For Personal Use Only Use Personal For
Scheme Booklet
For a proposed Scheme of Arrangement between Indophil Resources NL and the holders of fully paid ordinary shares in Indophil Resources NL (other than the Excluded Shareholders) in relation to the proposed acquisition of all of the fully paid ordinary shares (other than shares held by the Excluded Shareholders) in: INDOPHIL RESOURCES NL SCHEME BOOKLET Indophil Resources NL (ACN 076 318 173) By: Alsons Prime Investments Corporation (a company incorporated in the Philippines) at 30 cents cash per Indophil Share Your Independent Directors unanimously recommend that you VOTE IN FAVOUR of the Scheme in the absence of a Superior Proposal
This Scheme Booklet includes a Notice of Meeting for Indophil Shareholders to be held on 18 December 2014 at the offices of Baker & McKenzie, Level 19, 181 William Street, Melbourne, Victoria at 10:00am.
This is an important document and requires your immediate attention. You should read it in its entirety before voting on the Scheme. If you are in any doubt about how
to deal with this document, please consult your professional adviser. For personal use only use personal For
Legal Adviser Financial Advisers IMPORTANT NOTICES PURPOSE OF THIS DOCUMENT Indophil and its Independent Directors and looking statements. Statements other than This Scheme Booklet provides information is the sole responsibility of Indophil. Indophil statements of historical fact may be forward to Indophil Shareholders (other than the has been solely responsible for preparing the looking statements. Indophil Shareholders Excluded Shareholders) necessary for information contained in this Scheme Booklet should note that such statements are subject them to make a decision as to how to vote other than the information concerning APIC to inherent risks and uncertainties as they on the Resolution to be considered at the in Section 5 and the Independent Expert’s may be affected by a variety of known and Scheme Meeting. This Scheme Booklet is Report together with the Independent unknown risks, assumptions, variables and provided pursuant to section 412(1) of the Technical Specialist’s Report, included in other factors, many of which are beyond the Corporations Act to explain the effect of the Annexure 1 (Indophil Information). APIC control of Indophil. Actual results, values, Scheme and disclose such other information and its Related Bodies Corporate, directors, performance or achievements may differ in relation to the Scheme as is required officers, employees and advisers to the materially from results, values, performance by the Corporations Act and Corporations maximum extent permitted by law expressly or achievements expressed or implied in any Regulations. This Scheme Booklet is dated disclaim all liability and take no responsibility forward looking statement. None of Indophil, 12 November 2014. for the accuracy and completeness of the APIC nor their Related Bodies Corporate, Indophil Information. directors, officers, employees or advisers or READ THE ENTIRE SCHEME BOOKLET The information concerning APIC and the any person named in this Scheme Booklet You should read this Scheme Booklet in intentions, views and opinions of APIC and with their consent or any person involved in its entirety before making your decision on its directors contained in Section 5 has the preparation of this Scheme Booklet make how to vote on the Scheme. If you have any been prepared by APIC and is the sole any representation or warranty (express or queries, you should refer to the Frequently responsibility of APIC (APIC Information). implied) as to the accuracy or likelihood of Asked Questions Section. Alternatively, you Indophil and its Related Bodies Corporate, fulfilment of any forward looking statement, should contact your financial, legal, taxation directors, officers, employees and advisers or any results, values, performance or or other professional adviser. do not assume any responsibility for achievements expressed or implied in any forward looking statement, except to the REFERENCES TO DEFINED TERMS, the accuracy and completeness of the extent required by law. Indophil Shareholders TIME AND CURRENCY APIC Information. should not place undue reliance on any such Capitalised terms and certain abbreviations BDO Corporate Finance (WA) Pty Ltd statement. The forward looking statements in used in this Scheme Booklet are defined in (Independent Expert) has prepared the this Scheme Booklet only reflect views held as the Glossary in Section 10. The documents Independent Expert’s Report in relation to at the date of this Scheme Booklet. reproduced in some of the Annexures to the Scheme contained in Annexure 1 and this Scheme Booklet each have their own takes responsibility for that report. Indophil, PRIVACY defined terms which are sometimes different APIC and their respective Related Bodies Indophil may collect personal information in from those in the Glossary. Unless otherwise Corporate, directors, officers, employees and the process of implementing the Scheme. specified, all data contained in charts, graphs advisers to the maximum extent permitted Such information may include the name, and tables are based on information available by law expressly disclaim all liability and contact details and shareholdings of Indophil at the date of this Scheme Booklet. All take no responsibility for the accuracy or Shareholders and the name of persons references to time in this Scheme Booklet are completeness of the information contained appointed by those persons to act as a proxy, to Melbourne (Australia) time. All references in that report. attorney or corporate representative at the to $ or cents in this Scheme Booklet are None of APIC and its Related Bodies Scheme Meeting. The primary purpose of the to Australian dollars or cents, unless Corporate, directors, officers, employees and collection of personal information is to assist otherwise specified. advisers have authorised any of the contents Indophil to conduct the Scheme Meeting and implement the Scheme. Personal information INVESTMENT DECISIONS of this Scheme Booklet (other than the APIC Information) or caused the issue of this of the type described above may be This Scheme Booklet is intended for all Scheme Booklet. disclosed to the Indophil Share Registry, print Indophil Shareholders (other than the and mail service providers and authorised Excluded Shareholders) collectively and ASIC AND THE ASX securities brokers. Indophil Shareholders does not take into account the investment A copy of this Scheme Booklet has been have certain rights to access personal objectives, financial situation or particular provided to ASIC for the purpose of section information that has been collected. Indophil needs of each Indophil Shareholder or any 411(2) of the Corporations Act and registered Shareholders should contact the Indophil other particular person. This Scheme Booklet by ASIC for the purpose of section 412(6) of Share Registry in the first instance, if they should not be relied upon as the sole basis the Corporations Act. ASIC has examined wish to access their personal information. for any investment decision in relation to a copy of this Scheme Booklet. ASIC has Indophil Shareholders who appoint a named the Scheme or your Indophil Shares. Before been requested to provide a statement, person to act as their proxy, attorney or making any investment decision in relation in accordance with section 411(17)(b) of corporate representative should ensure that to the Scheme or your Indophil Shares, the Corporations Act, that ASIC has no they inform that person of these matters. including any decision to vote for or against objection to the Scheme. If ASIC provides FOREIGN SHAREHOLDERS the Scheme, you should consider whether that statement, it will be provided to the that decision is appropriate in the light of Court at the time of the Second Court Date This Scheme Booklet and the Scheme are your particular investment needs, objectives to approve the Scheme. Neither ASIC nor subject to Australian disclosure requirements and financial circumstances. If you are in any any of its officers takes any responsibility for and they may be different from those doubt about what you should do, you should the contents of this Scheme Booklet. A copy applicable in other jurisdictions. This Scheme seek independent financial, legal, taxation or of this Scheme Booklet has been lodged Booklet and the Scheme do not in any other professional advice before making any with the ASX and with the Court to obtain an way constitute an offer to buy securities investment decision. order of the Court approving the calling of the in any place in which, or to any person to whom, it would not be lawful to make such RESPONSIBILITY FOR INFORMATION Scheme Meeting. Neither the ASX nor any of its officers, take any responsibility for the an offer. Indophil Shareholders residing The information concerning Indophil and the contents of this Scheme Booklet. outside Australia for tax purposes should intentions, views and opinions of Indophil seek specific taxation advice in relation and itsonly use personal For Independent Directors contained in FORWARD LOOKING STATEMENTS to the Australian and overseas taxation this Scheme Booklet has been prepared by This Scheme Booklet contains various forward implications of the Scheme.
IMPORTANT NOTICE ASSOCIATED WITH COURT ORDER UNDER SECTION 411(1) OF THE CORPORATIONS ACT 2001 On 12 November 2014, the Court issued orders under section 411(1) of the Corporations Act 2001 that a meeting of Indophil Shareholders be convened by Indophil to consider and vote on the Scheme and that this Scheme Booklet be dispatched to Indophil Shareholders. The fact that under section 411(1) of the Corporations Act 2001 the Court has ordered that a meeting be convened does not mean that the Court: (a) has formed any view as to the merits of the proposed Scheme or as to how Indophil Shareholders (other than the Excluded Shareholders) should vote (on this matter Indophil Shareholders must reach their own decision); or (b) has prepared, or is responsible for, the content of this Scheme Booklet. CONTENTS Important Notices Inside front cover Important Dates and Times 2 Overview of this Scheme Booklet 3 Letter from the Chairman 5 Summary of Key Reasons to Vote For or Against the Scheme 7 Frequently Asked Questions 8 Section 1 Summary of the Scheme 13 Section 2 How to Vote 16 Section 3 Key Reasons to Vote For or Against the Scheme 18 Section 4 Overview of Indophil 26 Section 5 Overview of APIC 35 Section 6 Taxation Implications for Indophil Shareholders 41 Section 7 Key Terms of the Scheme Implementation Agreement 44 Section 8 Scheme Implementation Procedures 48 Section 9 Additional Information 50 Section 10 Glossary 53 Annexure 1 Independent Expert’s Report (and Independent Technical Specialist’s Report) 59 Annexure 2 Notice of Scheme Meeting 184 Annexure 3 Scheme of Arrangement 187 Annexure 4 Deed Poll 201 Annexure 5 Scheme Implementation Agreement 210
Corporate Directory Inside back cover For personal use only use personal For
Indophil Resources NL Scheme Booklet 1 IMPORTANT DATES AND TIMES
Date of this Scheme Booklet 12 November 2014
Latest time and date for lodgement of proxies 10:00am (Melbourne time) on 16 December 2014
Time and date for determining eligibility to vote 7:00pm (Melbourne time) on 16 December 2014 at the Scheme Meeting
Scheme Meeting of Indophil Shareholders 10:00am (Melbourne time) on 18 December 2014, at the offices of Baker & McKenzie, Level 19, 181 William Street, Melbourne, Victoria
If the Scheme is approved by Indophil Shareholders:
Second Court Date for approval of the Scheme 13 January 2015
Scheme Effective Date 13 January 2015
Suspension of Indophil Shares from trading 4:00pm (Melbourne time) on 13 January 2015
Scheme Record Date for determining 7:00pm (Melbourne time) on 20 January 2015 entitlements to Scheme Consideration
Implementation Date 23 January 2015
Dispatch of Scheme Consideration By 29 January 2015
All dates subsequent to the Scheme Meeting are indicative only and may change.
All currencies are in Australian dollars unless stated otherwise. For personal use only use personal For
2 Indophil Resources NL Scheme Booklet OVERVIEW OF THIS SCHEME BOOKLET
This Scheme Booklet contains information about the proposed Scheme of Arrangement (referred to as the Scheme in this Scheme Booklet) under which it is proposed that Alsons Prime Investments Corporation (APIC) will acquire all of the fully paid ordinary shares in Indophil that APIC and its Related Bodies Corporate do not already own for 30 cents cash for each Indophil Share held on the Scheme Record Date. The Scheme is subject to the approval of Indophil Shareholders (other than the Excluded Shareholders, who collectively have a 19.99% relevant interest). Accordingly, this Scheme Booklet provides you with information to consider before voting on the Scheme. The meeting to vote on the Scheme will be held at 10:00am (Melbourne time) on 18 December 2014 at the offices of Baker & McKenzie, Level 19, 181 William Street, Melbourne, Victoria.
Why should you vote?
As an Indophil Shareholder (other than an Excluded Shareholder) who holds Indophil Shares as at 7:00pm (Melbourne time) on 16 December 2014, you are eligible to vote on whether the Scheme is implemented. The Scheme will only be implemented if it is approved at the Scheme Meeting by the Requisite Majorities.
What do your Independent Directors recommend?
Your Independent Directors unanimously recommend that Indophil Shareholders vote in favour of the Scheme in the absence of a Superior Proposal. Your Independent Directors who hold or control the voting rights attached to Indophil Shares intend to vote their Indophil Shares, or ensure that those Indophil Shares are voted, in favour of the Scheme in the absence of a Superior Proposal. The Independent Expert has concluded that, in the absence of a Superior Proposal, the Scheme is fair and reasonable to Indophil Shareholders and therefore in the best interests of Indophil Shareholders. The Independent Expert’s Report is included in Annexure 1 and you are encouraged to read it. However, you are not obliged to follow the recommendation of the Independent Directors or the conclusions of the Independent Expert. An Independent Technical Specialist’s Report accompanies the Independent Expert’s Report.
What if I have questions in relation to the Scheme?
If you have questions in relation to the Scheme, you should refer to the Frequently Asked Questions Section of this Scheme Booklet or contact the Computershare Shareholder Information Line on 1300 723 095 (within Australia) or +61 3 9415 4337 (outside Australia).
For personal use only use personal For Alternatively, you can contact your financial, legal, taxation or other professional adviser.
Indophil Resources NL Scheme Booklet 3 1. SUMMARY OF THE SCHEME (CONTINUED)
What you should do
1. Read this document carefully
You should carefully consider the information included in this Scheme Booklet to help you make an informed decision in relation to your Indophil Shares and how to vote on the Scheme. You should read it in full before voting on the Scheme. Answers to some frequently asked questions are contained in the Frequently Asked Questions Section starting on page 8. If you have any further questions about the proposed Scheme, you should contact the Computershare Shareholder Information Line on 1300 723 095 (within Australia) or +61 3 9415 4337 (outside Australia). Alternatively, you can contact your financial, legal, taxation or other professional adviser.
2. Vote on the Scheme
You can vote on the Scheme by doing one of the following: • attending the Scheme Meeting in person; • appointing a proxy to vote on your behalf; • appointing an attorney to vote on your behalf; or • in the case of a corporation which is an Indophil Shareholder, appointing an authorised corporate representative to attend and vote on its behalf. If you choose to vote by proxy, your completed proxy form needs to be received by the Indophil Share Registry by no later than 10:00am (Melbourne time) on 16 December 2014. Please refer to Section 2 for details on how to vote.
Your vote is important Your Independent Directors unanimously recommend that you VOTE IN FAVOUR of the Scheme in the absence
of a Superior Proposal For personal use only use personal For
4 Indophil Resources NL Scheme Booklet LETTER FROM THE CHAIRMAN
ACN 076 318 173
ASX Code: IRN
12 November 2014
Dear Indophil Shareholder
On 23 September 2014, Indophil Resources NL (Indophil) announced that it had entered into a Scheme Implementation Agreement with Alsons Prime Investments Corporation (APIC) under which it is proposed that APIC will acquire all of the fully paid ordinary shares of Indophil that it and its related entities do not already control by way of a Scheme of Arrangement (Scheme). If the Scheme is approved and implemented, Indophil Shareholders (other than the Excluded Shareholders) will receive a cash payment equal to 30 cents for each Indophil Share they own. The Scheme Consideration of 30 cents per Indophil Share values Indophil’s equity at approximately $361 million. The 30 cents per share offer price reflects a 43% premium to the market closing price on 22 September 2014 and a 38% premium to Indophil’s 1-month volume weighted average price prior to the announcement of APIC’s proposal on 23 September 2014. The proposed Scheme presents an opportunity for Indophil Shareholders to realise value for their Shares in the form of cash at a significant premium to trading prices over the 12 months preceding the offer and removes Indophil Shareholders’ exposure to the development risks which would need to be overcome in order to bring the Tampakan Project into production. A summary of the key reasons to vote for or against the Scheme is set out on the following pages. Section 3 contains a more detailed assessment of the matters that the Independent Directors of Indophil consider are important in relation to your decision whether or not to vote in favour of the Scheme. Indophil owns a 37.5% economic interest in Sagittarius Mines, Inc. (SMI), the project vehicle for the Tampakan Project. Glencore Queensland Limited (Glencore), which owns approximately 13.1% of Indophil, owns a 62.5% economic interest in SMI. Glencore has advised Indophil that its intention is to vote in favour of the Scheme at the Scheme Meeting, subject to a limited number of conditions (which are detailed in Section 3.1C). Glencore’s statement of intention to vote in favour of the Scheme represents support for the Scheme from one of Indophil’s major shareholders. Between the announcement of APIC’s proposal on 23 September 2014 and the date of this Scheme Booklet, no Superior Proposal has emerged. Should any Competing Proposal be received, the Independent Directors will, consistent with their fiduciary duties, consider the merits of any such proposal and advise you accordingly. After careful consideration of the Proposal, the Independent Directors unanimously recommend that, in the absence of a Superior Proposal, you VOTE IN FAVOUR of the Scheme at the Scheme Meeting to be held on 18 December 2014. Each of the Independent Directors who holds or controls the voting rights attached to Indophil Shares intends to vote those shares, or ensure that those shares are voted, in favour of the Scheme in the absence of a Superior Proposal. Indophil commissioned BDO Corporate Finance (WA) Pty Ltd to prepare the Independent Expert’s Report. It has concluded that, in the absence of a Superior Proposal, the Scheme is fair and reasonable to Indophil Shareholders and therefore in the best interests of Indophil Shareholders. It has determined that the fair market value of an Indophil Share is between 26.6 cents and 41.5 cents on a controlling interest basis. A full copy of the Independent Expert’s Report is set out in Annexure 1, and I encourage you to read it in its entirety. It is accompanied by an Independent
Technical Specialist’s Report prepared by AMC Consultants Pty Ltd. For personal use only use personal For
Indophil Resources NL Level 3, 411 Collins Street Melbourne VIC 3000, Australia T +61 (0)3 8620 5800 F +61 (0)3 8620 5888 W www.indophil.com
Indophil Resources NL Scheme Booklet 5 LETTER FROM THE CHAIRMAN (CONTINUED)
ACN 076 318 173
Indophil established an Independent Committee to consider the Proposal and to advise the Board on appropriate responses. Two representatives on the Indophil Board, Mr Alcantara and Mr DyBuncio, are associated with APIC and were not involved in Indophil’s assessment of the Proposal consistent with participating insider protocols implemented by Indophil. Indophil’s Independent Directors referred to in this Scheme Booklet comprise all Directors of Indophil excluding Mr Alcantara and Mr DyBuncio. The Scheme requires the approval at the Scheme Meeting by the Requisite Majorities as set out below, and the approval of the Court. The Requisite Majorities for approval at the Scheme Meeting are: • more than 50% of Indophil Shareholders (other than the Excluded Shareholders) present and voting on the Resolution at the Scheme Meeting in person or by proxy, attorney or by corporate representative; and • at least 75% of the total number of votes cast on the Resolution at the Scheme Meeting by Indophil Shareholders (other than the Excluded Shareholders). The Scheme Meeting will commence at 10:00am (Melbourne time) on 18 December 2014 at the offices of Baker & McKenzie, Level 19, 181 William Street, Melbourne, Victoria. If you are unable to attend the Scheme Meeting, I encourage you to vote by completing the enclosed personalised proxy form for the Scheme Meeting and returning it to the Indophil Share Registry so that it is received no later than 10:00am (Melbourne time) on 16 December 2014. Your vote is important in determining whether or not the Scheme will proceed. If the Scheme is not approved at the Scheme Meeting by the Requisite Majorities, the Scheme will not be implemented and you will not receive the Scheme Consideration. In those circumstances and assuming all other things remain unchanged, the Indophil Share price will likely fall, potentially to a level around where Indophil Shares traded in the time leading up to APIC’s Proposal. On behalf of the Independent Directors, I encourage you to read this Scheme Booklet carefully as it contains essential information in relation to the Scheme that will assist you in reaching an informed decision. If you have any questions about the Scheme, please contact the Computershare Shareholder Information Line on 1300 723 095 (within Australia) or +61 3 9415 4337 (outside Australia). Alternatively, you should contact your financial or other professional adviser for specific information on the implications of the Scheme in respect of your personal circumstances. On behalf of the Independent Directors, I strongly recommend that you read the enclosed materials in full and VOTE IN FAVOUR of the proposed Scheme, in the absence of a Superior Proposal.
Yours sincerely Indophil Resources NL
Brian Phillips
Chairman For personal use only use personal For
6 Indophil Resources NL Scheme Booklet SUMMARY OF KEY REASONS TO VOTE FOR OR AGAINST THE SCHEME
You should read this Scheme Booklet in full before deciding how to vote. Section 3 contains a more detailed assessment of the matters which the Independent Directors consider are important in relation to your decision whether or not to vote in favour of the Scheme. KEY REASONS TO VOTE IN FAVOUR OF THE SCHEME The Independent Directors believe that the Scheme is in the best interests of Indophil Shareholders l and unanimously recommend that Indophil Shareholders vote in favour of the Scheme in the absence of a Superior Proposal. The Independent Expert has concluded that, in the absence of a Superior Proposal, the l Scheme is fair and reasonable to Indophil Shareholders and therefore in the best interests of Indophil Shareholders. Glencore, a 13.1% Shareholder in Indophil and owner of a 62.5% economic interest in SMI, intends to l vote in favour of the Scheme, subject to a limited number of conditions. The Scheme Consideration represents a significant premium over the trading prices for Indophil l Shares prior to the transaction announcement. The premium implied by the Scheme Consideration compares favourably to other transactions of l a similar scale. The Scheme Consideration provides cash and offers certain value for Indophil Shareholders, l avoiding any risks of remaining an Indophil Shareholder, including risks associated with the development of the Tampakan Project. l Since the Proposal was announced, no Superior Proposal has emerged. If the Scheme is not implemented and no Superior Proposal emerges, the price of Indophil Shares l will likely fall.
l No brokerage fees are payable by Indophil Shareholders under the Scheme.
Although the Scheme is recommended by the Independent Directors in the absence of a Superior Proposal, and the Independent Expert has concluded that, in the absence of a Superior Proposal, the Scheme is fair and reasonable to Indophil Shareholders and therefore in the best interests of Indophil Shareholders, there may be factors which may lead you to vote against the Scheme, including those set out below.
KEY REASONS WHY YOU MAY CHOOSE TO VOTE AGAINST THE SCHEME You may be of the opinion that the Scheme Consideration does not adequately reflect l Indophil’s value. You may disagree with the Independent Directors’ recommendation and/or the Independent l Expert’s conclusion. You will not be able to participate in any potential future upside that may result from being an l Indophil Shareholder. You may consider that there is the potential for a Superior Proposal to emerge in the l foreseeable future.
For personal use only use personal For You will cease to have exposure to fluctuations in copper and gold prices through Indophil, and l such prices may increase in Australian dollar terms in the future. l The tax consequences of the Scheme may not be suitable for your financial position.
You should be aware of the risks that Indophil currently faces with respect to its business and operations, as these risks are relevant in the context of the assessment of the value of Indophil Shares. A summary of these key risks is set out in Section 3.3. If you have questions or require further information, you can contact the Computershare Shareholder Information Line on 1300 723 095 (within Australia) or +61 3 9415 4337 (outside Australia). Alternatively, you can contact your financial, legal, taxation or other professional adviser.
Indophil Resources NL Scheme Booklet 7 FREQUENTLY ASKED QUESTIONS
This Scheme Booklet contains detailed information on the Scheme. The following Section provides summary answers to some questions you may have in relation to the Scheme and will assist you to locate further detailed information in this Scheme Booklet.
Question Answer Overview of the Scheme
What is the Scheme? The Scheme is a legal mechanism pursuant to which Indophil is asking Indophil Shareholders (other than the Excluded Shareholders) to consider and vote on a proposal under which it is proposed that APIC will acquire all the Indophil Shares held by Indophil Shareholders (other than the Excluded Shareholders) as at 7:00pm (Melbourne time) on the Scheme Record Date (expected to be 20 January 2015) for the Scheme Consideration of 30 cents per Indophil Share.
What is the If the Scheme becomes Effective, APIC will acquire all of the Scheme Shares held on the effect of the Scheme? Scheme Record Date in return for paying the Scheme Consideration.
What do the Independent The Independent Directors unanimously recommend that you vote in favour of the Scheme Directors recommend? in the absence of a Superior Proposal. The Independent Directors have carefully considered the potential advantages and disadvantages of the Scheme, as set out in Section 3, and believe that the Scheme is in the best interests of Indophil Shareholders, in the absence of a Superior Proposal. Accordingly, they recommend that you vote in favour of the Scheme in the absence of a Superior Proposal.
To what extent have Mr Alcantara and Mr DyBuncio are associated with APIC and are non-executive Directors of Mr Alcantara and Indophil. Indophil established an Independent Committee to consider and respond to the Mr DyBuncio been involved Proposal. Mr Alcantara and Mr DyBuncio were not involved in Indophil’s assessment of the in the Proposal? Proposal consistent with participating insider protocols implemented by Indophil. References in this Scheme Booklet to recommendations made by the Independent Directors do not include any recommendation by Mr Alcantara or Mr DyBuncio as they do not consider themselves to be justified in doing so due to their conflict of interest. Mr Alcantara and Mr DyBuncio have not been asked to provide their consent and have not consented to the issue of this Scheme Booklet in their capacity as Directors of Indophil and they are not responsible for any information included in this Scheme Booklet for which Indophil is responsible as set out in the “Important Notices” Section on the inside front cover.
What is the Independent The Independent Expert has concluded in the Independent Expert’s Report that, in the absence Expert’s conclusion in the of a Superior Proposal, the Scheme is fair and reasonable to Indophil Shareholders and Independent Expert’s Report? therefore in the best interests of Indophil Shareholders. The Independent Expert has determined that the fair market value of an Indophil Share is between 26.6 cents to 41.5 cents on a controlling interest basis. The Scheme Consideration of 30 cents cash per Indophil Share is within the value range determined by the Independent Expert. The Independent Expert’s Report is included in Annexure 1 and you are encouraged to read it. It is accompanied by an Independent Technical Specialist’s Report.
What happens if a If a Competing Proposal emerges, Indophil Shareholders will be notified by way of an Competing Proposal for announcement to the ASX. Your Independent Directors will carefully consider any Competing Indophil emerges? Proposal and advise you of their recommendation. The Independent Directors are not aware of
any Competing Proposal as at the date of this Scheme Booklet. For personal use only use personal For
8 Indophil Resources NL Scheme Booklet Question Answer
Who is APIC and what APIC is a member of the Alsons Group, a Philippine-based group of companies controlled are APIC’s intentions by the Alcantara family. The Alsons Group has been in business in the Philippines for over regarding Indophil? 50 years, mainly in Mindanao, and has major investments in energy and power, property development, aquaculture and agribusiness, and mining. APIC is a wholly-owned subsidiary within the Alsons Group, incorporated in the Philippines. It is a special purpose vehicle incorporated for the purpose of subscribing for shares in Indophil in the placement completed in 2012. It is authorised to promote, invest, own and hold corporations or entities that are engaged in the exploration and development of energy and mineral properties. Further information about APIC and its intentions regarding Indophil’s business if the Scheme is implemented are set out in Section 5.
Do I have to sign anything to No. If the Scheme becomes Effective, Indophil will automatically have authority to sign a transfer my Indophil Shares? transfer on your behalf, and the Scheme Consideration will then be paid to you. However, you should be aware that under the Scheme, you are deemed to have warranted to APIC that (in summary): • all your Indophil Shares held on the Scheme Record Date are fully paid and free from all encumbrances; and • you have full power and capacity to sell and transfer your Indophil Shares held on the Scheme Record Date. You should ensure that these warranties can be given by you before the Implementation Date. Please refer to Section 1.6 for further information.
The Scheme Consideration
Will I be entitled to receive the Yes, provided: Scheme Consideration? • all approvals and conditions for the Scheme are satisfied or waived (as applicable); and • you are registered as an Indophil Shareholder (other than an Excluded Shareholder) at 7:00pm (Melbourne time) on the Scheme Record Date (currently scheduled to be 20 January 2015).
What will I receive for my If the Scheme is approved and implemented, you will receive the Scheme Consideration of Indophil Shares? 30 cents cash for each Indophil Share held at 7:00pm (Melbourne time) on the Scheme Record Date (currently scheduled to be 20 January 2015).
When will I receive the If the Scheme is approved and implemented, dispatch of payment of the Scheme Scheme Consideration? Consideration will occur within 3 Business Days after the Implementation Date (which is currently scheduled to be 23 January 2015). On the current indicative timetable, that means that payment will be dispatched by 29 January 2015.
If the Scheme is Payment of the Scheme Consideration will be made by deposit into your nominated bank implemented, how will I account, as advised by you to the Indophil Share Registry. If you do not have a nominated bank be paid my money? account, a cheque drawn in Australian dollars will be sent to you by post to your registered address as shown in the Register.
For personal use only use personal For What are the tax Section 6 provides a description of the general tax implications of the Scheme for Australian consequences of tax residents. You should consult with your own tax adviser regarding the consequences of the Scheme for me? disposing of Indophil Shares under the Scheme in light of current tax laws and your particular investment circumstances.
Will I have to pay No, you will not have to pay any brokerage fees in connection with the Scheme. brokerage fees?
Indophil Resources NL Scheme Booklet 9 FREQUENTLY ASKED QUESTIONS (CONTINUED)
Question Answer Scheme Meeting, voting and approvals
When and where will the The Scheme Meeting of Indophil Shareholders will be held on 18 December 2014 at the offices Scheme Meeting be held? of Baker & McKenzie, Level 19, 181 William Street, Melbourne, Victoria at 10:00am (Melbourne time) for the purpose of Indophil Shareholders (other than the Excluded Shareholders) to consider the Scheme.
What vote is required at For the Scheme to proceed, it must be approved at the Scheme Meeting by the Requisite the Scheme Meeting to Majorities being: approve the Scheme? • a majority in number (more than 50%) of Indophil Shareholders (other than the Excluded Shareholders) present and voting either in person or by proxy, attorney or in the case of a corporation its duly appointed corporate representative unless the Court orders otherwise; and • at least 75% of the total number of votes cast on the Resolution.
What are my choices? Indophil Shareholders (other than the Excluded Shareholders) have the following choices: • vote in favour of the Scheme; • vote against the Scheme; • sell their Indophil Shares before the Effective Date; or • do nothing (although the Independent Directors encourage Indophil Shareholders (other than the Excluded Shareholders) to exercise their vote).
Who is entitled to vote? To be entitled to vote on the Resolution at the Scheme Meeting, you will need to be on the Register as an Indophil Shareholder (other than an Excluded Shareholder) at 7:00pm (Melbourne time) on 16 December 2014. Excluded Shareholders are not entitled to vote on the Resolution at the Scheme Meeting.
Are APIC and its Related No. APIC and its Related Bodies Corporate are excluded from voting any Indophil Shares they Bodies Corporate own at the Scheme Meeting. holding Indophil Shares As at the date of this Scheme Booklet, APIC has a relevant interest in 240,508,334 Indophil entitled to vote? Shares through APIC and its Related Bodies Corporate which hold a relevant interest in 19.99% of all Indophil Shares.
How will the Independent Each of the Independent Directors who holds or controls the voting rights attached to Indophil Directors be voting? Shares intends to vote his Indophil Shares, or ensure that those Indophil Shares are voted, in favour of the Scheme in the absence of a Superior Proposal.
What is Glencore’s Glencore, which owns approximately 13.1% of Indophil (and a 62.5% economic interest in SMI, voting intention in the operating arm for the Tampakan Project), has advised that it intends to vote in favour of the relation to the Scheme? Scheme at the Scheme Meeting, subject to the following conditions: • there being no superior proposal announced at the time of the Scheme Meeting; • at the date of the Scheme Meeting, the acquisition of Indophil Shares by APIC is scheduled to occur prior to 31 January 2015; and • the Independent Expert opining that the offer is fair and reasonable or in the best interests
of all securityholders. For personal use only use personal For Glencore’s statement of intention to vote in favour of the Scheme represents support for the Scheme from a major Indophil Shareholder.
10 Indophil Resources NL Scheme Booklet Question Answer
How do I vote? As an Indophil Shareholder (other than an Excluded Shareholder), you can vote on the Scheme by doing one of the following: • by attending the Scheme Meeting in person; • by appointing an attorney to vote on your behalf; • by appointing a proxy to vote on your behalf; or • in the case of a corporation which is an Indophil Shareholder, by appointing an authorised corporate representative to attend and vote on its behalf. If you choose to vote by proxy or power of attorney, your completed proxy form or power of attorney needs to be received by the Indophil Share Registry by no later than 10:00am (Melbourne time) on 16 December 2014. Please refer to Section 2 for details on how to vote.
Is voting compulsory? No, voting is not compulsory. However, your vote is important. If you cannot attend the Scheme Meeting, you should complete and return the personalised proxy form sent to you with this Scheme Booklet in accordance with the direction on the proxy form. Your proxy form must be received by the Indophil Share Registry by no later than 10:00am (Melbourne time) on 16 December 2014. For further details regarding voting and submitting proxy forms for the Scheme Meeting, see Section 2.
What happens If you are an Indophil Shareholder (other than an Excluded Shareholder) at 7:00pm (Melbourne if I do not vote? time) on the Scheme Record Date and the Scheme has been approved and has become Effective, your Indophil Shares will be transferred to APIC under the Scheme and you will receive the Scheme Consideration of 30 cents cash per Indophil Share. This will occur, even if you did not vote or voted against the Scheme. If the Scheme is not approved, you will remain an Indophil Shareholder and you will not receive the Scheme Consideration of 30 cents cash per Indophil Share.
What if I lose or misplace my If you have lost or misplaced your personalised proxy form, please contact the Indophil Share personalised proxy form? Registry (details in Section 2).
When will the results The results of the Scheme Meeting will be publicly available during or shortly after the of the Scheme conclusion of the Scheme Meeting and will be announced on the ASX. Meeting be available?
Approvals and conditions of the Scheme
Is the Scheme subject to any Implementation of the Scheme is subject to a number of conditions that must be satisfied or conditions precedent? waived for the Scheme to be implemented, commonly referred to as ‘conditions precedent’. The key conditions precedent are summarised in Section 7.3 and set out in full in the Scheme Implementation Agreement and the Scheme of Arrangement.
Are any other The Scheme must be approved by the Court in addition to being approved at the Scheme approvals required? Meeting by the Requisite Majorities. If the Scheme is approved by the Requisite Majorities at the Scheme Meeting and all of the conditions are satisfied or waived, Indophil will apply to the Court for approval of the Scheme as soon as practicable. Further details of the approval
process are set out in Section 1. For personal use only use personal For
Indophil Resources NL Scheme Booklet 11 FREQUENTLY ASKED QUESTIONS (CONTINUED)
Question Answer
What happens if the If the Scheme is not approved at the Scheme Meeting by the Requisite Majorities or by the Scheme is not approved Court and no Superior Proposal emerges: at the Scheme Meeting by • you will not receive the Scheme Consideration; the Requisite Majorities • you will retain your investment in Indophil Shares and continue to experience the benefits or by the Court? and risks associated with this investment; • assuming all other things remain unchanged, the Indophil Share price will likely fall, potentially to a level around where Indophil Shares traded in the time leading up to APIC’s Proposal; • the Indophil Board and the management team will continue in their current roles and will, as in the ordinary course, continue to review the operations and strategy of Indophil; and • Indophil will remain a company listed on the ASX.
Are any break fees payable? A break fee of $2.8 million is potentially payable by Indophil to APIC if: • any of the Independent Directors publicly withdraws, qualifies or varies his recommendation of the Scheme in a manner adverse to APIC other than in specified circumstances; • a Competing Proposal is announced and the proponent acquires control of Indophil or voting power or an economic interest in more than 50% of Indophil Shares or acquires an interest in more than 50% (by value) of the assets (excluding cash) or businesses of the Indophil Group; • a Competing Proposal is announced and recommended by any Independent Director; • APIC validly terminates the Scheme Implementation Agreement; or • an Indophil Prescribed Event occurs in relation to Indophil as set out in the Scheme Implementation Agreement. However, if Shareholders do not approve the Scheme by the Requisite Majorities at the Scheme Meeting and if none of the above circumstances apply, no break fee is payable. Details about this are set out in Section 7.5.
Other questions
Can I sell my You can sell your Indophil Shares at any time before the close of trading on the Effective Date. Indophil Shares now? The Effective Date is currently expected to be 13 January 2015.
What happens to the Indophil At the date of this Scheme Booklet, there were 2,730,000 Options in the capital of Indophil on Options on issue? issue, all of which are vested. Indophil and APIC have entered into an Option Sale Deed with each Indophil Optionholder under which all Optionholders have agreed to transfer their Indophil Options to APIC for a total consideration of $63,700. It is a condition precedent to the transfer of the Indophil Options that the ASX grants a waiver to ASX Listing Rule 6.23.4. The ASX has granted that waiver, to permit the transfer of the Indophil Options in accordance with the Option Sale Deeds. As a result of the Option Sale Deeds, Indophil is not proposing a Scheme of Arrangement with Indophil Optionholders. For further details in relation to the Options, please refer to Section 9.11.
Where can I get This Scheme Booklet provides detailed information in relation to the Scheme that Indophil further information? Shareholders should read. If you have any questions or require further information, you can contact the Computershare Shareholder Information Line on 1300 723 095 (within Australia) or For personal use only use personal For +61 3 9415 4337 (outside Australia). Alternatively, please contact your financial, legal, taxation or other professional adviser. For additional copies of this Scheme Booklet, please visit the Indophil website at ‘www.indophil.com’.
