30/07/2020

Welcome to the eighth 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

Deal activity in the resources sector was relatively strong during the quarter.  ECM activity in the WA resources sector remained steady, with gold and mixed commodity companies leading the way.  

M&A volumes were lower for the quarter, which can be attributed to difficulties in undertaking physical due diligence, uncertainty around financial forecasts and a general focus of buyers on their own business.  That said, base metals companies were active, with several mid-cap companies making strategic investments and providing sub-underwriting support to capital raisings by their junior peers, or proposing control transactions to consolidate project ownership or landholdings.  

Geopolitical tensions are creating challenges for foreign investment, with otherwise “routine” transactions facing significant scrutiny.  FIRB has taken a particularly tough stance towards proposals involving Chinese entities (Baoneng’s proposed investment in Northern Minerals; Yibin Tianyi’s investment in AVZ Minerals; Goldsea Australia’s takeover bid for Alto Metals), consistent with a cooling of relations between Beijing and Canberra.  This has not dissuaded the likes of Shandong Gold, which is engaged in a competitive process for control of ASX-listed, but Ghana-focussed Cardinal Resources.

As we write, Victoria is experiencing a “second wave” of COVID-19 infections, unemployment is forecast to hit 9.25% and the line of unprecedented fiscal stimulus by the Australian Government has been extended into 2021.  It seems the economic “snap back” originally hoped for by the Commonwealth Government is more likely to take the form a gradual, “Nike swoosh” style recovery. 

That said, global equity markets are much less volatile since the savage drop in equity markets in March 2020, with the CBOE VIX continuing its downward trend.  In addition, the unprecedented fiscal stimulus (both global and domestic) in response to the COVID-19 pandemic has propelled asset and share prices back to pre-COVID-19 levels.  So while the outlook for 2H20 remains challenging, a combination of reduced volatility, the rebound in the Australian equity market and strong commodity prices may provide boards with the certainty to take advantage of growth and acquisition opportunities in 2H20.  We also expect to see a number of capital raisings launched in Q3 2020 as companies report full year results.

Recent Deals

Despite significant macroeconomic uncertainty, our Corporate Advisory team enjoyed a robust Q4 FY2020, acting on several high-profile M&A and ECM transactions.  Notable transactions for the team in this period included:

Panoramic Resources recapitalisation 
We advised Panoramic Resources on its fully underwritten institutional placement and 1.15-for-1 entitlement offer to raise up to approximately A$90m, its repayment of senior and subordinated debt and Western Areas’ 19.9% strategic investment in Panoramic Resources.
 
OZ Minerals acquisition of Cassini Resources
We are advising OZ Minerals in relation to its A$76 million acquisition of Cassini Resources by way of scheme of arrangement, which is inter-conditional on the demerger of Cassini Resources’ Yarawindah Brook and Mt Squires projects to newly incorporated Caspin Resources.

Acquisition of Exore Resources Limited
We are advising Exore Resources in relation to Perseus Mining’s proposed A$60 million acquisition of Exore Resources by way of scheme of arrangement.

Antipa Minerals Limited capital raising and farm-in
We advised Antipa on its A$30 million farm-in agreement with IGO Limited in relation to Antipa’s tenements in the Paterson Province of Western Australia, and Antipa’s $3.27 million placement to IGO to acquire a 4.9% interest in Antipa. 

IGO’s strategic investment in New Century Resources 
We advised IGO on its acquisition of an 18.4% interest in New Century Resources for $27 million, which comprised a A$23.775 million placement and a A$3.225 million sub-underwriting commitment under New Century Resources’ fully underwritten accelerated non-renounceable pro-rata entitlement offer.
 
Mincor Resources capital raising
We advised the Joint Lead Managers, Euroz and Macquarie, on Mincor Resources’ fully underwritten two-tranche placement to raise $50 million.

Deal Mechanic

A selection of interesting developments and corporate finance transaction tips for advisers - all in two minutes or less.

