foreign Investment in Australia” in the coming days, but in the meantime, this alert sets out a few of the key takeaways. Click here to read more. 

G+T in the community

Up All Night

On 6 March 2021, a team of 10 G+T staff from our Perth Office will be embarking on the Up All Night walk – an overnight marathon to raise vital funds for Ronald McDonald House Charities Western Australia.  The Ronald McDonald House provides accommodation, support and a range of programs for the families of sick children receiving emergency medical treatment. The team has already reached their $6,000 fundraising target, which will help the Ronald McDonald House to provide 32 nights of accommodation, 255 dinners for families and 19 lessons in their learning centre.  To support our team ahead of the G+T teams walk, you can visit our fundraising page.