12 Indophil Resources NL Scheme Booklet Section 1 Summary of the
Scheme For personal use only use personal For
Indophil Resources NL Scheme Booklet 13 1. SUMMARY OF THE SCHEME
1.1 THE SCHEME 1.4 SCHEME MEETING On 23 September 2014, Indophil announced that it had entered On 12 November 2014, the Court ordered that the Scheme into a Scheme Implementation Agreement with APIC under Meeting be convened in accordance with the Notice of Meeting. which it is proposed that APIC will acquire all of the Indophil The Scheme Meeting will be held at 10:00am (Melbourne time) Shares (other than the Indophil Shares held by the Excluded on 18 December 2014 at the offices of Baker & McKenzie, Level Shareholders) by way of a Scheme of Arrangement, subject 19, 181 William Street, Melbourne, Victoria. to the approval of Indophil Shareholders and certain other conditions, including approval of the Court. Further details on how to vote are provided in Section 2 and in the Notice of Scheme Meeting included as Annexure 2. 1.2 WHAT INDOPHIL SHAREHOLDERS WILL RECEIVE If the Scheme proceeds, Indophil Shareholders (other than 1.5 PAYMENT OF SCHEME CONSIDERATION the Excluded Shareholders) will receive 30 cents cash for Payment of the Scheme Consideration will be made by deposit each Indophil Share held at 7:00pm (Melbourne time) on the into your nominated bank account as advised by you to the Scheme Record Date. Indophil Share Registry as at 7:00pm (Melbourne time) on the Scheme Record Date. If the Scheme is implemented, all of your Indophil Shares will be transferred to APIC under the Scheme, and Indophil will If you wish to nominate a bank account for payment of the become a wholly-owned subsidiary of APIC. Indophil will then Scheme Consideration or if you wish to update the details of be delisted from the ASX. any previously nominated bank account, please complete the accompanying personalised Direct Credit Form and return it 1.3 KEY CONDITIONS PRECEDENT to Computershare Investor Services Pty Limited in accordance Implementation of the Scheme is subject to a number of with the instructions on the Direct Credit Form, to be received conditions precedent. The key conditions precedent under the prior to the Scheme Record Date. Scheme Implementation Agreement that must be satisfied or waived in order for the Scheme to proceed are: If you have not notified Computershare Investor Services Pty Limited of a nominated bank account, payment will be made a) Shareholder approval is obtained at the Scheme Meeting by cheque drawn in Australian dollars sent to you by post to by the Requisite Majorities; your registered address as shown in the Register as at 7:00pm b) the Court makes orders approving the Scheme on the (Melbourne time) on the Scheme Record Date. Second Court Date; Dispatch of payment of the Scheme Consideration will be made c) APIC receives FIRB approval (which has been applied for); within 3 Business Days after the Implementation Date (currently d) no Indophil Prescribed Event or APIC Prescribed scheduled to be 23 January 2015). On the current indicative Event occurs before 8:00am (Melbourne time) on the timetable, that means that the Scheme Consideration will be Second Court Date; dispatched by 29 January 2015. e) no Independent Director adversely changes, adversely 1.6 WARRANTIES OF INDOPHIL SHAREHOLDERS ON qualifies or withdraws his recommendation to vote in favour of the Scheme; THE SCHEME RECORD DATE f) the FTAA is not revoked or terminated and no circumstances To the extent permitted by law, the Indophil Shares transferred arise which have a similar or analogous effect which may to APIC under the Scheme will be transferred free from all result in SMI ceasing to hold the FTAA; and mortgages, charges, liens, encumbrances and interests of third parties of any kind, whether legal or otherwise. g) no natural event occurs that has or would be reasonably likely to have a material adverse effect on SMI or the Each Indophil Shareholder on the Scheme Record Date (other Indophil Group’s business, financial affairs or prospects. than the Excluded Shareholders) is taken to have warranted to APIC, and authorised Indophil as its agent and attorney to As at the date of this Scheme Booklet, neither Indophil nor APIC warrant to APIC, that all their Indophil Shares (including any is aware of any reason why any of these conditions precedent rights and entitlements attaching to those shares) which are will not be satisfied or waived by the required date. transferred under the Scheme will, at the date of transfer to These conditions precedent are discussed in more detail in APIC, be fully paid and free from all mortgages, charges, liens, Section 7.3 and are set out in full in the Scheme Implementation encumbrances, pledges, security interests and interests of third Agreement which is reproduced in Annexure 5 and the Scheme parties of any kind, and that they have full power and capacity of Arrangement document which is set out in Annexure 3. to sell and transfer their Indophil Shares to APIC under the Scheme together with any rights and entitlements attaching
to those shares. For personal use only use personal For
14 Indophil Resources NL Scheme Booklet 1.7 EXCLUSIVITY ARRANGEMENTS The Scheme Implementation Agreement contains exclusivity arrangements. Further details about these arrangements are set out in Section 7.4 and in the Scheme Implementation Agreement reproduced in Annexure 5. 1.8 TAX CONSEQUENCES Australian tax considerations for Indophil Shareholders are set out in Section 6. 1.9 NO BROKERAGE No brokerage will be payable by you on the Scheme Consideration you receive under the Scheme. 1.10 DEED POLL On 30 October 2014, APIC executed the Deed Poll under which it agreed, subject to the Scheme becoming Effective, that APIC would provide the Scheme Consideration, to each Indophil Shareholder (other than the Excluded Shareholders) on the Scheme Record Date, and APIC undertook in favour of each Indophil Shareholder (other than the Excluded Shareholders) on the Scheme Record Date, to ensure that APIC pays the Scheme Consideration in accordance with the terms of the Scheme. Further details in relation to the payment of the Scheme Consideration are set out in Section 8.1. A copy of the Deed Poll is set out in Annexure 4. 1.11 SHARE SPLITTING The Scheme Implementation Agreement provides that, if the conditions precedent relating to Shareholder approval of the Scheme are not satisfied by reason only of a failure to obtain the majority in number of Indophil Shareholders (other than the Excluded Shareholders) present and voting required by the Corporations Act (Headcount Test) due to share splitting or other abusive or improper conduct, Indophil must apply for an order seeking Court approval of the Scheme notwithstanding that the Headcount Test has not been satisfied (including making any necessary submissions to the Court in consultation with APIC). 1.12 INDOPHIL OPTIONS For details regarding the Indophil Options, you should refer
to Section 9.11. For personal use only use personal For
Indophil Resources NL Scheme Booklet 15 Section 2
How to Vote For personal use only use personal For
16 Indophil Resources NL Scheme Booklet 2. HOW TO VOTE
2.1 THE SCHEME MEETING than 10:00am (Melbourne time) on 16 December 2014 (or if The Scheme Meeting of Indophil Shareholders will be held at the Scheme Meeting is adjourned, at least 48 hours before the 10:00am (Melbourne time) on 18 December 2014 at the offices resumption of the Scheme Meeting in relation to the resumed of Baker & McKenzie, Level 19, 181 William Street, Melbourne, part of the Scheme Meeting). Please note that post only Victoria. Notice of the Scheme Meeting is set out in Annexure 2. reaches the Indophil Share Registry on Business Days. A proxy will be admitted to the Scheme Meeting and given a voting card 2.2 REQUISITE MAJORITIES upon providing written evidence of their name and address at For the Scheme to be implemented, the Scheme must the point of entry to the Scheme Meeting. The return of a proxy be approved at the Scheme Meeting by the Requisite form will not preclude an Indophil Shareholder from attending in Majorities, being: person and voting at the Scheme Meeting at which the Indophil Shareholder is entitled to attend and vote. A. a majority in number (more than 50%) of Indophil Shareholders (other than the Excluded Shareholders) 2.6 VOTING BY ATTORNEY present and voting on the Resolution at the Scheme Your attorney may attend the Scheme Meeting and vote Meeting (in person or by proxy, attorney or corporate on your behalf. representative) unless the Court otherwise orders; and B. at least 75% of the total number of votes cast on the Indophil Shareholders who wish to vote by attorney at the Resolution at the Scheme Meeting by Indophil Shareholders Scheme Meeting must, if they have not already presented an (other than the Excluded Shareholders) entitled to vote on appropriate power of attorney to Indophil for notation, deliver to the Resolution (in person or by proxy, attorney or corporate the Indophil Share Registry the original or certified copy of the representative). power of attorney by post (as per the addresses specified in Section 2.5) so that it is received by the Indophil Share Registry If the Scheme is approved at the Scheme Meeting by the before the Scheme Meeting commences or alternatively, it Requisite Majorities and all of the conditions of the Scheme should be brought to the Scheme Meeting. are satisfied or waived, the Court will be asked to approve the Scheme on the Second Court Date. An attorney will be admitted to the Scheme Meeting and given a voting card upon providing written evidence of their 2.3 EXERCISE YOUR VOTE appointment, their name and address and the identity of their Indophil Shareholders (other than the Excluded Shareholders) appointer at the point of entry to the Scheme Meeting. may vote by attending the Scheme Meeting in person or by 2.7 VOTING BY CORPORATE REPRESENTATIVE proxy, attorney or, in the case of a corporation which is an Indophil Shareholder, by corporate representative. To vote at the Scheme Meeting (other than by proxy or attorney), a corporation that is an Indophil Shareholder must appoint 2.4 VOTING IN PERSON a person to act as its representative. The appointment must To vote in person at the Scheme Meeting, you must attend comply with the Corporations Act. An authorised corporate the Scheme Meeting. An Indophil Shareholder (other than an representative will be admitted to the Scheme Meeting and Excluded Shareholder) who wishes to attend and vote at the given a voting card upon providing written evidence of their Scheme Meeting in person will be admitted to the Scheme appointment including any authority under which it is signed, Meeting and given a voting card upon disclosure of their name their name and address and the identity of their appointer at the and address at the point of entry to the Scheme Meeting. point of entry to the Scheme Meeting. 2.5 VOTING BY PROXY 2.8 VOTING ENTITLEMENT If you wish to appoint a proxy in respect of the Scheme Meeting, Indophil Shareholders (other than Excluded Shareholders) you are requested to complete and sign the personalised who are registered on the Register at 7:00pm (Melbourne proxy form sent to you with this Scheme Booklet or lodge your time) on 16 December 2014 are entitled to attend and vote at proxy nomination online. Proxy forms should be provided to the the Scheme Meeting. Accordingly, registrable transmission Indophil Share Registry in any of the following ways: applications or transfers registered after this time will be disregarded in determining entitlements to vote at the Scheme • Online: You may lodge your proxy nomination online by Meeting. In the case of Indophil Shares held by joint holders, logging on to ‘www.investorvote.com.au’ and by following only one of the joint shareholders is entitled to vote. If more than the relevant instructions on the website. one Indophil Shareholder votes in respect of jointly held Indophil • By post in the enclosed reply paid envelope to: Shares, only the vote of the Indophil Shareholder whose name Indophil Resources NL appears first in the Register will be counted. C/- Computershare Investor Services Pty Limited
GPO Box 242 2.9 FURTHER INFORMATION For personal use only use personal For Melbourne VIC 3001 If you are in any doubt about anything in this Scheme Australia Booklet, please contact your financial, legal, taxation or other • By fax to Computershare Investor Services Pty Limited professional adviser. If you have any questions or require on 1800 783 447 (within Australia) or +61 3 9473 2555 further information, you can contact the Computershare (outside Australia). Shareholder Information Line on 1300 723 095 (within Australia) • By Custodian Voting for intermediary online subscribers or +61 3 9415 4337 (outside Australia). only (Custodians) please visit ‘www.intermediaryonline.com’ 2.10 MISPLACED PROXY FORM to submit your voting intentions. If you have lost or misplaced your personalised proxy form, Your proxy form must be received by the Indophil Share please contact the Computershare Shareholder Information Registry (whether by internet, mail or facsimile) by no later Line (see earlier advice in this Section).
Indophil Resources NL Scheme Booklet 17 Section 3 Key Reasons to Vote For or Against
the Scheme For personal use only use personal For
18 Indophil Resources NL Scheme Booklet 3. KEY REASONS TO VOTE FOR OR AGAINST THE SCHEME
3.1 KEY REASONS TO VOTE IN FAVOUR OF In reaching its decision, the Independent Expert assessed a THE SCHEME range of factors that are outlined in the Independent Expert’s The following is a discussion of the key reasons to vote Report. These factors included: in favour of the Scheme. This Section should be read in • how the value of an Indophil Share on a controlling basis conjunction with Section 3.2 which sets out the key reasons why compares to the value of the Scheme Consideration of you may consider voting against the Scheme, and Section 3.3 30 cents per Indophil Share being offered by APIC; which sets out other considerations. • the risk factors associated with the development of the The Independent Directors consider that the key reasons to Tampakan Project and the impact of those risk factors vote in favour of the Scheme are as follows: in assessing the likelihood of the fair market value of the Tampakan Project being realised by Indophil Shareholders; A. The Independent Directors believe that the Scheme • the likelihood of a Superior Proposal being received is in the best interests of Indophil Shareholders and by Indophil; and unanimously recommend that Indophil Shareholders • the position of Indophil Shareholders should the vote in favour of the Scheme in the absence of a Superior Scheme not proceed. Proposal Annexure 1 of the Scheme Booklet contains a complete copy While your Independent Directors remain confident in of the Independent Expert’s Report. It is accompanied by an Indophil’s position as a stakeholder in the Tampakan Project, Independent Technical Specialist’s Report prepared by AMC your Independent Directors recognise the benefit of certainty Consulting Pty Ltd. The Independent Directors encourage you provided by the Proposal. to read the Independent Expert’s Report in its entirety. The Scheme enables Indophil Shareholders to realise their investment in Indophil and avoid continued exposure to the C. Glencore intends to vote in favour of the Scheme, development risks which would need to be overcome in order subject to a limited number of conditions to bring the Tampakan Project into production. Indophil holds a 37.5% economic interest in SMI, the project vehicle for the Tampakan Project. Glencore holds a 62.5% After careful consideration of the Proposal, the Independent economic interest in SMI. SMI is the holder of the FTAA relating Directors have concluded that the Scheme is in the best to the Tampakan Project under which SMI acts as contractor interests of Indophil Shareholders and unanimously recommend to the Philippine Government (which owns all minerals in the that Indophil Shareholders vote in favour of the Scheme in the Philippines) to explore for minerals, develop and mine the absence of a Superior Proposal. Tampakan Project. Each Independent Director who holds or controls the voting Glencore also owns approximately 13.1% of Indophil’s Shares rights attached to Indophil Shares intends to vote those Indophil and is the second largest Indophil Shareholder after APIC Shares, or ensure that those Indophil Shares are voted, in and its Related Bodies Corporate. Glencore has advised that favour of the Scheme in the absence of a Superior Proposal. its intention is to vote in favour of the Scheme at the Scheme B. The Independent Expert has concluded that, in the Meeting, subject to: absence of a Superior Proposal, the Scheme is fair and i) there being no superior proposal announced at the time of reasonable to Indophil Shareholders and therefore in the the Scheme Meeting; best interests of Indophil Shareholders ii) as at the date of the Scheme Meeting, that the acquisition The Independent Directors commissioned BDO Corporate of Indophil Shares by APIC is scheduled to occur prior to Finance (WA) Pty Ltd to prepare an Independent Expert’s 31 January 2015; and Report in relation to the Scheme. The Independent Expert has iii) the Independent Expert opining that the offer is fair and assessed the fair market value of an Indophil Share to be in reasonable or in the best interests of all securityholders. the range of 26.6 cents to 41.5 cents on a controlling interest basis. The Scheme Consideration is 30 cents per Share, and The statement from Glencore that it intends to vote in favour of the Independent Expert has concluded that, in the absence the Scheme demonstrates support for the terms of the Scheme of a Superior Proposal, the Scheme is fair and reasonable to and increases the likelihood that the Scheme will be approved Indophil Shareholders and therefore in the best interests of at the Scheme Meeting. Indophil Shareholders. D. The Scheme Consideration represents a significant Figure 1 – Independent Expert range vs Scheme premium over trading prices for Indophil Shares prior to the transaction announcement The Scheme Consideration offered by APIC represents For personal use only use personal For Value of an Indophil share 26.6 41.5 a significant premium to historical market prices of (controlling basis) Indophil Shares.
Value of consideration 30.0 30.0
20 25 30 35 40 45 50 Value (cents)
Source: Independent Expert’s Report.
Indophil Resources NL Scheme Booklet 19 3. KEY REASONS TO VOTE FOR OR AGAINST THE SCHEME (CONTINUED)
The Scheme Consideration of 30 cents per Share F. The Scheme Consideration provides cash and offers represents a premium of: certain value for Indophil Shareholders, avoiding any • 43% to the closing price of Indophil Shares on risks of remaining an Indophil Shareholder, including risks 22 September 2014, being the date prior to the associated with the development of the Tampakan Project transaction announcement; In assessing the Proposal, the Independent Directors have • 38% to the 1-month VWAP prior to that date; evaluated their expectation of Indophil’s growth prospects, • 52% to the 3-month VWAP prior to that date; and including the risks associated with the development of the Tampakan Project. Although Indophil has significant growth • 78% to the 6-month VWAP prior to that date. prospects as an independent ASX-listed company, Indophil’s Figure 2 – Share Price Chart 1 July 2013 current strategy for the development of the Tampakan Project to 22 September 2014 would take time to be fully implemented and involve significant 0.30 development and execution risk, including exposure to factors that are outside the control of Indophil, and/or SMI. Accordingly, the future value of your Indophil Shares and the return you may 0.25 be able to receive from your investment are uncertain. The Scheme Consideration enables Indophil Shareholders to realise the value of their investment with certainty, in terms 0.20 of both value and timing. On the current indicative timetable, Indophil Shareholders (other than Excluded Shareholders) should expect to receive payment of the Scheme Consideration 0.15
Indophil Share Price ($/Share) Indophil Share Price to be dispatched by 29 January 2015. G. Since the Proposal was announced, no Superior 0.10 Proposal has emerged Jul-2013 Sep-2013 Nov-2013 Jan-2014 Mar-2014 May-2014 Jul-2014 Sep-2014 Since APIC’s Proposal was announced on 23 September Source: IRESS. Market data as at 22 September 2014. IRESS has not consented to the use of this chart or of the information attributed to IRESS in other parts of 2014, and as at the date of this Scheme Booklet, no Superior this Scheme Booklet for use in this Scheme Booklet. Proposal has emerged. E. The premium implied by the Scheme Consideration H. If the Scheme is not implemented and no Superior compares favourably to other transactions of a similar scale Proposal emerges, the price of Indophil Shares will The Scheme Consideration compares favourably to other likely fall change-of-control transactions involving mining companies If the Scheme is not implemented and no Superior Proposal listed on the ASX that were completed from 1 January 2013 to emerges, the Independent Directors consider it likely that 22 September 2014 (the date of the Scheme Implementation the market value of your Indophil Shares is likely to fall Agreement) with a transaction value greater than $100 million. below current levels and below the amount of the Scheme Figure 3 – Other Transactions: Premium to 6-Month Consideration, particularly in light of the various risks that VWAP Comparison remain for Indophil associated with the development of the Tampakan Project. 110% I. No brokerage fees are payable by Indophil Shareholders under the Scheme 78% The Scheme provides you with an opportunity to realise the value of your Indophil Shares without having to pay any brokerage fees. 45% 44% 35% 3.2 KEY REASONS TO VOTE AGAINST THE SCHEME 31% 22% Although the Independent Directors recommend that you vote in favour of the Scheme (in the absence of a Superior Proposal) and the Independent Expert has concluded that, in the absence of a Superior Proposal, the Scheme is fair and reasonable Perilya/ Indophil/ Aquila Azimuth Papillon PMI Gold Inova Zhongjin APIC Resources/ Resources/ Resources/ Corp./ Resources/ to Indophil Shareholders and therefore in the best interests Lingnan Baosteel, Troy B2 Gold Asanko Shanxi Mining Aurizon Resources Corp Gold Donghui of Indophil Shareholders, the Scheme has some potential
For personal use only use personal For disadvantages that Indophil Shareholders should consider with Source: IRESS, Company filings. regard to their individual circumstances in deciding whether to vote in favour of the Scheme. This Section should be read in conjunction with Section 3.1 which sets out the key reasons why you may consider voting in favour of the Scheme, and Section 3.3 which sets out other considerations.
20 Indophil Resources NL Scheme Booklet A. You may be of the opinion that the Scheme E. You will cease to have exposure to fluctuations in Consideration does not adequately reflect Indophil’s value copper and gold prices through Indophil, and such prices You may be of the opinion that the Scheme Consideration of may increase in Australian dollar terms in the future 30 cents cash per Indophil Share does not adequately reflect As Indophil is involved in the exploration and development of Indophil’s value. copper and gold opportunities, the price of Indophil Shares is at least partly affected by movements in copper and gold prices The Independent Directors also considered the risks associated in Australian dollar terms. If copper and gold prices increase with the Indophil business (further set out in Section 3.3) when in Australian dollar terms, your investment in Indophil may be assessing Indophil’s value. worth more than the value that would be realised under the For details regarding Indophil’s financial position, you should Scheme. However, as noted within the risks identified in Section refer to Section 4.5. 3.3, copper and gold prices and exchange rates have fluctuated in recent years and may continue to fluctuate significantly in the B. You may disagree with the Independent Directors’ future. There is no guarantee that copper and/or gold prices will recommendation and/or the Independent Expert’s increase in Australian dollar terms in the future. It is equally likely conclusion that prices may fall, exposing Indophil Shareholders to losses. You may disagree with the recommendation of the Independent Directors and the conclusion of the Independent Expert that, in F. The tax consequences of the Scheme may not be the absence of a Superior Proposal, the Scheme is in the best suitable for your financial position interests of Indophil Shareholders. If the Scheme proceeds, APIC’s offer of 30 cents cash per Indophil Share might result in taxation consequences (including In particular, you may believe that Indophil will deliver greater potentially crystallising a CGT liability) earlier than expected for returns by remaining an independent company and that the some Indophil Shareholders, which may reduce the after tax future growth prospects of Indophil are not fully reflected in the value received. Scheme Consideration. Indophil Shareholders who are Australian residents for tax C. You will not be able to participate in any future potential purposes and who have a tax cost base of less than 30 cents in upside that may result from being an Indophil Shareholder Indophil Shares will derive a capital gain equal to the difference If the Scheme is implemented, the Indophil Shares held between 30 cents and their tax cost base. No CGT roll-over by you will be transferred to APIC in return for the Scheme relief will be available to Indophil Shareholders. Consideration of 30 cents cash per Indophil Share. As a The Scheme may also have tax consequences for consequence, you will cease to be an Indophil Shareholder. Indophil Shareholders who are not residents of Australia This will mean that: for tax purposes. • You will no longer participate in any potential future value upside in the Indophil business. However, if the Scheme If the Scheme is not implemented, there are currently no tax fails and you retain your investment in Indophil you will consequences for Indophil Shareholders who retain their be exposed to the inherent risks associated with such shareholding in Indophil. It should be noted however that any an investment, including the risk associated with the future disposal of your Indophil Shares may also crystallise a planned development of the Tampakan Project. For further CGT liability. information regarding the risks to Indophil’s business, refer Further information about the tax consequences of the Scheme to Section 3.3. for Indophil Shareholders is set out in Section 6 of this Scheme • You will lose your voting rights as an Indophil Shareholder Booklet. However, Scheme Shareholders should seek their own and APIC and its Related Bodies Corporate will professional advice regarding the individual tax consequences become the only Indophil Shareholders following applicable to them. implementation of the Scheme. 3.3 OTHER CONSIDERATIONS – RISKS RELATING Some Indophil Shareholders may wish to retain an interest TO INDOPHIL’S BUSINESS in Indophil as a listed company because they wish to invest in a publicly listed company with the particular profile of Indophil Shareholders should be aware of the risk factors Indophil (eg. industry, geography, size and other aspects). that Indophil currently faces with respect to its business and Implementation of the Scheme may not be attractive to Indophil operations, as these risk factors are relevant in the context of Shareholders who wish to retain exposure to an investment the assessment of the value of Indophil Shares. The exploration with this profile. However, it should be noted that there is no and development of natural resources is highly speculative in guarantee of future Indophil growth due to a number of risks nature and is subject to significant risks. The risk factors below may not necessarily comprise all those faced by Indophil. For personal use only use personal For associated with the development of the Tampakan Project, as identified in Section 3.3. Additional risks and uncertainties not presently known to Indophil or that Indophil currently considers to be immaterial D. You may consider that there is the potential for a may also impair the business, operations and future prospects Superior Proposal to emerge in the foreseeable future of the Company. Whilst some of the risks faced by Indophil You may consider that there is a possibility that a Superior can be mitigated by the use of safeguards and appropriate Proposal could emerge in the foreseeable future, despite systems and actions, some are outside Indophil’s control and no Superior Proposal having emerged as at the date of this cannot be mitigated. Scheme Booklet. The Independent Directors are also not presently aware of any Superior Proposal.
Indophil Resources NL Scheme Booklet 21 3. KEY REASONS TO VOTE FOR OR AGAINST THE SCHEME (CONTINUED)
If any of the risks summarised in this Section were to occur, the There are development risks associated with securing business of Indophil may be harmed and its financial condition energy and water resource improvements necessary for the and results of operations may suffer significantly. development of the project, specifically with respect to port/ power station and corridors for copper concentrate pipeline and The risks in this Section will only continue to be relevant to power transmission. There is a risk that this development may Indophil Shareholders if the Scheme does not proceed and not be completed in a timely manner. Indophil Shareholders retain their current investment in Indophil, and may be relevant to the decision by Indophil Shareholders There are ongoing risks in project appraisal and development whether or not to vote in favour of the Scheme. If the Scheme delay caused by local community issues such as employment proceeds and Indophil Shareholders receive the Scheme concerns, compensation for impact, civil unrest caused by Consideration in exchange for their Indophil Shares, they will banditry or property dispute, and tribal or cultural conflict. no longer be exposed to these risks, as they will cease to be Any delay to the development and construction of the Indophil Shareholders. Tampakan Project may delay the achievement of scheduled A. Share Market Conditions project milestones and may impact the value associated The prices at which Indophil Shares trade on the ASX rise or with the project, as well as Indophil’s interest in the fall in response to a number of factors affecting the market for Tampakan Project. equities in general. These factors may be unpredictable and There is no guarantee that these approvals will be received, unrelated or disproportionate to the operating performance or which could impact the timing of the development of the the underlying performance of Indophil as a listed entity. Such Tampakan Project, or which could see the imposition of factors include changes in the general economic outlook, conditions on the development of the Tampakan Project interest and inflation rates, investor sentiment, the demand which make the development of the Tampakan Project more for and supply of capital and legislative, regulatory and difficult. There have been material delays in approvals in the sovereign risk. last five years. The Independent Directors are not able to offer any assurance D. Financing Risk about the future prospects of Indophil or the Indophil Share Development of the Tampakan Project will require significant price. Nor can the Independent Directors provide assurance capital expenditure. If SMI was to progress the development about when, if ever, the Indophil Share price might reach the of the Tampakan Project, Indophil would need to raise its price per Indophil Share offered as Scheme Consideration. share of project funding to the extent contributed by SMI B. Environment Code Ban on Open Pit Mining in South shareholders. The current capital cost estimate for the Cotabato Tampakan Project is US$5.9 billion (on a 100% basis). Funding In June 2010, the South Cotabato provincial government in the is envisaged to comprise equity and/or debt funding from local Philippines (the jurisdiction in which the Tampakan deposit is and international markets. It is likely that considerable dilution located) approved a new Environment Code that includes a could result for shareholders of Indophil in any large-scale ban on open pit mining. The Code took effect in October 2010. equity capital raising required to fund its share of project costs The national Philippine Government has stated that the ban is (to the extent contributed by SMI shareholders). Indophil’s contrary to national law and must be amended in accordance performance and future asset development plans are subject with national law which allows open pit mining. The Philippine to numerous uncertain future influences. Accordingly, there is President and his relevant national Secretary have both publicly a risk that project funding may not be available to Indophil on expressed support for minerals development in the Philippines acceptable terms or at all, and there is no guarantee of long- and the need for the open pit issue to be resolved. However, term returns for Indophil Shareholders until the final project to date, the Environment Code and the section pertaining to a funding occurs. provincial ban on open pit mining remain in place. E. Copper and Gold Price Risk If the issue is not resolved at a local government level and the In the event of successful development of the Tampakan Philippine legal process was to support the ban, the Tampakan Project, future sales revenues of SMI would be derived from Project may not be developed in a timely manner, if at all, and the sale of concentrates containing copper and gold (Indophil the value of Indophil’s Shares could be materially reduced. would expect to receive dividends from SMI). A number of supply and demand factors outside the control of SMI and C. Tampakan Project Development Risk Including Risk of Indophil affect copper and gold prices. Further, should the rate Delays in Regulatory Approvals of economic growth continue to slow in developing countries, SMI requires approvals from a range of stakeholders, including including China (the world’s largest consumer of copper), this national and local governments, and local communities, to may compound the downward pressure on the copper price. If developonly use personal For the Tampakan Project. The approvals process extends copper prices were to fall materially, there is a chance that the to stakeholders in areas beyond the mine and plant who inhabit Tampakan Project would not be economic to develop. or have a direct interest in areas that are or may be utilised for Historic copper prices have been volatile and as a result there infrastructure needs such as a sea port, power plant and related is the risk that copper price fluctuation may have an adverse corridors for service roads, pipe lines and power lines. There impact on SMI’s future sales revenues. is a risk that these various approvals may not be received in a timely manner.
22 Indophil Resources NL Scheme Booklet Figure 4 – Copper and Gold Prices from 1 July 2013 H. Environmental Risk to 22 September 2014 Mining operations have inherent risks and liabilities associated with the environment and the disposal of waste produced as a 1400 7800 result of mineral production. Open pit mining and processing 7600 of copper and gold ores are subject to risks and hazards, 1350 including environmental hazards, industrial accidents, delays 7400 in production and increased production costs, each of which 7200 1300 could result in liability to Indophil. Such incidents may also result in a breach of the conditions of mining agreements or 7000 other consents or permits or relevant regulatory regime, with 1250 6800 consequent exposure to enforcement procedures, including Gold Price (US$/oz) Gold Price Copper Price (US$/t) Copper Price possible revocation of licences, consents or permits. 6600 1200 6400 I. Mineral Resource Estimates Tampakan’s Mineral Resources (and any future Ore Reserves) 6200 1150 Jul-13 Sep-13 Nov-13 Feb-14 Apr-14 Jul-14 Sep-14 are estimates, and no assurance can be given that the estimated resources are precisely accurate or that the indicated Copper price (US$/t) Gold price (US$/oz) level of minerals will be produced (see the JORC Code). Such Source: IRESS market data as at 22 September 2014. estimates are expressions of judgement based on drilling F. Exchange Rate Risk results, past experience with mining properties, industry practice and many other factors. Estimates which are valid Copper and gold prices are benchmarked in US dollars. when made may change substantially when new information Accordingly, any future sales of concentrates containing copper becomes available. Mineral Resource and Ore Reserve and/or gold that SMI and Indophil may be able to achieve are estimation is an interpretive process based on available data therefore likely to be denominated in US dollars. The income of and thus estimations may prove to be inaccurate. The actual Indophil is, and would be, accounted for in Australian dollars. quality and characteristics of mineral deposits cannot be known Any future Australian dollar revenues generated by Indophil until mining takes place, and will almost always differ from the would be subject to fluctuations in the Australian dollar relative assumptions used to develop resources. to the US dollar. Further, certain costs at the Tampakan Project will be settled in a number of currencies including Philippine J. Production and Other Operational Risks pesos and US dollars. Future costs incurred in those currencies SMI’s future operations will be subject to a number of factors would also be subject to fluctuations relative to the Australian that can cause material delays or changes in operating dollar. Indophil will therefore be exposed to foreign exchange costs for varying lengths of time. Operational risks include rate risk, which could impact Indophil’s financial position and/or weather conditions, natural disasters, disruption of energy performance. While such currency movements can be hedged supply, unplanned technical issues, unanticipated geological by Indophil to an extent, they will be largely outside of the conditions, equipment failures and disruptions of infrastructure. control of Indophil. The financial performance of SMI and Indophil may also be G. Mine Development Risk adversely affected by changes to the fiscal regime, delays and price escalations in respect of required equipment, Although it has been established that significant Mineral consumables and mining support services. Industrial Resources exist at the Tampakan Project, the future value of disruptions may also result in lower than planned production or Indophil is materially dependent on the success or otherwise delays in delivery of the Tampakan Project. of the activities directed towards the development of this asset. It is common for new mining operations to experience Many of these risks are outside the control of SMI and a range of problems during development, construction and Indophil management, and may have a material adverse mine start-up, which delay the commencement of mineral effect on the operations and future financial performance production. Accordingly, there is no guarantee that future of SMI and Indophil. development activities at Tampakan will progress into profitable K. Tenure Risk mining operations. The FTAA relating to the Tampakan Project is due to expire in Risks to SMI and Indophil include the uncertainties associated 2020, and SMI has a right of renewal for a further 25 year period with projected continuity of an ore deposit, fluctuations in under the terms of the FTAA. Although there is no precedent, grades and values of the product being mined, and a range the terms and conditions of the renewal may vary from those of potential unforeseen operational and technical problems. currently in place because the Philippine Government may seek For personal use only use personal For Exploration may also be adversely affected or hampered by a to amend the terms of the FTAA on its renewal, relying on the variety of non-technical issues such as limitations on activities Philippine Mining Act (which was passed after the Philippine due to land access, seasonal changes, industrial disputes, Government entered into the FTAA) or other subsequent laws land claims, heritage and environmental legislation, mining and regulations of the Philippines. Separately, a number of legislation and many other factors beyond the control of SMI Indophil’s non-Tampakan Project tenement applications and or Indophil. Although prudent operational risk management those of its joint venture partners are subject to government plans would be established, the likelihood of operational approval or to ‘adverse claims’ where competing applications issues remains. submitted by other individuals or companies exist over the
Indophil Resources NL Scheme Booklet 23 3. KEY REASONS TO VOTE FOR OR AGAINST THE SCHEME (CONTINUED)
same or a portion of the same area. Some of these matters M. Joint Venture Risks are undergoing resolution either through arbitration or Indophil holds a 37.5% economic interest in SMI, the project legal proceedings. vehicle for the Tampakan Project. Glencore holds a 62.5% Challenges to the tenure of mining companies to tenements in economic interest in SMI. The interests of Indophil and Glencore the Philippines occur from time to time. in the Tampakan Project are held through ‘A’ Class shares issued by SMI. The ‘A’ Class shares represent 40% of the total L. Mining Risk in Developing Countries issued share capital of SMI, but they represent 100% of the Indophil’s exploration and development activities are currently economic interest in the Tampakan Project, with the exception conducted in the Philippines, and as such Indophil’s operations of a nominal preferred dividend and royalty payable by SMI to are exposed to various levels of political, economic and other the ‘B’ Class Shareholders in SMI. The ‘B’ Class Shareholders risks and uncertainties that are not uncommon in a range of which are privately owned are known as the Tampakan Group developing countries. of Companies. Any preferred dividend payable to the ‘B’ Class Shareholders is deducted from any royalty payable by Indophil’s mineral exploration and development activities SMI to the ‘B’ Class Shareholders. Indophil, Glencore and the may be affected to varying degrees by political instability Tampakan Group of Companies are therefore parties to the SMI and changes in legislation and regulations relating to foreign joint venture. SMI is a contractor to the Philippine Government investment and the mining industry. Changes, if any, in (which owns all minerals in the Philippines) to explore for mining or investment policies or shifts in political attitude in minerals, develop and mine the Tampakan Project. the Philippines, may adversely affect Indophil’s activities or profitability. Indophil’s mineral exploration and development As such, Indophil is subject to the risks normally associated activities may be affected in varying degrees by: with the conduct of joint ventures and having a minority holding i) government regulations with respect to, but not limited in a joint venture. The existence or occurrence of one or more to, restrictions on production, price controls, exchange of the following circumstances or events could have a material controls, export controls, currency remittance, income or adverse impact on the viability of Indophil’s joint venture interest other taxes, expropriation of property, foreign investment, in SMI, which could in turn have a material adverse impact on maintenance of claims, environmental legislation, land Indophil’s results and financial conditions such as: use, illegitimate land claims of local people, water use and i) inability to exert influence over certain strategic decisions mine safety; and made in respect of the Tampakan Project; ii) the lack of certainty with respect to foreign legal systems, ii) disagreement with Glencore or the Tampakan Group which may not be immune to the influence of political of Companies on how to develop and operate the pressure, corruption or other factors that are inconsistent Tampakan Project; with the rule of law. iii) inability of Indophil and Glencore to meet their obligations Failure to comply with unexpected changes in laws, regulations under the joint venture or to third parties; or and permitting requirements may result in enforcement iv) litigation between Indophil and Glencore, or between both actions against SMI or Indophil, including orders issued by or either of Indophil and Glencore on the one hand and regulatory or judicial authorities causing operations to cease the Tampakan Group of Companies on the other hand, or be curtailed, and may include corrective measures requiring regarding joint venture matters. capital expenditures, installation of additional equipment, or N. Results of Studies remedial actions. Parties engaged in mining operations may be required to compensate additional parties suffering loss The Tampakan Project was the subject of a Pre-Feasibility or damage by reason of the mining activities and may have Study (PFS) by Indophil and then an Extended PFS (XPFS) civil or criminal fines or penalties imposed for violations of by Xstrata Copper. The Mine Project Feasibility Study (MPFS) applicable laws or regulations. Amendments to current laws, into project viability, prepared by SMI and Bechtel Australia regulations and permits governing operations and activities of Pty Ltd, was submitted to the Philippine Government in April mining companies, or more stringent implementation thereof, 2010. SMI may be required to undertake further studies on the could have a material adverse impact on Indophil and cause Tampakan Project. increases in capital expenditures or production costs or delays Assuming that a further study determines the viable economics in development of Indophil’s mining interests. The occurrence of the Tampakan Project, there can be no guarantee that the of these various factors and uncertainties cannot be accurately Tampakan Project will be successfully brought into production. predicted and could have an adverse effect on the business In addition, the ability of Indophil to participate in a further study and financial condition of Indophil, including the development and project development may be dependent on Indophil’s
of the Tampakan Project. ability to raise further funds. For personal use only use personal For
24 Indophil Resources NL Scheme Booklet The proposed development of the Tampakan Project may 3.4 IMPLICATIONS IF THE SCHEME DOES exceed the currently envisaged timeframe or cost for a NOT PROCEED variety of reasons outside of the control of Indophil. There are If the Scheme does not proceed (whether because the many milestones which need to be met in a timely fashion Scheme is not approved by the Requisite Majorities at the for production at the Tampakan Project to commence in Scheme Meeting, is not approved by the Court or fails for accordance with any proposed mine plan, and there is a risk some other reason): that circumstances (including unforeseen circumstances) may cause a delay, resulting in the receipt of revenue at a later date • Indophil Shareholders will retain their Indophil Shares and than expected or not at all. will not receive the Scheme Consideration; • the Independent Directors consider it likely that the market O. Litigation Risk value of your Indophil Shares will fall below current levels All industries, including the mining industry, are subject to legal and below the offered Scheme Consideration, subject claims, with and without merit. Defence and settlement costs to adjustment for market factors including the volatility of of legal claims can be substantial, even with respect to claims global commodity, foreign exchange and financial markets; that have no merit. Due to the inherent uncertainty of litigation, • while it is possible that the Indophil Share price might the litigation process could become a burden on management improve to reach or exceed the amount of the Scheme and the resolution of any particular legal proceedings to Consideration over time, this is uncertain and the which Indophil may become subject could have a material Independent Directors are unable to provide any adverse effect on Indophil’s financial position and/or Indophil’s assurance in that regard; project development. • Indophil will be subject to risks associated with the pursuit P. General Economic Factors and Investment Risks of development of the Tampakan Project including but not General economic conditions may affect inflation and interest limited to the risks described in Section 3.3; rates, which in turn may impact upon SMI’s operating costs • Indophil will continue to seek to develop the Tampakan and financing. Other factors that may adversely affect SMI’s Project, although there is no guarantee that Indophil will activities in the Philippines include changes in government be able to overcome any or all of the associated risks policies, natural disasters, industrial disputes, and social unrest of development; or conflict locally or more widespread. • Indophil Shares will remain listed on the ASX; and Q. Flagship Asset Risk • a break fee of $2.8 million may be payable by Indophil to The Tampakan Project is Indophil’s only project that is in APIC in the circumstances described in Section 7.5 of this an advanced stage of study prior to possible development. Scheme Booklet. Whilst Indophil has other exploration projects, Indophil is not diversified. Indophil’s share price and future financial performance are substantially exposed to the Tampakan Project’s success, in the absence of identifying or acquiring other advanced-stage projects. R. Human Resources Risk Development of the Tampakan Project is contingent on obtaining the requisite skilled labour across a number of specialised areas. There is a risk that the required skilled labour will not be available at the time of development or that in order to obtain the requisite skilled labour, higher than forecast compensation will be required to be paid to employees, which may affect the economic viability of the project. Although SMI and Indophil intend to conduct community development activities to address this through training and education
opportunities, there is still no guarantee of this being adequate. For personal use only use personal For
Indophil Resources NL Scheme Booklet 25 Section 4 Overview
of Indophil For personal use only use personal For
26 Indophil Resources NL Scheme Booklet 4. OVERVIEW OF INDOPHIL
4.1 COMPANY OVERVIEW The Tampakan deposit contains an estimated 2.94 billion Indophil Resources NL (ASX: IRN) was founded in 1996 tonne Australasian JORC-compliant Mineral Resource of to explore for, acquire and develop gold and copper-gold approximately 15 million tonnes of copper and 17.6 million opportunities in the Philippines and elsewhere in South East ounces of gold. The Tampakan Project is projected to produce Asia. Indophil was listed on the ASX in 2002. an average of 375,000 tonnes of copper and 360,000 ounces of gold per year in the initial mine-life of 17 years, with potential for Indophil’s key asset is a 37.5% economic interest in SMI which mine-life extension. is the holder of the FTAA under which SMI acts as a contractor to the Philippine Government (which owns all minerals in the 4.2 TAMPAKAN PROJECT Philippines) to explore for minerals, develop and mine the A. Location and Surrounds Tampakan Project. SMI is the project vehicle for the Tampakan The Tampakan Project deposit is located approximately 65 Project. Glencore holds the remaining 62.5% economic interest kilometres north-northwest of General Santos City on the island in SMI and acts as the project manager of the Tampakan of Mindanao, the southern-most major island of the Philippines. Project. The interests of Indophil and Glencore in the Tampakan It is in the municipality of Tampakan within South Cotabato Project are held through ‘A’ Class shares issued by SMI. The province, 17 kilometres from the township of Tampakan. ‘A’ Class shares represent 40% of the total issued share capital Topographically, the project area is located at the southern end of SMI, but they represent 100% of the economic interest of the Central Mindanao Cordillera bound to the west by the in the Tampakan Project, with the exception of a nominal Cotabato Basin and to the east by the Sarangani Basin. preferred dividend and royalty payable by SMI to the ‘B’ Class Shareholders in SMI. The ‘B’ Class Shareholders are known as B. Tampakan Project Update the Tampakan Group of Companies. Any preferred dividend In June 2010, the South Cotabato provincial government (the payable to the ‘B’ Class Shareholders is deducted from any jurisdiction in which the Tampakan deposit is located) approved royalty payable by SMI to the ‘B’ Class Shareholders. a new Environment Code (Code) that included a ban on open As at 30 September 2014, Indophil held approximately pit mining. The Code took effect in October 2010. The Philippine $208.9 million in cash. As at the date of this Scheme Booklet, Government has stated that the ban is contrary to national laws the total number of Indophil Shares on issue is 1,203,146,194 and must be amended in accordance with those laws which and the total number of Indophil Options is 2,730,000. allow open pit mining. As at the date of this Scheme Booklet, the Code, and the section pertaining to a provincial ban on The Tampakan Project, located on the island of Mindanao in open pit mining, remain in place. the southern Philippines, is a globally-significant undeveloped long-life, large-scale copper and gold deposit, which is forecast to be low-cost relative to other large-scale projects and was discovered in 1992.
Figure 5 – Location of Tampakan Project
Maguindanao
• Columbio • Matanao Lake Davao Gulf Buluan Sultan Kudarat • Kiblawan
Columbio Tampakan FTAA Copper – Gold Korondal • Project Tampakan• Davao Del Sur Manila • P
H
I L N I
For personal use only use personal For P South P Cotabato I N E S Sarangani 20km MINDANAO
Tampakan Copper – Gold ★ Project • General Santos City Province Bdys Sarangani Bay Main Roads
Source: Indophil.
Indophil Resources NL Scheme Booklet 27 4. OVERVIEW OF INDOPHIL (CONTINUED)
On 12 August 2013, SMI announced a revised work plan C. History for the Tampakan Project, which substantially reduced Applications for mineral tenements which cover the Tampakan funding and staffing of the Tampakan Project. The 2014 deposit were filed by the Tampakan Group of Companies SMI Work Plan for the Tampakan Project was approved by (Tampakan Mining Corporation, Southcot Mining Corporation SMI on 5 December 2013 with a budget of US$6.69 million. and Sagittarius Mining Corporation) in 1989. These An additional budget for community development programs tenements were later granted as Mineral Production Sharing was approved on 12 February 2014, resulting in an SMI budget Agreements (MPSAs) that were later (1995) converted to totalling US$8.24 million for the 2014 calendar year. The work the Columbio FTAA. plan for 2015 has not yet been approved by SMI. The focus of the revised plan is to secure crucial government support on The right to explore, develop and mine the Tampakan Project major issues prior to proceeding to final evaluation and possible is granted to SMI as contractor to the Philippine Government development. There is a particular focus on finding a resolution under the FTAA. A period of diamond drilling (36,930 metres to the South Cotabato open pit mining ban, the definition of the in 100 holes) and geochemical and geophysical exploration pathway to project approvals from all levels of government, and culminated in a PFS completed by Western Mining Corporation the gaining of consent from impacted communities. The revised (Philippines) Inc. (WMCP) in 1997. A preliminary resource work plan has reduced current activity levels and expenditure estimate of 900 million tonnes grading 0.75% copper and on the Tampakan Project. 0.30g/t gold at a cut-off grade of 0.5% copper was published. The revised work plan is focused on the Free Prior Informed However, as part of a global corporate contraction by WMC Consent process for Indigenous Peoples (FPIC), Local Resources, WMCP withdrew from the project in December Government Units (LGU) endorsement, project permitting 1999. In January 2001, the Tampakan Group of Companies and land access and titles with the national government’s exercised its right of first refusal and assigned this right to Mining Industry Coordinating Council (MICC) and the related SMI which gained contractual rights over the Tampakan Tampakan Project Inter-Agency Working Group (IAWG). Project through a share sale agreement in 2002. The project subsequently underwent several legal contests pertaining to Indophil has funded (on its own account) additional expenditure the rights to acquire and hold the lease. In August 2002, SMI outside the scope of the approved SMI budget, totalling assumed title to the FTAA and Indophil assumed the role of $0.4 million, for the Off-Lease Infrastructure – Environmental project manager. SMI commenced drilling again in 2003, and Impact Assessment (OLI EIA). The OLI EIA is in its final undertook a scoping study which was completed in late 2004. draft, pending completion of some regulatory requirements and a decision by SMI to lodge the application for the OLI On 1 April 2007, Xstrata plc (Xstrata) (now Glencore plc) Environmental Compliance Certificate, along with a similar through its Related Bodies Corporate assumed the role of power station approval process. project manager following exercise of the option to purchase 62.5% of the ‘A’ Class shares in SMI, the project entity for the SMI has received indications of support from the national Tampakan Project. and local governments, providing encouragement for the ongoing approvals process. SMI has resubmitted project The Tampakan Project was the subject of a Pre-Feasibility feasibility documents and other requirements to the national Study (PFS) by Indophil and then an Extended Pre-Feasibility government’s Mines and Geosciences Bureau for detailed Study (XPFS) by Xstrata. The Mine Project Feasibility Study review and consideration. (MPFS) into project viability was submitted to the Philippine Government in April 2010. This was supplemented by a Mineral The MICC has directed SMI to commence the Local Resource upgrade announced by Xstrata and Indophil on Government Endorsement process, which has started 27 January 2012. positively. The MICC has requested its associated government body, the National Commission on Indigenous Peoples, to The Environmental Impact Assessment (EIA) study to support proceed with the FPIC process with the Indigenous Peoples the Environmental Impact Statement (EIS) and Environmental in the vicinity of the Tampakan Project. The FPIC process has Social Impact Assessment (ESIA) for the Tampakan Project has commenced, and locally-affected indigenous communities are been completed. Public disclosure of the draft EIS commenced participating in activities for this consent consideration process. in June 2011. This was followed by formal application for an Environmental Compliance Certificate. The EIA was formally In late May 2014, an attack on one of the SMI camp facilities submitted to the Philippine Government in December 2011 by members of the New People’s Army, the armed wing of the in support of the Environmental Compliance Certificate Communist Party of the Philippines, partially destroyed the (ECC) application. facility. There were no casualties. In January 2012, SMI received notice from the government’s In 2013, Indophil recorded an impairment charge of Department of Environment and Natural Resources (DENR) that $107.5only use personal For million relating to its share in SMI. The Indophil Board its ECC application had been denied due to the open pit mining considered the uncertainty of Glencore’s future plans and ban in South Cotabato. Following an appeal for reconsideration, ownership in SMI, the revised work plan and market valuation SMI received a copy of an official notification from the Office placed on Indophil in arriving at this impairment. of the President to the DENR, instructing the DENR to resolve the ECC application. The formal application for the ECC was granted in February 2013.
