Directors considering a substantial capital raising should note the importance that the recent decision of the Takeovers Panel in Strategic Minerals Corporation NL 06 [2020] ATP 8 places on a robust process to “test the market” for funding options.

The application to the Takeovers Panel concerned a proposed renounceable entitlement issue by Strategic Minerals which was likely to result in its controlling shareholder QGold Pty Ltd increasing its shareholding above 90% and proceeding to compulsory acquisition.

The Panel considered that the process undertaken by Strategic Minerals to explore its funding options and in making the decision to proceed with the entitlement issue appeared appropriate in the circumstances. That process involved, among other things, obtaining independent advice from reputable brokers, considering closely the control implications of the transaction in light of the Panel’s guidance and recent decisions, understanding the company’s cashflow and funding needs and ensuring that the decision makers were free from any actual or perceived influence from the major shareholder in circumstances where that shareholder was likely to move to compulsory acquisition. On that basis the Panel found that there was no reasonable prospect of declaring the circumstances unacceptable.

The Panel:

  • reiterated its guidance in Panel Guidance Note 17 that “where there is a clear need for funds that has not been contrived, a rights issue resulting in a control effect will generally not be unacceptable (in the absence of other issues) provided the rights issue is structured appropriately and an appropriate dispersion strategy has been put in place”; and
  • noted the statement of the review Panel in Energy Resources of Australia Limited 02R that “whether a person who is likely to obtain or increase control in a company as a result of a rights issue should disclose its intentions depends on the circumstances”.  The Panel found that there was clear disclosure in the prospectus of QGold's intention to proceed to compulsory acquisition and the proposed compulsory acquisition price.