Extension of temporary capital raising relief measures

ASX has extended its temporary emergency capital raising relief (which we summarised in the previous edition of Expert Adviser) to 30 November 2020.   ASX’s decision was made in light of the high and increasing levels of COVID-19 in major overseas markets, recent events in Victoria, and the present uncertainty about the nature and level of government economic stimulus in Australia after September 2020. The new date takes account of ASIC’s extension of the deadline for listed companies to lodge their audited accounts for the year ended 30 June 2020 until 31 October 2020. It gives companies a further month to complete a capital raising, if they decide they need one, after publishing their audited accounts by the revised deadline. 

WA resources companies are much less likely to rely on ASX’s capital raising relief measures.  For raisings greater than $5 million, our research shows that, since 31 March 2020: 

  • approximately 5% of placements by WA resources companies have relied on the extra 10% placement capacity relief (compared to 28.6% of total placements); and
  • approximately 7.7% of all non-renounceable entitlement offers by WA resources companies have relied on the removal of the 1:1 offer ratio cap for non-renounceable entitlement offers (compared to 16.1% for total non-renounceable entitlement offers). 

To an extent this is not surprising, given most WA resources companies will already have an additional 10% placement capacity available under Listing Rule 7.1A.  Reliance on this relief is also limited because ASX is not permitting resource companies to use these measures to fund acquisitions or for less urgent funding requirements (for example, to pursue exploration programs). 

Takeovers Panel revised guidance on equity derivatives

The Takeovers Panel released a Public Consultation Response Statement on 28 May 2020 which sets out its revised Guidance Note 20: Equity Derivatives (GN20) and provides long-awaited clarifications on where the use or non-disclosure of equity derivative positions may give rise to unacceptable circumstances.  
Under the revised GN20, the following may give rise to unacceptable circumstances: 

  • Failure to disclose long positions of 5% or more of the voting rights in a listed or other public entity regardless of whether or not a control transaction has commenced.  
  • Long positions that would contravene the ‘20% rule’ if it were comprised entirely of a physical holding.

The existing GN20 continues to apply for now.  The Panel will give market participants three months’ notice of when the revised guidance will come into effect (but the Panel hasn’t indicated when it will do so).

Cross border developments

In June 2020, Treasurer Josh Frydenberg announced comprehensive changes to Australia’s foreign investment regime which come into effect on 1 January 2021 and replace the temporary measures introduced in March 2020. The changes represent a sharpened focus on national security, with key changes including:

  • investments in a new category of business called “sensitive national security businesses” (such as telecommunications, electricity, gas, infrastructure, defence and potentially those that handle sensitive data) which are otherwise below the normal (pre-29 March 2020) monetary thresholds will now be screened by FIRB under a new national security screening regime;
  • the government will have new “call in” (the ability to compel an investor to submit an application) and “last resort review” (the ability to reassess previously approved foreign investments) screening powers to assess national security risks;
  • the government will have new powers to enforce compliance with foreign investment laws in a more targeted way; and
  • there will be an exemption from the definition of ‘foreign government investor’ for certain investors that have foreign-government ownership but are privately controlled.  This is welcome news for private equity funds and institutional investors that are otherwise captured in the current definition of ‘foreign government investor’ and screened by FIRB.

Quarterly Publication Review

Continuous Disclosure in the time of COVID-19 – do the temporary changes actually make a difference?

On 25 May 2020, the Treasurer used his temporary power to modify the Corporations Act to make changes to the continuous disclosure regime.  From a policy standpoint, this is a welcome development.  Australia has one of the world’s toughest disclosure regimes (given the lack of any “at fault” element), a booming shareholder class action industry and now an unprecedented health and economic crisis that has made providing market guidance even more challenging for listed entities and their boards. 

G+T in the community

Australia's Biggest Morning Tea

Each year, our office comes together for Australia’s Biggest Morning Tea to raise much needed money for the Cancer Council. This year we were unable to host our usual morning tea in May – but we got creative and allowed staff to purchase vouchers for baked goods, that were delivered to staff in individual packaging at a later date. The event was a success and we were thrilled to more than double our fundraising target of $500!

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