28 Indophil Resources NL Scheme Booklet D. Project Feasibility The Mineral Resource estimate announced on 27 January 2012 In April 2010, the MPFS on the Tampakan Project was submitted was prepared by Raul R Roco who qualified as a Competent to the Philippine Government. The MPFS provided confirmation Person under the meaning of the 2004 JORC Code, and was of a world-class, large-scale project with an estimated 2.49 reported in accordance with the Code. Mr Roco was at the billion tonne Mineral Resource as at October 2009. The MPFS time a full-time employee of Xstrata and was a Member of the was based on open pit mining with land-based waste rock and Australasian Institute of Mining and Metallurgy (AusIMMM). tailings storage. Mr Roco was involved in all aspects of porphyry copper drilling, sampling analysis, database management, geological Table 1 – MPFS Key Findings modelling, resource estimation, mining production and Metric reconciliation. He had the necessary experience to be the Competent Person for the Tampakan resource estimate. He had been involved in the process of resource estimation of Milling recovery rate 79-86% copper Tampakan since 2008 as a peer reviewer, and visited the and 60-66% gold property the same year. Mr Roco provided his consent to be named as the Competent Person of the Mineral Resource Concentrate grade 28-35% copper statement at the time. Indophil advises that it is not aware of any new information or Life of mine 17 years (potential for extension) data that materially affects the Mineral Resources information included in this Scheme Booklet. In the case of estimates of Mineral Resources or Ore Reserves, Indophil confirms that, Milling capacity 66 million tonnes per annum to the best of its knowledge, all material assumptions and technical parameters underpinning the estimates in the market Stripping ratio 1.19:1 (waste:ore tonnes) announcement made in January 2012 continue to apply and have not materially changed. Indophil further confirms, to the best of its knowledge, that the form and context in which the Production (first 5 450,000 tonnes copper Competent Person’s findings are presented here have not been years of operation) per annum and 435,000 materially modified. ounces gold per annum Table 2 – Mineral Resources
Production (life of mine) 375,000 tonnes copper Measured Indicated Inferred Total per annum and 360,000 Resource (Mt) 980 1,290 670 2,940 ounces per annum Copper (%) 0.69 0.45 0.4 0.51 Development cost US$5.9 billion (including Gold (g/t) 0.28 0.16 0.1 0.19 provision of US$900 million for a power station) Molybdenum (%) 0.008 0.006 0.005 0.006 Copper contained (Mt) 6.8 5.8 2.7 15.00 E. Mineral Resources Gold contained (Mozs) 8.8 6.6 2.15 17.60 The 2012 Mineral Resource estimate for the Tampakan Project *Note that figures in the table have been rounded. comprises 2.94 billion tonnes at 0.51% copper and 0.19g/t *Note cut-off copper grade of 0.2%. gold, containing 15.0 million tonnes of copper and 17.6 million Source: Indophil announcement to the ASX on 27 January 2012. ounces of gold. Geology The current Mineral Resource estimate was announced by The Tampakan deposit, a copper-gold porphyry with a high Xstrata on 27 January 2012 and by Indophil on 27 January 2012 sulphidation overprint, is hosted by a sequence of sub aerial by release to the ASX. It represented a tonnage increase of andesitic flows and fragmentals related to a highly eroded 18% over the previously reported October 2009 total resource andesitic statavolcanic complex of probable Pliocene Age. estimates. A combined copy of the announcements is available This complex is interpreted to lie on the northern extension of on Indophil’s website at ‘www.indophil.com’. the Sangihe volcanic arc extending from Northern Sulawesi in Indonesia. The Tampakan district is located within a complex tectonic setting dominated by WNW trending wrench faults that
For personal use only use personal For form part of the trans-Mindanao Cotabato Fault Zone. The Tampakan deposit is located near the intersection of one of these WNW trending structures with a prominent NNE trending dilatational structure, one of many that transect the host volcanic complex. High-sulphidation style copper-gold mineralisation is broadly associated with a flat lying tabular body of pervasive silica and silica-clay alteration developed within a district scale lithocap of advanced-argillic and argillic hydrothermal alteration that extends over an area of 90 square kilometres within the volcanic complex.
Indophil Resources NL Scheme Booklet 29 4. OVERVIEW OF INDOPHIL (CONTINUED)
At depth, porphyry copper style mineralisation comprises 4.4 INDOPHIL’S BOARD OF DIRECTORS disseminated chalcopyrite-bornite-pyrite associated Brian Phillips (Chairman, Non-Executive) with variably developed quartz-stockwork veining. This AWASM-Mining, FAusIMM, MIMMM mineralisation style is usually associated with sericite-chlorite Appointed as a Director on 1 April 2005, Mr Phillips was +/– anhydrite alteration of host andesite and high level appointed Non-Executive Chairman on 21 April 2005 and hornblende diorite stocks possibly representing the outer shell also serves as a member of the Audit Committee and the of a porphyry system. Structural zones within the porphyry are Remuneration and Nomination Committee. Mr Phillips is a preferentially upgraded by high sulphidation overprinting events mining engineer with over 45 years’ experience in the mining resulting in a change of sulphide mineralogy and progressive industry in Australia and overseas. Mr Phillips is a past alteration of the host sequence. The mineralised sequence is president of the Victorian Chamber of Mines (now the Minerals unconformably overlain by Pleistocene Logdeck Andesite in the Council of Australia – Victorian division). He has had executive SW quadrant of the deposit. and corporate responsibility for mining operations covering 4.3 EXPLORATION PORTFOLIO mineral sands, copper, nickel, gold, silver, tin, graphite and coal, and has been involved in a number of corporate structuring A. Manat Gold Project and takeover activities. Mr Phillips is also the Chairman of both The Manat Project is located in the Masara mineral district of Panoramic Resources Limited and White Rock Minerals Limited. East Mindanao in the Philippines, approximately 60 kilometres north-east of the port city of Davao. Indophil has a 25% interest Richard Laufmann (CEO and Managing Director) in the Manat Project. The Manat Project is still awaiting formal B Eng (Mining), MAusIMM, MAICD comment and approval of its Declaration of Mining Project Appointed as Chief Executive Officer and Managing Director Feasibility from the central office of the government’s Mines and on 13 June 2007, Mr Laufmann was previously a non-executive Geosciences Bureau. director following his original appointment on 1 May 2003. Mr Laufmann is a mining engineer by vocation, with an A delineation and resource definition diamond drilling program extensive operations background in the resources sector both comprising 30 diamond drill holes has been completed in Australia and overseas. Prior to his employment with Indophil, over a strike length of 1.2 kilometres of the Magas vein Mr Laufmann refinanced and spent five years as Managing system. An Inferred Resource estimated to JORC reporting Director of Ballarat Goldfields NL at which time Ballarat guidelines stands at 2.7 million tonnes at 2.8g/t gold, 26g/t Goldfields merged with Lihir Gold Limited, the then operator silver, 0.85% lead and 1.58% zinc. Indophil is seeking to exit of the Ballarat mine and Lihir gold mine in Papua New Guinea. the Manat Project. Mr Laufmann spent 11 years with Western Mining Corporation (WMC) in the Nickel, Gold and Copper divisions in various B. Balatoc Copper-Gold Project senior management roles. Mr Laufmann was appointed as Indophil has entered into a Heads of Agreement with Indophil’s nominated Director on the SMI Board in February Geophilippines Inc., which covers the Balatoc Copper-Gold 2009. Mr Laufmann is a past chairman of the Minerals Council Project, located approximately 500 kilometres by road from of Australia, Victorian division. Mr Laufmann is also a founding Manila and more than 50 kilometres from Baguio in Northern director of Rex Minerals Limited. Luzon in the Philippines. The agreement provides Indophil with the opportunity to earn up to an 85% interest in this project, Tony Robbins (Director, Executive) should Geophilippines secure the rights to the project. Indophil BSc (Hons), MSc MAusIMM, MIMMM, FAAG continues to work with the Balatoc Indigenous People in respect Mr Robbins was the co-founder of Indophil in 1996 and its of their application for an exploration permit covering the area of Managing Director until 2007. Mr Robbins is a geologist/ that Project, Progress is being made to resolve the competing geochemist with over 45 years’ experience in the mining claims covering the exploration permit applications in a manner industry and has lived or worked in the South East Asia favourable to Indophil. mining community for more than 20 years. From 1968 to 1996, Mr Robbins worked for WMC, where he held senior Historical studies carried out by previous owners indicate positions including operations manager, exploration manager that the Balatoc Project has exploration potential for a Eastern Australia and exploration manager South East Asia/ copper deposit in the range of 80-90 million tonnes grading Pacific region. In his last position, he managed the exploration 0.6-0.7% copper, 0.2-0.3g/t gold plus exploration potential program and the team that discovered the Tampakan for a gold deposit in the range of 0.8-1.2 million tonnes Project. Mr Robbins was also involved in the discoveries grading 10-15g/t gold. of the Benambra copper deposit, Junction, Redeemer and Yandan gold deposits, Edwin nickel deposit and Olympic Dam. Mr Robbins is a past president of the Philippine Mineral Exploration Association and is a former member of the board of For personal use only use personal For the Philippine Chamber of Mines. He is Indophil’s representative in South East Asia and was Indophil’s nominated director on the SMI Board until February 2009. Mr Robbins provides consultancy services to the Company.
30 Indophil Resources NL Scheme Booklet Kyle Wightman (Director, Non-Executive) Nicasio I Alcantara (Director, Non-Executive) BComm, MBA, FAICD, CFTP (Snr) BA, MBA Appointed as a Non-Executive Director on 8 December 2006, Appointed as a Non-Executive Director on 29 December 2011, Mr Wightman also serves as Chairman of the Audit Committee Mr Alcantara also serves as a Director in the Alsons Group of and as a member of the Remuneration and Nomination Companies, including the Alsons Power Holdings Corporation Committee. Mr Wightman is an economist, financier and and APIC, where he is chairman of the latter. Mr Alcantara is business consultant with over 45 years’ experience, particularly a Director of a number of companies and corporations in the relating to the feasibility, development and financing of major Philippines. He has over 45 years of involvement in both public projects and investments. Mr Wightman has held senior roles, and private companies, and in diverse industries that include including positions in CRA Limited (now Rio Tinto Limited) manufacturing, banking and finance, property, information as treasurer AM&S and treasurer projects, in both Chase technology, agriculture, and power and energy. He has served Manhattan Bank Australasia and Australia and New Zealand as an executive officer and maintained business interests in Banking Group Limited as head of project & structured finance, companies involved in cement, power and energy, financial and in PricewaterhouseCoopers as director of projects. services, agriculture and diversified holdings. He was Petron Mr Wightman advises private and public sector clients on Corporation’s chairman from July 2001 to January 2009 as well major projects through his own company, Tait Capital Pty as the company’s chief executive officer from July 2002 to July Ltd. Mr Wightman has been involved in the development 2003 and also from 2006 to January 2009. Mr Alcantara is also and financing of a number of major projects including Argyle a director of Seafront Resources Corp., Philodrill Corporation Diamonds, Tarong Coal, Mount Channar Iron Ore, Misima and Site Group International Limited. Gold, Energy Developments Ltd, Melbourne City Link and the Mr Alcantara is associated with APIC and was not involved Loy Yang A Power Privatisation. Mr Wightman is also a Director with Indophil’s assessment of the Scheme consistent with of Lakes Oil NL. participating insider protocols implemented by Indophil. David Carland (Director, Non-Executive) References to Indophil’s Independent Directors in this Scheme PhD (Econometrics), MEc; BEc (Hons), MAICD Booklet comprise all Indophil directors, excluding Mr Alcantara Appointed as a Non-Executive Director on 1 September 2011, and Mr DyBuncio. Dr Carland also serves as a member of the Audit Committee Frederic C DyBuncio (Director, Non-Executive) and was appointed Chairman of the Remuneration and BBM, MBA Nomination Committee on 15 June 2012. Dr Carland has over Appointed as a Non-Executive Director on 6 September 30 years of investment banking and commercial experience 2012, Mr DyBuncio is the Vice Chairman of the Board of Atlas in both the private sector and government, and is the co- Consolidated Mining and Development Corporation and founder of BurnVoir Corporate Finance Limited. BurnVoir is an Chairman of its Executive Committee. He is also a Senior Vice independent, specialised investment banking firm focusing President of SM Investments Corporation, the President, CEO on the energy, resource and infrastructure sectors. Prior to and Director of APC Group Inc., and an Executive Committee establishing BurnVoir, Dr Carland was executive vice president member of Belle Corporation. Prior to these positions, and head of energy and power at Bankers Trust, and before Mr DyBuncio was a career banker who spent over 20 years that he was deputy managing director and head of corporate with JPMorgan Chase and its predecessor institutions. During finance at UBS Australia. Dr Carland has also held senior his stint in the banking industry, he was assigned to various executive roles with the CRA Group (now Rio Tinto), including managerial/executive positions where he gained substantial management of the commercial arrangements for the purchase professional experience in the areas of credit, relationship of the Gladstone Power Station. His roles have seen him based management and origination, investment banking, capital in the United States and London. He is now based in Sydney. markets, and general management. He has worked and lived Dr Carland is also Executive Chairman of Rex Minerals Limited. in several major cities including New York, Seoul, Bangkok, Hong Kong and Manila. Mr DyBuncio also serves as a director of Atlas Consolidated Mining and Development Corporation, APC Group Inc., Belle Corporation, Pacific Online Systems Corporation and Sinophil Corporation. Mr DyBuncio is associated with APIC and was not involved with Indophil’s assessment of the Scheme consistent with participating insider protocols implemented by Indophil. References to Indophil’s Independent Directors in this Scheme Booklet comprise all Indophil directors, excluding Mr Alcantara
and Mr DyBuncio. For personal use only use personal For
Indophil Resources NL Scheme Booklet 31 4. OVERVIEW OF INDOPHIL (CONTINUED)
4.5 HISTORICAL FINANCIAL PERFORMANCE Set out below is Indophil’s Consolidated Statement of Financial Position as at 30 June 2014 and its Consolidated Statement of Comprehensive Income for the half-year ended 30 June 2014. The Indophil Financial Report for the half-year ended 30 June 2014 was released to the ASX on 2 September 2014. It contains details on the accounting policies used by Indophil. A copy of the report is available on the Indophil website. Consolidated Statement of Comprehensive Income
For the Half Year Ended 30 June 2014 $000 Revenue 30 June 2014 Interest income $000 8,835
Expenses Administration (1,829) Corporate (4,385) Depreciation (22) Exchange fluctuations (7) Exploration and evaluation (595) Operating lease payments (119) Superannuation payments (185) Share of loss of an associate (331) Impairment charge – (7,473) Profit/(loss) before income tax 1,362 Income tax expense (1,401) Loss after income tax (39) Other comprehensive income for the period –
Total comprehensive loss for the half-year (39) For personal use only use personal For
32 Indophil Resources NL Scheme Booklet Consolidated Statement of Financial Position
As at 30 June 2014 $000
Assets Current assets Cash and cash equivalents 208,702 Other receivables 943 Income tax receivable 1,951 Prepayments 136
Total current assets 211,732
Non-current assets Investment in associate 191,782 Other financial assets 2,688 Deferred tax asset – Plant and equipment 85 Total non-current assets 194,535 Total assets 406,267
Liabilities Current liabilities Trade and other payables 321 Provisions 370 Total current liabilities 691
Non-current liabilities Deferred tax liability 2,660 Provisions 54 Total non-current liabilities 2,714 Total liabilities 3,405 Net assets 402,862
Equity Equity attributable to equity holders of the parent Issued capital 494,215
Retained earnings (91,523) For personal use only use personal For Other capital reserves 170 Total equity 402,862
Indophil Resources NL Scheme Booklet 33 4. OVERVIEW OF INDOPHIL (CONTINUED)
4.6 MATERIAL CHANGES TO INDOPHIL’S FINANCIAL 4.10 FURTHER INFORMATION POSITION SINCE 31 DECEMBER 2013 Indophil is a ‘disclosing entity’ for the purposes of the Other than as set out in Sections 4.5 and 4.6, to the best of Corporations Act that is subject to regular reporting and the Independent Directors’ knowledge, the financial position disclosure obligations under the Corporations Act and the of Indophil has not materially changed since 31 December Listing Rules. In addition, under the Listing Rules, subject to 2013, being the date of the last balance sheet laid before certain limited exceptions, Indophil is required to notify the ASX Shareholders in general meeting or sent to Shareholders in immediately upon becoming aware of any information which a accordance with sections 314 or 317 of the Corporations Act. reasonable person might expect to have a material impact on the price or value of Indophil Shares. The equity value of Indophil implied by the Scheme of approximately $361 million represents a shortfall of Copies of documents given by Indophil to ASIC under the approximately $41 million to the net assets book value reported Corporations Act may be obtained from, or inspected at, any by Indophil as at 30 June 2014. office of ASIC. Copies of documents given by Indophil to the ASX are available from the ASX’s website ‘www.asx.com.au’ At 30 June 2014, Indophil has recognised a deferred tax asset and on Indophil’s website ‘www.indophil.com’. (offset against a deferred tax liability) in relation to unrecouped Australian tax losses. The recovery of this asset is reliant upon both the derivation of sufficient taxable income and the satisfaction of the requisite test under Australian taxation law (the continuity of ownership test or the same business test). In the event that the Scheme is implemented, the recognition of the deferred tax asset may need to be reassessed by Indophil. Indophil’s cash balance as at 30 September 2014 was $208.9 million, as reported in its Quarterly Report, released to the ASX on 23 October 2014. A copy of the report is available on Indophil’s website at ‘www.indophil.com’. 4.7 SHARES There are 1,203,146,194 Indophil Shares on issue. 4.8 INDOPHIL OPTIONS There are 2,730,000 unlisted Indophil Options on issue. Details in relation to the proposed treatment of them within the context of the Scheme are provided in Section 9.11. 4.9 SUBSTANTIAL SHAREHOLDERS The substantial shareholders of Indophil as at 3 November 2014 are as follows. Table 4 – Substantial Shareholders
Number of Percentage Substantial Shareholder Shares (%) APIC and its Related 240,508,334 19.99 Bodies Corporate Glencore 157,189,422 13.06 Van Eck Global 120,643,511 10.03
Acorn Capital 100,863,521 8.38 For personal use only use personal For
34 Indophil Resources NL Scheme Booklet Section 5 Overview
of APIC For personal use only use personal For
Indophil Resources NL Scheme Booklet 35 5. OVERVIEW OF APIC
APIC has provided and is responsible for the information The Alsons Group has been a long-term supporter of Indophil contained in this Section. Indophil and its Related Bodies and the Tampakan Project, with Alsons Group members having Corporate, directors, officers, employees and advisers do not been shareholders in Indophil since the completion of Indophil’s assume any responsibility for the accuracy and completeness initial public offering in 2002. of the information in this Section. 5.3 MAJOR OPERATIONS AND ACTIVITIES 5.1 OVERVIEW OF APIC A. APIC APIC is a company incorporated in the Philippines as a special APIC’s sole investment is 207,708,334 Indophil Shares, purpose vehicle for the purpose of subscribing for Indophil representing a 17.26% stake in Indophil (see Section 5.8A Shares in the $97.7 million placement that Indophil completed below). This stake was acquired in the $97.7 million placement in 2012. APIC is authorised to promote, invest, own and hold that Indophil completed in 2012. corporations or entities that are engaged in the exploration and development of energy and mineral properties. B. The Alsons Group 5.2 OVERVIEW OF ALSONS GROUP The Alsons Group comprises entities that are directly and/or indirectly owned or controlled by Alsons Development and APIC is a wholly owned subsidiary of the Alsons Group, Investment Corporation (Aldevinco), a company directly and a Philippine-based group of companies controlled by the indirectly 100% owned by the Alcantara family. Alcantara family. The Alsons Group is a diversified Philippine conglomerate with interests in power generation, agribusiness, As at the date of this Scheme Booklet, the Alsons Group (including aquaculture, transportation, real estate development and APIC) holds 240,508,334 shares in Indophil, representing mining, which has been in business in the Philippines for over approximately 19.99% of Indophil’s current issued capital. 50 years and is one of the oldest and largest conglomerates in As at 30 June 2014, the Alsons Group had total assets Mindanao, the second largest and southernmost island in the of approximately Php26 billion (US$595 million) and net Philippines. This longstanding presence in the region allows the assets of approximately Php7 billion (US$159 million) on a Alsons Group to benefit from its extensive business networks consolidated basis. and in-depth local knowledge, relationships and expertise.
Figure 6 – Structure of the Alsons Group
Alcantara Family
100% 100% 83.13%
Trust companies ACIL Corporation
0.24% 16.63%
Alsons Development & Investment Corporation (Aldevinco)
72.10% 27.90%
100% 100% Alsons Power Holdings Alsons Corporation (Alcorp) Alsons Properties Corporation Corporation (APHC)
18.73% 19.70% 41.72% Alsons Consolidated Resources, Inc. (ACR)
100% 100%
For personal use only use personal For Alsons Prime Investments Alsons Power International, Ltd. Corporation (APIC)
16.57% 33.43% Flarck Investment BV
95% P. T. Makassar Power
Source: APIC
36 Indophil Resources NL Scheme Booklet Details of the Alsons Group and key group members Resources, Inc. in June 1995 to mark the entry of the Alcantara are set out below. Group. ACR’s primary purpose was subsequently changed to that of an investment holding company, and oil exploration was Alsons Development and Investment Corporation (Aldevinco) relegated to a secondary purpose. On 10 October 1996, ACR Aldevinco is a stock corporation incorporated under Philippine completed its reorganisation through a series of stock swaps. laws organised and registered with Philippine Securities and As a result of this reorganisation, some of the Alsons Group’s Exchange Commission (SEC) on 14 December 1962. On 5 May established businesses became majority or minority owned 2011, the Aldevinco shareholders approved the amendment subsidiaries of ACR and ACR’s authorised capital was further of Aldevinco’s articles of incorporation for another 50 years increased from P3 billion to P12 billion. ACR’s core businesses, from 14 December 2012, of which the SEC approved the conducted through its various subsidiaries and associates, can extension of its term on 22 July 2011. Its primary purpose is to be grouped into the following main categories: buy, sell, hold, deal in, improve, manage, administer or lease properties, real or personal, and the fixtures and accessories • energy and power; incidental thereto. Aldevinco is one of the leading real estate • property development; and firms operating in Davao City. Since its inception, the company • mining. has been at the forefront of the real estate industry in Davao City, with projects such as Las Terrazas, Woodridge Park and ACR currently holds 29,149,000 Indophil Shares (see Ladislawa Garden Village. Section 5.8A below). ACIL Corporation 5.4 INFORMATION ON THE APIC BOARD AND ACIL Corporation was incorporated under Philippine laws on OFFICERS 27 August 1986 primarily to purchase or lease or otherwise, As at the date of this Scheme Booklet, the directors of APIC are: lands and interests in lands and to own, hold, improve, develop and manage any real estate so acquired and to erect or cause Nicasio I. Alcantara (Chairman) to be erected any buildings or other structures on such any land Nicasio I. Alcantara, 72, Filipino, BA, MBA, has over 45 years so owned, held or occupied. of involvement in both public and private companies, and in diverse industries that include manufacturing, banking and Alsons Corporation finance, property, information technology, agriculture, and Alsons Corporation (Alcorp) is a stock corporation incorporated power and energy. He has served as an executive officer on 1 February 1998 under the laws of the Philippines. Its and maintained business interests in companies involved in purpose is to purchase, hold, pledge, transfer, sell or deal in the cement, power and energy, financial services, agriculture and shares of stock, bonds, debentures, notes or other securities or diversified holdings. evidence of indebtedness on any person or corporation without engaging in stock brokerage, dealership in securities and He currently serves as a director in publicly listed companies management of funds and all similar assets of the managed in both the Australian and Philippine Stock Exchanges, ie. corporations. Alcorp is 27.9% owned by Aldevinco. Indophil (from December 2011); Site Group International, Ltd., (ASX:SIT, from October 2010), Seafront Resources Corporation Alcorp currently holds 3,651,000 Indophil Shares (see (PSE:SPM, from May 1995), and The Philodrill Corporation Section 5.8A below). (PSE:OV, from December 1991). He is also a director in the Alsons Power Holdings Corporation private companies under the Alcantara Group, including APHC Alsons Power Holdings Corporation (APHC) was registered and APIC, where he is Chairman of the latter, as well as the with the SEC on 6 January 1993. Its purpose is to purchase, BDO Private Bank, Inc. (from September 2009). hold, pledge, transfer, sell or otherwise dispose of or deal He served as Chairman of the Board of Directors (July 2001– in the shares of capital stock, bonds, debentures, notes or January 2009) and Chief Executive Officer (July 2002–July 2003 other securities or evidence of indebtedness of any person or / 2006–January 2009) of Petron Corporation (PSE:PCOR), the corporation; and to receive, collect and dispose dividends, Philippines’ largest oil refining and marketing company. interest or other income on any such securities held by it and to do any and all acts and things tending to increase the value of Tomas I. Alcantara (President) the said corporation. Tomas I. Alcantara, 68, Filipino, BS, MBA, became the Chairman of the Board of Directors and the President of Alsons Alsons Properties Corporation Consolidated Resources, Inc. (PSE:ACR) in August 2001. He is Alsons Properties Corporation was incorporated in the also the Chairman and President of the other private companies Philippines on 13 November 1997. It is primarily engaged in in the Alcantara Group such as Aldevinco, ACIL Corporation, real estate to acquire by purchase or lease, or otherwise, lands Alcorp, APHC, Alsons Properties Corporation. He was elected and interests in lands and to own, hold, improve, develop President of APIC in May 2012. For personal use only use personal For and manage any real estate acquired. Alsons Properties Corporation is a wholly owned subsidiary of Aldevinco. Mr Alcantara serves as a director in several other publicly listed and privately owned companies in the Philippines, including Alsons Consolidated Resources, Inc. Holcim Philippines, Inc. (PSE:HLCM), Philweb Corporation Alsons Consolidated Resources, Inc. (ACR) was incorporated (PSE:Web), Philippine Bank of Communications (PSE:PBCom), on 24 December 1974 as Victoria Gold Mining Corporation to DBP-Daiwa Capital Markets Phils. Inc., DBP-Daiwa Securities engage in the business of exploration for oil, petroleum and Corporation, Petronas Energy (Phils.) Inc., and Public other mineral products. The corporate name was changed Estates Authority. to Terra Grande Resources, Inc. (Tegre) in March 1995. The corporate name was changed to Alsons Consolidated
Indophil Resources NL Scheme Booklet 37 5. OVERVIEW OF APIC (CONTINUED)
Prior to his appointment as head of the Alsons Group, 5.5 APIC’S RATIONALE FOR THE PROPOSAL Mr Alcantara served as Undersecretary for the Industry & In undertaking the Proposal, APIC primarily seeks to acquire Investment Group of the Department of Trade and Industry, Indophil’s interest in the Tampakan Project on the island of the Vice Chairman and Managing Head of the Board of Mindanao in the southern Philippines. Investments, and the Special Envoy of the Philippine President to the Asia Pacific Economic Cooperation (APEC) forum in APIC believes in the potential of the Tampakan Project 1996. He also was a Director of the Philippine Reclamation to be developed into a large-scale and low cost copper Authority (formerly Public Estate Authority) and Chairman of mine. Through its extensive contacts and knowledge of the the Manila Economic & Cultural Office (MECO). Philippines business environment, APIC believes that it is well positioned to realise the underlying value in Indophil and the Ma. Concepcion F. De Claro (Director) Tampakan Project. Ma. Concepcion F. De Claro, 56, Filipino, BSC, has been a Director of APIC since May 2012 and APHC since December 5.6 SOURCE OF FUNDS 2011, and the Vice President and Chief Operating Officer of The Scheme Consideration will be satisfied wholly in cash. Alcorp, since May 2011. This Section 5.6 sets out the means by which APIC will fund Before joining the Alsons Group of Companies, Ms. De Claro the Scheme Consideration. worked with Petron Corporation for several years including the A. Total Cash Consideration position of Vice President for Corporate Planning & Services If the Scheme becomes Effective, APIC will pay to (or procure (2008–2010), Controller for the company and its subsidiaries the payment to) each Scheme Shareholder 30 cents for each (2003–2008), Director in the company’s numerous subsidiaries Indophil Share transferred to APIC under the Scheme. (2009–2010), member of the Board of Trustees of Petron Corporation Employees Retirement Fund (2010–2011) and The consideration payable under the Scheme is 100% cash. a Consultant for M&A Projects (September 2010). She also Based on the number of Indophil Shares on issue as at the served as a Director of Limay Energen Corporation and Manila date of this Scheme Booklet and the Scheme Consideration of North Harbour Port, Inc.), as well as the Chief Financial Officer 30 cents per Indophil Share, if the Scheme becomes Effective, of Two San Isidro-SIAI Assets, Inc. (2011–2013). the maximum amount of Scheme Consideration to be paid to Scheme Shareholders (which excludes APIC and its Related Marco Angelo C. Alcantara (Director) Bodies Corporate) will be approximately $288.8 million. Marco Angelo C. Alcantara, 36, Filipino, BA, MBA, presently serves as a Director of APIC and other companies in the There are also 2,730,000 Indophil Options on issue. Details in Alcantara Group. He has been the General Manager of AIBC relation to the proposed treatment of the Indophil Options within since 2007. He serves as a Director of Bancasia Finance the context of the Scheme are provided in Section 9.11. It is Corporation, and BankOne Savings and Trust Corporation. proposed that the Indophil Options will be transferred to APIC He is also a Licensed Real Estate Broker. on the Implementation Date for aggregate consideration of $63,700 payable by APIC in cash to the Indophil Optionholders. Mr Alcantara served as a Business Analyst of Synapse Group in Stamford, Connecticut, USA (2001–2002). The maximum aggregate amount of cash required to be paid by APIC to Scheme Shareholders and Indophil Optionholders Luis R. Ymson, Jr. (Chief Financial Officer) under the Proposal will be approximately $288.9 million. Luis R. Ymson, Jr., 60, Filipino, BS, MBA has been the Chief Financial Officer of all of the companies under the Alcantara Under the Deed Poll, APIC has undertaken in favour of Indophil Group since June 2006. Shareholders to pay the aggregate amount of the Scheme Consideration, subject to the Scheme becoming Effective, to Mr Ymson has extensive investment banking experience from Indophil as trustee for the Scheme Shareholders by no later his previous employment with Allied Banking Corporation and than the Business Day before the Implementation Date. UBP Capital Corporation from 1992 to 1996 and First Metro Investment Corporation and Metropolitan Bank & Trust Co. from B. Overview of Funding Arrangements 1996 to 2001. He previously served as Chief Finance Officer To ensure that APIC has sufficient funds to pay the Scheme of The Philippine Daily Inquirer and Director/President of its Consideration, APIC has provided to Indophil a commitment affiliate, Newspaper Paraphernalia, Inc. until 2004. from its financier, BDO Unibank, Inc. (BDO Unibank), confirming Angel M. Esguerra, III (Corporate Secretary) that, prior to the date of the Scheme Meeting, BDO Unibank will Angel M. Esguerra, III, 53, Filipino, BA, LLB, is a member of issue to Indophil an irrevocable standby letter of credit (Letter the Integrated Bar of the Philippines. He joined the Alcantara of Credit) under which, conditional on only the satisfaction Group in June 2010 as head of its Legal Services department. or waiver of the conditions in accordance with the Scheme Implementation Agreement, BDO Unibank will pay to Indophil He isonly use personal For presently the Corporate Secretary of APIC, APHC and all other private companies in the Alcantara Group as well as the an amount sufficient to satisfy, and in satisfaction of, APIC’s Assistant Corporate Secretary of ACR. obligation to pay the Scheme Consideration in accordance with its obligations under the Scheme Implementation Agreement Mr Esguerra practiced with several firms then joined a trans- and the Deed Poll. Additional information regarding BDO national energy company with power plants in the Asia-Pacific Unibank is set out in Section 5.6C below. Region as internal counsel, and served as the Corporate Secretary of its Philippine subsidiaries such as Batangas Power APIC will pay the Optionholders consideration under the Corporation and Subic Power Corporation. Option Sale Deeds separately through its existing facility with BDO Unibank.
38 Indophil Resources NL Scheme Booklet Under the terms of the commitment from BDO Unibank, BDO • the continuation of the business of Indophil; Unibank will issue the Letter of Credit on that date that is no • any major changes to be made to the business of Indophil; less than two Business Days in Manila before the date of the • the future employment of the present employees of Indophil; Scheme Meeting, provided that the Scheme Meeting is held no later than 22 March 2015 and that the Scheme Implementation • replacing the Indophil Board with APIC’s own Agreement has not been terminated prior to the date of issue of nominees; and the Letter of Credit. • the removal of Indophil from the official list of the ASX. Any drawings under the Letter of Credit will be subject only The statements of intentions set out in this Section 5.7 represent to the condition that all of the conditions precedent set out in the current intentions of APIC as at the date of this Scheme the Scheme Implementation Agreement have been satisfied Booklet. These intentions have been formed on the basis of or waived in accordance with the Scheme Implementation facts and information concerning, and the circumstances Agreement. The Letter of Credit will have an expiry date of 90 affecting, Indophil and its business which are known to APIC days from issuance. at the date of this Scheme Booklet. They are based on publicly available information and certain non-public information made The Letter of Credit will be for the benefit of Indophil as trustee available to APIC as part of its due diligence review. Therefore, for its Scheme Shareholders on account of APIC. All charges, the formulation of this Section 5.7 is necessarily limited by the payments, fees, commission and other costs associated with extent of the information about Indophil available to APIC. the opening, amendment and renewal or any other costs related to the Letter of Credit will be payable by APIC. Failure by APIC will make final decisions regarding these matters in light of APIC to make any such payments will not affect BDO Unibank’s the information and circumstances at the relevant time including obligations under the Letter of Credit. the general business environment. The statements made in this Section 5.7 are statements of current intention only, and APIC’s Under the definitive loan agreement between APIC and BDO intentions may change as new information becomes available Unibank for the financing of the Scheme Consideration, BDO or circumstances change. Any changes in intentions will be Unibank will be issued convertible notes for any amounts drawn disclosed to the extent and in the manner required by law. by Indophil pursuant to the Scheme Implementation Agreement against the Letter of Credit. The convertible notes will grant B. Indophil’s Business BDO Unibank an option to convert all or a portion of the unpaid If the Scheme is implemented, APIC intends to undertake a loan (secured convertible notes) into equity in APIC. strategic review of Indophil’s corporate structure, governance, On the basis of the funding arrangements described in this assets, businesses, personnel and operations with a view Section 5.6, APIC holds the view, and is of the opinion that to identifying potential areas where Indophil’s business it has a reasonable basis to hold the view, that APIC will be can be enhanced. able to pay the total Scheme Consideration, and related While APIC does not have any current intentions in relation to transaction costs. this review or its outcomes, its current expectation is that the C. Overview of BDO Unibank review will focus on assessing the current development plan for the Tampakan Project. Such assessment is expected to cover BDO Unibank is the largest bank in the Philippines, with project scope, approvals process, financing plan and project total assets in excess of Php1.7 trillion (approximately ownership structure. US$37.7 billion) and as at 30 June 2014, total equity of Php168.7 billion (approximately US$3.7 billion). BDO Unibank APIC also intends to enter into discussions with Glencore in is a full-service universal bank and provides a complete array relation to the Tampakan Project which may lead to changes in of products and services to the retail and corporate markets the development plan and beneficial ownership structure of the including lending (corporate, middle market, SME and Tampakan Project. consumer), deposit-taking, foreign exchange, brokering, trust In addition, APIC intends to engage with key stakeholders of and investments, credit cards, corporate cash management the Tampakan Project, including relevant governmental and and remittances. Through its subsidiaries, BDO Unibank also regulatory authorities, in respect of the approvals, clearances offers leasing and financing, investment banking, private and regulatory changes necessary to progress the development banking, bancassurance, insurance brokerage and stock of the Tampakan Project. brokerage services. While APIC has no current intentions in relation to changes As at 17 October 2014, SM Investments Corporation (SMIC) in the longer term ownership of Indophil and the Tampakan is BDO Unibank’s largest shareholder, holding 40.87% of Project, the large scale of the Tampakan Project and its capital the shares in BDO Unibank. SMIC is one of the largest expenditure requirements to get to production may make conglomerates in the Philippines with substantial interests in For personal use only use personal For it necessary to further review the ownership structure and retail, banking and property development. SMIC was listed on introduce additional investors at the appropriate time. the Philippine Stock Exchange in 2005. C. Indophil’s Employees 5.7 APIC’S INTENTIONS REGARDING THE INDOPHIL BUSINESS AND INDOPHIL EMPLOYEES APIC has its own corporate support functions within the Alsons Group, and as such there is likely to be some overlap in terms A. General Approach of job functions with Indophil. If the Scheme is implemented, APIC and its Related Bodies Corporate will hold all of the issued Indophil Shares. This APIC intends to review the benefits of providing corporate and Section 5.7 sets out the current intentions of APIC in the event operating functions in the Philippines, given both APIC and the that the Scheme is implemented, in relation to:
Indophil Resources NL Scheme Booklet 39 5. OVERVIEW OF APIC (CONTINUED)
Tampakan Project are located there. In these instances, it is B. Acquisitions of Indophil Securities by APIC in previous possible that if the Scheme is implemented, some roles within four months Indophil will become redundant, resulting in job losses. Neither APIC nor any other member of the Alsons Group In such circumstances, APIC will endeavour to minimise has provided, or agreed to provide, consideration for the disruption (if any) to Indophil and its employees. Where Indophil Shares in the four months prior to the date of this possible, APIC will seek to minimise job losses through Scheme Booklet. redeployment of the relevant employees. If redundancies C. Pre-Scheme Benefits do occur, the relevant employees will receive benefits in accordance with their contractual and other legal entitlements. During the four months prior to the date of this Scheme Booklet, neither APIC nor any other member of the Alsons Group has D. Indophil Board given, or offered to give or agreed to give a benefit to another If the Scheme is implemented, APIC will replace members of person where the benefit was likely to induce the other person, the Indophil Board, any of its subsidiaries and of any company or an associate, to vote in favour of the Scheme or to dispose in respect of which Indophil has nominee directors with its own of Indophil Shares and where the benefit was not offered to all nominees. In this regard, APIC has the right under the Scheme Indophil Shareholders. Implementation Agreement to require the resignation of all D. Benefits to Indophil officeholders and executives Indophil Directors, other than APIC’s nominees, with effect from the Implementation Date. APIC will not be making any payment or giving any benefit to any Director, secretary or executive officer of Indophil, or of Replacement Indophil Board members have not yet been any Related Bodies Corporate of Indophil, as compensation identified by APIC and their identity will depend on the or consideration for, or otherwise in connection with, their circumstances at the relevant time. However, it is expected retirement from office in Indophil or in Related Bodies Corporate that Mr Alcantara and Mr DyBuncio will remain as Indophil of Indophil, if the Scheme becomes Effective, other than as Board members, and other replacement Indophil Board required under the relevant person’s employment agreement members are expected to be APIC directors, nominees of with Indophil (as to which see Section 5.7C of this document). APIC’s financier BDO Unibank or members of the Alsons Group management team. 5.9 OTHER MATERIAL INFORMATION Other than as disclosed within the Scheme Booklet, there is E. Delisting from the ASX no other information known to APIC material to the making of a If the Scheme becomes Effective, APIC will require that Indophil decision in relation to the Scheme that has not previously been applies to the ASX for removal from the official list of the ASX disclosed to Indophil Shareholders. after the Implementation Date. F. Other Intentions Other than as set out in this Section 5.7, if the Scheme is implemented, it is APIC’s present intention to: • continue the business of Indophil in substantially the same manner as it is presently conducted; • not make any major changes to the business of Indophil nor redeploy the fixed assets of Indophil; and • continue the employment of the present employees of Indophil. 5.8 INFORMATION ON INDOPHIL SECURITIES A. APIC and the Alsons Group’s Interests in Indophil As at the date of this Scheme Booklet, APIC holds 207,708,334 shares in Indophil, representing approximately 17.26% of Indophil’s current issued capital. In addition, other companies in the Alsons Group currently hold 32,800,000 shares in Indophil, representing approximately 2.73% of Indophil’s current issued capital, as follows:
• ACR currently holds 29,149,000 Indophil Shares; and For personal use only use personal For • Alcorp currently holds 3,651,000 Indophil Shares. Together, as at the date of this Scheme Booklet, the Alsons Group (including APIC) holds 240,508,334 shares in Indophil, representing approximately 19.99% of Indophil’s current issued capital.
40 Indophil Resources NL Scheme Booklet Section 6 Taxation Implications for Indophil
Shareholders For personal use only use personal For
Indophil Resources NL Scheme Booklet 41 6. TAXATION IMPLICATIONS FOR INDOPHIL SHAREHOLDERS
6.1 INTRODUCTION c) The capital proceeds for the disposal of the Indophil Shares The following is a general summary of the potential Australian will be equal to the Scheme Consideration payable for the income tax consequences that may be applicable to Indophil Indophil Shares pursuant to the terms of the Scheme as set Shareholders who dispose of their Indophil Shares under the out in this Scheme Booklet. Scheme and who hold their Indophil Shares on capital account d) The cost base of the Indophil Shares will broadly include: for the purposes of investment. The taxation implications of i) the money paid, required to be paid or deemed to have the Scheme for Indophil Shareholders will vary depending on been paid and/or the market value of property given the particular circumstances of each Indophil Shareholder. or required to be given by an Indophil Shareholder to Accordingly, all Indophil Shareholders should make their acquire the Indophil Shares held; plus own inquiries and seek independent professional advice ii) any incidental costs associated with the acquisition and on the particular taxation consequences that apply to them disposal of the Indophil Shares; and under the Scheme. iii) the costs of ownership of the Indophil Shares (eg. In particular, the following general summary does not apply interest which an Indophil Shareholder incurs as a to Indophil Shareholders who hold their Indophil Shares on result of borrowing funds to acquire the Indophil Share revenue account or as trading stock, who acquired their where the interest is not otherwise allowable as a Indophil Shares pursuant to an employee option plan, or who tax deduction). are a bank, insurance company, tax exempt organisation or superannuation fund that is subject to special tax rules. This The reduced cost base of the Indophil Shares should outline does not apply to non-Australian resident Indophil include (i) and (ii) but not (iii) (as listed above). Shareholders who hold their Indophil Shares as an asset of e) As a general rule, subject to the CGT reductions and a permanent establishment through which they carry on a exemptions discussed from (f) to (h) below, an Indophil business in Australia. This outline does not apply in relation Shareholder’s capital gains and capital losses in an income to holders of Indophil Options. tax year are aggregated to determine whether there is a net The information contained in this general summary is based capital gain or net capital loss for that income tax year. Any upon Australian taxation law and practice in effect as at net capital gain made (after offsetting any carry-forward 2 October 2014. Indophil Shareholders should be aware that capital losses from prior years) will be included in the the ultimate interpretation of taxation law rests with the Courts Indophil Shareholder’s assessable income for that income and that the law, and the way the Commissioner of Taxation tax year. A net capital loss may only be carried forward by (Commissioner) and state and territory revenue authorities an Indophil Shareholder to offset against capital gains in administer the law, may change at any time. It is not intended future income tax years, subject to satisfying the relevant to be an authoritative or complete statement or analysis of the loss utilisation rules. taxation laws applicable to the particular circumstances of every f) Generally, if an Indophil Shareholder who is an individual, Indophil Shareholder. The information contained in this outline complying superannuation entity or a trustee of a trust is general in nature and does not constitute taxation advice and and has held the Indophil Shares for at least 12 months, should not be relied upon as such. Each Indophil Shareholder the Indophil Shareholder may apply either the indexation is advised to consult with their own tax adviser regarding the method (if the Indophil Shares were acquired before consequences of acquiring, holding or disposing of Indophil 21 September 1999) or the CGT discount method in Shares in light of current tax laws and their particular investment calculating the capital gain from the disposal of Indophil circumstances. Shares, but not both. Whether the indexation method or CGT discount method should be used will depend on each 6.2 AUSTRALIAN RESIDENT INDOPHIL Indophil Shareholder’s particular circumstances. Indophil SHAREHOLDERS Shareholders should consult with their own tax advisers The following comments apply to an Indophil Shareholder in this regard. who is a resident of Australia for tax purposes and holds their g) An Indophil Shareholder who is an individual, complying Indophil Shares on capital account for investment purposes. superannuation entity or trustee of a trust, and does not If the Scheme becomes Effective, an Indophil Shareholder will choose to apply the indexation method, may be eligible be treated as having disposed of their Indophil Shares to APIC. for a ‘CGT discount’ on the net capital gain (ie. the amount A CGT taxing event would occur when the Indophil Shareholder of capital gain remaining after carry-forward capital disposes of their Indophil Shares. The time of the CGT event will losses from prior year losses are applied) that relates be the Implementation Date. to the disposal of Indophil Shares they acquired (or are deemed to have acquired) at least 12 months or more In summary, the consequences of the CGT event that takes
For personal use only use personal For before the Implementation Date and the other conditions place in respect of the Indophil Shares are as follows: in Division 115 of the Income Tax Assessment Act 1997 a) Indophil Shareholders may make a capital gain or capital (Commonwealth of Australia) are satisfied. loss on disposal of their Indophil Shares. h) The CGT discount is not available to companies (other than b) An Indophil Shareholder would make a capital gain if the in the capacity as a trustee of a trust), nor does it apply to capital proceeds in respect of the disposal of an Indophil Indophil Shares owned (or deemed to be owned) for less Share exceed the cost base of that Indophil Share. A capital than the relevant 12 month period. loss will arise if the capital proceeds are less than the reduced cost base of the Indophil Share.
42 Indophil Resources NL Scheme Booklet 6.3 NON-AUSTRALIAN RESIDENT INDOPHIL SHAREHOLDERS Generally, Indophil Shareholders who are non-residents of Australia for taxation purposes will not be subject to Australian CGT on any capital gain that arises on the disposal of their Indophil Shares, provided that: a) they do not hold their Indophil Shares in carrying on a business through a permanent establishment in Australia; and b) the Indophil Shares are not otherwise taxable Australian property as that term is defined in the Income Tax Assessment Act 1997 (Commonwealth of Australia). Non-Australian resident Indophil Shareholders should seek their own taxation advice as to the taxation implications of the Scheme in their country of residence, as well as under Australian law. 6.4 GST No GST will be payable by Indophil Shareholders in respect of their disposal of Indophil Shares. The extent to which an Indophil Shareholder is entitled to recover any GST incurred on costs relating to the disposal of Indophil Shares will depend
on the individual circumstances of each Indophil Shareholder. For personal use only use personal For
Indophil Resources NL Scheme Booklet 43 Section 7 Key Terms of the Scheme Implementation
Agreement For personal use only use personal For
44 Indophil Resources NL Scheme Booklet 7. KEY TERMS OF THE SCHEME IMPLEMENTATION AGREEMENT
7.1 OVERVIEW j) (Indophil Warranties) as at 8:00am on the Second Indophil and APIC entered into the Scheme Implementation Court Date, APIC is not entitled to terminate the Scheme Agreement on 22 September 2014. The Scheme Implementation Agreement as a result of a breach of an Implementation Agreement sets out each party’s rights and Indophil representation or warranty; obligations in connection with the implementation of the k) (APIC Warranties) as at 8:00am on the Second Court Scheme. This Section outlines certain key terms of the Scheme Date, Indophil is not entitled to terminate the Scheme Implementation Agreement. Implementation Agreement as a result of a breach of an APIC representation or warranty; The full terms of the Scheme Implementation Agreement (excluding annexures) are contained in Annexure 5. l) (Options) between the date of the Scheme Implementation Agreement and 8:00am on the Second Court Date, Indophil 7.2 STRUCTURE OF THE SCHEME does not vary the terms of any Indophil Options; Under the terms of the Scheme, Indophil Shareholders (other m) (No Material Adverse Event) no Material Adverse Event than Excluded Shareholders) will transfer all of their Indophil occurs between the date of the Scheme Implementation Shares to APIC, and will receive 30 cents cash for each Indophil Agreement and 8:00am on the Second Court Date; and Share held on the Scheme Record Date. n) (No Natural Event) between the date of the Scheme 7.3 CONDITIONS PRECEDENT Implementation Agreement and 8:00am on the Second Court Date, there is no natural event which occurs that has The Scheme Implementation Agreement contains the following or would be reasonably likely to have a material adverse conditions precedent: effect on SMI or the Indophil Group’s business, financial a) (Shareholder approval) the Scheme is approved by affairs or prospects. Indophil Shareholders at the Scheme Meeting by the Requisite Majorities under the Corporations Act; The Scheme also contains the following conditions precedent: b) (Court approval of the Scheme) the Court makes orders a) all the conditions in clause 3.1 of the Scheme approving the Scheme in accordance with section 411(4)(b) Implementation Agreement (other than the conditions of the Corporations Act; relating to Court approval of the Scheme and the Court order being lodged with ASIC) having been c) (Order lodged with ASIC) an office copy of the Court order satisfied or waived in accordance with the terms of the approving the Scheme is lodged with ASIC in accordance Scheme Implementation Agreement by 8:00am on the with section 411(10) of the Corporations Act; Second Court Date or such other time specified in that d) (No prohibitive orders) no judgement, order, law, injunction, condition precedent; restraint or other prohibition remains in force at 8:00am on b) as at 8:00am on the Second Court Date, neither the Scheme the Second Court Date that prohibits, materially restricts, Implementation Agreement nor the Deed Poll having been makes illegal or restrains the implementation of the Scheme; terminated in accordance with its terms; e) (FIRB approval) APIC receives FIRB approval for the c) the Court making the orders approving the Scheme (with acquisition of the Scheme Shares by 8:00am on the Second or without modification) under section 411(4)(b) of the Court Date or the period provided for under the Foreign Corporations Act; Acquisitions and Takeovers Act 1975 (Cth) during which the Treasurer of the Commonwealth of Australia may make d) any other conditions made or required by the Court under orders prohibiting the acquisition of the Scheme Shares section 411(6) of the Corporations Act in relation to the elapses prior to 8:00am on the Second Court Date without Scheme (and which are acceptable to Indophil and APIC) any such order being made; having been satisfied; and f) (No Indophil Prescribed Event) no Indophil Prescribed e) the orders of the Court made under section 411(4)(b) Event occurs between the date of the Scheme (and, if applicable, section 411(6)) of the Corporations Implementation Agreement and 8:00am on the Act approving the Scheme coming into effect, under Second Court Date; section 411(10) of the Corporations Act on or before the Sunset Date. g) (No APIC Prescribed Event) no APIC Prescribed Event occurs between the date of the Scheme Implementation Full details of the conditions are set out in clause 3 of Agreement and 8:00am on the Second Court Date; the Scheme Implementation Agreement and clause h) (No change of Independent Director recommendation) 3.1 of the Scheme. between the date of the Scheme Implementation 7.4 EXCLUSIVITY ARRANGEMENTS Agreement and Indophil Shareholders voting on the The Scheme Implementation Agreement contains exclusivity
For personal use only use personal For Scheme at the Scheme Meeting, no Independent Director adversely changes, adversely qualifies or withdraws his arrangements. A summary of these arrangements recommendation to Indophil Shareholders to vote in is set out below: favour of the Scheme; a) (Termination of existing discussions) as at the date of the i) (Independent Expert’s Report) the Independent Expert Scheme Implementation Agreement, Indophil warranted issues its report which concludes that the Scheme is that it had ceased any existing discussions or negotiations in the best interests of Indophil Shareholders and does with any party that may reasonably be expected to lead to a not change that conclusion prior to 8:00am on the Competing Proposal; Second Court Date;
Indophil Resources NL Scheme Booklet 45 7. KEY TERMS OF THE SCHEME IMPLEMENTATION AGREEMENT (CONTINUED)
b) (No shop) during the Exclusivity Period, Indophil must not 7.5 BREAK FEE solicit, invite, initiate or encourage any Competing Proposal Indophil has agreed to pay APIC a break fee of $2.8 million or any inquiries, negotiations or discussions with any third in certain circumstances. In summary, the break fee will be party that could reasonably be expected to lead to the payable by Indophil if: making of a Competing Proposal; a) at any time before the Scheme Meeting is held, the Indophil c) (No talk) during the Exclusivity Period and subject to the Board, or any Independent Director, fails to recommend fiduciary exception described below, Indophil must not the Scheme to Indophil Shareholders or publicly withdraws, negotiate or enter into or participate in negotiations or qualifies or varies its recommendation of the Scheme in a discussions with any person which may reasonably be manner adverse to APIC, other than: expected to lead to a Competing Proposal or the Scheme i. in circumstances where Indophil is entitled to terminate not proceeding; the Scheme Implementation Agreement due to a d) (No due diligence) during the Exclusivity Period and subject failure of a condition precedent or due to a material to the fiduciary exception described below, Indophil must breach by APIC; or not make available to any other person or permit any other ii. as a consequence of the Independent Expert concluding person to receive any non-public information relating to the in its report (or in any revised or supplemental report) Indophil Group, in connection with such person formulating, that the Scheme is not in the best interests of Indophil developing or finalising a Competing Proposal; Shareholders; or e) (Notification of Competing Proposals) during the b) a Competing Proposal is announced during the Exclusivity Exclusivity Period and subject to the fiduciary exception Period and either: described below, if a Competing Proposal is put to Indophil, then Indophil must promptly inform APIC of that fact, the i. at any time during the Exclusivity Period or on or prior identity of the person or persons involved in the proposal to the date six months after the end of the Exclusivity and the key terms of the proposal; Period, the proponent of the Competing Proposal acquires control of Indophil, or voting power or an f) (Counter proposal right) subject to the fiduciary exception economic interest in more than 50% of Indophil Shares described below, if Indophil receives a Competing Proposal or acquires or obtains an economic interest in more than and, as a result, any Independent Director proposes to 50% (by value) of the assets (excluding cash), cash or change his recommendation of the Scheme, Indophil must businesses of the Indophil Group; or give APIC 3 Business Days prior notice of such proposed change. APIC will then have a period of 3 Business Days to ii. the Competing Proposal is recommended by any amend the terms of its proposed acquisition of the Scheme Independent Director; Shares. If the Independent Directors determine that the c) APIC validly terminates the Scheme Implementation counter proposal would be no less favourable to Indophil Agreement as a result of a material breach of any material Shareholders than the Competing Proposal, then Indophil term of the Scheme Implementation Agreement or a and APIC must use best endeavours to amend the terms material breach of an Indophil warranty; or of the Scheme Implementation Agreement to reflect the d) an Indophil Prescribed Event occurs or is not satisfied prior counter proposal, and Indophil must use best endeavours to 8:00am on the Second Court Date and APIC terminates to procure that the Independent Directors recommend the the Scheme Implementation Agreement as a result. counter proposal; g) (Fiduciary exception) the no talk, no due diligence If the break fee becomes payable to APIC, APIC cannot make notification and counter proposal restrictions summarised any claim against Indophil in relation to any loss arising from above do not apply to the extent that they restrict Indophil the Scheme not proceeding, any event or occurrence giving or the Indophil Board from taking or refusing to take any rise to the obligation to pay the break fee and any liability of action with respect to a bona fide Competing Proposal Indophil in relation to any breach of its obligations under the that is made in writing by or on behalf of a person that the Scheme Implementation Agreement or any breach of any Independent Directors consider is of reputable commercial Indophil warranty. standing provided that the Independent Directors have There is no break fee payable by APIC to Indophil if the Scheme determined in good faith, after consulting with Indophil’s does not proceed. advisers to the Scheme, that: Full details of the circumstances in which the break i. the Competing Proposal is reasonably capable of being fee is payable is set out in clause 12 of the Scheme valued and completed within a reasonable timeframe; Implementation Agreement. ii. the Competing Proposal would be more favourable to
For personal use only use personal For Indophil Shareholders than the Scheme, after taking into account all aspects of the Competing Proposal and the person making it; and iii. taking or failing to take the action with respect to the Competing Proposal would, or would be reasonably likely to, involve a breach of the fiduciary or statutory obligations of any Indophil Director. Full details of the exclusivity arrangements are set out in clause 13 of the Scheme Implementation Agreement.
46 Indophil Resources NL Scheme Booklet 7.6 TERMINATION 7.7 REPRESENTATIONS AND WARRANTIES Either Indophil or APIC may terminate the Each of Indophil and APIC has given certain customary Scheme Implementation Agreement in any of the representations and warranties to the other. Clause 7 of following circumstances: the Scheme Implementation Agreement sets out in full the a) the other party has materially breached any material representations and warranties provided by the parties. provision of the Scheme Implementation Agreement; or 7.8 SUNSET DATE b) there has been a breach of a representation or warranty Indophil and APIC have committed to implement the Scheme given by the other party in the Scheme Implementation by the Sunset Date, being 27 February 2015 or 29 May 2015 or Agreement where: earlier in certain circumstances as set out in clause 6.4(b) of the i. the breach was of a kind that, had it been previously Scheme Implementation Agreement. The Sunset Date may be disclosed, could reasonably be expected to have otherwise agreed in writing between Indophil and APIC. resulted in that party either not entering into the Scheme Implementation Agreement or entering into it on materially different terms; or ii. the breach amounts to, results in, or discloses, anything that could reasonably be expected to represent a material adverse effect on the relevant party’s business, financial affairs or prospects; c) any of the conditions precedent are not satisfied or waived and the parties cannot resolve the failure in order to satisfy the condition precedent following consultation with each other in accordance with the terms of the Scheme Implementation Agreement; d) the Court refuses to grant an order approving the Scheme; e) the Scheme is not approved by the Court under section 411(4)(b) of the Corporations Act on or before the Sunset Date; Indophil and APIC may only terminate the Scheme Implementation Agreement in the circumstances detailed in paragraphs a) and b) immediately above if: a) written notice setting out the details of the breach has been provided to the other party; and b) the breach has not been remedied within 20 Business Days (or any shorter period ending immediately before 8:00am on the Second Court Date) from the relevant notification date. In addition: a) APIC may terminate the Scheme Implementation Agreement before 8:00am on the Second Court Date if an Independent Director withdraws his recommendation that Indophil Shareholders vote in favour of the Scheme or publicly announces that he no longer supports the Scheme; b) Indophil may terminate the Scheme Implementation Agreement before 8:00am on the Second Court Date if all of the Independent Directors have changed, withdrawn or modified their recommendation that Indophil Shareholders vote in favour of the Scheme where the Independent Directors determine that a Competing Proposal constitutes a Superior Proposal; and
c) the Scheme Implementation Agreement will terminate For personal use only use personal For automatically without the need for action by any party if Indophil Shareholder approval is not obtained at the Scheme Meeting.
Indophil Resources NL Scheme Booklet 47 Section 8 Scheme Implementation
Procedures For personal use only use personal For
48 Indophil Resources NL Scheme Booklet 8. SCHEME IMPLEMENTATION PROCEDURES
8.1 IMPLEMENTATION OF THE SCHEME Shareholder, by Indophil procuring the delivery to APIC The steps to implement the Scheme are set out below: of duly completed and executed transfer form or forms to transfer all of the Indophil Shares (other than those a) on 22 September 2014, Indophil and APIC entered held by Excluded Shareholders) held on the Scheme into the Scheme Implementation Agreement in Record Date to APIC and Indophil entering the name relation to the Scheme under which Indophil agreed to of APIC in the Register as the holder of all of the Indophil propose the Scheme; Shares held on the Scheme Record Date; b) on 30 October 2014, APIC executed the Deed Poll iii) the Scheme Consideration will be dispatched to pursuant to which it agreed, subject to the Scheme Scheme Shareholders within 3 Business Days after becoming Effective, that APIC would provide the Scheme the Implementation Date in the manner set out in Consideration to each Scheme Shareholder in accordance (iv) and (v) below; with the terms of the Scheme. A copy of the Deed Poll is included in Annexure 4; iv) all payments will be made by Indophil making or procuring the making of a deposit into the nominated c) on 12 November 2014, the Court ordered that Indophil bank accounts of Scheme Shareholders (being the convene the Scheme Meeting at the offices of Baker & bank accounts nominated by Scheme Shareholders to McKenzie, Level 19, 181 William Street, Melbourne, Victoria receive payments) as advised by Scheme Shareholders to be held at 10:00am (Melbourne time) on 18 December to the Indophil Share Registry. If a Scheme Shareholder 2014, for the purposes of considering the Scheme; does not have a nominated bank account, by Indophil d) Indophil Shareholders (other than Excluded Shareholders) dispatching or procuring the dispatch of a cheque on the Register as at 7:00pm (Melbourne time) drawn in Australian dollars to that Scheme Shareholder on 16 December 2014 are entitled to vote at the by post to their registered address as shown in Scheme Meeting; the Register; and e) Indophil will apply to the Court for an order approving the v) in the case of Indophil Shares held on the Scheme Scheme if the Scheme is approved at the Scheme Meeting Record Date held in joint names, the payments will be by the Requisite Majorities. Each Indophil Shareholder made or forwarded to the registered address of the joint has the right to appear at Court on the Second Court Date holding as at the Scheme Record Date; where Indophil will apply for orders approving the Scheme. j) the Scheme will not become Effective if the Scheme An Indophil Shareholder wishing to appear at Court to Implementation Agreement is terminated or if the other oppose the approval of the Scheme can do so by filing with conditions precedent, referred to in Section 7, are not the Court and serving on Indophil a notice of appearance satisfied or waived; and in the prescribed form together with any affidavit on which they may wish to rely upon at the hearing. The Court has a k) if the Scheme becomes Effective, each Scheme discretion as to whether to grant the orders approving the Shareholder, without the need for any further act, irrevocably Scheme, even if the Scheme is approved at the Scheme appoints Indophil and each of its Directors and officers Meeting by the Requisite Majorities; (jointly and severally) as their attorney and agent for the purpose of executing any document or doing any other f) if the Court order approving the Scheme is obtained, act necessary to give full effect to the Scheme including Indophil will lodge with ASIC an office copy of the Court the provision of a proper instrument of transfer of their order under section 411(10) of the Corporations Act. The Indophil Shares. date on which this occurs will become the Effective Date; g) no dealings in Indophil Shares will be permitted after the 8.2 CONDITIONS OF THE SCHEME Effective Date, although the process to register dealings The Scheme is conditional upon various conditions precedent, that took place on or before the Effective Date will continue summarised in Section 7.3. For further details, please refer to until 7:00pm (Melbourne time) on the Scheme Record Date; the summary of the key terms of the Scheme Implementation h) if the Scheme becomes Effective, Indophil will immediately Agreement in Section 7. give notice of that event to the ASX. Once the Scheme 8.3 EFFECTIVE DATE becomes Effective, Indophil and APIC will become bound to implement the Scheme in accordance with its terms; The Scheme will become Effective on the date on which an office copy of the Court order approving the Scheme is lodged i) if the Scheme becomes Effective: with ASIC. If the Scheme becomes Effective, Indophil will give i) by close of business on the Business Day before the notice of that event to the ASX. On the Effective Date, Indophil Implementation Date, APIC will deposit into an Australian and APIC will become bound to implement the Scheme in dollar denominated trust account in Australia nominated accordance with its terms.
For personal use only use personal For by Indophil, an amount equal to the aggregate Scheme Consideration in cleared funds to be provided to the 8.4 DEALINGS IN INDOPHIL SHARES Scheme Shareholders, such amount to be held on trust If the Scheme becomes Effective, Indophil will apply to the by or on behalf of Indophil for the Scheme Shareholders ASX for suspension of trading in Indophil Shares on the and for the purpose of Indophil paying the Scheme ASX from close of trading on the Effective Date. Indophil will Consideration to each Scheme Shareholder; close the Register on the Scheme Record Date. Any transfer ii) all of the Indophil Shares (other than those held by or transmission application in respect of Indophil Shares Excluded Shareholders) held on the Scheme Record received after the Scheme Record Date will not be accepted Date will be transferred to APIC on the Implementation for registration nor recognised for any purpose. Date without the need for any further act by any Scheme
Indophil Resources NL Scheme Booklet 49 Section 9 Additional
Information For personal use only use personal For
50 Indophil Resources NL Scheme Booklet 9. ADDITIONAL INFORMATION
9.1 RESTRICTIONS IN THE INDOPHIL CONSTITUTION together with other members of the Alcantara family and certain There are no restrictions in the Indophil Constitution on the right other investors, collectively control APIC. For more information to transfer Indophil Shares pursuant to the Scheme. regarding the ownership of APIC, please refer to Section 5. 9.2 CREDITORS OF INDOPHIL Other than as set out above, neither Indophil nor any Director has a relevant interest in any securities of APIC. Neither Indophil The Scheme, if implemented, will not materially prejudice the nor any Director acquired or disposed of a relevant interest in ability of Indophil to pay its creditors as it involves the purchase any securities of APIC in the period of four months ending on of Indophil Shares rather than Indophil’s underlying assets. No the day immediately before the date of this Scheme Booklet. new liability (other than costs associated with the Scheme) is expected to be incurred by Indophil as a consequence of the 9.6 PAYMENTS, OTHER BENEFITS, AGREEMENTS implementation of the Scheme. OR ARRANGEMENTS 9.3 INDEPENDENT DIRECTORS’ INTENTIONS Other than as disclosed in this Section, there is no agreement or arrangement made between any Director and any other If the Scheme is implemented, it is intended that the Indophil person in connection with, or conditional upon, the outcome of Board will be reconstituted. It is for the reconstituted Indophil the Scheme and no Director has agreed to receive, or is entitled Board to determine its intentions as to the continuation of the to receive, any benefit from APIC which is conditional on, or business of Indophil and any major changes (if any) to the connected with, the Scheme other than in their capacity as a Indophil business and the future employment of the present Scheme Shareholder. employees of Indophil. Other than as disclosed in Section 9.5, no Director has any The current intentions of APIC with respect to these matters are interest in any contract entered into by APIC. set out in Section 5. No payment or other benefit is proposed to be made or given If the Scheme is not implemented, the Independent Directors in connection with the Scheme to any Director, secretary or intend to operate the Indophil business in the ordinary course, executive officer of Indophil, or of any Related Bodies Corporate which includes reviewing the strategy and operations of Indophil of Indophil, as compensation for loss of, or as consideration for, in accordance with usual responsibilities. or in connection with, his or her retirement from office in Indophil 9.4 DIRECTORS’ INTERESTS or in a Related Bodies Corporate. The Directors of Indophil and their relevant interests, in Indophil 9.7 ARRANGEMENTS BETWEEN APIC AND INDOPHIL Shares, as at the date of this Scheme Booklet, are: Mr Alcantara and Mr DyBuncio are each a non-executive Director of Indophil. References in this Scheme Booklet to Indophil recommendations made by the Independent Directors do not Name Shares include any recommendation by Mr Alcantara and Mr DyBuncio. Brian Phillips 1,700,000 Mr Alcantara and Mr DyBuncio have not been asked to provide their consent, nor have they consented to the issue of this Richard Laufmann 3,919,364 Scheme Booklet in their capacity as Directors of Indophil and Tony Robbins 2,671,750 they are not responsible for any information included in this Scheme Booklet which Indophil is responsible for as set out in Kyle Wightman 100,000 the “Important Notices” Section. David Carland 200,000 9.8 OTHER INFORMATION MATERIAL TO DECISION Nicasio Alcantara See disclosure IN RELATION TO THE SCHEME in Section 9.5 Except as set out in this Scheme Booklet, there is no information which is material to the making of a decision in Frederic DyBuncio 0 relation to the Scheme, being information that is within the knowledge of any Independent Director or director of any No Director has any Indophil Options. Related Bodies Corporate of Indophil, at the time of lodging Each of the Independent Directors considers that the Scheme this Scheme Booklet with ASIC for registration, which has not is in the best interests of Indophil Shareholders. Each of the previously been disclosed to the Shareholders of Indophil. Independent Directors who holds or controls the voting rights 9.9 FORMAL DISCLOSURES AND CONSENTS attached to Indophil Shares intends to vote his Indophil Shares, BY INDOPHIL or ensure that those Indophil Shares are voted, in favour of the Other than as set out in this Scheme Booklet, no person For personal use only use personal For Scheme in the absence of a Superior Proposal. named in this Scheme Booklet as performing a function in a 9.5 INTERESTS IN APIC HELD BY INDOPHIL professional, advisory or other capacity in connection with the AND DIRECTORS preparation or distribution of this Scheme Booklet holds, or With the exception of Mr Alcantara, none of the Indophil held at any time during the last two years before the date of this Directors, including Mr DyBuncio, have a direct shareholding Scheme Booklet, any interest in the formation or promotion of in APIC. As required by Philippine law, Mr Alcantara and all Indophil, any property acquired or proposed to be acquired by other APIC directors own one share of APIC. Mr Alcantara, Indophil in connection with Indophil’s formation or promotion or in connection with the Scheme. Other than as set out in this Scheme Booklet, no amounts have been paid or agreed to be
Indophil Resources NL Scheme Booklet 51 9. ADDITIONAL INFORMATION (CONTINUED)
paid and no value or other benefit has been given or agreed to 9.10 SUPPLEMENTARY INFORMATION be given to any of these persons for services rendered by them Indophil will issue a supplementary document to this Scheme in connection with the preparation of this Scheme Booklet or Booklet if, between the date of lodgement of this Scheme in connection with the formation or promotion of Indophil or in Booklet for registration by ASIC and the date of the Scheme connection with the Scheme. Meeting, it becomes aware of any of the following: a material The persons performing a function in a professional or statement in this Scheme Booklet is false or misleading, a advisory capacity in connection with the Scheme and with material omission from this Scheme Booklet, a significant the preparation of this Scheme Booklet on behalf of Indophil change affecting a matter included in this Scheme Booklet, are Citigroup Global Markets Australia Pty Limited (financial or a significant new circumstance has arisen and it would have adviser), Grant Samuel Corporate Finance Pty Ltd (financial been required to be included in this Scheme Booklet if it had adviser), Baker & McKenzie (legal adviser), BDO Corporate arisen before the date of lodgement of this Scheme Booklet Finance (WA) Pty Ltd (Independent Expert), AMC Consultants for registration by ASIC. Pty Ltd (Independent Technical Specialists) and Computershare Depending on the nature and timing of the changed Investor Services Pty Limited (the Share Registry). circumstances and subject to obtaining any relevant approvals, Each of those persons or entities is entitled to receive Indophil may circulate and publish the supplementary professional fees charged in accordance with their normal basis document by any or all of posting the supplementary document of charging. The fee for professional services paid or payable on its website (‘www.indophil.com’), making an announcement to the Independent Expert is $45,000. The fee for professional to the ASX or issuing a supplementary Scheme Booklet. services paid or payable to the Independent Technical 9.11 INDOPHIL OPTIONS ON ISSUE Specialist is $130,000. As at the date of this Scheme Booklet, Indophil has on issue the Each of those persons or entities has given, and has not Indophil Options set out in the table below. withdrawn before the date of this Scheme Booklet, their consent to be named in this Scheme Booklet in the form and context Expiry Date Exercise Price Quantity in which each of them are named. Each of those persons or entities has not authorised or caused the issue of this Scheme 19 December 2015 $0.25 910,000 Booklet and does not make, or purport to make, any statement 19 December 2016 $0.28 910,000 in this Scheme Booklet or any statement on which a statement in this Scheme Booklet is based, (other than in respect of the 19 December 2017 $0.31 910,000 portions of the Independent Expert’s Report prepared by the Total Options 2,730,000 Independent Expert, and other than in respect of the portions of the Independent Technical Specialist’s Report prepared by the Independent Technical Specialist) and to the maximum extent Indophil and APIC have entered into Option Sale Deeds under permitted by law, expressly disclaims all liability in respect of, which all Indophil Optionholders have agreed to transfer makes no representation regarding, and takes no responsibility their Indophil Options to APIC for aggregate consideration for, any part of this Scheme Booklet other than a reference to of $63,700. It is a condition precedent to the transfer of the its name and the statement (if any) included in this Scheme Indophil Options that the ASX grant a waiver to ASX Listing Rule Booklet with the consent of that party. 6.23.4. The ASX has granted that waiver to permit the transfer of the Indophil Options in accordance with the Option Sale Deeds APIC has given (and not withdrawn) its consent to be named which varies the Options terms to a minor extent in this regard. in this Scheme Booklet in the form and context in which it is APIC has waived its rights described in Section 7.3 paragraph named, on the basis set out in the Responsibility for Information (l) in this regard. paragraph contained in the “Important Notices” Section at the start of this Scheme Booklet. It is a condition of the ASX waiver that the Scheme be approved by Indophil Shareholders (other than the Excluded BDO Unibank Inc, the financier to APIC, has given, and has not Shareholders) and the Court as a result of which all of the withdrawn before the date of this Scheme Booklet, its consent Shares other than those that APIC and its Related Bodies to be named in this Scheme Booklet in the form and context Corporate do not own will be acquired by APIC. The Indophil in which it is named. BDO Unibank Inc has not authorised or Optionholders have also agreed not to exercise their Indophil caused the issue of this Scheme Booklet and does not make, Options except in circumstances where a Competing or purport to make, any statement in this Scheme Booklet or Proposal is announced. any statement on which a statement in this Scheme Booklet is based, and to the maximum extent permitted by law, expressly Pursuant to the Option Sale Deeds, the Indophil Optionholders have agreed to transfer their Indophil Options to APIC for the
disclaimsonly use personal For all liability in respect of, makes no representation regarding, and takes no responsibility for, any part of this consideration set out below: Scheme Booklet other than a reference to its name and the • 5 cents for each Option with an exercise price of 25 cents statement (if any) included in this Scheme Booklet with the and an expiry date of 19 December 2015; consent of BDO Unibank Inc. • 2 cents for each Option with an exercise price of 28 cents and an expiry date of 19 December 2016; and • nil for each Option with an exercise price of 31 cents and an expiry date of 19 December 2017. As a result of the Option Sale Deeds, Indophil is not proposing a Scheme of Arrangement with Indophil Optionholders.
52 Indophil Resources NL Scheme Booklet Section 10
Glossary For personal use only use personal For
Indophil Resources NL Scheme Booklet 53 10. GLOSSARY
10.1 GLOSSARY The meanings of the terms used in this Scheme Booklet are set out below.
Alsons Group the entities that are directly and/or indirectly owned or controlled by Alsons Development and Investment Corporation, a company directly and indirectly 100% owned by the Alcantara family.
APIC Alsons Prime Investments Corporation.
APIC Prescribed Event the meaning given to “Bidder Prescribed Event” in clause 1.1 of the Scheme Implementation Agreement.
ASIC Australian Securities and Investments Commission.
ASX ASX Limited or, as the context requires, the financial market known as the Australian Securities Exchange operated by it.
Business Day a day that is not a Saturday, Sunday, public holiday or bank holiday in Melbourne, Victoria.
CGT Australian capital gains tax.
Chairman the Chairman of the Indophil Board.
Competing Proposal any expression of interest, offer or proposal by any person (other than APIC or its Related Bodies Corporate): (a) to consider or enter into any transaction which, if ultimately completed, will have the result that any person will, or would reasonably be expected to, acquire voting power in 20% or more of Indophil Shares or control of Indophil, including by way of a takeover bid, scheme of arrangement, merger or any other transaction or arrangement; (b) to acquire, have a right to acquire or obtain an economic interest in 20% or more (by value) of the securities, assets (excluding cash), cash or business of the Indophil Group; or (c) to form a dual listed company structure, stapled security structure or other form of synthetic merger having the same or substantially the same effect as a takeover bid for, or Scheme of Arrangement or merger in respect of Indophil.
Corporations Act Corporations Act 2001 (Commonwealth of Australia).
Corporations Regulations Corporations Regulations 2001 (Commonwealth of Australia).
Court the Supreme Court of Victoria.
Deed Poll the deed poll dated 30 October 2014 executed by APIC in favour of Indophil Shareholders, a copy of which is contained in Annexure 4.
Directors the Directors of Indophil, in office at the date of lodgement of this Scheme Booklet for registration by ASIC, or in office from time to time, as the context requires.
Effectiveonly use personal For when used in relation to the Scheme, the coming into effect, pursuant to section 411(10) of the Corporations Act, of the order of the Court made under section 411(4)(b) in relation to the Scheme.
Effective Date the date on which the Scheme becomes Effective.
Excluded Shareholder APIC, Alsons Corporation and Alsons Consolidated Resources, Inc.
54 Indophil Resources NL Scheme Booklet Exclusivity Period the period from the date of the Scheme Implementation Agreement to the earliest to occur of: (a) the date the Scheme is implemented and becomes Effective; (b) the date the Scheme Implementation Agreement is terminated in accordance with its terms; and (c) the Sunset Date.
FIRB the Australian Foreign Investment Review Board.
FTAA the document titled ‘Columbio Financial and Technical Assistance Agreement’ dated 22 March 1995 (No. 02-95-XI) between WMC (Philippines), Inc. and the Government of the Republic of the Philippines in relation to the Tampakan Project on the Southern Island of Mindanao, the Philippines, which was assigned to SMI (as amended) and which provides SMI with the exclusive rights to explore, develop and mine large-scale mineral deposits in the area defined under the agreement.
Glencore Glencore Queensland Limited, a wholly owned subsidiary of Glencore plc.
GST the same as in the GST Law, any other Goods and Services Tax, or any tax applying to the performance of any obligations under this agreement in a similar way and any additional tax, penalty tax, fine, interest or other charge under a law for such a tax.
GST Law the same as “GST law” in A New Tax System (Goods and Services Tax) Act 1999 (Cth).
Implementation Date the date on which the Scheme is to be implemented (expected to be 23 January 2015).
Independent Directors each member of the Indophil Board other than Mr Alcantara and Mr DyBuncio.
Independent Expert BDO Corporate Finance (WA) Pty Ltd (a company incorporated in Australia and unrelated to Philippine-based BDO Unibank Inc., which acts as financier to APIC).
Independent Expert’s Report the report prepared by the Independent Expert (and any update to such report that the Independent Expert issues), a copy of which is contained in Annexure 1.
Independent Technical AMC Consultants Pty Ltd. Specialist
Independent Technical the report prepared by the Independent Technical Specialist (and any update to such report Specialist’s Report the Independent Technical Specialist issues) a copy of which accompanies the Independent Expert’s Report contained in Annexure 1.
Indophil or the Company Indophil Resources NL (ACN 076 318 173) and, where the context requires, includes its wholly owned subsidiaries.
Indophil Board the Board of Directors of Indophil.
Indophil Constitution the Indophil constitution as amended from time to time. For personal use only use personal For Indophil Group Indophil and its subsidiaries.
Indophil Option an option to subscribe for an Indophil Share.
Indophil Optionholder the holder of an Indophil Option.
Indophil Resources NL Scheme Booklet 55 10. GLOSSARY (CONTINUED)
Indophil Prescribed Event the meaning given to “Target Prescribed event” in clause 1.1 of the Scheme Implementation Agreement.
Indophil Share a fully paid ordinary share in Indophil.
Indophil Share Registry Computershare Investor Services Pty Limited.
Indophil Shareholder each person or entity registered in the Register as a holder of Indophil Shares.
JORC Code the Joint Ore Reserve Committee Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves.
Listing Rules the official listing rules of the ASX.
Material Adverse Event the meaning given to that term in clause 1.1 of the Scheme Implementation Agreement.
Mineral Production Sharing an agreement contemplated by the Mining Act of the Republic of the Philippines where the Agreement Philippine Government grants the exclusive right to conduct mining operations and extract mineral resources located in the area covered by the agreement.
Mineral Resource has the meaning given in the JORC Code.
MPFS Mine Project Feasibility Study.
Notice of (Scheme) Meeting the notice of meeting relating to the Scheme, a copy of which is contained in Annexure 2.
Ore Reserves has the meaning given in the JORC Code.
PFS Pre-Feasibility Study.
Proposal the proposed Scheme under which it is proposed that APIC will acquire 100% of the Indophil Shares not already owned by the Excluded Shareholders for 30 cents cash per Scheme Share.
Register the register of Indophil Shareholders maintained in accordance with the Corporations Act.
Related Bodies or Body has the meaning given to that term in the Corporations Act. (and in the case of APIC, includes Corporate Alsons Corporation and Alsons Consolidated Resources, Inc.)
Requisite Majorities the threshold for approval of a resolution on a Scheme of Arrangement between a body and its members under Part 5.1 of the Corporations Act, being votes ‘in favour’ of the resolution received from a majority in number (more than 50%) of the members, present and voting, either in person or by proxy, attorney or in the case of a corporation its duly appointed corporate representative, unless the Court orders otherwise and at least 75% of the votes cast on
the Resolution. For personal use only use personal For
Resolution the resolution to approve the terms of the Scheme, as set out in the Notice of Meeting.
Scheme or Scheme of the Scheme of Arrangement under Part 5.1 of the Corporations Act to be proposed between Arrangement Indophil and the Indophil Shareholders (other than the Excluded Shareholders), a copy of which is contained in Annexure 3, subject to any alterations or conditions made or required by the Court under section 411(6) of the Corporations Act and approved by Indophil and APIC.
56 Indophil Resources NL Scheme Booklet Scheme Booklet this document.
Scheme Consideration 30 cents cash per Indophil Share.
Scheme Implementation the Scheme Implementation Agreement dated 22 September 2014 between Indophil and APIC, Agreement a copy of which (without attachments) is contained in Annexure 5.
Scheme Meeting the meeting of Indophil Shareholders (other than Excluded Shareholders) ordered by the Court to be convened pursuant to section 411(1) of the Corporations Act.
Scheme Record Date the date for determining entitlements to receive the Scheme Consideration under the Scheme expected to be 7:00pm (Melbourne time) on 20 January 2015.
Scheme Share an Indophil Share held by a Scheme Shareholder.
Scheme Shareholder each person or entity who is an Indophil Shareholder (other than the Excluded Shareholders) as at 7:00pm (Melbourne time) on the Scheme Record Date (taking into account registration of all registrable transfers and transmission applications received at the Indophil Share Registry by the Scheme Record Date).
Second Court Date the first day on which the Court hears the application for an order under section 411(4)(b) of the Corporations Act to approve the Scheme, expected to be 13 January 2015 or, if the application is adjourned or subject to appeal for any reason, the first day of which the adjourned or appealed application is heard.
SMI Sagittarius Mines, Inc., the project vehicle for the Tampakan Project and holder of the FTAA.
Subsidiary the meaning given to that term in the Corporations Act.
Sunset Date 27 February 2015 or 29 May 2015 or earlier in accordance with clause 6.4(b) of the Scheme Implementation Agreement.
Superior Proposal a bona fide Competing Proposal which in the determination of the Independent Directors, acting in good faith and reasonably after having taken advice from its legal and financial advisers: (a) is reasonably capable of being completed in accordance with its terms, taking into account all financial, regulatory and other aspects of such proposal; and (b) would, if completed substantially in accordance with its terms, result in a transaction that is more favourable to Indophil Shareholders as a whole than the Scheme, taking into account all terms and conditions of the Competing Proposal.
Tampakan Project the Tampakan copper gold project, located in Southern Mindanao in the Philippines.
VWAP volume weighted average price.
XPFS Extended Pre-Feasibility Study. For personal use only use personal For
Indophil Resources NL Scheme Booklet 57 10. GLOSSARY (CONTINUED)
10.2 INTERPRETATION In this Scheme Booklet: a) other words and phrases have the same meaning (if any) given to them in the Corporations Act; b) words of any gender include all genders; c) words importing the singular include the plural and vice versa; d) an expression importing a person includes any company, partnership, joint venture, association, corporation or other body corporate and vice versa; e) a reference to a Section or Annexure is a reference to a Section of or Annexure of this Scheme Booklet as relevant; f) a reference to any legislation includes all delegated legislation made under it and amendments, consolidations, replacements or re-enactments of any of them; g) headings and bold type are for convenience only and do not affect the interpretation of this Scheme Booklet; h) a reference to time is a reference to Melbourne (Australia) time; i) unless otherwise indicated, a reference to dollars, $ and cents is a reference to the lawful currency of the Commonwealth of Australia and excludes GST; j) a reference to Php is a reference to the pesos being the lawful currency of the Philippines; k) an accounting term is a reference to that term as it is used in accounting standards under the Corporations Act, or, if not inconsistent with those standards, in accounting principles and practices generally accepted in Australia; and l) the words “include”, “including”, “for example” or “such as” when introducing an example, do not limit the meaning of the words
to which the example relates to that example or examples of a similar kind. For personal use only use personal For
58 Indophil Resources NL Scheme Booklet Annexure 1 Independent Expert’s Report (and Independent Technical
Specialist’s Report) For personal use only use personal For
Indophil Resources NL Scheme Booklet 59 ANNEXURE 1. INDEPENDENT EXPERT’S REPORT (AND INDEPENDENT TECHNICAL SPECIALIST’S REPORT)
INDOPHIL RESOURCES NL Independent Expert’s Report
10 November 2014 For personal use only use personal For
60 Indophil Resources NL Scheme Booklet
Financial Services Guide
10 November 2014
BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 (‘we’ or ‘us’ or ‘ours’ as appropriate) has been engaged by Indophil Resources NL (‘Indophil‘) to provide an independent expert’s report on the proposed acquisition of all the issued shares in Indophil by Alsons Prime Investments Corporation (‘APIC’) (other than Indophil shares held by APIC and its related bodies corporate). The acquisition will be implemented by way of a scheme of arrangement (‘the Scheme’). You will be provided with a copy of our report as a retail client because you are a shareholder of Indophil.
Financial Services Guide In the above circumstances we are required to issue to you, as a retail client, a Financial Services Guide (‘FSG’). This FSG is designed to help retail clients make a decision as to their use of the general financial product advice and to ensure that we comply with our obligations as financial services licensees.
This FSG includes information about:
Who we are and how we can be contacted; The services we are authorised to provide under our Australian Financial Services Licence, Licence No. 316158; Remuneration that we and/or our staff and any associates receive in connection with the general financial product advice; Any relevant associations or relationships we have; and Our internal and external complaints handling procedures and how you may access them.
Information about us BDO Corporate Finance (WA) Pty Ltd is a member firm of the BDO network in Australia, a national association of separate entities (each of which has appointed BDO (Australia) Limited ACN 050 110 275 to represent it in BDO International). The financial product advice in our report is provided by BDO Corporate Finance (WA) Pty Ltd and not by BDO or its related entities. BDO and its related entities provide services primarily in the areas of audit, tax, consulting and financial advisory services.
We do not have any formal associations or relationships with any entities that are issuers of financial products. However, you should note that we and BDO (and its related entities) might from time to time provide professional services to financial product issuers in the ordinary course of business.
Financial services we are licensed to provide We hold an Australian Financial Services Licence that authorises us to provide general financial product advice for securities to retail and wholesale clients.
When we provide the authorised financial services we are engaged to provide expert reports in connection with the financial product of another person. Our reports indicate who has engaged us and the nature of the report we have been engaged to provide. When we provide the authorised services we are not acting for you.
General Financial Product Advice We only provide general financial product advice, not personal financial product advice. Our report does not take into account your personal objectives, financial situation or needs. You should consider the appropriateness of this general advice having regard to your own objectives, financial situation
and needs before you act on the advice. For personal use only use personal For
BDO CORPORATE FINANCE (WA) PTY LTD
Indophil Resources NL Scheme Booklet 61 ANNEXURE 1. INDEPENDENT EXPERT’S REPORT (AND INDEPENDENT TECHNICAL SPECIALIST’S REPORT) (CONTINUED)
Financial Services Guide
Page 2
Fees, commissions and other benefits that we may receive We charge fees for providing reports, including this report. These fees are negotiated and agreed with the person who engages us to provide the report. Fees are agreed on an hourly basis or as a fixed amount depending on the terms of the agreement. The fee payable to BDO Corporate Finance (WA) Pty Ltd for this engagement is approximately $45,000.
Except for the fees referred to above, neither BDO, nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of the report.
Remuneration or other benefits received by our employees All our employees receive a salary. Our employees are eligible for bonuses based on overall productivity but not directly in connection with any engagement for the provision of a report. We have received a fee from Indophil for our professional services in providing this report. That fee is not linked in any way with our opinion as expressed in this report.
Referrals We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide.
Complaints resolution Internal complaints resolution process As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing addressed to The Complaints Officer, BDO Corporate Finance (WA) Pty Ltd, PO Box 700 West Perth WA 6872.
When we receive a written complaint we will record the complaint, acknowledge receipt of the complaint within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination.
Referral to External Dispute Resolution Scheme A complainant not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Financial Ombudsman Service (‘FOS’). FOS is an independent organisation that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial service industry. FOS will be able to advise you as to whether or not they can be of assistance in this matter. Our FOS Membership Number is 12561. Further details about FOS are available at the FOS website www.fos.org.au or by contacting them directly via the details set out below.
Financial Ombudsman Service GPO Box 3 Melbourne VIC 3001 Toll free: 1300 78 08 08 Facsimile: (03) 9613 6399 Email: [email protected]
Contact details
You may contact us using the details set out on page 1 of the accompanying report. For personal use only use personal For
62 Indophil Resources NL Scheme Booklet
TABLE OF CONTENTS
1. Introduction 1
2. Summary and Opinion 1
3. Scope of the Report 5
4. Outline of the Scheme 7
5. Profile of Indophil Resources NL 8
6. Profile of Alsons 20
7. Economic analysis 22
8. Country analysis 23
9. Industry analysis 25
10. Valuation approach adopted 29
11. Valuation of Indophil 31
12. Valuation of consideration 40
13. Is the Scheme fair? 41
14. Is the Scheme reasonable? 41
15. Conclusion 47
16. Sources of information 47
17. Independence 48
18. Qualifications 48
19. Disclaimers and consents 49
Appendix 1 – Glossary
Appendix 2 – Valuation Methodologies
Appendix 3 - Independent Technical Specialist Report prepared by AMC For personal use only use personal For
Indophil Resources NL Scheme Booklet 63 ANNEXURE 1. INDEPENDENT EXPERT’S REPORT (AND INDEPENDENT TECHNICAL SPECIALIST’S REPORT) (CONTINUED)
10 November 2014
The Directors Indophil Resources NL Level 3, 411 Collins Street Melbourne VIC 3000
Dear Directors INDEPENDENT EXPERT’S REPORT
1. Introduction On 23 September 2014, Indophil Resources NL (‘Indophil’ or ‘the Company’) announced that it had entered into a scheme implementation agreement with Alsons Prime Investments Corporation (‘APIC’), a wholly owned subsidiary of the Alsons Group, incorporated as a special purpose vehicle for the purpose of subscribing for shares in Indophil, to give effect to the acquisition of all of the issued shares of Indophil (other than those shares held by APIC and its related bodies corporate) by APIC (‘the Scheme’). Under the Scheme, Indophil shareholders will receive a cash consideration of $0.30 per Indophil share held (‘Scheme Consideration’).
Alsons Group is a Philippine-based group of companies controlled by the Alcantara family (‘Alsons’) and holds 19.99% of the Indophil shares on issue and will be excluded from voting on the Scheme at the scheme meeting expected to be held in mid-December (‘Scheme Meeting’). All values contained in this report are in Australian dollars (A$) unless otherwise indicated.
2. Summary and Opinion
2.1 Purpose of the report The directors of Indophil have requested that BDO Corporate Finance (WA) Pty Ltd (‘BDO’) prepare an independent expert’s report (‘our Report’) to express an opinion as to whether or not the Scheme is in the best interests of the non associated shareholders of Indophil (‘Shareholders’).
Our Report is prepared pursuant to section 411 of the Corporations Act 2001 Cth and is to be included in the scheme booklet for Indophil to be sent to all Shareholders (‘Scheme Booklet’) in order to assist them
in their decision whether to approve the Scheme. For personal use only use personal For
BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 AFS Licence No 316158 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Corporate Finance (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.
64 Indophil Resources NL Scheme Booklet
2.2 Approach Our Report has been prepared having regard to Australian Securities and Investments Commission (‘ASIC’) Regulatory Guide 60 ‘Schemes of Arrangements’ (‘RG 60’), Regulatory Guide 111 ‘Content of Expert’s Reports’ (‘RG 111’) and Regulatory Guide 112 ‘Independence of Experts’ (‘RG 112’). In arriving at our opinion, we have assessed the terms of the Scheme as outlined in the body of this report. We have considered:
how the value of an Indophil share on a controlling basis compares to the value of the cash consideration of $0.30 per Indophil share being offered by APIC; the likelihood of a superior alternative offer being available to Indophil; other factors which we consider to be relevant to the Shareholders in their assessment of the Scheme; and the position of Shareholders should the Scheme not proceed.
2.3 Opinion We have considered the terms of the Scheme as outlined in the body of this report and have concluded that, in the absence of a superior offer, the Scheme is fair and reasonable to Shareholders. Therefore, in the absence of a superior proposal, we conclude that the Scheme is in the best interests of Shareholders.
In our opinion, the Scheme is fair because the Scheme Consideration is within the low and high values of an Indophil share on a controlling interest basis.
We note that there are significant risk factors which create uncertainty over whether the fair market value of the Tampakan Copper-Gold Project (‘the Tampakan Project’ or ‘the Project’) will be realised by Indophil shareholders. The key risk factors we have identified include:
political and sovereign risks which historically, as well as currently, are impediments upon the development of the Tampakan Project; and the ability to secure significant funding given the level high capital expenditure required to develop the Project.
In light of this, in our view, it is more likely that the value of the Project is at the lower end of the range than the higher end of the range. This view is backed by our quoted market price (‘QMP’) valuation which supports the low end of our valuation range based on the net asset value (‘NAV’) approach. We consider the Scheme to be reasonable because the Scheme is fair. The Scheme is also reasonable because the advantages of the Scheme to Shareholders outweigh the disadvantages.
2.4 Fairness In section 13, we determined that the Scheme Consideration compares to the value of Indophil, as follows.
Low Preferred High Ref A$ A$ A$ Value of an Indophil share (controlling basis) 11.3 0.266 0.316 0.415
For personal use only use personal For Value of Scheme Consideration 12 0.300 0.300 0.300 Source: BDO analysis
2
Indophil Resources NL Scheme Booklet 65 ANNEXURE 1. INDEPENDENT EXPERT’S REPORT (AND INDEPENDENT TECHNICAL SPECIALIST’S REPORT) (CONTINUED)
The above valuation ranges are graphically presented below:
Valuation Summary
Value of an Indophil share (controlling basis)
Value of consideration
0.20 0.25 0.30 0.35 0.40 0.45 0.50 Value ($)
Source: BDO analysis The above pricing indicates that, in the absence of any other relevant information, and a superior offer, the Scheme is fair for Shareholders.
2.5 Reasonableness We have considered the analysis in section 14 of this report, in terms of both:
advantages and disadvantages of the Scheme; and
other considerations, including the position of Shareholders if the Scheme does not proceed and the consequences of not approving the Transaction.
In our opinion, the position of Shareholders if the Scheme is approved is more advantageous than the position if the Scheme is not approved. Accordingly, in the absence of any other relevant information and/or a superior proposal we believe that the Scheme is reasonable for Shareholders.
The respective advantages and disadvantages considered are summarised below:
ADVANTAGES AND DISADVANTAGES
Section Advantages Section Disadvantages
14.1.1 The Scheme is fair based on our assessed 14.2.1 Shareholders will no longer be able to net asset value of Indophil; we also note participate in any potential upside of Indophil that the Scheme Consideration is offered and of the Project, assuming that the Project at a premium to the 10, 20, 30 and 90 day can be funded appropriately and successfully volume weighted average price of an Indophil share prior to the announcement
of the Scheme For personal use only use personal For
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ADVANTAGES AND DISADVANTAGES
Section Advantages Section Disadvantages
14.1.2 Shareholders will obtain cash under the 14.2.2 Shareholders may face potential tax Scheme and not shares in the acquirer. implications such as crystallising a capital gains This is a particular benefit if the risk tax liability on the disposal of their shares profile of the acquirer is not aligned with earlier than expected. The Scheme may also the risk profile of Shareholders have tax consequences for Shareholders who are not residents of Australia for tax purposes
14.1.3 Shareholders have the opportunity to realise their investment with certainty and at a premium to the Company’s quoted market price
14.1.4 Shareholders will not be exposed to funding uncertainties of the Project and any potential significant dilution that may arise
14.1.5 Shareholders will not be subject to the uncertainties of Glencore’s future plans and ownership
14.1.6 Shareholders will not be exposed to the sovereign risks, illegal mining and security concerns in relation to the Project
14.1.7 No transaction costs will be incurred on the sale of shares
Other key matters we have considered include:
Section Description
14.3.1 We are not aware of any alternative proposal at present that might offer Shareholders a premium over the value ascribed to and resulting from the Scheme
14.3.2 Consequences of not approving the Scheme:
- potential decline in the liquidity of an Indophil share - potential decline in the share price of Indophil
14.3.3 The risks and ability of Indophil to realise the potential value of the Tampakan Project as determined by AMC need to be considered in comparison with the certainty of the cash consideration offered under the
For personal use only use personal For Scheme
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3. Scope of the Report
3.1 Purpose of the Report The Scheme is to be implemented pursuant to section 411 of the Corporations Act 2001 Cth (‘Corporations Act’ or ‘the Act’). Part 3 of Schedule 8 to the Corporations Act Regulations prescribes the information to be sent to shareholders in relation to schemes of arrangement pursuant to section 411 of the Act. Schedule 8 of the Act requires an independent expert’s report if:
the corporation that is the other party to the scheme has a common director or directors with the company which is the subject of the scheme; or
the corporation that is the other party is entitled to more than 30% of the voting shares in the subject company.
The expert must be independent and must state whether or not, in his or her opinion, the proposed scheme is in the best interest of the members of the company the subject of the scheme and setting out his or her reasons for that opinion.
RG 60.74 states that an explanatory statement must be accompanied by an independent expert report where there are common directors in the entities involved in the scheme of arrangement. Mr Nicasio Alacantra is a non-executive director of Indophil and a director of the Alsons Group of Companies including APIC. Mr Frederic DyBuncio is a non-executive director of Indophil and is associated with APIC through his position as Senior Vice President of SM Investment Corporations, which owns Philippines based BDO Unibank, Inc. (‘BDO Unibank’) (which is not in any way related to BDO). As such, an independent expert’s report was required to be prepared. All other members of Indophil’s board of directors are hereafter collectively referred to as the (‘Independent Directors’).
The requirement for an independent expert’s report is also a condition to the Scheme as outlined in the scheme implementation agreement dated 22 September 2014 (‘Scheme Implementation Agreement’). The Scheme Implementation Agreement states that for the Scheme to proceed, the independent expert report must conclude that the Scheme is in the best interests of Shareholders.
3.2 Regulatory guidance Neither the Act nor the Regulations defines the term ‘in the best interests of’. In determining whether the Scheme is in the best interests of Shareholders, we have had regard to the views expressed by ASIC in RG 111. This regulatory guide provides guidance as to what matters an independent expert should consider to assist security holders to make informed decisions about transactions.
A key matter under RG 111 that an expert needs to consider when determining the appropriate form of analysis is whether or not the effect of the transaction is comparable to a takeover bid and is therefore representative of a change of ‘control’ transaction.
In the circumstance of a scheme that achieves the same outcome as a takeover bid, RG 111 suggests that the form of the analysis undertaken by the independent expert should be substantially the same as for a takeover. Independent expert reports required under the Act in the circumstance of a takeover are required to provide an opinion as to whether or not the takeover bid is ‘fair and reasonable’. While there For personal use only use personal For is no definition of ‘fair and reasonable’, RG 111 provides some guidance as to how the terms should be interpreted in a range of circumstances. RG 111 suggests that an opinion as to whether transactions are
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fair and reasonable should focus on the purpose and outcome of the transaction, that is, the substance of the transaction rather than the legal mechanism to effect the transaction.
Schemes of arrangement pursuant to section 411 can encompass a wide range of transactions. Accordingly, ‘in the best interests’ must be capable of a broad interpretation to meet the particular circumstances of each transaction. This involves judgment on the part of the expert as to the overall commercial effect of the transaction, the circumstances that have led to the transaction and the alternatives available. The expert must weigh up the advantages and disadvantages of the proposed transaction and form an overall view as to whether shareholders are likely to be better off if the proposed transaction is implemented than if it is not. This assessment is the same as that required for a ‘fair and reasonable’ assessment in the case of a takeover. If the expert would conclude that a proposal is ‘fair and reasonable’, if it was in the form of a takeover bid, the expert will also be able to conclude that the scheme is in the best interests of shareholders. An opinion of ‘in the best interests’ does not imply the best possible outcome for shareholders.
3.3 Adopted basis of evaluation RG 111 states that a transaction is fair if the value of the offer price or consideration is greater than the value of the securities subject of the offer. This comparison should be made assuming a knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at arm’s length. Further to this, RG 111 states that a transaction is reasonable if it is fair. It might also be reasonable if despite being ‘not fair’ the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any higher bid.
Having regard to the above, BDO has completed this comparison in three parts: a comparison between the value of an Indophil share including a premium for control and the value of the cash consideration being offered per share (fairness – see Section 13 ‘Is the Scheme fair?’); an investigation into other significant factors to which Shareholders might give consideration, prior to approving the Scheme, after reference to the value derived above (reasonableness – see Section 14 ‘Is the Scheme reasonable?’); and a consideration of whether the Scheme is in the best interests of Shareholders. RG 111 states that if a transaction is fair and reasonable then the expert can conclude that the transaction is in the best interests of shareholders; if a transaction is not fair but reasonable an expert can still conclude that the transaction is in the best interests of shareholders; if a transaction is neither fair nor reasonable then the expert would conclude that the transaction is not in the best interests of shareholders.
This assignment is a Valuation Engagement as defined by Accounting Professional & Ethical Standards Board professional standard APES 225 ‘Valuation Services’ (‘APES 225’). A Valuation Engagement is defined by APES 225 as follows:
‘an Engagement or Assignment to perform a Valuation and provide a Valuation Report where the Valuer is free to employ the Valuation Approaches, Valuation Methods, and Valuation Procedures that a reasonable and informed third party would perform taking into consideration all the specific facts and
circumstances of the Engagement or Assignment available to the Valuer at that time.’ For personal use only use personal For This Valuation Engagement has been undertaken in accordance with the requirements set out in APES 225.
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4. Outline of the Scheme On 23 September 2014, Indophil announced that it had entered into the Scheme Implementation Agreement with APIC to give effect to the acquisition of all of the issued shares of Indophil (other than those shares held by APIC and its related bodies corporate) by APIC. Under the Scheme, Indophil shareholders will receive a cash consideration of $0.30 per Indophil share held. Following the completion of the Scheme, Indophil will be removed from the official list of the ASX and will become wholly owned by APIC and its related bodies corporate. To ensure that APIC has sufficient funds to pay the Scheme Consideration, APIC has provided to Indophil a commitment from its financier, BDO Unibank, confirming that, prior to the date of the Scheme Meeting, BDO Unibank will issue to Indophil an irrevocable standby letter of credit as an undertaking to provide this funding, conditional only upon the satisfaction or waiver of the conditions contained in the Scheme Implementation Agreement. APIC and BDO Unibank have entered into a loan agreement for the financing of the Scheme Consideration.
Additional information on BDO Unibank’s funding is found in the Scheme Booklet.
As at the date of our Report, there were 2,730,000 unlisted options in Indophil (‘Options’), all of which have vested. Indophil and APIC have entered into an Option Sale Deed with each Indophil option holder under which all holders of the Options have agreed to transfer their Options to APIC for a total consideration of $63,700. Refer to section 5.7 of our Report for further information on the Options.
The Scheme and the various obligations of the parties, Indophil and APIC, are conditional upon, but not limited to the following:
regulatory approvals of the Foreign Investment Review Board (‘FIRB’);
approval of the Scheme by the requisite majority (under the Act) of Shareholders at the Scheme Meeting, meaning approval from both 75% or more of the votes cast at the Scheme Meeting and 50% or more of the Shareholders present in person or by proxy at the Scheme Meeting;
the independent expert’s report concluding that the Scheme is in the best interest of Shareholders;
no changes in the Independent Directors’ opinion to vote in favour of the Scheme, in the absence of a superior proposal and subject to the opinion of our Report;
no variations to terms of any of the Options (in this regard, we note that APIC and Indophil have entered into an Option Sale Deed with each Indophil option holder as described in the preceding paragraphs above);
court approval of the Scheme in accordance with section 411(4)(b) of the Act; and
other customary conditions for transactions of this nature. Further disclosure of the conditions precedent to the Scheme is included in the Scheme Booklet.
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5. Profile of Indophil Resources NL
5.1 Background Indophil Resources NL is a mining company with its head office located in Melbourne, Australia. Indophil’s primary focus is the exploration and development of gold and copper-gold properties in the Philippines and South East Asia. The Company’s flagship mineral asset is the Tampakan Project. Indophil has a 37.5% economic interest in Sagittarius Mines Inc (‘SMI’), a Philippine mineral exploration and development company which controls the Tampakan Project. The remaining 62.5% economic interest is currently held by Glencore Queensland Limited as a subsidiary of Glencore International plc, subsequently known as Glencore Xstrata following the completion of the merger with Xstrata plc in May 2013 (‘Glencore’).
The interests of Indophil and Glencore in the Tampakan Project are held through A class shares issued by SMI, but they represent 100% of the economic interest in the Tampakan Project, with the exception of a nominal preferred dividend and royalty payable by SMI to the B class shareholders in SMI, known as the Tampakan Group of Companies. The Tampakan Group of Companies are in joint venture with Glencore and Indophil at the SMI shareholder level. Further information relating to the Tampakan Project is provided in section 5.3 of this report.
The Company’s current board members are shown below:
Mr Brian Philips – Non-Executive Chairman
Mr Richard Laufmann – Chief Executive Officer and Managing Director
Mr Tony Robbins – Executive Director
Mr Kyle Wightman – Non-Executive Director
Mr David Carland – Non-Executive Director
Mr Nicasio Alcantara – Non-Executive Director
Mr Frederic DyBuncio – Non-Executive Director
5.2 History Major events of the Company’s history are summarised in the following table.
Year Events
1996 Indophil was incorporated.
1997 Indophil had generated a portfolio of properties with an initial focus on the Philippines and minor activity in India.
1998 Indophil commenced an active exploration programme on the Philippines exploration portfolio.
In November 1998, Indophil signed a Heads of Agreement with the Alsons for a farm-in and joint venture
arrangement over the Manat property in south east Mindanao. For personal use only use personal For
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Year Events
1999 Exploration at Manat focused on an exploration drilling programme at the Magas prospect leading to an initial JORC compliant inferred resource of 272,000 oz gold and 1.75Moz silver within the Megas vein system.
2000 Indophil signed an ‘Acquisition Support Agreement’ and ‘Amended Acquisition Support Agreement’ with the Tampakan Group of Companies (‘TGC’) in relation to their rights to acquire from, and in support of their acquisition from, WMC International Pty Ltd (‘WMC’), of WMC Philippines Inc., the party to the FTAA relating to the Tampakan copper-gold deposit located in Southern Mindanao.
Indophil signed an agreement with Mt Isa Mines Limited (‘MIM’) (subsequently Xstrata and then Glencore) under which MIM had an option to purchase a 62.5% economic interest in the company which acquired WMC Philippines Inc, (and through it the Tampakan Project).
In mid 2000 Indophil initiated activity for an Initial Public Offering (‘IPO’) on the ASX.
2002 Indophil was listed on the ASX in May 2002 following the issue of 20 million ordinary shares fully paid at an issue price of $0.25 each to raise $5 million. For each share issued, shareholders received one option for nil consideration. Each option entitled the holder to subscribe for one share in Indophil at a price of $0.25 on or before 31 December 2004.
In August 2002 SMI secured handover of the Tampakan Project following the transfer of shares in WMC Philippines Inc from WMC to SMI and the transfer of the FTAA from WMC Philippines Inc to SMI. At this point in time, the share capital of SMI was restructured so that Indophil held a 100% economic interest in SMI through its ownership of 100% of the A class common shares, with TGC holding 100% of the B class shares (preferred shares).
2003 5% of Indophil’s A class shares in SMI were transferred to Alsons pursuant to the agreement between Alsons and Indophil in 2001. Under this agreement, in consideration for Alsons assisting with the resolution of a legal challenge brought by Lepanto Consolidated Mining Company, Indophil granted Alsons a 5% free-carried interest in SMI.
2005 A Preliminary Feasibility Study (‘PFS’) at the Tampakan Project was commenced.
In November, Indophil announced a significant 2004 JORC compliant resource increase to 8.9 million tonnes of contained copper and 11.6 million ounces of gold, using a 0.3% copper cut-off grade, for the Project.
2006 In April 2006, that mineral resource for the Project was revised by 47% to 2 billion, using a 0.3% cut-off grade. The new resource estimates, reported under the 2004 JORC Code and Guidelines, contained 11.6 Mt of copper and 14.6 million oz of gold, using the same 0.3% copper cut-off grade.
In October, the PFS was completed for the Project.
In December 2006, Xstrata Copper (‘Xstrata’) announced its decision to exercise its option over 62.5% of the A class common share in SMI, and this became effective on 30 March 2007. Following this, Xstrata For personal use only use personal For became the operator of the Project.
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Year Events
2007 In March 2007, Indophil agreed to purchase the additional 5% A class common shares in SMI from Alsons. The consideration was made up of the equivalent of $4.3 million cash and 37 million new shares in Indophil.
In December 2007, Glencore announced that the mineral resource estimate from the Tampakan Project in the Philippines had increased by over 10%. The upgraded resource estimate contained 12.8 Mt of copper and 15.2 million oz of gold, using the same 0.3% copper cut-off grade.
2008 In March 2008, Indophil announced a takeover offer for Lion Selection Group.
In May 2008, Indophil received a takeover offer from Xstrata, priced at $1.00 per Indophil share.
In June 2008:
Indophil announced that its takeover offer for Lion Selection Group would lapse;
the Crosby Consortium announced that it intended to make a cash offer of $1.28 per share for all the issued and outstanding shares in Indophil;
Xstrata subsequently increased its original offer of $1.00 per share to $1.28 per share to match the Crosby Consortium offer. In September 2008, Xstrata acquired a 17.83% interest in Indophil from Lion Selection Group at $1.17 per share for $82 million, which triggered a defeating condition and the Crosby Consortium offer lapsed; and
Indophil completed the first stage of the process to purchase Alsons 5% A class common shares in SMI. Indophil purchased 1.73% A class shares in SMI from Alsons under the first stage of the process and the consideration paid was $1.06 million and US$1.45 million plus 11.1 million Indophil shares issued to Alsons.
2009 In April 2009, Indophil announced the completion of the Extended Pre-Feasibility Study undertaken by SMI in conjunction with project manager Xstrata, for the Project.
A Final Feasibility Study at the Tampakan Project commenced in June 2009.
In October 2009: Indophil announced a significant JORC compliant resource increase by 8% to 2.4 billion tonnes, using a 0.3% copper cut-off grade. The new resource estimate, reported under the 2004 JORC Code and Guidelines, contained 13.5 Mt of copper and 15.8 million oz of gold. Indophil and Alsons reached an agreement in October by which Indophil would accelerate the acquisition of the remaining 3.27% interest of Alsons in the A class common shares in SMI. Upon acquiring Alsons 5% interest in the A class common shares in SMI, Indophil’s economic interest in SMI increased to 37.5%.
In December 2009, Indophil announced and recommended a takeover offer from Zijin Mining Group Co., Ltd for $1.28 cash per share. The transaction was not completed due to failure Zijin Mining Group Co.,
Ltd to obtain all necessary regulatory approvals. For personal use only use personal For
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Year Events
2010 SMI formally handed over the Tampakan Mining Project Feasibility Study to the Philippine Government in April 2010.
In June 2010: the securities of Indophil were suspended from quotation on 16 June 2010, reinstating to official quotation on 14 July 2010. Indophil and Zijin Mining Group Co., Ltd made a joint announcement, agreeing to terminate the takeover, effective immediately. SMI informed Indophil that the Governor of South Cotabato Province in the Phillipines approved a new Environment Code which included a ban on open pit mining.
In October 2010, Indophil made a US$40 million share placement at $0.86 per share to San Miguel Corporation. Following the placement, Indophil’s shares on issue increased from 423.4 million to 471.4 million. In conjunction with this, San Miguel Corporation entered into an exclusivity agreement with Indophil regarding the possibility of submitting a control proposal. The exclusivity period was extended in January 2011 for a further month. At the end of the exclusivity period in February 2011, Indophil, in discussions with San Miguel Corporation, was of the view that it was no longer in the best interest of the relevant parties, and as a result no control proposal was submitted.
2011 In June 2011, Indophil completed an institutional equity raising comprised of an institutional entitlement offer of 354,429,577 new shares and an institutional placement of 70,000,000 new shares, both at an offer price of $0.35 per share raising approximately $148.5 million. In addition, Indophil raised a further $34.8 million via a retail entitlement offer, raising a total of $183.3 million.
On 1 September 2011, Indophil announced the appointment of Dr David Carland to the Board as a Non- Executive Director.
On 12 December 2011, Indophil announced it had entered into a placement agreement to raise $97.7 million with Alsons. On completion of the placement, Alsons secured a 19.99% interest in Indophil. The placement consisted of two tranches as listed below: Tranche 1 – the issue of 66,666,667 shares at $0.45 per share to raise $30.0 million. Tranche 2 – the issue of 141,041,667 shares at $0.48 per share to raise $67.7 million.
Further to the above announcement, Indophil also announced the appointment of Mr Nicasio I Alcantara to the Board as a Non-Executive Director.
2012 In January 2012: Indophil received advice from SMI that the application for the Mine Environmental Compliance Certificate for the Project by the Philippine Government’s Environmental Management Bureau had been declined. Indophil announced a significant JORC compliant resource increase to 2.94 billion tonnes. The new resource estimate, reported under the 2004 JORC Code and Guidelines, contained 15.0 Mt
For personal use only use personal For of copper and 17.9 million oz of gold, using a 0.2% copper cut-off grade.
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Year Events
On 6 February 2012, Indophil announced the appointment of Mr Walter Wassmer to the Board as a Non- Executive Director and Ms Kay Donehue as Company Secretary.
In September 2012, Indophil announced the appointment of Mr Federic DyBuncio as a Non-Executive Director, replacing the position held by Mr Walter Wassmer.
In December 2012, SMI advised Indophil that in conjunction with Xstrata, they had provided the Philippine Government with an updated development plan outlining the potential for commercial production, aimed at commencing in 2019.
2013 In February 2013, Indophil announced that SMI had received the approval of the Environmental Compliance Certificate for the Project by the Philippine Government.
In May 2013, Glencore acquired Xstrata through a takeover.
In June 2013, Glencore Queensland Ltd issued proceedings in the Supreme Court of Queensland seeking an order for specific performance to enable it to become registered as the shareholder of those shares in SMI that it acquired from Indophil in 2007, which was later resolved by Indophil in February 2014.
In August 2013, SMI made substantial reduction to the Work Plan for the Project, dismissing approximately 1000 personnel and reducing expenditure by 80%.
2014 In September 2014, Indophil and APIC executed the Scheme Implementation Agreement to effect the acquisition of all of the issued shares of Indophil (other than those shares held by APIC and its related bodies corporate) by APIC under the Scheme.
5.3 Tampakan Copper-Gold Project The deposit was discovered in 1992 and is located approximately 65 km north-north-west of General Santos City on the Southern Philippines island of Mindanao. The Tampakan Project is estimated to be the largest undeveloped copper/gold deposit in South East Asia – Western Pacific Region.
Details of the Tampakan Project can be found in AMC’s Independent Technical Specialist Report in Appendix 3.
Ownership Structure The Tampakan Project is controlled by SMI, a company incorporated in the Philippines. The ownership structure of the Tampakan Project is as shown below:
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Indophil Resources NL Scheme Booklet 75 ANNEXURE 1. INDEPENDENT EXPERT’S REPORT (AND INDEPENDENT TECHNICAL SPECIALIST’S REPORT) (CONTINUED)
Source: Indophil The registered capital of SMI is Php 250 million and the paid up capital is Php 162,596,665. The shares of SMI are classified into A class common shares and B class preferred shares, and the shareholding ratio of A class and B class shares is 40:60.
As noted above, Indophil has a 37.5% economic interest in SMI. This is held through A class shares. The remaining holder of the economic interest of SMI is Glencore with a 62.5% economic interest (held through A class shares).
The B class shares (preferred shares) of SMI are held by Southcot Mining Corporation and Tampakan Mining Corporation (collectively referred to as TGC) which only have rights to participate in decisions in connection with certain significant matters of SMI such as a change in share capital and the disposal of substantial assets or reinvestments of SMI (‘SMI’s Preferred Stock’). The B class shareholders are also entitled to royalty payments based on 1.25% of the gross output or 6% of the net revenue of the Tampakan Project, whichever is higher. If SMI declares any dividend, B class shareholders are entitled to a dividend equal to 12% of the par value (Php1) of B class shares in priority over the A class shareholders, paid out of distributable profits, which is deducted from the royalty payments.
Economic interest in the Project is derived through the Financial and Technical Assistance Agreement (‘FTAA’) between SMI and the Government of the Republic of the Philippines.
The FTAA authorises SMI as its ‘contractor’ to carry out exploration and development of the Project. The FTAA has a fixed term of 25 years from 1995 with the option to extend for a further 25 years. Indophil’s most recent statement of Mineral Resource estimate for the whole Tampakan Project as advised by Xstrata and updated in January 2012 and in accordance with 2004 JORC Code reporting standards, is outlined in the table below:
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Mineral Resource at 0.2% copper cut-off grade Measured Indicated Inferred Total Resource (million tonnes) 980 1,290 670 2,940
Copper (%) 0.69 0.45 0.4 0.51 Gold (g/t) 0.28 0.16 0.1 0.19 Molybdenum (%) 0.008 0.006 0.005 0.006
Copper contained (Mt) 6.8 5.8 2.7 15.00 Gold contained (Mozs) 8.8 6.6 2.15 17.60 Note that figures in the table have been rounded Source: Company announcements The 2014 SMI work plan for the Project gained approval on 5 December 2013 for a budget of US$6.69 million. A further US$1.6m was added to the budget for community development programmes in February 2014. The focus of the work plan is aimed at gaining Philippine Government approvals, including the resolution of the open pit mining ban introduced by the South Cotabato provincial government in October 2010. Indophil has also funded the Off-Lease Infrastructure – Environmental Impact Assessment (pipeline, powerline, filter plant and port), which is in final draft stage pending regulatory requirements and approvals by SMI.
5.4 Philippines Exploration Northern Luzon – Balatoc Copper-Gold Project
Indophil has a Heads of Agreement with Geophilippines Inc. covering the Balatoc copper-gold project, which is located approximately 500km by road from Manila in Northern Luzon. The agreement provides Indophil with the opportunity to earn up to an 85% interest in the project should Geophilippines Inc. secure rights to the project.
Indophil continues to work with the Balatoc indigenous people to gain title and access to the property. Progress is being made in Indophil’s favour to resolve the competing claims covering the exploration permit applications.
Eastern Mindanao – Manat Gold Project
Manat is located in the Masara mineral district of east Mindanao, approximately 60 km north-east of port city of Davao. Indophil, through a joint venture arrangement with Alsons, has a 25% interest in the project. Indophil and Alsons have lodged the Declaration of Mining Project Feasibility based on a conservative JORC compliant Inferred Resource from 1999, as shown below:
Inferred Resource
Resource (million tonnes) 2.7 Gold (g/t) 2.8 Silver (g/t) 26 Lead (%) 0.85
Zinc (%) 1.58 For personal use only use personal For Source: Company announcements
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We note that Indophil has been seeking to exit from this project. However, if the Scheme is approved, Alsons will own 100% of the Manat project.
5.5 Historical Balance Sheet
Reviewed as at Audited as at Audited as at Statement of Financial Position 30-Jun-14 31-Dec-13 31-Dec-12 $000s $000s $000s CURRENT ASSETS
Cash and cash equivalents 208,702 215,093 235,037 Other receivable 943 942 1,628 Income tax receivable 1,951 -
Prepayments 136 127 97 TOTAL CURRENT ASSETS 211,732 216,162 236,762
NON-CURRENT ASSETS
Investment in associate 191,782 185,344 267,992 Other financial assets 2,668 2,653 2,624 Deferred tax assets - 1,808 3,198 Plant and equipment 85 101 137 TOTAL NON-CURRENT ASSETS 194,535 189,906 273,951 TOTAL ASSETS 406,267 406,068 510,713
CURRENT LIABILITIES
Trade and other payables 321 1,178 1,080 Provisions 370 262 279 Income tax payable - 1,578 907 TOTAL CURRENT LIABILITIES 691 3,018 2,266
NON-CURRENT LIABILITIES
Deferred tax liability 2,660 - - Provisions 54 149 94 TOTAL NON-CURRENT LIABILITIES 2,714 149 94 TOTAL LIABILITIES 3,405 3,167 2,360
NET ASSETS 402,862 402,901 508,353
EQUITY
Issued capital 494,215 494,215 494,215 Retained earnings (91,523) (91,552) 13,900 Reserves 170 238 238
For personal use only use personal For TOTAL EQUITY 402,862 402,901 508,353
Source: Indophil’s 2013 Annual Report and Interim Financial Report for the half-year ended 30 June 2014
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We note the following in relation to Indophil’s statement of financial position:
Indophil’s strong current cash position has been supported by capital raisings completed in the financial years ended 31 December 2011 and 31 December 2012. As described in section 5.2 of our Report, a total of $97.7 million was raised via placements (two separate tranches) made to Alsons. Indophil has not undertaken any equity raisings following the completion of the APIC placements.
Indophil’s cash position reduced from $235.04 million as at 31 December 2012 to $208.70 million as at 30 June 2014. This has largely been driven by shareholder advances made to SMI and payments to suppliers and employees. Indophil and Glencore fund exploration, evaluation and feasibility activities relating to the Tampakan Project by way of shareholder advances, which earn interest at a rate of 4% per annum compounded annually and are repayable from future net cash flows to be generated from the Project, if developed successfully. We note that Indophil funded additional expenditure for the Project such as the funding of the Off-Lease Infrastructure – Environmental Impact Assessment (pipeline, powerline, filter plant and port).
The Company accounts for its investment in an associate (SMI) using the equity method of accounting. Under this method, investments in associates are carried in the Statement of Financial Position at cost plus post-acquisition changes in the Company’s share of net assets of the associates.
The investment in associate balance of $191.78 million as at 30 June 2014 is significantly lower than $267.99 million as at 31 December 2012. This is the result of an impairment charge of $107.50 million which was recognised for the year ended 31 December 2013, following the announcement of the merger of Glencore and Xstrata. Coupled with the decline in the market capitalisation of the Company, Indophil’s board of directors considered these indicators of impairment and re-assessed the carrying value of the Company’s share in SMI at 31 December 2013.
A breakdown of the component values reflected in the balance of Indophil’s investment in SMI is presented below:
Reviewed as at Audited as at Audited as at Investment in associate 30-Jun-14 31-Dec-13 31-Dec-12 $000s $000s $000s Opening Balance 185,344 267,992 231,677 Advances during the period 1,406 16,425 27,000 Interest income on advances 5,258 10,008 8,767 Indophil funded SMI work programme 105 283 - Share of gain/(loss) for the period (331) (1,864) 548 Impairment of associate - (107,500) - Carrying Value 191,782 185,344 267,992
Source: Indophil’s 2013 Annual Report and Interim Financial Report for the half-year ended 30 June 2014
The share of the associate’s gain or loss for the period represents the change in Indophil’s beneficial interest (37.5%) of SMI’s net assets between the reporting periods. Indophil’s beneficial interest in SMI’s net assets is presented below:
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Indophil Resources NL Scheme Booklet 79 ANNEXURE 1. INDEPENDENT EXPERT’S REPORT (AND INDEPENDENT TECHNICAL SPECIALIST’S REPORT) (CONTINUED)
Reviewed as at Audited as at Audited as at Indophil’s share of SMI’s net assets 30-Jun-14 31-Dec-13 31-Dec-12 $000s $000s $000s Beneficial interest 37.5% 37.5% 37.5%
Current assets 598 775 1,562 Non-current assets 221,029 215,349 194,875 Current liabilities (812) (969) (4,442) Non-current liabilities (236,074) (230,083) (205,058) Net liabilities (15,259) (14,928) (13,063)
Source: Indophil’s 2013 Annual Report and Interim Financial Report for the half-year ended 30 June 2014
The net capital deficiency position of SMI, is attributable to higher pre-operating expenses relative to what has initially been capitalised. This is reflective of the difficulties associated with obtaining approvals and licenses at the Tampakan Project. Coupled with unrealised foreign exchange losses, Indophil’s 37.5% economic interest in SMI represents a net capital deficiency position.
Other receivables of $0.94 million as at 30 June 2014 comprise interest receivables which are recorded at carrying value. Due to their relatively short term nature, their carrying value is assumed to approximate their face value.
As at 30 June 2014, the Company is in a tax receivable position of $1.95 million with carried forward losses of $24.33 million. The income tax receivable position was recorded subsequent to the Company lodging an Objective Notice regarding the deferment of income tax on interest income capitalised on its loans to SMI, which has since been granted.
The Company has a net deferred tax liability position of $2.66 million at 30 June 2014, driven by deferred interest income on SMI loans of $11.975 million which is partially offset against a deferred tax asset of $9.315 million.
The other financial assets balance of $2.67 million as at 30 June 2014 primarily relates to advances made to TGC. Funds were provided to TGC to help finance its investment in SMI’s Preferred Stock. The other financial assets balance reflects funds advanced to TGC as well as interest charged on these advances.
Reviewed as at Other financial assets 30-Jun-14 $000s Advances 2,571 Indophil Security Bond – Office Lease 97 Total other financial assets 2,668
Source: Indophil’s Interim Financial Report for the half-year ended 30 June 2014
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5.6 Historical Statement of Comprehensive Income
Reviewed for the Audited for the Audited for the half-year ended year ended year ended Statement of Comprehensive Income 30-Jun-14 31-Dec-2013 31-Dec-2012 $000s $000s $000s Revenue
Interest income 8,835 18,749 21,144 Other income - 55 68 Change in fair value in contingent consideration payable - - 3,847 Expenses
Administration expenses (1,829) (1,222) (1,861) Corporate expenses (4,385) (4,653) (4,350) Depreciation (22) (51) (41) Disposal of fixed assets - - (8) Employee & director benefits - (3,099) (3,254) Exchange fluctuations (7) (35) (80) Exploration and evaluation expenses (595) (1,939) (7,517) Operating lease payments (119) (237) (278) Superannuation payments (185) (353) (287) Share of profit/(loss) of an associate (331) (1,864) 548 Share based payments expense - - (171) Impairment charge - (107,500) - Loss from continuing operations before income tax 1,362 (102,149) 7,760 Income tax expense (1,401) (3,303) (2,272) Profit/(Loss) from continuing operations after income tax (39) (105,452) 5,488 Other comprehensive income for the period - - - Total comprehensive profit/(loss) for the year (39) (105,452) 5,488
Source: Indophil’s 2013 Annual Report and Interim Financial Report for the half-year ended 30 June 2014 We note the following in relation to Indophil’s statement of comprehensive income:
Interest income earned relates to interest income earned on the substantial cash holdings, SMI loans and non-cash interest held by the consolidated group.
During the financial year ended 31 December 2011, Indophil recognised contingent liabilities of $3.85 million upon the acquisition of the Itogon project from Anvil Mining Ventures Inc. As the license for the project failed to receive government approval and no meaningful exploration success, Indophil re-measured the liability to nil at 31 December 2012, by recognising it as a gain from the change in the contingent consideration payable. Following this, the Company terminated the Itogon project, returning it to its former owners at the end of the financial year ended 31 December 2013.
Exploration and evaluation expenditure of $7.52 million was relatively high in the year ended 31 December 2012. The expense recorded during this period includes deferred exploration expenditure
expense of $5.01 million which resulted from the acquisition of Anvil Philippines Ventures Inc. For personal use only use personal For
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Indophil Resources NL Scheme Booklet 81 ANNEXURE 1. INDEPENDENT EXPERT’S REPORT (AND INDEPENDENT TECHNICAL SPECIALIST’S REPORT) (CONTINUED)
Share of profit/(loss) of an associate relates to the profit/(loss) incurred by Indophil as a result of its 37.5% economic interest in SMI. For the financial year ended 31 December 2013, an impairment charge of $107.5 million was recorded against Indophil’s 37.5% economic interest in SMI. Refer to section 5.5 for further details regarding the impairment charge.
5.7 Capital Structure The share structure of Indophil as at 23 October 2014 is outlined below:
Number Total ordinary shares on issue 1,203,146,194 Top 20 shareholders 1,098,120,917 Top 20 shareholders - % of shares on issue 91.27% Source: Computershare The range of shares held in Indophil as at 30 September 2014 is as follows:
Number of Number of Ordinary Percentage of Ordinary Shares Issued Shares (%) Range of Shares Held Shareholders 1 - 1,000 247 81,842 0.01% 1,001 - 5,000 396 1,217,183 0.10% 5,001 - 10,000 296 2,476,668 0.21% 10,001 - 100,000 853 31,326,622 2.60% 100,001 - 999,9999,999 188 1,168,043,879 97.08% TOTAL 1,980 1,203,146,194 100.00% Source: Securities Transfer Register The ordinary shares held by the most significant shareholders as at 16 October 2014 are detailed below:
Number of Ordinary Percentage of Name Shares Held Issued Shares (%) Alsons Group of Companies 240,508,334 19.99% Glencore Queensland Limited 157,189,422 13.06% Van Eck Associates Corporation 120,643,511 10.03% Acorn Capital Limited 100,863,521 8.38% Subtotal 619,204,788 51.46% Others 583,941,406 48.54% Total ordinary shares on Issue 1,203,146,194 100.00% Source: Securities Transfer Register There are 2,730,000 unlisted options outstanding as at the date of our Report. The Options were issued pursuant to the 2012 Employee Option Plan and they have all vested. Indophil and APIC have entered into an Option Sale Deed with each Indophil option holder under which all holders of the Options have agreed For personal use only use personal For to transfer their Options to APIC for a total consideration of $63,700.
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Current Options on Issue Number
Options exercisable at $0.25 and expiring 19 December 2015 910,000 Options exercisable at $0.28 and expiring 19 December 2016 910,000 Options exercisable at $0.31 and expiring 19 December 2017 910,000 TOTAL 2,730,000 Source: Indophil Schedule of 2012 Employee Option Plan
6. Profile of Alsons
6.1 History Alsons is a diversified Philippine conglomerate with interests in power generation, agribusiness, aquaculture, transportation and real estate development. Alsons has been in business in the Philippines for over 50 years and is one of the oldest and largest conglomerates in Mindanao, the second largest and southernmost island in the Philippines. Alsons comprises entities that are directly and/or indirectly owned or controlled by Alsons Development and Investment Corporation (‘Aldevinco’), a company directly and
indirectly 100% owned by the Alcantara family. The structure of Alsons is as follows. For personal use only use personal For
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Indophil Resources NL Scheme Booklet 83 ANNEXURE 1. INDEPENDENT EXPERT’S REPORT (AND INDEPENDENT TECHNICAL SPECIALIST’S REPORT) (CONTINUED)
Alsons Prime Investments Corporation / APIC APIC is a wholly owned subsidiary of Alsons, incorporated as a special purpose vehicle for the purpose of subscribing for Indophil Shares in the $97.7 million placement that Indophil completed in 2012. APIC’s sole investment is 207,708,334 Indophil shares. Alsons, including APIC, hold 240,508,334 shares in Indophil, representing approximately 19.99% of Indophil’s current issued capital. Alsons Development and Investment Corporation / Aldevinco Aldevinco is a stock corporation organized and registered with the Philippine Securities and Exchange Commission on 14 December 1962. Its primary purpose is to buy, sell, hold, deal in, improve, manage, administer or lease properties, real or personal and the fixtures and accessories incidental thereto. Aldevinco is one of the leading real estate firms operating in Davao City with projects such as Las Terrazas, Woodridge Park and Ladislawa Garden Village. ACIL Corporation ACIL Corporation was incorporated under Philippine laws on 27 August 1986 primarily to purchase or lease, or otherwise, lands and interests in lands and to own, hold, improve, develop and manage any real estate so acquired and to erect or cause to be erected any buildings or other structures on such any land so owned, held or occupied. Alsons Corporation Alcorp Corporation is a stock corporation incorporated on 1 February 1998 under the laws of the Philippines. Its purpose is to purchase, hold, pledge, transfer, sell or deal in shares of stock, bonds, debentures, notes or other securities or evidence of indebtedness on any person or corporation without engaging in stock brokerage, dealership in securities and management of funds and all similar assets of the managed corporations. Alcorp Corporation currently holds 3,651,000 Indophil shares. Alsons Power Holdings Corporation Alsons Power Holdings Corporation was registered with the Philippine Securities and Exchange Commission on 6 January 1993. Its purpose is to purchase, hold, pledge, transfer, sell or otherwise dispose of or deal shares or capital stock, bonds, debentures, noted or other securities or evidence of indebtedness of any person or corporation; and to receive, collect and dispose dividends, interest or other income on any such securities held by it and to do any and all acts and things intended to increase its value. Alsons Properties Corporation Alsons Properties Corporation was incorporated in the Philippines on 13 November 1997. It is primarily enegaged in real estate to acquire by purchase or lease or otherwise, lands and interests in lands and to own, hold, improve, develop and manage any real estate acquired. Alsons Consolidated Resources, Inc. Alsons Consolidated Resources, Inc. was incorporated on 24 December 1974 as Victoria Gold Mining Corporation to engage in the business of exploration for oil, petroleum and other mineral products. The company changed its name to ACR in June 1995 and subsequently changed its primary purpose to that of an investment holding company, and oil exploration was regulated to a secondary purpose. Its core
For personal use only use personal For business can be grouped into three main categories of Energy and Power, Property Development and Mining. Alsons Consolidated Resources, Inc. currently holds 29,149,000 Indophil Shares.
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7. Economic analysis
Australia
Growth in the global economy is continuing at a moderate pace. China's growth has generally been in line with policymakers' objectives, though some data suggest a slowing in recent months. Weakening property markets in Australia present a challenge in the near term. Commodity prices in historical terms remain high, but some of those important to Australia have declined further in recent months.
Volatility in some financial markets has picked up in recent weeks. Overall, however, financial conditions remain very accommodative. Long-term interest rates and risk spreads remain very low. Markets still appear to be attaching a low probability to any rise in global interest rates or other adverse event over the period ahead.
In Australia, most data are consistent with moderate growth in the economy. Resources sector investment spending is starting to decline significantly, while some other areas of private demand are seeing expansion, at varying rates. Public spending is scheduled to be subdued. Overall, the Reserve Bank of Australia (‘RBA’) still expects growth to be a little below trend for the next several quarters.
Labour market data have been unusually volatile of late. The RBA’s assessment remains that although some forward indicators of employment have been firming this year, the labour market has a degree of spare capacity and it will probably be some time yet before unemployment declines consistently. Growth in wages has declined noticeably and is expected to remain relatively modest over the period ahead, which should keep inflation consistent with the target even with lower levels of the exchange rate.
Monetary policy remains accommodative. Interest rates are very low and have continued to edge lower over recent months as competition to lend has increased. Investors continue to look for higher returns in response to low rates on safe instruments. Credit growth is moderate overall, but with a further pick-up in recent months in lending to investors in housing assets.
Dwelling prices have continued to rise over recent months. The exchange rate has declined recently, in large part reflecting the strengthening US dollar, but remains high by historical standards, particularly given the further declines in key commodity prices in recent months. It is offering less assistance than would normally be expected in achieving balanced growth in the economy.
Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.
Source: www.rba.gov.au Statement by Glenn Stevens, Governor: Monetary Policy Decision, 7 October 2014
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8. Country analysis
The Philippines
The Philippines has a total land area of 30 million hectares and is privileged with a high mineral potential. Gold, copper, nickel and chromite are prominent resources located in the Philippines. The Philippines also has significant oil & gas resource potential. However, for a developing nation with an improving economy, the Philippines has still not tapped its natural resources for national benefit.
The growth in the Philippine economy has withstood adverse conditions - including being relatively unaffected by the global financial crisis and being able to experience year-on-year growth in GDP during the global food and fuel crisis.
According to UN studies, governance has deteriorated since 1996 reflecting political instability, weakening control of corruption, decreasing regulatory quality, coordination failures and continuing episodes of human rights violations. Indophil has previously reported a growing number of cases of local people being engaged in illegal small-scale mining in areas within the vicinity of the Tampakan Project, although now significantly reduced.
Philippine GDP growth for 2013 was 7.2%, one of the highest growth rates seen in Asia and second only to that of China. In the second quarter of 2014, GDP growth was steady at a competitive 6.4%. Philippine economic growth is partly driven by remittances from Overseas Filipino Workers who contributed more than US$25 billion to the national economy in 2013, and it is backed by BPO services such as call centres to Western nations, including Australia. This is further supported by tourism, the industrial sector and a resurgence in manufacturing.
Together with relatively stable leadership and governance during the Presidency of Benigno Aquino, the Philippines has an improving global competitiveness rating, according to a September 2014 ‘most improved country overall’ finding by the World Economic Forum’s Global Competitiveness Report. The Philippines now also has ‘investment grade’ credit rating status from Standard & Poor’s, Fitch and Moody’s.
The mining landscape in Philippines is currently dominated by local Philippines companies and new laws attempted to be introduced by the government have not encouraged foreign investment. For example, the Philippine Government is looking to introduce a new mining revenue sharing bill that would levy either a 10% royalty on gross receipts or 55% of adjusted net mining revenue (whichever is the greater) plus either a windfall profits tax or surcharge on residual profits. Industry would be taxed annually, whether it is profitable or not. The net effect is that if enacted, there may be less legitimate and tax-paying minerals production, and government may receive less tax revenue than at present as foreign investors turn their back on an uncompetitive investment environment. The average effective tax rate under the proposed tax regime is significantly higher than countries such as Chile, Papua New Guinea, Peru and South Africa and other countries competing with the Philippines for mining investment.
A moratorium on the approval of mining projects has also frozen any major progress in the industry. The mining Executive Order number 79 (EO 79) signed in July 2012, effectively placed a temporary mining ban until new revenue-sharing arrangements take effect as certain sections of EO 79 on mining reforms include
provisions that government would not enter into new mining agreements until new legislation on revenue For personal use only use personal For sharing is passed.
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Small-scale mining flourishes in the Philippines – more often illegal and controlled by local and regional interests. Large-scale, responsible mining could contribute significantly to regional and national economic well-being, but it is severely hindered by regional self-interest and indifference, and poorly-considered policy at the national level. Furthermore, the Philippine Government is looking to introduce highly-restrictive land access or ‘no go’ zones for minerals exploration and development. If enacted in the present format, the ‘no go’ zones would lock out at least 65% of the Philippines for mining. Given the factors described above, including a tougher tax regime proposed under the new mining revenue sharing bills, the moratorium on the approval of mining projects and the plan to enforce ‘no-go’ zones, it is likely that foreign companies will consider the Philippines as being unattractive relative to other foreign investment opportunities. The political and economic environments continue to be a major challenge that will need to be overcome in order for the mineral potential of the Philippines to be realised and for development initiatives to be revitalised.
The above analysis is relevant in considering the amount that a potential buyer would pay for the Tampakan Project.
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Indophil Resources NL Scheme Booklet 87 ANNEXURE 1. INDEPENDENT EXPERT’S REPORT (AND INDEPENDENT TECHNICAL SPECIALIST’S REPORT) (CONTINUED)
9. Industry analysis
9.1 Copper Copper is a soft malleable, ductile metal used primarily for its excellent electrical and thermal conductive properties and its resistance to corrosion. As well as electrical and electronic applications, copper is utilised extensively as an alloy. Copper is produced from oxide or sulphide ore from which it is converted to copper metal.
The majority of copper ore bodies can be classified as either porphyries (where copper occurs in igneous rock) or strata bound ore bodies (sedimentary rock), or volcanic hosted massive sulphide deposits (volcanic rock along with other base metal sulphides). In these deposits copper is mined in very low concentrations and consequently is a volume intensive process.
Prices
Copper is a global commodity and, as such, prices are determined by global supply and demand factors. Due to this, copper prices have historically reflected global economic cycles and experienced major fluctuations, reflecting equity market movements.
At the beginning of 2008, supply concerns, falling inventories and increased demand from emerging economies provoked a significant and accelerated rise in the copper price. As with most commodities, prices fell during the GFC.
Prices have since overtaken the increases which occurred in 2008, occurring during the latter half of 2010 and throughout the beginning of 2011, reaching a peak of just over US$10,000/Mt in February 2011. Since that peak, prices have stabilised at around US$7,000 per tonne and are expected stay at approximately US$7,000 for the rest of 2014.
London Metals Exchange Copper Price
12,000
10,000
8,000
6,000
$USD/tonne 4,000
2,000
- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Copper spot price Forecast Forward
For personal use only use personal For Source: Bloomberg, Consensus Economics and BDO analysis
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Production and Usage Most of the world’s copper comes from South and Central America, particularly in Chile and Peru. In 2013, Chile and Peru account for approximately 40% of the world’s copper production. The graph below shows the split between the different country’s productions for the year to December 2013:
Global Copper Production -YTD December 2013
Chile
China 23% 32% Peru United States
3% Australia 4% Zambia 4% D.R. Congo
4% 10% Russia 5% 7% 8% Canada
Others
Source: Bloomberg According to the International Copper Study Group, in 2013, world apparent usage is estimated to have increased by 4% to 21.2 million tonnes compared with that in 2012. Chinese demand increased by 7% within the last year, with United States being the second largest country by demand with an increase of 3.6% for the year to December 2013.
World refined production is estimated to have increased by approximately 4.5% to 21 million tonnes compared to refined production in 2012. Primary production increased by 4%, while secondary production (from scrap) increased by 6.5%. The main contributors to this growth were China, Brazil, Democratic Republic of Congo and Zambia. Refined copper production in Chile, the world’s largest producer, declined due to smelter maintenance and temporary shutdowns.
Source: International Copper Study Group, IBIS World
9.2 Gold Gold is both a commodity and an international store of monetary value. Once mined, gold continues to exist indefinitely as bullion and jewellery, and is often recycled to produce alternative or replacement products. This characteristic means that gold demand is supported by both mine production and gold recycling.
As illustrated in the chart below, gold production was approximately 2,917 tonnes in 2013 and gold
consumption was 4,578 tonnes. For personal use only use personal For
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Gold Supply and Demand 5000 170% 4500 165% 4000
3500 160%
3000 155% 2500 2000 150% 1500
Metric tonnes Metric 145% 1000 140% Demand as % Supply 500 Gold Demand/Supply Mined 0 135% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Gold Mine Supply Gold Demand Demand as % Supply
Source: Bloomberg and BDO analysis Demand for gold has consistently exceeded supply over the last 10 years, and the escalated level of economic and financial uncertainty during recent years has caused investors to move capital from risky assets to gold assets, which are perceived to be a good store of monetary value. As a result, total gold demand increased by approximately 14% between 2008 and 2013, with demand as a percentage of supply remaining at over 150% for the same period.
Until the late 1980’s, South Africa produced approximately half of the total gold produced. More recently however, gold production has become geographically segmented, as shown in the chart below, with production dominated by China, Australia and the United States.
Gold Production 2013
China
Australia
16% United States
Russia 34% 10% South Africa
Peru 9% Canada 3% 8% Mexico 4% 5% 6% 6% Ghana
Other
Source: Bloomberg and BDO analysis For personal use only use personal For
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90 Indophil Resources NL Scheme Booklet
Gold prices The price of gold fluctuates on a daily basis depending on global demand and supply factors. The price trend over the last two years is reflective of weak global economic conditions driving demand. As can be seen in the graph below, the value of gold peaked at US$1,900 per ounce on 5 September 2011. This peak was largely caused by the debt market crisis in Europe, but it was also driven by Standard and Poor’s downgrade of the US credit rating. This sent global stock markets tumbling and a flood of investors towards safer havens such as gold. Prices contracted in December 2011 reaching a low of US$1,545 per ounce. However, there was a recovery in 2012 with the gold price reaching US$1,790 per ounce on 4 October 2012. Gold prices have declined in 2013 and most recently was US$1,207 per ounce on 6 October 2014.
According to Bloomberg forecasts and Consensus Economics, gold prices are forecast to increase slightly and then to stabilise in the coming years, with the long term forecast around US$1,297 per ounce.
Gold Spot Price
2,000
1,500
1,000 US$/Ounce
500
- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Gold spot price Forecast Forward
Source: Bloomberg, Consensus Economics and BDO analysis
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Indophil Resources NL Scheme Booklet 91 ANNEXURE 1. INDEPENDENT EXPERT’S REPORT (AND INDEPENDENT TECHNICAL SPECIALIST’S REPORT) (CONTINUED)
10. Valuation approach adopted There are a number of methodologies which can be used to value a business or the shares in a company. The principal methodologies which can be used are as follows:
Capitalisation of future maintainable earnings (‘FME’)
Discounted cash flow (‘DCF’)
Quoted market price
Net asset value
Market based assessment A summary of each of these methodologies is outlined in Appendix 2.
Different methodologies are appropriate in valuing particular companies, based on the individual circumstances of that company and available information. In our assessment of the value of Indophil shares we have chosen to employ the following methodologies:
sum-of-parts method, as our primary method, which estimates the market value of a company by separately valuing each asset and liability of the company. The value of each asset may be determined using different methods. The component parts of Indophil are valued using the NAV method; and
QMP approach as our secondary method.
Methodologies adopted
We have chosen these methodologies for the following reasons:
the sum-of-parts combined with the NAV approach is determined as our primary valuation method as the Company’s primary mineral asset, being the Tampakan Project, is not a producing asset and no revenue or cash flows are currently generated by these assets or are likely to in the near future;
the sum-of-parts combined with the NAV approach is also considered to be relevant as a high proportion of Indophil’s assets are liquid;
as the Tampakan Project is not currently generating any income nor are there any historical earnings that could be used to represent future earnings, the FME approach is not appropriate;
we consider there to be insufficient reasonable grounds to apply the DCF methodology and therefore, we have not elected to use the DCF valuation approach. These reasons include:
- a mine project feasibility study was completed in 2010 on a pre 2012 JORC Code resource;
- there has been a substantial review of elements of the plan since the completion of the mine project feasibility study but there has not been an update on the feasibility study or costing since then;
- whilst a 2012 resource update has been obtained (completed in 2011), it is compliant with the 2004 JORC Code but not the 2012 JORC Code, and additionally, there has been no new mine plan For personal use only use personal For on this updated mineral resource;
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- according to the mine project feasibility study completed for the Tampakan Project in 2010, the issue of a final ore reserve statement is dependent on the receipt of all requisite approvals and a decision by SMI to proceed with the next phase of the development of the Project. The Project has not yet received final approvals from the Philippine Government and no ore reserves have been declared for the Project;
- the Project requires a substantial capital expenditure of US$5.9 billion in 2010 equivalent dollars (of which Indophil’s contribution portion is estimated to be US$2.2 billion) and there is no indication at this stage that Indophil is able to fund this portion of capital investment; and
- there is continued uncertainty over the development proposition of the Project, including the open pit mining ban put in place by the South Cotabato provincial government in the area where the Project is located, security issues surrounding the mine site, Glencore’s publicly stated reluctance in developing greenfield projects as well as uncertainty surrounding Glencore’s future plans and ownership. This uncertainty casts further doubt on the existence of there being reasonable grounds to apply the DCF.
Other component parts of Indophil are valued using the NAV method; and
The QMP basis is a relevant methodology to consider because Indophil shares are listed on the ASX. This means there is a regulated and observable market where Indophil shares can be traded. However, in order for QMP to be considered appropriate, the Company’s shares should be liquid and the market should be fully informed of the Company’s activities.
Sum-of-parts
We employed the sum-of-parts method in estimating the fair market value of Indophil’s shares by aggregating the estimated fair market values of its underlying assets and liabilities, having consideration to the following: the value of Indophil’s 37.5% economic interest in SMI which includes the following components:
- Indophil’s interest in the Project (having reliance on an independent specialist valuation opinion); - the value of other assets and liabilities of SMI (applying the cost approach under the NAV method); and the value of other assets and liabilities of Indophil (applying the cost approach under the NAV method).
Independent specialist valuation In valuing the Tampakan Project, we have relied on an independent technical specialist’s report dated 10 November 2014 (‘Independent Technical Specialist Report’) prepared by AMC Consultants Pty Ltd (‘AMC’) in accordance with the Code of Technical Assessment of Mineral and Petroleum Assets and Securities for Independent Expert Reports (‘the Valmin Code’) and the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (‘JORC Code’).
We are satisfied with the valuation methodologies adopted by AMC which we believe are in accordance with industry practices and compliant with the requirements of the Valmin Code. A copy of AMC’s
For personal use only use personal For Independent Technical Specialist Report is attached in Appendix 3.
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11. Valuation of Indophil
11.1 Net Asset Valuation of Indophil In our assessment of the value of an Indophil share, we have chosen to employ the sum-of-parts method. The value of Indophil’s assets on a going concern basis is reflected in our valuation below:
Reviewed as at Preferred Statement of Financial Position 30-Jun-14 Low value value High value
Note $000s $000s $000s $000s CURRENT ASSETS
Cash and cash equivalents c) 208,702 208,702 208,702 208,702 Other receivable 943 943 943 943
Income tax receivable 1,951 1,951 1,951 1,951
Prepayments 136 136 136 136
TOTAL CURRENT ASSETS 211,732 211,732 211,732 211,732
NON-CURRENT ASSETS
Investment in associate a) 191,782 115,863 175,815 295,291 Other financial assets 2,668 2,668 2,668 2,668
Plant and equipment 85 85 85 85
TOTAL NON-CURRENT ASSETS 194,535 118,616 178,568 298,044
TOTAL ASSETS 406,267 330,348 390,300 509,776
CURRENT LIABILITIES
Trade and other payables 321 321 321 321
Provisions 370 370 370 370
TOTAL CURRENT LIABILITIES 691 691 691 691
NON-CURRENT LIABILITIES
Deferred tax liability b) 2,660 9,959 9,959 9,959 Provisions 54 54 54 54
TOTAL NON-CURRENT LIABILITIES 2,714 10,013 10,013 10,013
TOTAL LIABILITIES 3,405 10,704 10,704 10,704
NET ASSETS 402,862 319,644 379,596 499,072
Shares on issue (number) c) 1,203,146,194 1,203,146,194 1,203,146,194
Value per share ($) $0.266 $0.316 $0.415
Source: BDO analysis Indophil’s cash balance as at 30 September 2014 was $208.9 million, which is not materially different from
the Company’s cash balance of $208.7 million as at 30 June 2014. We have been advised that there has For personal use only use personal For been no material change in the net assets of Indophil since 30 June 2014. The table above indicates the
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net asset value of an Indophil share is between $0.266 and $0.415 with a preferred value of $0.316 per share.
We note that the value of an Indophil share as determined by the sum-of-parts valuation methodology is reflective of a controlling interest. The following adjustments were made to the net assets of Indophil as at 30 June 2014 in arriving at our valuation.
a) Investment in associate Our determination of the fair market value of Indophil’s interest in SMI is presented below.
Low Preferred High Fair market value of Indophil's investment in associate Note $000s $000 $000 Adjustments made to Indophil's investment in associate: Carrying book value of Indophil's investment in associate 191,782 191,782 191,782 Deduct: Carrying value of Indophil's investment in associate i) (191,782) (191,782) (191,782) Add: Value of SMI's other assets (37.5% interest) ii) 1,225 1,225 1,225 Add: AMC's valuation of Tampakan (37.5% interest) iii) 115,622 175,574 295,050 Adjusted fair market value of SMI's net assets (37.5% interest) 116,847 176,799 296,275 Less: Amounts due to SMI's Preferred Stock (37.5% interest) iv) (984) (984) (984) Fair market value of Indophil investment in associate 115,863 175,815 295,291 Source: Indophil’s Interim Financial Report for the half-year ended 30 June 2014 & supporting work papers, Independent Technical Specialist Report prepared by AMC & BDO analysis
i) Remove carrying value of investment in associate As explained in section 5.5 of our Report, Indophil’s investment in SMI has been accounted for using the equity method of accounting. Our sum-of-parts valuation replaces the carrying value of Indophil’s Investment in its associate (as per the Company’s reviewed accounts at 30 June 2014) and reflects the fair market value of Indophil’s 37.5% economic interest in SMI.
ii) Value of SMI’s other assets (37.5%) As outlined in section 5.5 of our Report, the Company’s Interim Financial Report for the half-year ended 30 June 2014 reflects Indophil’s 37.5% economic interest in the net assets of SMI. The value of SMI’s other assets attributable to Indophil is approximately $1.225 million. Loans and advances owed to related companies have been excluded as we consider these to have the characteristics of equity.
iii) Value of Tampakan related assets (37.5%) We engaged AMC to provide the fair market value of Indophil’s interest in the Tampakan Project. A copy of AMC’s Independent Technical Specialist Report is attached in Appendix 3. AMC has used the Yardstick methodology to value to the Tampakan Project. Where a mineral resource has been determined, yardstick values can be applied that have been determined from comparable For personal use only use personal For transactions. In this method, a value per unit of metal contained in the mineral resource is calculated from transactions and applied to the contained metal in the mineral resource that is the subject of the
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valuation. We are satisfied that the valuation methodologies adopted by AMC are in accordance with industry practices and in accordance with requirements of the Valmin Code.
The range of values for the Tampakan Project as calculated by AMC is set out below:
Low Value Preferred Value High Value Mineral Asset $m $m $m
The Tampakan Project (100%) in US$ 270 410 689
USD: AUD exchange rate (as at 23 October 2014) 0.8757 0.8757 0.8757
The Tampakan Project (100%) 308.325 468.197 786.799
Indophil’s interest in the Tampakan Project (37.5%) 115.622 175.574 295.050
Source: Independent Technical Specialist Report prepared by AMC The table above indicates a range of values for Tampakan (converted to Australian dollars) to be between $308.325 million and $786.799 million, with a preferred value of $468.197 million. The value of Indophil’s 37.5% interest in Tampakan is between $115.622 million and $295.050 million with a preferred value of $175.574 million.
iv) Deduct SMI’s Preferred Stock Before arriving at the fair value attributable to Shareholders through Indophil’s investment in SMI, holders of SMI’s Preferred Stock must have their capital investment repaid. We have deducted Indophil’s obligation of the paid up capital relating to SMI’s Preferred Stock of $2.624 million, as recorded in the SMI’s financial statements for the half year ended 30 June 2014. SMI’s Preferred Stock is voting, non- cumulative and earns a 12% annual dividend on the par value of the stock, payable out of unrestricted retained earnings of the group. We have not deducted the value of any potential dividends to SMI’s Preferred Stock due to the uncertainty in the ability of the Tampakan Project to generate profits in the near future. Besides, dividends are non-cumulative and the group does not have positive retained earnings as at the date of our valuation.
b) Deferred tax liability We note that Indophil had recognised a deferred tax asset (offset against a deferred tax liability) as at 30 June 2014 and the recovery of this asset is reliant upon both the derivation of sufficient taxable income and the satisfaction of the requisite test under Australian taxation law (the continuity of ownership test or the same business test). We have established, and as reflected in the valuation approach we have undertaken, that there is insufficient reasonable basis to expect that the Project is likely to progress to the development and production stage in the near future. In addition, the requirement to satisfy the requisite continuity of ownership and same business tests means that the deferred tax asset may need to be reassessed by Indophil in the event that the Scheme is implemented. In view of the significant uncertainty of the recovery of the deferred tax asset relating to carried forward
For personal use only use personal For losses of $24.331 million as at 30 June 2014, we have reduced the offset against the deferred tax liability by $7.299 million.
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c) Shares on Issue There were 2,730,000 options on issue over Indophil’s shares, all of which have vested. Indophil and APIC have entered into an Option Sale Deed with each Indophil Option holder under which all Option holders have agreed to transfer their Indophil Options to APIC for a total consideration of $63,700. As such, no exercise of the Options is assumed (no increase in cash) and no adjustment to the number of shares on issue is required.
11.2 Quoted Market Prices for Indophil Securities To provide a comparison to the valuation of Indophil in section 11.1, we have also assessed the quoted market price for an Indophil share.
The quoted market value of a company’s shares is reflective of a minority interest. A minority interest is an interest in a company that is not significant enough for the holder to have an individual influence in the operations and value of that company.
RG 111.11 suggests that when considering the value of a company’s shares for the purposes of a control transaction, the expert should consider a premium for control. An acquirer could be expected to pay a premium for control due to the advantages they will receive should they obtain 100% control of another company. These advantages include the following:
control over decision making and strategic direction; access to underlying cash flows; control over dividend policies; and access to potential tax losses. Therefore, our calculation of the quoted market price of an Indophil share, including a premium for control, has been prepared in two parts. The first part is to calculate the quoted market price on a minority interest basis. The second part is to add a premium for control to the minority interest value to arrive at a quoted market price value that includes a premium for control.
Minority interest value Our analysis of the quoted market price of an Indophil share is based on the pricing prior to the announcement of the Scheme. This is because the value of an Indophil share after the announcement may include the effects of any change in value as a result of the Scheme. We have considered the value of an Indophil share following the announcement when we consider reasonableness issues in Section 14.
Information on the Scheme was announced to the market on 23 September 2014. Therefore, the following chart provides a summary of the share price movement over the 12 months to 22 September 2014 which
was the last trading day prior to the announcement. For personal use only use personal For
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Indophil share price and trading volume history 0.30 14.0
0.25 12.0 10.0 0.20 8.0 0.15 6.0 0.10 Share Price Price Share ($) 4.0 Volume (millions) 0.05 2.0 0.00 -
Volume Closing share price
Source: Bloomberg The daily price of Indophil shares from 23 September 2013 to 22 September 2014 has ranged from a low of $0.1175 on 25 November 2013 to a high of $0.240 on 22 September 2014. During this period, there were only a limited number of price sensitive announcements that were made the market. We assessed the movement in the Indophil’s share price against the following:
- underlying commodity prices for gold & copper;
- the ASX Metals and Mining Index; and
- the ASX All Ordinaries Index. In each case, we determined that there was a low level of correlation with Indophil’s share price movements over the period. The only price sensitive announcements released to the market over the period were Quarterly Activities and Cashflow Reports as set out below:
Closing Share Closing Share Price Three Days Price Following Date Announcement After Announcement Announcement $ (movement) $ (movement) 30/07/2014 Quarterly Activities and Cashflow Report 0.210 2.3% 0.210 0.0% 29/04/2014 Quarterly Activities and Cashflow Report 0.140 3.4% 0.140 0.0% 30/01/2014 Quarterly Activities and Cashflow Report 0.165 3.1% 0.160 3.0% 31/10/2013 Quarterly Activities and Cashflow Report 0.155 3.3% 0.145 6.5%
Source: Bloomberg, BDO analysis On 30 January 2014, the Quarterly Report for the three months ended 31 December 2013 was released. As part of the Quarterly Report, Indophil announced that the budget for the Work Plan for the Project had
significantly reduced due to restructuring, with the budget for 2014 less than US$10 million. In response to For personal use only use personal For
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the release of the Quarterly Report, Indophil’s share price increased by 3.1% and remained steady over the following three trading days.
The Quarterly Report for the three months ended 31 March 2014 was released on 29 April 2014. As part of the report, Indophil announced that the Philippine Government granted a capital gains tax exemption on the transfer of shares in SMI. Indophil’s shares reacted negatively to the release of the Quarterly Report, decreasing by 3.4%.
The Quarterly Report for the three months ended 31 March 2014 also made reference to the announcement made by Glencore on 13 April 2014 stating that an agreement for the sale of its interest in the Las Bambas copper project in Peru had been signed. Glencore’s interest in the Las Bambas copper project was a road block, with respect to its relationship with the Chinese Government, which led to uncertainty regarding whether Glencore would be forced to divest its interest in the Tampakan Project. We analysed Indophil’s share price on the day that Glencore announced the agreement had been signed and in the ensuing trading days. Indophil share price was not affected by the positive information that had been released to the market.
On 30 July 2014, Indophil released the Quarterly Report for the three months ended 30 June 2014. In May 2014, SMI camp facilities were attacked by the New People’s Army in the Philippines, partially destroying the facility, fortunately with no casualties. It was also announced as part of the report that SMI had resubmitted the Project’s feasibility and other documents to the government’s Mines & Geosciences Bureau for reconsideration. Indophil’s share prices reacted negatively, reducing by 2.3% on the day of the release of the report.
To provide further analysis of the market prices for an Indophil share, we have also considered the volume weighted average market price (‘VWAP’) for 10, 30, 60 and 90 day periods to 22 September 2014.
Share Price per unit 22-Sep-14 10 Days 30 Days 60 Days 90 Days Closing price $0.210 Volume weighted average price (VWAP) $0.221 $0.212 $0.204 $0.188 Source: Bloomberg, BDO analysis The above weighted average prices are prior to the date of the announcement of the Scheme, to avoid the influence of any increase in price of Indophil’s shares that has occurred since the Scheme was announced.
We analyse the trading volume of Indophil’s shares for the 12 months to 22 September 2014 as follows:
Trading days Share price Share price Cumulative volume As a % of low high traded Issued capital 1 Day $0.205 $0.240 2,384,122 0.20% 10 Days $0.200 $0.240 18,276,465 1.52% 30 Days $0.170 $0.240 33,516,215 2.79% 60 Days $0.150 $0.240 67,259,227 5.59% 90 Days $0.140 $0.240 100,070,564 8.32% 180 Days $0.130 $0.240 203,734,262 16.93%
For personal use only use personal For 1 Year $0.118 $0.240 314,974,008 26.18% Source: Bloomberg, BDO analysis
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This table indicates that Indophil’s shares display a low level of liquidity, with 26.18% of the Company’s current issued capital being traded in a twelve month period. For the quoted market price methodology to be reliable, there needs to be a ‘deep’ market in the shares. RG 111.69 indicates that a ‘deep’ market should reflect a liquid and active market. We consider the following characteristics to be representative of a deep market:
regular trading in a company’s securities;
approximately 1% of a company’s securities are traded on a weekly basis;
the spread of a company’s shares must not be so great that a single minority trade can significantly affect the market capitalisation of a company; and
there are no significant but unexplained movements in share price. A company’s shares should meet all of the above criteria to be considered ‘deep’, however, failure of a company’s securities to exhibit all of the above characteristics does not necessarily mean that the value of its shares cannot be considered relevant.
In the case of Indophil, we do not consider the market to be deep. This is reflected by only 26.18% of the Company’s current issued capital being traded over the measurement period. We also note that 51.47% of the Company’s issued shares are held by the top four shareholders, reducing the number of freely tradeable shares.
Our assessment is that a range of values for Indophil shares based on market pricing, after disregarding post announcement pricing, is between $0.170 and $0.210.
Control Premium
The concept of a premium for control reflects the additional value that attaches to a controlling interest. In determining whether including a control premium is appropriate in this instance, we believe there are two key considerations. Firstly, we believe it is appropriate to consider the level of control currently held by APIC and what additional level of control/ability to influence the Company that APIC would gain if the Scheme is approved and secondly, whether a premium for control is appropriate given the current position of the Company. In arriving at an appropriate control premium, we note that observed control premiums can vary due to the:
nature and magnitude of non-operating assets;
nature and magnitude of discretionary expenses;
perceived quality of existing management;
nature and magnitude of business opportunities not currently being exploited;
ability to integrate the acquiree into the acquirer’s business;
level of pre-announcement speculation of the transaction; and
level of liquidity in the trade of the acquiree’s securities.
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Control premium for copper mining companies We also reviewed the control premiums paid by acquirers of copper mining companies listed on the ASX.
Year Number of Transactions Average Deal Value (AU$m) Average Control Premium (%) 2014 0 - - 2013 1 120.00 27.91 2012 0 - - 2011 2 4531.48 23.05 2010 1 1260.00 23.00
Median 1260.00 23.05 Mean 1970.49 24.65 Source: Bloomberg, BDO analysis Shanxi Donghui Coal Coking & Chemicals Group Co., Ltd. made an offer to acquire Inova Resources Limited on 21 August 2013 at an announced premium of 27.91%. The transaction was subject to minimum tender of at least 51% shares of Inova Resources Limited, approval of Chinese regulatory authorities, which include Chinese National Development and Reform Commission, Chinese Ministry of Commerce and Chinese State Administration of Foreign Exchange and approval of the Treasurer of the Commonwealth of Australia. As of 14 November 2013, Shanxi Donghui received an acceptance for 91.30% of the shares in Inova Resources Limited.
On 25 April 2011, Barrick Gold Corporation announced that it had entered into a support agreement to acquire the remaining 97.93% stake in Australian copper producer, Equinox Minerals Limited. Barrick Gold Corporation offered Equinox Minerals Limited an announced premium of 17.33%. Both Barrick Gold Corporation and Equinox Minerals Limited were involved in the exploration and development of copper assets. As such, the transaction led to an increase in total copper resources for Barrick Gold Corporation.
On 30 September 2011, Minmetals Resources Limited (now MMG Limited) entered into a binding agreement to acquire Anvil Mining Limited for CAD 1.3 billion, offering Anvil Mining Limited an announced premium of 28.76%. Both companies participated in the exploration and development of copper assets, leading to an increase in total copper resources for Minmetals Resources Limited (now MMG Limited).
On 25 October 2010, Equinox Minerals Limited made a takeover offer for Citadel Resource Group in a cash and share deal valued at about $1.26 billion and at an announced premium of 23%. The deal provided Equinox Minerals Limited with control over Citadel Resource Group’s portfolio of development and exploration assets in Saudi Arabia, including its flagship Jabal Sayid copper-gold project.
Control premium for gold mining companies
We have reviewed the control premiums paid by acquirers of gold mining companies listed on the ASX. We have summarised our findings below:
For personal use only use personal For
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Year Number of Transactions Average Deal Value (AU$m) Average Control Premium (%) 2014 1 66.35 32.29 2013 6 43.10 63.99 2012 7 258.74 34.89 2011 3 150.28 45.43 2010 10 1364.83 56.11 2009 9 169.34 24.94 2008 3 446.27 28.54
Median 169.34 34.89 Mean 356.99 40.88 Source: Bloomberg, BDO analysis The long-term average announced control premium paid by acquirers of gold mining targets in Australia is in excess of 40%. The sample of transactions analysed includes extreme outliers. Three of the transactions included in the sample had announced control premiums in excess of 100% and four transactions involved situations whether the acquirer obtained a controlling interest at a discount. In a sample where there are extreme outliers, the median often represents a superior measure of central tendency compared to the mean. We note that the median announced control premium over the review period was 34.89%.
On 24 February 2014, Sierra Mining Limited announced it had entered into a conditional Scheme Implementation Agreement under which all existing shares and options in Sierra Mining Limited would be exchanged for shares and options in RTG Mining Inc by way of two schemes of arrangement, a Share Scheme and an Option Scheme. Based on market prices at the date of the transaction, the consideration provided reflected that RTG Mining Inc was offering a control premium of 32%. Like Indophil, Sierra Mining Limited’s projects are located in the Philippines.
Conclusion
Based on our research and the considerations set out above, we believe that an appropriate control premium to apply in our valuation of Indophil’s shares is between 25% and 35%.
Quoted market price including control premium
Applying a control premium to Indophil’s quoted market share price results in the following quoted market price value including a premium for control:
Low Midpoint High A$ A$ A$ Quoted market price value 0.170 0.190 0.210 Control premium 25% 30% 35% Quoted market price valuation including a premium for control 0.213 0.247 0.284
Source: BDO analysis
Therefore, our valuation of an Indophil share based on the quoted market price method and including a For personal use only use personal For premium for control is between $0.213 and $0.284, with a midpoint value of $0.247.
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11.3 Assessment of Indophil’s Value The results of the valuations performed are summarised in the table below:
Low Preferred High A$ A$ A$ Net assets value (Section 11.1) 0.266 0.316 0.415 QMP (Section 11.2) 0.213 0.247 0.284
Source: BDO analysis Our valuation of an Indophil share under the sum-of-parts combined with NAV approach is higher than our valuation based on the QMP approach. The difference in these values can be explained by the following:
the market for the Indophil’s shares is not deep and this may be partly due to the tightly held capital structure of the Company with four substantial shareholders holding over 51% of the issued capital of the Company and the top 20 shareholders holding over 90% of the Company’s total shares;
the market has attributed limited value to Indophil’s interest in the Tampakan Project as reflected by the market capitalisation of Indophil being approximately $192.5 million on 30 June 2014 against the Company’s cash balance of $208.7 million as at 30 June 2014;
the limited value attributed to the Tampakan Project reflects the market’s view of the uncertainties and significant risks associated with the development of the Project, hence the QMP value primarily reflecting the cash backing of the Company; and
the market has possibly considered the significant dilutive effect from a capital raising to meet Indophil’s share of the capital required for the Project.
Given the lack of depth in the trading of Indophil’s shares, we have not relied on the QMP value. However, we note that the QMP value supports the value determined based on the NAV approach, particularly the low end of the range.
Uncertainties associated with Glencore’s future plans and ownership of the Project, as well as funding risks associated with the Project, are unique risks specific to the current ownership of the Project, which may be substantially reduced with a change in ownership. This is discussed further in section 14.
Therefore, despite the differences in values obtained between the two methods, we consider that our sum-of-parts value (which is performed on a going concern basis) most accurately reflects the fair market value of Indophil’s interest in the Tampakan Project. Based on the results above, we consider the value of an Indophil share to be between $0.266 and $0.415 with a preferred value of $0.316.
12. Valuation of consideration Under the Scheme, Shareholders will receive $0.30 per share in cash for all of the shares held by each Shareholder.
For personal use only use personal For
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13. Is the Scheme fair? We determined that the controlling interest value of an Indophil share is lower than the cash consideration Shareholders will receive if the Scheme is implemented. Therefore, we concluded that the offer is fair for Shareholders.
Low Midpoint High Ref A$ A$ A$ Value of an Indophil share (controlling basis) 11.3 0.266 0.316 0.415 Value of consideration 12 0.300 0.300 0.300 Source: BDO analysis
14. Is the Scheme reasonable?
14.1 Advantages of approving the Scheme We set out the key advantages that the Scheme is expected to bring to Shareholders.
14.1.1 The Scheme is fair Our analysis in section 13 concludes that the Scheme is fair to Shareholders.
We also note that the cash consideration offered under the Scheme is at a premium to the 10, 30, 60 and 90 day VWAPs of Indophil prior to the announcement of the Scheme as set out in section 11.2 of this report. Therefore, in addition to a low likelihood for Shareholders to realise the potential value of the Project, as valued by AMC, the cash consideration offered under the Scheme may be an attractive exit option for Shareholders.
14.1.2 Shareholders obtain cash under the Scheme The Scheme involves the acquisition by APIC of all of the outstanding shares in Indophil (other than those shares held by APIC and its related bodies corporate) for a cash price of $0.30 per share for each Indophil share. Shareholders will obtain cash for the exit on their investment, which offers certainty in their return on investment. The cash consideration is also not subject to any financing conditions as APIC will be funding the bid from BDO Unibank which is controlled by the SM Group in the Philippines.
Given the demonstrated low level of liquidity in the trading of Indophil’s shares, the certainty of the cash consideration of $0.30 per share is a benefit to Shareholders, in particular those who hold larger parcels of shares, who if they try to sell their interests on the market, may have difficulty or may cause the quoted market price to fall. If the consideration had been a scrip offer, Shareholders would have to hold shares in APIC following APIC’s acquisition of Indophil. If that had been the case, Shareholders would have been exposed to the uncertainty of the value of APIC and the illiquidity of APIC shares if they do not become listed on any stock exchange. The risk profile of APIC may also not be aligned with the risk profile of Shareholders.
For personal use only use personal For Since the Scheme Consideration is 100% cash, these concerns have been addressed.
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14.1.3 Shareholders have the opportunity to realise their investment with certainty and at a premium to the Company’s quoted market price The offer of cash consideration under the Scheme presents an exit for Shareholders to realise their investment with certainty or face the risk that they may not be able to realise the potential market value of the Project, as valued by AMC, in view of the significant risks inherent in taking the Project to development. These include funding, operational and sovereign/political risks as discussed in the sections to follow. The cash consideration of $0.30 per share is offered at a premium to the Company’s 10, 30, 60 and 90 day VWAPs prior to the announcement of the Scheme, as calculated in section 11.2 of our Report. Therefore, the cash offer pursuant to the Scheme provides Shareholders with the opportunity to realise a return on investment in Indophil at a price which is at a premium to Indophil’s quoted market price, which is the value that is readily accessible by Shareholders.
14.1.4 Shareholders will not be exposed to funding uncertainties of the Project Shareholders will no longer be exposed to funding uncertainties of the Project, which, if present, would put their investment at risk. The Project requires significant capital outlay and funding such a project would generally be more difficult than for a project with a significantly smaller capital outlay. This is particularly pertinent in the current uncertain market conditions.
According to Indophil’s Annual Report 2013 and Interim Financial Report for the half year ended 30 June 2014, the Project has capital requirements of US$5.9 billion in 2010 equivalent dollars (including a US$900 million allocation for a power plant which is now to be outsourced under a third party power purchase agreement). Indophil’s proportionate funding commitment would be at least US$2.2 billion. Based on the Company’s market capitalisation of approximately $253 million on 22 September 2014 prior to the announcement of the Scheme, it would have to raise several times the value of its market capitalisation to meet the funding requirements, which is unlikely to be achievable by solely undertaking a fund raising through the capital markets.
Even if funding is available, Shareholders will likely have to face significant dilution through the effect of the size of capital raised and the substantial discount in the placement price required for such capital raising to be achieved, unless they participate proportionally in the capital raising, or be exposed to significant risks associated with other non-equity funding alternatives such as debt financing. For such an amount, it is unlikely that individual shareholders can participate proportionately such that they are not diluted.
14.1.5 Shareholders will not be subject to the uncertainties of Glencore’s future plans and ownership According to Indophil’s Annual Report 2013, Glencore, which owns 62.5% in SMI, had signalled its preference not to develop greenfield projects, and whilst Glencore has not commenced any formal process to divest its stake in the Project, informal discussions with the Company which holds a pre- emptive right over Glencore’s interest in the Project have been ongoing. Consistent with these intentions, Glencore, following its merger with Xstrata, had directed SMI to develop
For personal use only use personal For a revised work plan which resulted in significantly reducing SMI’s project activities and workforce. According to Indophil’s Annual Report 2013, 1,000 employees and contractors were made redundant and
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SMI’s 2013 expenditure was reduced from an approved US$53.9 million budget to a US$35.0 million revised work plan.This has since been further reduced to less than US$9 million and no work plan or budget for 2015 has yet been prepared. As a result, Indophil chose to sole fund certain programmes outside the scope of the revised work plan in order to complete some essential additional programmes. As Glencore holds a controlling interest of 62.5% in SMI and acts as project manager, Indophil’s plans are largely dependent on Glencore controlling and managing the Project. Indophil had put through an impairment charge of S107.5 million in the financial year ended 31 December 2013 due to uncertainties in Glencore’s future plans and ownership and the reduced expenditure budget under the revised work plan, amongst other reasons.
The uncertainties of Glencore’s current and future objectives put Shareholders’ investment in the Project and Shareholders’ investment in the shares of the Company at risk. This risk could take the form of delays in developing the Project and the inability to realise the potential value of the Project (as reflected in the net asset value being higher than the quoted market price of Indophil’s shares), despite the Project being viewed as world class.
14.1.6 Shareholders will not be exposed to the country specific risks of the Project The Project bears several uncertainties and risks which contribute to possible delays in the development of the Project. Other than those already discussed above, these include sovereign/political risks, illegal mining and security concerns.
Sovereign/political risks
The Project, located in the Philippines, is subject to sovereign and political risks in that country. The Project may be subject to changes in fiscal regimes for mining projects. The government plans to introduce and pass a new fiscal regime that will significantly increase taxes on large scale mining which are already at high levels.
The average effective tax rate under a proposed tax regime (Senate Bill number 2362 filed on 18 August 2014 with the 16th Congress Senate of the Philippines) is significantly higher than countries such as Chile, Papua New Guinea, Peru and South Africa and other countries competing with the Philippines for mining investment. This means that, if implemented, a very high proportion of revenue will go to the Philippine Government and mining firms will not earn returns as high as they would investing outside the Philippines.
A moratorium on the approval of mining projects has also frozen any major progress in the industry. The mining Executive Order number 79 (EO 79) signed in July 2012, as a statement of the administration mining policy, effectively placed a temporary mining ban until the new revenue-sharing arrangements take effect as certain sections of EO 79 on mining reforms include provisions that government would not enter into new mining agreements until new legislation on revenue sharing is passed. Large scale mining in the Philippines continues to face opposition from community groups and local governments as well as elements of the country’s influential Catholic bishops. The Project is subject to a ban on open pit mining in South Cotabato, imposed by the provincial government in 2010, which remains in place.
For personal use only use personal For Until these regulatory issues are resolved, the risk of delays to the development of the Project remains.
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Illegal mining and security concerns Indophil has primarily relied on SMI to monitor and assess risks in respect of the Tampakan Copper-Gold Project. Since the revised work plan in late 2013 was implemented, and as a consequence of the in- country and on-ground capabilities of SMI being reduced, the onus is now on Indophil to more directly engage in such monitoring and assessment.
According to Indophil’s Annual Report 2013, it was noted that, following the implementation of the revised work plan where in-country and on-ground capabilities of SMI were reduced, a growing number of local people have been engaged in illegal small-scale mining activities on and in the vicinity of the SMI Project area.
Indophil’s Interim Financial Report for the half-year ended 30 June 2014 stated that, in late May 2014, an attack on one of the SMI camp facilities by members of the New People’s Army, the armed wing of the Communist Party of the Philippines, partially destroyed the facility. Although there were no casualties, security of mineral interests is a prime concern as they are vulnerable to attacks from the New People’s Army or banditry in some provinces.
In-country experience
In view of these sovereign and in-country risks, the Project must be wholly-embraced locally for it to proceed. The Alcantara family (through APIC), together with the Sy family (through its controlled company, BDO Unibank), both understood to be influential in the Philippines, have a deep understanding of the risks and may be in a better position to address the full range of issues in concert with Glencore.
The Scheme provides an exit option for Shareholders to realise their investment with certainty or face the risk that they may not be able to realise the potential value of the Project if there is insufficient local experience to move the Project forward.
14.1.7 No transaction costs on the sale of shares As Shareholders will be selling their shares under the Scheme, no transaction or brokerage costs will be incurred by Shareholders. The absence of the need to incur transaction costs means that the cash received by Shareholders will not be reduced by transaction costs.
14.2 Disadvantages of approving the Scheme We set out the key disadvantages of approving the Scheme in the following section.
14.2.1 Shareholders will no longer participate in potential upside Shareholders will no longer be able to participate in any potential upside of Indophil and of the Project. If funded appropriately, the Project is anticipated to bring long term positive returns to Shareholders. However, to participate in the potential upside of the Project, Shareholders will likely have to contribute new equity or face significant dilution or be exposed to significant risks associated with equity capital
raising and other non-equity funding alternatives such as debt financing. For personal use only use personal For
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14.2.2 Shareholders may face potential tax implications If the Scheme is approved, Shareholders may face potential tax implications such as crystallising a capital gains tax liability on the disposal of their shares earlier than expected for some Shareholders. The Scheme may also have tax consequences for Shareholders who are not residents of Australia for tax purposes. Please refer to the Scheme Booklet for more details on the taxation implications for Shareholders. Individual shareholders should consult their tax advisers in relation to their circumstances.
14.3 Other Considerations
14.3.1 Alternative proposal As outlined in section 5.2 of our Report, Indophil has explored several merger/takeover offer opportunities in its history which have been unsuccessful. In June 2010, a takeover offer of $1.28 cash per share from Zijin Mining Group Co., Ltd was terminated as a result of Zijin Mining Group Co., Ltd failing to obtain the required regulatory approvals. Subsequent to this, the exclusivity period entered into by Indophil in October 2010, allowed San Miguel Corporation to complete a due diligence on Indophil and to decide whether to submit a control proposal to Indophil. The exclusivity period, however expired in February 2011, with no control proposal submitted to Indophil by San Miguel Corporation. Since then, there have been no other publicly announced takeover bids for Indophil, other than this proposed Scheme.
Whilst the previous takeover offers were higher than the Scheme Consideration of $0.30 per share, they were relative to the share prices of Indophil at the time of the bid and the number of shares on issue. Since November 2010, Indophil’s share prices have fallen substantially to about $0.20 per share for the most part of September 2014 before the announcement of the Scheme, as reflected in our QMP analysis in section 11.2.
We are unaware of any alternative proposal at present that might offer the Shareholders of Indophil a premium over the value ascribed to, resulting from the Scheme.
14.3.2 Consequences of not approving the Scheme
Potential decline in the liquidity of an Indophil share Our QMP analysis in section 11.2 indicates that the shares of Indophil were thinly traded prior to the announcement of the Scheme, with only 2.79% of the total shares traded on the ASX being traded in the 30 trading days prior to the announcement of the Scheme and 26.18% of the total shares being traded in the 12 month period prior to the announcement.
This low level of liquidity can imply a degree of non-marketability for the existing Indophil shares. However, following the announcement, the volume of Indophil shares traded increased as is evidenced by the turnover of 3.91% of the total shares traded on the ASX for the 10 trading day following the announcement. Given the above analysis, it is possible that if the Scheme is not approved, the liquidity of Indophil’s shares may decline to historical levels.
Potential decline in share price
For personal use only use personal For We have analysed movements in Indophil’s share price since the Scheme was announced. A graph of Indophil’s share price since the announcement is set out below.
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Indophil post-announcment share price analysis
0.35 12.0 Date of announcement 0.30 10.0 0.25 8.0 0.20 6.0 0.15 Share Price ($) Volume (millions) 4.0 0.10
0.05 2.0
0.00 -
Volume Closing share price
Source: Bloomberg
The graph above indicates that the share price of Indophil increased by 33% on the day the Scheme was announced and has remained stable since. Given the above analysis, it is possible that if the Scheme is not approved then Indophil’s share price may decline to pre-announcement levels or possibly further as the market may consider that as APIC is the largest shareholder in the Company, other potential bidders may not arise who will offer more than APIC.
14.3.3 Ability to realise the intrinsic value of the Project As detailed in section 13 of our Report, we have determined the value of an Indophil share on a controlling interest basis, determined under the sum-of-parts combined with NAV approach, to be higher than the value of Indophil using the QMP methodology.
The QMP of Indophil appears to be supported by the Company’s strong cash backing. The market does not appear to be attributing significant value to the Project. This reflects in part the political, sovereign and funding risks that have been experienced in the history of the development of the Project.
As such, we believe that Shareholders should consider the ability of Indophil, relative to APIC, to realise the value of the Project. Indophil, although having a 37.5% interest in the controlling equity of SMI, does not have control or the level of influence over the development of the Project relative to that of Glencore. Glencore, with whom control over the development of the Project exists, has publicly announced its lack of desire to become involved in greenfield projects. Shareholders should therefore compare receiving the certainty of the Scheme Consideration, thereby eliminating all future risks, with the likelihood of realising the fair market value of the Project through the current investment structure and development programme for the Project.
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15. Conclusion We have considered the terms of the Scheme as outlined in the body of this report and have concluded that, in the absence of a superior offer, the Scheme is fair and reasonable to Shareholders. Therefore, in the absence of a superior proposal, we conclude that the Scheme is in the best interests of Shareholders. In our opinion, the Scheme is fair because the Scheme Consideration is within the low and high values of an Indophil share on a controlling interest basis.
We note that there are significant risk factors which create uncertainty over whether the fair market value of the Tampakan Project will be realised by Indophil Shareholders. The key risk factors we have identified include:
political and sovereign risks which historically, as well currently, are impediments upon the development of the Tampakan Project; and the ability to secure significant funding given the high capital expenditure required to develop the Project.
In light of this, in our view, it is more likely that the value of the Project is at the lower end of the range than the higher end of the range. This view is backed by our QMP valuation which supports the low end of our valuation range based on the NAV approach.
We consider the Scheme to be reasonable because the Scheme is fair. The Scheme is also reasonable because the advantages of the Scheme to Shareholders are greater than the disadvantages.
16. Sources of information This report has been based on the following information:
Draft Scheme Booklet on or about the date of this report;
Scheme Implementation Agreement dated 22 September 2014
Reviewed Interim Financial Report for the half-year ended 30 June 2014;
Audited financial statements of Indophil for the financial years ended 31 December 2013 and 31 December 2012;
Workpapers relating to Indophil’s investment in SMI for the half-year ended 30 June 2014;
Independent Technical Specialist Report of Indophil’s mineral assets dated 10 November 2014;
Share registry information;
Information in the public domain; and
Discussions with Directors and Management of Indophil.
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17. Independence BDO Corporate Finance (WA) Pty Ltd is entitled to receive a fee of $45,000 (excluding GST and reimbursement of out of pocket expenses). The fee is not contingent on the conclusion, content or future use of this Report. Except for this fee, BDO Corporate Finance (WA) Pty Ltd has not received and will not receive any pecuniary or other benefit whether direct or indirect in connection with the preparation of this report.
BDO Corporate Finance (WA) Pty Ltd has been indemnified by Indophil in respect of any claim arising from BDO Corporate Finance (WA) Pty Ltd's reliance on information provided by the Indophil, including the non provision of material information, in relation to the preparation of this report.
Prior to accepting this engagement BDO Corporate Finance (WA) Pty Ltd has considered its independence with respect to Indophil and APIC and any of their respective associates with reference to ASIC Regulatory Guide 112 ‘Independence of Experts’. In BDO Corporate Finance (WA) Pty Ltd’s opinion it is independent of Indophil and APIC and their respective associates.
Neither the two signatories to this report nor BDO Corporate Finance (WA) Pty Ltd, have had within the past two years any professional relationship with Indophil, or their associates, other than in connection with the preparation of this report.
The provision of our services is not considered a threat to our independence as auditors under Professional Statement APES 110 – Professional Independence. The services provided have no material impact on the financial report of Indophil.
A draft of this report was provided to Indophil and its advisors for confirmation of the factual accuracy of its contents. No significant changes were made to this report as a result of this review.
BDO is the brand name for the BDO International network and for each of the BDO Member firms.
BDO (Australia) Ltd, an Australian company limited by guarantee, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of Independent Member Firms. BDO in Australia, is a national association of separate entities (each of which has appointed BDO (Australia) Limited ACN 050 110 275 to represent it in BDO International).
BDO is not related in any way to BDO Unibank, a subsidiary of SM Group in the Philippines.
18. Qualifications BDO Corporate Finance (WA) Pty Ltd has extensive experience in the provision of corporate finance advice, particularly in respect of takeovers, mergers and acquisitions.
BDO Corporate Finance (WA) Pty Ltd holds an Australian Financial Services Licence issued by the Australian Securities and Investment Commission for giving expert reports pursuant to the Listing rules of the ASX and the Corporations Act.
The persons specifically involved in preparing and reviewing this report were Sherif Andrawes and Adam Myers of BDO Corporate Finance (WA) Pty Ltd. They have significant experience in the preparation of For personal use only use personal For independent expert reports, valuations and mergers and acquisitions advice across a wide range of industries in Australia and were supported by other BDO staff.
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Sherif Andrawes is a Fellow of the Institute of Chartered Accountants in England & Wales and a Member of the Institute of Chartered Accountants in Australia. He has over twenty five years experience working in the audit and corporate finance fields with BDO and its predecessor firms in London and Perth. He has been responsible for over 250 public company independent expert’s reports under the Corporations Act or ASX Listing Rules. These experts’ reports cover a wide range of industries in Australia with a focus on companies in the natural resources sector. Sherif Andrawes is the Chairman of BDO in Western Australia, Corporate Finance Practice Group Leader of BDO in Western Australia and the Natural Resources Leader for BDO in Australia.
Adam Myers is a member of the Australian Institute of Chartered Accountants. Adam’s career spans 16 years in the Audit and Assurance and Corporate Finance areas. Adam has considerable experience in the preparation of independent expert reports and valuations in general for companies in a wide number of industry sectors.
19. Disclaimers and consents This report has been prepared at the request of Indophil for inclusion in the Scheme Booklet which will be sent to all Indophil Shareholders. Indophil engaged BDO Corporate Finance (WA) Pty Ltd to prepare an independent expert's report to consider the proposed acquisition of all the issued shares in Indophil by Alsons Prime Investments Corporation.
BDO Corporate Finance (WA) Pty Ltd hereby consents to this report accompanying the above Scheme Booklet. Apart from such use, neither the whole nor any part of this report, nor any reference thereto may be included in or with, or attached to any document, circular resolution, statement or letter without the prior written consent of BDO Corporate Finance (WA) Pty Ltd.
BDO Corporate Finance (WA) Pty Ltd takes no responsibility for the contents of the Scheme Booklet other than this report.
We have no reason to believe that any of the information or explanations supplied to us are false or that material information has been withheld. It is not the role of BDO Corporate Finance (WA) Pty Ltd acting as an independent expert to perform any due diligence procedures on behalf of the Company. The Directors of the Company are responsible for conducting appropriate due diligence in relation to APIC. BDO Corporate Finance (WA) Pty Ltd provides no warranty as to the adequacy, effectiveness or completeness of the due diligence process.
The opinion of BDO Corporate Finance (WA) Pty Ltd is based on the market, economic and other conditions prevailing at the date of this report. Such conditions can change significantly over short periods of time.
The forecasts provided to BDO Corporate Finance (WA) Pty Ltd by Indophil and its advisers are based upon assumptions about events and circumstances that have not yet occurred. Accordingly, BDO Corporate Finance (WA) Pty Ltd cannot provide any assurance that the forecasts will be representative of results that will actual be achieved. BDO Corporate Finance (WA) Pty Ltd disclaims any possible liability in respect of these forecasts. We note that the forecasts provided do not include estimates as to the effect of any future emissions trading scheme should it be introduced as it is unable to estimate the effects of such a
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With respect to taxation implications it is recommended that individual Shareholders obtain their own taxation advice, in respect of the Scheme, tailored to their own particular circumstances. Furthermore, the advice provided in this report does not constitute legal or taxation advice to the Shareholders of Indophil, or any other party. BDO Corporate Finance (WA) Pty Ltd has also considered and relied upon independent valuations for mineral assets held by Indophil.
The valuer engaged for the mineral asset valuation, AMC, possess the appropriate qualifications and experience in the industry to make such assessments. The approaches adopted and assumptions made in arriving at their valuation are appropriate for this report. We have received consent from the valuer for the use of their Independent Technical Specialist Report in the preparation of this report and to append a copy of their report to this report.
The statements and opinions included in this report are given in good faith and in the belief that they are not false, misleading or incomplete.
The terms of this engagement are such that BDO Corporate Finance (WA) Pty Ltd has no obligation to update this report for events occurring subsequent to the date of this report.
Yours faithfully
BDO CORPORATE FINANCE (WA) PTY LTD
Sherif Andrawes Adam Myers
Director Director For personal use only use personal For
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Appendix 1 – Glossary of Terms
Reference Definition
The Act The Corporations Act 2001 Cth; also referred to as Corporations Act
Aldevinco Alsons Development and Investment Corporation, a company directly and indirectly 100% owned by the Alcantara family
Alsons Alsons Group, a Philippine-based group of companies controlled by the Alcantara family
ALC Alsons Land Corporation
AMC AMC Consultants Pty Ltd
APIC Alsons Prime Investments Corporation, a wholly owned subsidiary of the Alsons Group, incorporated as a special purpose vehicle for the purpose of subscribing for shares in Indophil
APES 225 Accounting Professional & Ethical Standards Board professional standard APES 225 ‘Valuation Services’
ASIC Australian Securities and Investments Commission
ASX Australian Securities Exchange
BDO BDO Corporate Finance (WA) Pty Ltd
BDO Unibank BDO Unibank, Inc.
BREC Balatoc Resources Exploration Corporation
The Company Indophil Resources NL
Corporations Act The Corporations Act 2001 Cth; also referred to as the Act
DCF Discounted Future Cash Flows
EBIT Earnings before interest and tax
EBITDA Earnings before interest, tax, depreciation and amortisation
FME Future Maintainable Earnings
FIRB Foreign Investment Review Board (Australia)
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Reference Definition
Glencore Glencore International plc or Glencore Xstrata following the merger with Xstrata plc in May 2013
Independent Directors All members of the Indophil board of directors except for Mr Nicasio Alacantra and Mr Frederic DyBuncio
Independent Technical AMC’s Independent Technical Specialist Report dated 10 November 2014 Specialist Report
IPO Initial Public Offering
JORC Code The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves
MIM Mt Isa Mines Limited, subsequently acquired by Xstrata
NAV Net Asset Value
Options 2,730,000 unlisted options in Indophil outstanding as at the date of our Report
Php Philippine Peso
PFS Preliminary Feasibility Study
The Project The Company’s flagship mineral asset being the Tampakan Copper-Gold Project
RBA Reserve Bank of Australia
Our Report This Independent Expert’s Report prepared by BDO
QMP Quoted market price
RG 60 ASIC Regulatory Guide 60 ‘Schemes of arrangement’ (September 2011)
RG 111 ASIC Regulatory Guide 111 ‘Content of expert reports’ (March 2011)
RG 112 ASIC Regulatory Guide 112 ‘Independence of experts’ (March 2011)
The Scheme The proposed acquisition of all the issued shares in Indophil (other than those shares held by APIC and its related bodies corporate) by APIC, to be implemented way of a scheme of arrangement
Scheme Booklet The booklet issued in relation to the Scheme to be sent to all shareholders of Indophil in order to assist them in their decision as to whether to approve the Scheme
Scheme Consideration $0.30 cash consideration to be provided by APIC per Indophil share held
For personal use only use personal For Scheme Implementation The agreement between Indophil and APIC dated 22 September 2014 outlining the
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Reference Definition
Agreement terms and conditions of the Scheme
Scheme Meeting Scheme meeting due to be held on 18 December 2014, the time at which Shareholders will vote on the Scheme
Shareholders Shareholders of Indophil not associated with Alsons
SMI Sagittarius Mines Inc., the operating entity for the Tampakan Project
SMI’s Preferred Stock Preferred shares held by TGC reflecting a 60% non-controlling interest in SMI
Tampakan Project The Tampakan Copper-Gold Project
TGC Tampakan Group of Companies
Valmin Code The Code of Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports
Valuation Engagement An Engagement or Assignment to perform a Valuation and provide a Valuation Report where the Valuer is free to employ the Valuation Approaches, Valuation Methods, and Valuation Procedures that a reasonable and informed third party would perform taking into consideration all the specific facts and circumstances of the Engagement or Assignment available to the Valuer at that time.
VWAP Volume Weighted Average Price
WMC WMC International Pty Ltd
Xstrata Xstrata Copper
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Appendix 2 – Valuation Methodologies
Methodologies commonly used for valuing assets and businesses are as follows:
1 Net asset value (‘NAV’) Asset based methods estimate the market value of an entity’s securities based on the realisable value of its identifiable net assets. Asset based methods include:
Orderly realisation of assets method Liquidation of assets method Net assets on a going concern method The orderly realisation of assets method estimates fair market value by determining the amount that would be distributed to entity holders, after payment of all liabilities including realisation costs and taxation charges that arise, assuming the entity is wound up in an orderly manner.
The liquidation method is similar to the orderly realisation of assets method except the liquidation method assumes the assets are sold in a shorter time frame. Since wind up or liquidation of the entity may not be contemplated, these methods in their strictest form may not be appropriate. The net assets on a going concern method estimates the market values of the net assets of an entity but does not take into account any realisation costs.
Net assets on a going concern basis are usually appropriate where the majority of assets consist of cash, passive investments or projects with a limited life. All assets and liabilities of the entity are valued at market value under this alternative and this combined market value forms the basis for the entity’s valuation.
Often the FME and DCF methodologies are used in valuing assets forming part of the overall Net assets on a going concern basis. This is particularly so for exploration and mining companies where investments are in finite life producing assets or prospective exploration areas.
These asset based methods ignore the possibility that the entity’s value could exceed the realisable value of its assets as they do not recognise the value of intangible assets such as management, intellectual property and goodwill. Asset based methods are appropriate when an entity is not making an adequate return on its assets, a significant proportion of the entity’s assets are liquid or for asset holding companies.
2 Quoted Market Price Basis (‘QMP’) A valuation approach that can be used in conjunction with (or as a replacement for) other valuation methods is the quoted market price of listed securities. Where there is a ready market for securities such as the ASX, through which shares are traded, recent prices at which shares are bought and sold can be taken as the market value per share. Such market value includes all factors and influences that impact upon the ASX. The use of ASX pricing is more relevant where a security displays regular high volume
trading, creating a ‘deep’ market in that security. For personal use only use personal For
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3 Capitalisation of future maintainable earnings (‘FME’) This method places a value on the business by estimating the likely FME, capitalised at an appropriate rate which reflects business outlook, business risk, investor expectations, future growth prospects and other entity specific factors. This approach relies on the availability and analysis of comparable market data. The FME approach is the most commonly applied valuation technique and is particularly applicable to profitable businesses with relatively steady growth histories and forecasts, regular capital expenditure requirements and non-finite lives. The FME used in the valuation can be based on net profit after tax or alternatives to this such as earnings before interest and tax (‘EBIT’) or earnings before interest, tax, depreciation and amortisation (‘EBITDA’). The capitalisation rate or ‘earnings multiple’ is adjusted to reflect which base is being used for FME.
4 Discounted future cash flows (‘DCF’) The DCF methodology is based on the generally accepted theory that the value of an asset or business depends on its future net cash flows, discounted to their present value at an appropriate discount rate (often called the weighted average cost of capital). This discount rate represents an opportunity cost of capital reflecting the expected rate of return which investors can obtain from investments having equivalent risks.
Considerable judgement is required to estimate the future cash flows which must be able to be reliably estimated for a sufficiently long period to make this valuation methodology appropriate.
A terminal value for the asset or business is calculated at the end of the future cash flow period and this is also discounted to its present value using the appropriate discount rate.
DCF valuations are particularly applicable to businesses with limited lives, experiencing growth, that are in a start up phase, or experience irregular cash flows.
5 Market Based Assessment The market based approach seeks to arrive at a value for a business by reference to comparable transactions involving the sale of similar businesses. This is based on the premise that companies with similar characteristics, such as operating in similar industries, command similar values. In performing this analysis it is important to acknowledge the differences between the comparable companies being analysed and the company that is being valued and then to reflect these differences in the valuation.
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118 Indophil Resources NL Scheme Booklet AMC Consultants Pty Ltd ABN 58 008 129 164
Ground Floor, 9 Havelock Street WEST PERTH WA 6005 AUSTRALIA
T +61 8 6330 1100 F +61 8 6330 1199 E [email protected] W amcconsultants.com
Indophil Resources NL – Independent Technical Specialist's Report BDO Corporate Finance (WA) Pty Ltd
AMC Project 214063 10 November 2014
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Indophil Resources NL – Independent Technical Specialist's Report BDO Corporate Finance (WA) Pty Ltd 214063
10 November 2014
The Directors BDO Corporate Finance (WA) Pty Ltd 38 Station Street SUBIACO WA 6008
Dear Sirs
Independent Technical Specialist's Report Indophil Resources NL
Announcements by Indophil Resources NL (Indophil) on 23 September 20141 included that: • It has executed a Scheme Implementation Agreement with Alsons Prime Investments Corporation (APIC) to effect the acquisition of 100% of the issued shares of Indophil by APIC under a Scheme of Arrangement (Scheme). Under the proposed Scheme, APIC will offer (Offer) to acquire all of the issued Indophil shares not already owned by APIC for A$0.30 cash per share. • Indophil's Independent Directors unanimously recommend that all Indophil shareholders vote in favour of the Scheme in the absence of a superior proposal and subject to an Independent Expert finding that the Scheme is in the best interests of Indophil shareholders.
Indophil engaged BDO Corporate Finance (BDO) to prepare an Independent Expert's Report (IER) in relation to the Offer.
Indophil's main Mineral Asset is its interest in the Tampakan Copper-Gold Project (Tampakan) located on the island of Mindanao in the southern Philippines. Tampakan has a large mineral resource that is prospective for open pit mining and production of a copper concentrate containing gold. It will require construction of a concentrate pipeline to a port on the coast, and a substantial power station and transmission line. It is envisaged as a large project by international standards. The estimates of initial capital cost for development of the project are approximately US$6B. The project has undergone feasibility study assessments, however, development of the project is yet to be approved. Indophil's other Mineral Assets comprise the interests it holds in some exploration properties also located in the Philippines, but these are of minimal value when compared with the interest in Tampakan.
Under instruction from BDO, AMC has prepared an Independent Technical Specialist's Report (ITSR) setting out: • The scope and cost of its engagement. • The nature of the work performed. • A description of Indophil's Mineral Assets and their planned development. • AMC's conclusions as to the technical assumptions for Tampakan regarding mining inventory, capital costs, production profiles, and operating costs. • AMC's valuation of Indophil's economic interest in Tampakan.
BDO advised that the ITSR will be appended to the IER.
AMC considers that the information it has in relation to Indophil's Mineral Assets is sufficient for the purposes of preparing this ITSR.
AMC has undertaken its engagement to prepare this ITSR as a Specialist in accordance with the VALMIN
Code2 to the extent that the code is relevant to AMC's engagement. For personal use only use personal For
1 ASX Release 23 September 2014, Scheme Implementation Agreement (APIC-Indophil) and ASX Release 23 September 2014, Alsons Cash Offer for 100% of Indophil.
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AMC's use, in this ITSR, of the terms Mineral Resources and Ore Reserves is in accordance with the 2012 JORC Code3. However, all of the Mineral Resources presented in this ITSR were first reported in accordance with the 2004 JORC Code4. The totals of Mineral Resource estimates presented in this ITSR have been rounded.
The latest feasibility study on Tampakan was completed in 2010. That study included mining and processing schedules, economic evaluations, and the other areas which are normally covered in such studies. However no Ore Reserve was declared or published for the project because, at that time, it was considered that approvals were not sufficiently advanced and a decision had not been made to proceed with the next phase of the project. This continues to be the case and, as at the date of this report, the project is not approved, and no decision has been taken on its development.
AMC has not visited Tampakan or the exploration projects. A site visit was not possible due to a number of issues, including security for visiting personnel, and the field operations at the project are not currently active. AMC is, however, familiar with projects similar to Tampakan and, with the information provided by Indophil, AMC is satisfied that the basis for this report is sufficient and sound.
AMC has not audited the information provided to it, but has aimed to satisfy itself that all of the information has been prepared in accordance with proper industry standards and is based on data that AMC considers to be of acceptable quality and reliability. Where AMC has not been so satisfied, AMC has included comment in this ITSR and, accordingly, has made modifications to its findings as presented in this ITSR.
AMC presents the ITSR which follows in the form of: • Mineral Assets. • Tampakan. • Exploration Properties. • Qualifications.
All monetary figures in this report are expressed in 2014 United States dollars (US$ or $) unless otherwise noted. Costs are presented on a cash cost basis unless otherwise specified.
Production schedules and cost estimates are presented in this report on a calendar year (January to December) basis unless otherwise specified.
For definitions of abbreviations used in this ITSR, refer to Appendix A, and for contributors to this ITSR, refer to Appendix B.
The following is a summary of AMC's key findings in this ITSR.
Tampakan – AMC valuation
AMC has used the yardstick value method as its primary valuation method for Tampakan. This is a commonly used method for valuing projects where a Mineral Resource has been estimated, but a current feasibility study and Ore Reserve estimate have not been completed.
2 Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports. The VALMIN Code 2005 Edition, Prepared by the VALMIN Committee, a joint committee of the Australasian Institute of Mining and Metallurgy, the Australian Institute of Geoscientists and the Mineral Industry Consultants Association with the participation of the Australian Securities and Investment Commission, the Australian Securities Exchange Limited, the Minerals Council of Australia, the
For personal use only use personal For Petroleum Exploration Society of Australia, the Securities Association of Australia and representatives from the Australian finance sector 3 Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, The JORC Code 2012 Edition. Effective 20 December 2012 and mandatory from 1 December 2013. Prepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australasian Institute of Geoscientists and Minerals Council of Australia (JORC). 4 Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, The JORC Code 2004 Edition, Effective December 2004, Prepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia (JORC)
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Applying the range of yardstick values to contained copper indicated by the 2009 Mineral Resource estimate indicates a value for Tampakan of between $270M and $689M and for Indophil's 37.5% economic interest a value between $101M and $258M.
As the Freida River transaction is a particularly relevant transaction AMC's Preferred Value is weighted towards the bottom of the range, rather than using a mid-point. The Preferred Value for Tampakan is $410M and, for Indophil's 37.5% economic interest, a value of $154M.
AMC also considers that there is enough information available from feasibility study and other work done on Tampakan upon which to base a reasonably quantifiable range of production and capital and operating cost expectations, and judgement of likely product revenues. In combination, these reasonably indicate that the project could become economic. From those expectations, a net present value (NPV) can be calculated, as would be done in a feasibility study. AMC then applied appropriate risk factors to the NPV that are commensurate with the pre-development status of the project and refers to the result as an Expected Value. AMC has also determined a range of Expected Values for Tampakan as a secondary method to provide a "reality check" on the results of the yardstick value method referred to above.
It should be noted that the Expected Value determination is sensitive to the assumed commodity prices, capital cost, delays and life of operation.
Having applied a range of probability factors, AMC's Expected Value range for Tampakan is $310M to $516M and, for Indophil's 37.5% interest, is a range of $116M and $194M.
As referred to above, however, it should be noted that AMC's primary method of valuation for Tampakan indicates a value range for Indophil's 37.5% economic interest of between $101M and $258M, with a Preferred Value of $154M.
Exploration Properties – AMC valuation
In addition to Tampakan, Indophil has an exploration portfolio that has recently been reduced to two project areas. AMC has not attributed any additional value to Indophil's interests in these projects.
Tenements
Indophil has provided AMC with an independent report on the standing of Indophil's tenements. That report indicates that the Financial and Technical Assistance Agreement (FTAA) covering Tampakan is valid with further obligations for the project to progress. Accordingly, AMC has prepared this ITSR on the basis that the material tenements are in good standing.
Yours faithfully
K Sommerville L J Gillett FAusIMM (CP) FAusIMM (CP) Principal Mining Engineer Director
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122 Indophil Resources NL Scheme Booklet Indophil Resources NL – Independent Technical Specialist's Report BDO Corporate Finance (WA) Pty Ltd 214063
Contents 1 Mineral Assets ...... 1 1.1 Projects ...... 1 1.2 Principal sources of information ...... 1 1.3 Standing of tenements ...... 2 2 Tampakan ...... 3 2.1 Location and background ...... 3 2.2 Mineral Resources ...... 3 2.2.1 Geology ...... 4 2.2.2 Data collection ...... 7 2.2.3 Grade estimation ...... 8 2.2.4 Geology conclusions ...... 9 2.3 Ore Reserves ...... 9 2.4 Mining ...... 9 2.4.1 Status of project ...... 9 2.4.2 Mine description...... 9 2.4.3 Conditions impacting on mining...... 11 2.4.4 Mining operating and capital costs ...... 12 2.4.5 Mining conclusions ...... 12 2.4.5.1 Mining risks ...... 12 2.4.5.2 Mining opportunities ...... 12 2.5 Metallurgy and processing ...... 12 2.5.1 Process description ...... 13 2.5.1.1 Arsenic deportment ...... 13 2.5.1.2 Comminution characteristics ...... 14 2.5.1.3 Flotation response ...... 15 2.5.2 Concentrate quality ...... 15 2.5.3 Process description ...... 16 2.5.4 Capital expenditure – process plant ...... 19 2.5.5 Operating cost – process plant ...... 20 2.5.6 Process conclusions ...... 20 2.5.6.1 Processing Risks ...... 21 2.5.6.2 Processing opportunities ...... 21 2.6 Infrastructure and product logistics ...... 21 2.6.1 Existing infrastructure ...... 21 2.6.2 Overview of infrastructure requirements ...... 22 2.6.3 Proposed on-lease infrastructure (mine and processing plant) ...... 22 2.6.4 Proposed off-lease infrastructure ...... 26 2.6.5 Status of infrastructure design ...... 27 2.6.6 Method of infrastructure planning and cost estimates ...... 27 2.6.7 Changes to off-lease infrastructure configuration ...... 28 2.6.8 Selected peer review conclusions ...... 29 2.6.9 Infrastructure conclusions ...... 29 2.7 Statutory approvals ...... 29 2.7.1 Introduction, scope and limitations ...... 29 2.7.2 Legal and regulatory framework ...... 29 2.7.3 Primary approval requirements ...... 31 2.7.4 Current environmental approvals status ...... 33 2.7.5 Current land access and community agreements ...... 33 2.7.6 Timing and likelihood of outstanding approvals ...... 33 2.7.7 Approvals conclusions ...... 34 2.8 Environmental management ...... 34 2.8.1 Project environmental status and overview ...... 34 For personal use only use personal For 2.8.2 Mine – existing project setting ...... 34 2.8.3 Mine – waste rock and tailings management ...... 35 2.8.4 Mine – flora and fauna ...... 35 2.8.5 Mine – water management ...... 36 2.8.6 Mine – dust, noise and traffic ...... 37 2.8.7 Mine - environmental management ...... 37
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2.8.8 Mine – closure and rehabilitation ...... 38 2.8.9 Mine – contingent liability and rehabilitation fund ...... 38 2.8.10 Mine – closure cost estimate ...... 39 2.8.11 Off-lease infrastructure environmental management ...... 39 2.8.12 Potential material environmental risks ...... 42 2.8.13 Environmental conclusions ...... 42 2.9 Social and community ...... 43 2.9.1 Introduction ...... 43 2.9.2 Government ...... 43 2.9.3 Non-government organizations ...... 43 2.9.4 Geopolitical ...... 43 2.9.5 Community and land access ...... 43 2.9.6 Artisanal mining ...... 43 2.9.7 Indigenous people ...... 43 2.9.8 Social and community risks ...... 44 2.9.9 Social and community conclusions ...... 44 2.10 Risks – summary ...... 44 2.11 Tampakan Valuation ...... 45 2.11.1 Tampakan Valuation – Yardstick method ...... 45 2.11.2 Tampakan Valuation – Expected Value method ...... 46 2.11.3 Tampakan Valuation – summary ...... 47 3 Exploration properties ...... 48 4 Qualifications ...... 49 Tables Table 2.1 Tampakan Mineral Resources as at 27 January 2012 ...... 3 Table 2.2 Tampakan Mineral Resources as at 20 October 2009 ...... 4 Table 2.3 Tampakan mine plan – key aspects ...... 10 Table 2.4 Key performance criteria from LOM plan ...... 19 Table 2.5 Initial capital expenditure estimate - excluding mining...... 19 Table 2.6 Operating unit operating cost ...... 20 Table 2.7 Expected Value inputs – assumptions and variations from the FS ...... 47 Figures Figure 2.1 Tampakan location ...... 3 Figure 2.2 Tampakan district – local geology...... 5 Figure 2.3 Mine layout – pit and adjacent rock dump – 20 years from start of operations ...... 11 Figure 2.4 Tampakan flowsheet ...... 18 Figure 2.5 On-lease infrastructure components ...... 24 Figure 2.6 Off-lease infrastructure configuration ...... 25 Appendices Appendix A List of abbreviations Appendix B Report contributors Appendix C Exploration Valuation methods Appendix D Exploration comparable transactions Appendix E Indophil tenement list
Appendix F Document list For personal use only use personal For
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124 Indophil Resources NL Scheme Booklet Indophil Resources NL – Independent Technical Specialist's Report BDO Corporate Finance (WA) Pty Ltd 214063
1 Mineral Assets 1.1 Projects Indophil Resources NL (Indophil) has a registered office in Melbourne, Australia and reports a 37.5% economic interest in Sagittarius Mines, Inc. (SMI), the operating arm for the Tampakan Copper-Gold Project (Tampakan) located on the island of Mindanao in the southern Philippines and in which Glencore Queensland Limited (previously Xstrata Queensland Limited) holds a 62.5% interest and acts as project manager.
As the holder of a granted Financial and Technical Assistance Agreement (the Columbio FTAA), SMI acts as contractor to the Philippine Government which owns the mineral rights to Tampakan and acts as a project partner on behalf of the people of the Philippines.
Key features of the Tampakan project plan and development status include: • The SMI Tampakan Copper Gold Project Feasibility Study (FS) was completed in 2010. • Open pit mining with land-based waste and tailings storage. • Mining of 2,540 Mt total material including 1095 Mt ore, strip ratio 1.33. • Planned milling production at 66 Mtpa at life-of-mine (LOM) grades of 0.68% Cu, 0.27 g/t Au and 0.01% As. • Recoveries: Cu 84.4%, Au 65.1%. • 110 km pipeline from concentrator to site of port ship-loading facility. • Other infrastructure to be developed by others: power station, port facilities including bulk materials storage and handling and ship loading facilities. • Initial capital cost estimated at $6B. • Mine life 17 years with potential for extension. • Currently in pre-development, development is yet to be approved.
Indophil has other interests in the Philippines – in Northern Luzon (Balatoc) and Eastern Mindanao (Manat). Considering their status, AMC has not attributed any additional value to these exploration project interests.
1.2 Principal sources of information Indophil has provided AMC with information for the purpose of preparing this report. AMC has kept a record of documents used in the preparation of this report and key items are listed in appendix F. That information includes publically available and non-public information as follows:
Publicly available information
• IRN and Alsons Prime Investments Corporation (APIC) Scheme Offer Announcement and agreement. • Annual Reports. • Indophil press releases, public announcements, and other public filings by Indophil available on website (www.indophil.com). • Sharemarket data and related information on Australian and international listed companies engaged in the copper-gold industry and on acquisitions of companies and businesses in these industries. • Information relating to the Australian and international copper-gold industry including supply/demand forecasts and regulatory decisions and pronouncements (as appropriate).
Non-public information provided by Indophil
• Studies and other technical information relating to Indophil's Mineral Assets.
For personal use only use personal For • Detailed cash flow models including projections for Indophil's projects. • Other confidential documents, presentations and working papers.
AMC has not audited the information provided by Indophil. AMC has, however, reviewed the information to the extent necessary to satisfy itself that the pre-development valuations presented in this report are based
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on reasonable grounds and assumptions, and that the information AMC has in relation to the valuation of the exploration properties, is sufficient.
1.3 Standing of tenements A list of material tenements relevant to Indophil's Mineral Assets is included as an appendix to this report.
Clause 67 of the VALMIN Code5 states that: "The status of Tenements is Material and requires disclosure. Determination of the status of Tenements is necessary and must be based on a recent independent inquiry, either by the Expert or a Specialist or on a recent report by either a solicitor or a tenement specialist…"
Accordingly, Indophil has provided AMC with an independent tenement report on the standing of the tenements, namely "Status Report on the Tenements of Indophil Resources NL in the Philippines, by Fortun Narvasa & Salazar, to Indophil Resources NL and AMC Consultants Pty Ltd, October 13, 2014". Fortun Narvasa & Salazar is a law firm based in the Philippines and its report is referred to in this ITSR as the Independent Tenement Report.
AMC has reviewed the Independent Tenement Report.
The Independent Tenement Report outlines the status of FTAA No. 02-95-XI (Tampakan Project) and further conditions that need to be met. The Independent Tenement Report (refer to Appendix A for definitions of abbreviations to in the following extract), concludes that:
"SMI presently awaits the approval by Philippines Government Mines and Geosciences Bureau (MGB) of the Final Declaration of Mining Project Feasibility (DMPF) for the Tampakan Project. At the MGB Regional Office, SMI was found to be in compliance with all the requirements for such a submission. Thus, unless the MGB Central Office/MGB Director finds other deficiencies, SMI is likely to obtain an approval of the DMPF.
Apart from the approval of the DMPF, SMI still needs to obtain the following approvals/consents to enable it to proceed to the development of the Tampakan Project: i. lifting of the ban on open pit mining imposed by the South Cotabato Provincial Government Environment Code. ii. Free and Prior Informed Consent from the Indigenous Peoples (FPIC) from the affected Indigenous Peoples. iii. the required endorsement of the Local government units (LGUs). iv. land access agreements and titles and surface rights. and v. other permits required for construction, development and operations."
On the basis of this documentation, AMC concludes that the FTAA covering Tampakan is valid with further obligations needing to be met to enable Tampakan to progress.
Accordingly, AMC has prepared this ITSR on the basis that the tenements are in good standing, and that it is reasonable to expect that the outstanding approvals can eventually be obtained.
For personal use only use personal For
5 Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports. The VALMIN Code 2005 Edition, Prepared by the VALMIN Committee, a joint committee of the Australasian Institute of Mining and Metallurgy, the Australian Institute of Geoscientists and the Mineral Industry Consultants Association with the participation of the Australian Securities and Investment Commission, the Australian Securities Exchange Limited, the Minerals Council of Australia, the Petroleum Exploration Society of Australia, the Securities Association of Australia and representatives from the Australian finance sector
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126 Indophil Resources NL Scheme Booklet Indophil Resources NL – Independent Technical Specialist's Report BDO Corporate Finance (WA) Pty Ltd 214063
2 Tampakan 2.1 Location and background Tampakan is located approximately 65 km north-north-west of General Santos City, a major growth centre on the southern Philippines island of Mindanao as shown in Figure 2.1.
The deposit was discovered in 1992 by Western Mining Corporation Philippines (WMCP). Minor gold prospecting and panning has taken place since 1960. The following studies have taken place: • Western Mining Corporation Pre-feasibility Study 1995 – 1997 • Indophil Scoping Study 2003 – 2004 • Indophil Pre-feasibility Study 2005 – 2006 • Xstrata Extended Pre-feasibility Study 2007 – 2009 • FS 2009 – 2010
Figure 2.1 Tampakan location
2.2 Mineral Resources Mineral Resources have been reported for Tampakan published on 27 January 2012 (Table 2.1). The Mineral Resources were reported at a 0.2% Cu cut-off grade (COG) and inside an open pit optimization shell as an indication of the reasonable prospects for eventual economic extraction as required by the 2004 JORC Code6.
Table 2.1 Tampakan Mineral Resources as at 27 January 2012
Classification Tonnes Copper Gold Copper Molybdenum Gold (Mt) (% Cu) (g/t Au) (Mt Cu) (% Mo) (Moz Au) Measured 980 0.69 0.28 6.8 0.008 8.8 Indicated 1,290 0.45 0.16 5.8 0.006 6.6 Inferred 670 0.4 0.1 2.7 0.005 2.15
Total 2,940 0.51 0.19 15.00 0.006 17.60 For personal use only use personal For Note: Numbers in the above table are rounded.
6 Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, The JORC Code 2004 Edition, Effective December 2004, Prepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia (JORC)
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The market release of the 2012 Mineral Resource report was accompanied by a summary of information regarding data collection and resource estimation. The 2012 Mineral Resource reflects the results of further drilling (54 drillholes) and changes to resource estimation practices compared with the 2009 Mineral Resource estimate that included: • Reporting the Mineral Resource at 0.2% Cu COG. • Geological domaining based on alteration types. • Determining boundaries using implicit modelling mining software rather than interpretation. • Smaller model parent cell size. • Indicator kriging of arsenic grade. • No grade capping. • Revised estimation search parameters. • Change to the approach to classification, especially to Inferred Resource.
The market release summary was compliant with 2004 JORC Code for the resource announcement purposes but provides insufficient information for AMC to comment on the quality and reasonableness of the estimate as required by the VALMIN Code. As the minority partner in Tampakan, Indophil does not have access to the original working papers and additional reports prepared by Xstrata plc in 2011. As a result, AMC has reviewed the earlier 2009 Mineral Resource estimate that was the subject of the FS and for which more complete documentation and model data are available. The 2009 Mineral Resource estimate has also been subject to external review.
The 2009 Mineral Resource was reported at a 0.3% Cu COG (Table 2.2) and inside an open pit optimization shell as an indication of the reasonable prospects for eventual economic extraction.
Table 2.2 Tampakan Mineral Resources as at 20 October 2009
Classification Tonnes Copper Gold Copper Molybdenum Gold (Mt) (% Cu) (g/t Au) (kt Cu) (ppm Mo) (koz Au) Measured 780 0.71 0.28 5,500 81 7,000 Indicated 890 0.55 0.19 4,900 69 5,500 Inferred 700 0.5 0.2 3,100 60 3,300 Total 2,400 0.6 0.2 13,500 70 15,800 Note: Numbers in the above table are rounded.
2.2.1 Geology The Tampakan deposit is located on the western flank of a deeply eroded late Miocene-Pliocene andesitic stratovolcano complex (Figure 2.2) and is hosted by the Tampakan Andesite Sequence. The andesite sequence is comprised of basaltic andesites, andesite flows, diatremes, and breccias. The andesite is loosely divided into a light andesite and a dark andesite. Andesitic dykes intruded the volcanic sequence. The deposit lies within the Cotabato fault zone dominated by north-west and north-north-east trending structures that intersect at the deposit. The Tampakan Andesite Sequence unconformably overlies a folded volcanic basement consisting of mid-Miocene basalt to basaltic andesite lavas of the Sulop Formation and
associated volcaniclastic sediments. For personal use only use personal For
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128 Indophil Resources NL Scheme Booklet Indophil Resources NL – Independent Technical Specialist's Report BDO Corporate Finance (WA) Pty Ltd 214063
Figure 2.2 Tampakan district – local geology
For personal use only use personal For The Tampakan district is flanked to the east and west by the Sarangani and Cotabato sedimentary basins respectively. The sequence was then partly covered during the Pleistocene with a blanket of unconsolidated, andesitic, pyroclastic crystal lapilli tuff sourced from Mt Matutum.
The andesite is hydrothermally altered over an area of 90 km2.
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The Matutum pyroclastics form an unconsolidated veneer unconformably overlying older rocks in the project area. The pyroclastics are typically airfall lapilli crystal tuff of andesitic to dacitic composition varying in thickness from a few centimetres to more than ten metres.
The Logdeck Andesite is a Pleistocene flow of andesitic to dacitic composition that unconformably overlies the altered Tampakan Andesite Sequence on the southern fringe of the deposit. It is a medium-grained porphyritic volcanic and is neither altered nor mineralized except in structural zones along its basal contact.
Weathering to clay is weakly developed beneath the pyroclastic cover and the weathering profile extends up to 20 m below the surface. Incipient weathering can locally extend to 250 m. Oxidation has produced goethite, hematite, limonite, and scorodite. The weathering profile is mantled by very thin organic-rich soil, mostly less than 1 m thick. This is sometimes underlain by a veneer of young unconsolidated pyroclastic material.
Copper and gold mineralization occurs in two styles: porphyry-style mineralization, overprinted by a high- sulphidation epithermal mineralizing event. The dark andesite is the dominant host rock for both the porphyry-style mineralization at deeper levels and the high-sulphidation epithermal mineralization in the upper levels of the deposit.
The high-sulphidation style of mineralization is typically associated with silica-clay hydrothermal alteration assemblages that destroyed original textures and mineralogy. Sulphide mineralization typically comprises the copper minerals digenite, bornite, enargite with chalcocite, and covellite occurring as fracture, vein and vug fill. At depth, porphyry-style mineralization comprises disseminated chalcopyrite, bornite, and pyrite associated with variably developed quartz stockwork veining. It is usually associated with sericite, illite, chlorite, or anhydrite alteration.
Mineralization is categorized as: • Primary with dominant chalcopyrite. • Secondary (high sulphur) with dominant chalcocite and sulphur content of greater than 5% S. • Secondary (medium sulphur) with dominant chalcocite and sulphur content of 2.5% S to 5% S. • Secondary (low sulphur) with dominant chalcocite and sulphur content less than 2.5% S.
Arsenic is a deleterious element and mainly occurs in sulphides but is also associated with clays and iron oxide. Enargite is the dominant arsenic-bearing sulphide mineral, but all copper sulphides including tennantite-tetrahedrite and pyrite contain minor amounts of arsenic. Arsenic was estimated separately in three domains: high arsenic, low arsenic domain, and a peripheral domain.
Three major alteration types are recognized in a vertically zoned pattern: argillic, advanced argillic, and intermediate argillic. The intermediate argillic alteration is considered to be related to the earlier porphyry- style mineralization event, while the argillic and advanced-argillic alteration are related to the later high- sulphidation event. Most higher grade copper and gold mineralization in the deposit is restricted to the advanced-argillic zone of alteration. Below the argillic alteration, propylitic alteration occurs at the margins of porphyry-style mineralization.
Geological domaining for 2009 resource estimation was guided by: • Alteration. • Ore type. • Copper, gold, arsenic, molybdenum, and sulphur grades. • The distribution of the high-sulphidation overprint. • Underlying porphyry-style mineralization.
For personal use only use personal For Seven domains have been interpreted for copper, gold, and molybdenum resource estimation: • Domain 1: copper depletion. • Domain 2: high-sulphidation copper and gold mineralization with a sharp boundary to Domain 1. • Domain 3: porphyry-style mineralization with a gradational boundary to Domain 2. • Domain 4: a peripheral area with limited drilling not included in the reported Mineral Resource.
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130 Indophil Resources NL Scheme Booklet Indophil Resources NL – Independent Technical Specialist's Report BDO Corporate Finance (WA) Pty Ltd 214063
• Domains 5, 6 and 7: as for Domains 1, 2 and 3 in a down-faulted block the south-eastern part of the deposit.
The main zone of high-sulphidation mineralization is a tabular body with an average thickness of 150 m and an interpreted width of 1.7 km over a strike of approximately 2 km. The zone dips gently to the south-west. The thickness of the underlying porphyry-dominated mineralization has not been determined.
The unmineralized Logdeck Andesite was also interpreted along with post-mineralization dykes exceeding 10 m in horizontal thickness.
2.2.2 Data collection The Mineral Resource estimate is based on surface diamond drillholes completed with triple-tube core barrels, typically starting with PQ diameter core and reducing to HQ and NQ diameter. The greatest drilling density covers an area of about 1.7 km by 2.0 km. Initial drilling was carried out by WMC Ltd and Indophil as previous operators of the project and about two-thirds of drillholes have been completed by SMI.
Drillholes are collared on 80 m centres on 80 m-spaced sections with drillhole spacing increasing towards the margins of the deposit. Most drillholes are oriented east to west along sections.
Drillholes are geologically and geotechnically logged to geological boundaries and drill core is photographed. Drillhole collars were surveyed by contract surveyors. Downhole surveys were completed using either single shot downhole camera or a digital Reflex survey tool.
Most mineralization is characterized by broken core with very poor rock quality indicating possible sample loss of fracture-related and friable minerals. The high-grade copper mineralization is associated with vuggy and porous silica and silica-clay alteration. Core recovery by alteration type indicates that the silica and clay alteration and high-sulphidation alteration has the lowest core recovery averaging 90% with core recovery up to 96% for propylitic and potassic alteration.
Analysis by SMI showed that higher core recovery tends to be associated with higher copper and gold grades suggesting that low core recovery may result in a loss of copper minerals suggesting a low-grade bias in some samples.
Drill core is halved by diamond saw with sample lengths of 2 m in mineralization and up to 6 m in unmineralized and unaltered intervals. Remnant core is retained for duplicate sampling, petrographic, mineralogical and fluid inclusion studies, metallurgical and geotechnical samples and density determinations.
Two sample preparation protocols have been applied at different times. Coarse and fine sample rejects are retained. Early sample preparation consisted of: • Drying. • Crushing to 6 mm. • Coarse disc pulverizing to 2 mm. • Splitting 500 g. • Pulverizing to 75 micron. • Splitting 250 g for laboratory despatch.
Later sample preparation consisted of: • Drying. • Crushing to 6 mm. • Disc pulverizing to 0.85 mm. • For personal use only use personal For Splitting 1,500 g. • Pulverizing to 75 micron. • Splitting 200 g for laboratory despatch.
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Samples were despatched to an independent (ISO7 certified) laboratory and assayed for: • Copper, silver, lead, and zinc using three-acid digest and atomic absorption spectrometry (AAS). • Gold using fire assay on a 30 g charge with AAS finish. • Arsenic using AAS with vapour generation assembly. • Molybdenum using calorimetry. • Mercury using flameless AAS. • Sulphur for recent samples and retrieved past samples using three-acid digest and inductively coupled plasma finish.
Quality control (QA/QC) protocols have changed over time. Early drilling does not appear to have been supported by QA/QC protocols. (QA/QC protocols were established in 2002 when Indophil took over the project from WMCP and initiated a programme of infill and resource delineation drilling. AMC Brisbane undertook a review of the procedures at that time and facilitated some improvements). QA/QC protocols since 2004 consisted of: • Certified reference materials (CRMs). • Certified blanks. • Field duplicates at a rate of 1 in 20. • Retrospective pulp duplicate programmes supported by CRMs.
A retrospective study carried out in 2006 indicated a negative bias in copper in some periods and gold grades may be biased high in some early drilling. Some phases of check sampling have indicated variable results for biases for different stages of drilling. Quality control assessment for recent drilling showed acceptable accuracy and precision.
Based on the information available, AMC concludes that, while some periods of drilling appear to have assay bias and the results are highly variable, more recent drilling is adequately supported by quality control protocols and any variable biases in early drilling will have little impact on the Mineral Resource estimate. The variability of the results reinforces the need to assess data quality control on batch by batch basis so the problems can be identified and resolved.
Three density determination methods have been trialled to deal with broken core: coarse reject, tray, and water-displacement methods. The coarse reject method was applied to all assayed samples and considered to be the best for resource estimation. In this method, specific gravity was determined on coarse reject samples using a water displacement method. The specific gravity was adjusted for a logged porosity estimate. While this is not a common industry method, the problems with alteration, broken core, and core recovery made a conventional water displacement method unsuitable.
2.2.3 Grade estimation Copper, gold, molybdenum, and arsenic grades were estimated into a block model using ordinary kriging (OK) applied to 6 m assay composites. The block model parent cells were 40 mE by 40 mN by 15 mRL. The interpreted domains were used to constrain grade estimation.
The estimation parameters were determined by a study of variography. Documented downhole variograms are well-defined as are some directional variograms. Others are moderately defined. The anisotropy parameters broadly reflect the orientation and anisotropy of the high-sulphidation mineralization domain.
A grade cap of 5 g/t Au was applied to composites for gold grade estimation but other values were uncapped. A check estimate for copper and arsenic using multiple indicator kriging returned comparable results.
The estimate has been reported as a Mineral Resource where the model lies within an open pit optimization For personal use only use personal For shell using then current (2009) pit optimization parameters and metal prices of $1.80/lb for copper and $700/oz for gold.
7 International Organization for Standardization
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The Mineral Resource estimate has been classified as Measured, Indicated and Inferred Resource only in high-sulphidation and porphyry-style mineralization domains applying the following criteria: • Measured Resource for model cells estimated in a search ellipse of 80 m by 100 m by 40 m oriented in the trend of the high-sulphidation domain with grade estimated with a minimum of ten assay composites. • Indicated Resource for model cells estimated in a search ellipse of up to 120 m by 150 m by 60 m oriented in the trend of the high-sulphidation domain with grade estimated with a minimum of ten assay composites. • Inferred Resource for model cells estimated in a search ellipse up to 160 m by 200 m by 80 m beyond Measured and Indicated Resources with grade estimated with a minimum of five assay composites.
AMC broadly concurs with the 2009 Mineral Resource classification.
2.2.4 Geology conclusions AMC's conclusions for geology are: • Data collection for Tampakan has been conducted following industry-accepted practices. • Quality control protocols were not in place for early drilling. While some periods of drilling appear to have assay bias and the results are highly variable, more recent drilling is adequately supported by quality control protocols and any variable biases in early drilling will have little impact on the Mineral Resource estimate. • The geological interpretation is appropriate for the 2009 Mineral Resource estimate. Grade estimation uses common industry practices and has been confirmed by an alternate estimation method. • AMC broadly concurs with the Mineral Resource classification.
2.3 Ore Reserves No Ore Reserves have been reported for Tampakan. The 2009 Mineral Resource estimate was used in the FS and the study included estimation of dilution, losses and appropriate modifying factors within an optimized pit design. Only Measured and Indicated Mineral Resources were used in the FS mine schedule and appropriate mining, metallurgical and financial assumptions were applied. At the time of the completion of the FS, approvals were not sufficiently advanced and SMI had not made a decision to proceed with the next phase of development of the project, hence Ore Reserves have not been reported.
2.4 Mining 2.4.1 Status of project Tampakan is not in production. The mining section of the FS was completed by an Australian-based consulting group with input from SMI and other consultants.
2.4.2 Mine description The proposed Tampakan mine would consist of one large copper-gold open pit with a maximum extent of 3 km in width and 700 m in depth. It is a conventional drill-and-blast, load-and-haul operation that will be owner operator mining. Key aspects of the mine plan as presented in the FS are listed in Table 2.3 and Figure 2.3 shows a mine layout of the pit and waste rock dump adjacent to the pit 20 years from the start of operations.
For personal use only use personal For
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Table 2.3 Tampakan mine plan – key aspects
Item Open Pit Mine life Three years of pioneering and pre strip and 17 years at 66 Mtpa ore. Products Concentrate and high arsenic custom concentrate. Material Mined Ore 1,090 Mt (including 14 Mt rehandle), Waste 1453 Mt Waste (including 132 Mt of pre strip). Mining Rate 66 Mt Ore, 84 Mt Waste per year, 150 Mt total annual movement. Mining method Conventional drill-and-blast, load-and-haul. Mine Layout One pit with seven stages. Pit has a maximum depth of 700 m and maximum width is 3 km. Mine includes steep terrain and pioneering. Working Heights 15 m bench heights. Pit optimization Whittle pit shell modelling. Scheduling COMET - optimization software. Material movement 90% bulk mining, 10% selective mining (including pioneering). Material properties Potentially acid forming material (PAF) requires encapsulation within three months of exposure to air. Geotechnical Low strength rock. Hydrology Rainfall and ground water require an underground drainage adit, pit wall drainage holes, sumps and sediment control. Other conditions High rainfall and rugged terrain requires well managed surface runoff and high design criteria, well managed road maintenance and sheeting of mine benches and roads. Contract or owner mining Local and international workforce and management. Owner operator mining. Operations personnel x 520. Maintenance personnel x 280. Technical services and management x 210. Primary equipment Production Loading : P&H4100XPC rope shovel x 3. Support loading fleet: PC5500 Excavator x 3. Pioneering loader: Komatsu PC 800 x 9. Trucks: Komatsu Kom860E x 93, Komatsu HM400 x 39. Drill rig production: Drilltek DJ75KS x 5. Drill rig trim: Drilltek D55SP x 2. Drill rig pioneering: Atlas Copco ECM720 x 3. 100 pieces of ancillary fleet. Equipment selection takes into account ground pressure and wet weather requirements. Equipment is indicative only, vendor quotes were not used.
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134 Indophil Resources NL Scheme Booklet Indophil Resources NL – Independent Technical Specialist's Report BDO Corporate Finance (WA) Pty Ltd 214063
Figure 2.3 Mine layout – pit and adjacent rock dump – 20 years from start of operations
Source: Tampakan Copper Gold Project Feasibility Study (2556-110-V14-WA49-38020)
2.4.3 Conditions impacting on mining AMC concludes from its review of the FS and other information provided by Indophil that the parameters and variables impacting on productivity, operating cost and capital expenditure have been thoroughly considered in the mine planning for Tampakan: • Orebody characteristics. • Geology, geotechnical and hydrological constraints. • Proposed mining areas, bench heights and sink rates. • Drill-and-blast. • Waste management. • Proposed mining methods. • Proposed blending and quality. • Labour. • Equipment selection.
The FS was peer reviewed in 2010 by consultants. The peer review concluded no technical fatal flaws. In the absence of final mine approvals to develop the project, SMI has only reported Mineral Resources and not an Ore Reserve.
AMC makes the following comments about the mine plan: • There is a risk that the scheduled mining extraction rate is sub-optimal. The vertical extraction of the pit, the bench sink rate, is optimistic in places. The inability to achieve sink rates may reduce the rate
of ore production. For personal use only use personal For • Metal prices and costs affect the ultimate pit size but the current size is limited by space required for necessary facilities and storages. • Campaign mining to achieve the blend will require careful planning and operations. • Encapsulation of PAF material within 3 months of extraction will be necessary.
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• Weather related delays have been factored into the mine plan at 15 days per year. This number was based on best practice industry delays although this number may be higher.
A number of operational aspects may materially impact on performance and cost. These aspects have been considered by the FS, and items of note include: • Pioneering steep terrain may extend the schedule for mine start up. • Productivity may be adversely affected by local workforce training and development in the early years. • Productivity may be adversely affected due to wet weather, ground water and road maintenance requirements. • Productivity may be adversely affected by the requirement to achieve the required ore blend. • Operational and storage facilities including the tailings dam limit the size of the open pit. • Equipment selection and maintenance vendor capability in-country require development.
2.4.4 Mining operating and capital costs AMC considered operating cost and capital expenditure estimates. The FS estimates are based on detailed first principles analysis. Equipment prices were not, however, sourced from vendors. Australian labour costs were used. Whilst local labour may initially be at lower cost, additional training and supervision will be required in the early years. The resulting mining capital estimate of $829M, including $793M for mobile equipment, and LOM operating costs per total tonne of material moved average of $1.87/t, and ranging from $1.56/t to $2.32/t in later years, are considered reasonable by AMC.
2.4.5 Mining conclusions The development of Tampakan will require an update to the FS and further study of PAF, blending and materials handling. Equipment selection, vendor quotes and revised cost estimation are also required.
2.4.5.1 Mining risks • Improvement in equipment vendor capacity and capability in the Philippines will be required to ensure equipment and parts availability. • Operational capability of the local workforce will require training and support to achieve the required productivity. • Productivity may be adversely affected by the requirement to achieve the specified ore blend, PAF encapsulation, wet weather and steep terrain.
2.4.5.2 Mining opportunities • An increase in mine life may be possible through further infill drilling, revision of pit optimization at higher copper prices, optimized production schedules, cut-off grade optimization and obtaining additional land for rock storage and tailings disposal. • Reduced mining costs may be possible by examining truck trolley-assist, in-pit crushing and conveying of waste.
2.5 Metallurgy and processing The Tampakan deposit has been the subject of a number of metallurgical evaluations in conjunction with various studies conducted. Tampakan is a copper-gold porphyry deposit with indicative, average life-of-mine (LOM) grades of 0.68% Cu and 0.27 g/t Au. In the primary ore, the predominant copper-bearing minerals are chalcopyrite (CuFeS2) and bornite (Cu5FeS4), while in the overlying secondary ore, copper is mainly contained in chalcocite (Cu2S) and covellite (CuS). Non-sulphide gangue (NSG) is predominantly quartz (SiO2), with various clays and micas, and diaspore [AlO(OH)]. Iron is present throughout the ore as pyrite (FeS). Note that some of the "secondary" minerals are not, in most cases, the result of surficial enrichment but are in fact hypogene minerals produced by acidic solutions during high-sulphidation alteration. This is the For personal use only use personal For norm for this style of mineralization.
The LOM plan is for the initial 17 year project consuming approx. 1 Bt or approximately 37% of the 2012 Mineral Resource.
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Arsenic (As) is present at an average concentration of 0.01% (100 g/t). As is present in both the sulphide mineralization, and in the NSG material. It is present in the sulphide mineralization as enargite (Cu3AsS4) and tennantite [(Cu,Fe)12As4S13]. As is present in the NSG as various clay, iron oxide, and phosphate species and the sulphide mineralization As species are similar metallurgically to the target copper minerals.
2.5.1 Process description Throughout the studies referred to above, the Tampakan deposit has consistently been characterized in four metallurgical domains: • Primary – containing chalcopyrite and bornite. • Low – secondary ore with sulphur <2.5%, containing chalcocite and covellite. • Medium – secondary ore with sulphur 2.5% to 5.0%, containing chalcocite and covellite. • High – secondary ore with sulphur >5.0%, containing chalcocite and covellite.
The secondary ore differentiation by sulphur content is largely based on pyrite content. Classification on this basis is logical and reasonable, and appears to adequately represent the ore without overly complicating the selection of representative samples and interpretation of testwork results. Data collection for the High domain was limited as this domain was found to be a minor proportion of the ore. Results for High samples were therefore included in the Medium category.
For the FS, core samples from 18 dedicated drillholes were composited to constitute the samples for testing. 101 samples were created for comminution testing while 104 samples were created for flotation testwork.
While the samples represent ore to be mined in the first phase 17 years of mine life, they are heavily weighted to represent the early years of operation. 60% of comminution samples represent ore to be mined (and presumably processed) from Year 1 to Year 4, while 65% of flotation samples represent ore from Year 1 to Year 3. AMC identifies some risk that overall comminution behaviour, and therefore plant feed rate and overall flotation response and, in turn, copper and gold recovery, might not be adequately modelled and estimated without representative data from all ore. Further drilling and testwork will be required to mitigate that risk.
Initially, five composite samples were created to represent the four major Tampakan ore types: • Comp 1 – Low. • Comp 2 – High. • Comp 3 – Primary. • Comp 4 – Primary. • Comp 5 – Medium.
Comminution characteristics of the Tampakan ore types were estimated by a reputable international testing laboratory using samples of Comp 1 through Comp 5.
Flotation testwork was conducted by a reputable international testing laboratory using samples of Comp 1 through Comp 5. Following early rounds of test-work where an acceptable level of reproducibility could not be established, four additional composites, designated Primary, Low, Medium, and High were created and samples of them were added to the test programme.
During later stages of the testing programme, two additional composites designated Arsenic and Molybdenum were created to evaluate potential ore with high arsenic and high molybdenum content respectively.
2.5.1.1 Arsenic deportment
For personal use only use personal For Arsenic is a heavy metal that requires special consideration during processing. Penalty charges will be incurred for concentrate processing if As contained in the copper concentrates exceeds certain levels. The project plan is to blend higher level As concentrates with low level As concentrates to produce saleable product with As concentrates below penalty levels. This will ensure that penalty charges will be minimized. SMI has accounted for this in its economic modelling.
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Understanding the behaviour of arsenic during metallurgical processes is essential to being able to predict and quantify the appearance of arsenic in copper concentrate for sale. The most workable model developed used a "binary logistic technique" whereby: • A factor X was calculated using linear regression from ore porosity, arsenic content, and sulphur content. • X was used to calculate P, the probability that arsenic will be in the sulphides using the following equation: - P=exp(X)/1+exp(X). The following "rules" were then applied: - When P is >0.5, there is arsenic in sulphides, and arsenic recovery to concentrate is assumed to equal copper recovery. - When P is <0.5, there is no arsenic in sulphides, and arsenic recovery is assumed to be 15%.
Using this technique, the results compared As recovery during locked-cycle flotation tests and the recovery predicted using the binary-logistic technique. Given the current plan to blend products to ensure that all concentrate is saleable, any further studies into As treatment options represents a value opportunity for the project that cannot be assessed in the current value estimates.
2.5.1.2 Comminution characteristics Mineral liberation studies in general concluded:
• NSG particles will largely be liberated at a primary grind P80 of 150 µm. This size has been used throughout the test programme. Validation testwork will be required in the next phase of study to arrive at an optimal primary grind size. • A very fine regrind size will be required in order to liberate the various sulphide species in rougher concentrate. A size between 10 µm and 20 µm has been indicated from mineral studies. Attainment of such fine sizing requires significant energy input for ultra-fine grinding (IsaMills or similar) which has a significant operating cost impact. A programme of study and development will be required to design an economically optimized arrangement of regrinding.
From a comminution perspective, the competence and hardness of Tampakan ore varies widely. A reputable international testing laboratory conducted a full suite of comminution testing, including the SAG Mill comminution (SMC) tests for semi-autogenous grinding (SAG) evaluation and the Bond tests for grinding evaluation, on the five global composites (Comp 1 to Comp 5) and on 100 variability samples selected to represent the ore. As discussed in section 2.5.1, the samples are biased toward the earlier years of the project.
A summary of comminution parameters for all samples resulted in a wide range of values for all parameters. Point Load Index (PLI) values were also collected across the deposit.
It should be noted the wide range of comminution responses, significant variation from average expected throughput will occur as the Tampakan ore type changes.
Three SAG ball mill/pebble crusher (SABC) comminution circuit arrangements were considered in the FS. Of these, the "Xstrata Standard Circuit" was selected with the SABC arrangement of: • Three parallel lines. • 1 x SAG mill (40' diameter, 24 MW motor). • 1 x ball mill (26' diameter, 16.4 MW motor).
The selected circuit design was then presented to three recognized comminution consulting firms who independently modelled and assessed the three-line, SABC circuit. The average throughput estimated by the th
For personal use only use personal For three consultants was 22.0 Mtpa per grinding line. This 50 percentile value has been taken as the nominal throughput capacity of the Tampakan plant.
Annual throughput data used in the FS were generated using PLI data that had been collected across the orebody and kriged to produce annual values corresponding to the FS LOM plan. A regression relationship between PLI and DWi then provided estimated annual DWi values used to calculate 50th percentile annual
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throughput. This technique seems sound and reflects the expected 50th percentile performance of the selected circuit studied.
AMC makes the following comments: • Sampling is not representative of the full life of the mine. • Comminution results from the various studies do not agree well on key parameters used in comminution design.
• P80 comminution product size of 150 µm requires further study for optimization. • The selected circuit design may not be optimal, and requires revisiting in the next phase of study. th • The nominal capacity of the plant is based on 50 percentile data. Blending and careful mine planning will be required to maintain a plant feed blend that will allow the plant to actually operate at the nominal designed rate of 2,757 tph (22 Mtpa) for each of the three grinding lines.
2.5.1.3 Flotation response Extensive and detailed flotation testing has been undertaken on the Tampakan ore. Previous work by consultants and Xstrata was followed up by a full programme conducted by additional consultants. The original five composites (Comp 1 to Comp 5) were evaluated, along with 53 variability samples. To these were added a further 50 samples representing new composites, designated Primary, Low S, Med S, and High S. The basic conclusions reached were that copper can be efficiently recovered to rougher concentrate at 88% to 95%; then by ultra-fine grinding, a high-grade copper concentrate can be produced. Locked-cycle tests at fine regrind P80 sizes from 13 µm to 22 µm resulted in Cu recoveries ranging from 77.6% for the High Composite (Comp 2) to 88.8% for the Primary Composite (Comp 1).
The results of initial flotation testwork in general were not considered sufficiently consistent to allow reliable prediction of recoveries based on the FS LOM plan. A detailed pilot plant programme was therefore conducted using four additional composites to check the previous work. • Gold recovery was found to be related to copper recovery, and was found to be adequately represented by one regression relationship, namely Au recovery = 0.88 x Cu recovery – 9.2. • Testing by qualified laboratories concluded that both concentrate and tailings could be flocculated to produce acceptable, concentrated streams for handling, and acceptably clear water for recycling. • Filtration testwork conducted on Primary, Low and Medium concentrates by three reputable suppliers of filtration equipment. Significant differences in the filterability of the three samples were identified. Acceptable filter cakes (moisture content and ability to be transported) were produced from the Low and Medium samples, however Primary concentrate did not meet specifications. More work will be required in order to process Primary ROM ore alone, as is anticipated to occur after Year 9 of the project.
AMC is in general alignment with the conclusions reached from the testing programme. The work conducted was detailed and logical, and conclusions drawn were informed by the data.
2.5.2 Concentrate quality Concentrates produced from locked-cycle tests of all the composites evaluated for the pilot testing programme (five original composites and four additional composites) were sampled to determine the potential for contaminant concentrations in concentrate sufficient to impact saleability of concentrates. AMC makes the following observations regarding potential concentrate marketing issues arising from contaminants in concentrates: • Arsenic (As) levels above 0.2% can attract penalties, and there is a limited number of copper smelters that can process Copper concentrates with higher levels of As. • Antimony (Sb) concentrations above 500 g/t could attract penalties.
• Selenium (Se) levels above 250 g/t could attract penalties. For personal use only use personal For • Bismuth (Bi) and mercury (Hg) levels appear to be below penalty limits. • Base metal contents other than copper appear to be below penalty limits. • NSG components of the concentrates appear to be below penalty limits.
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2.5.3 Process description On the basis of testwork conducted leading up to and during the FS, a simple, conventional porphyry copper flowsheet has been designed. Figure 2.4 shows the process flowsheet. The circuit is comprised of the following basic elements: • Primary crushing: - 2 x gyratory crushers. - Located south of the pit.
- Crushed product at P80 of 119 mm. - 8,473 m overland conveyor to concentrator site. • Waste rock crushing: - 1 x gyratory crusher, for use from Year 7. - For disposal of high potentially acid forming (HPAF) rock. - Located south of the pit. - 12,101 m overland conveying to a radial stacker located near the TSF. • Grinding: - Three parallel lines. - Each line containing: . SAG mill – 12.2 m x 6.7 m, 24 MW motor, variable speed gearless drive. . Ball mill – 7.9 m x 12.2 m, 16.4 MW motor, variable speed gearless drive. . Vibrating screen and pebble crusher.
. Cyclone cluster producing product of grinding at P80 of 150 µm. • Flotation: 3 - 42 x rougher cells – 257 m . - 15 x ultrafine regrind mills (M10000 IsaMills). 3 - 6 x 1st cleaner cells – 257 m . 3 - 8 x cleaner-scavenger cells – 257 m . 3 - 5 x 2nd cleaner cells – 257 m . 3 - 5 x 3rd cleaner cells – 100 m . • Concentrate thickening, storage, pumping and filtration: - 1 x 43 m thickener. - 2 x concentrate storage tanks – 16 m x 18.5 m: . Agitated. . 24 hours holding capacity. - Pipeline from concentrator to site of port ship-loading facility: . Approximately 110 km, fully welded steel construction, fully buried. . 290 m3/hr to 330 m3/hr when in operation. . Average throughput of 222 tph of solids. . Fully automated operation. - Port receiving station, filtration and ship loading: . 2 x agitated receiving tanks, 3,720 m3 each. . Operating at 45% solids. . Nominal 24 hour capacity. . 1 x 43 m thickener.
For personal use only use personal For . 2 x storage tanks for filter feed. . 7 x pressure concentrate filters: • 205 tph production rate. • Concentrate filter cake containing 8% moisture . Concentrate storage facility and ship loading:
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• 90,000 t capacity, fully covered, enclosed, and under negative pressure. • Nominal 18 days holding capacity. • Reclaim from stockpiles by front-end-loader. • Ship loading by pipe conveyor at nominal rate of 1,500 tph. . Concentrate filtrate water disposal: • Filtrate will be treated and reused by the power plant and other facilities at the port. • Any water excess to requirements will be discharged at sea with power plant cooling water. • Quality standards for water that may be discharged are not specified in the FS. • Tailings disposal and water recovery: - 2 x 125 m thickeners. - 2 x tailings lines (750 mm) from the concentrator to the TSF (tailings flows by gravity). - TSF: . Located approximately 5 km north-east of the concentrator. . Designed by a specialized consultancy based in Perth, Australia. . The system comprises the following elements located in the same stream catchment, and flowing downstream: • Fresh water dam (FWD) with live capacity of 20 ML • TSF with capacity for 1.5 Bt tailings and 256 Mt of HPAF rock. • Seepage recovery dam (SRD) to gather seepage from the TSF and feed to the TSF water treatment plant. - TSF will be an earth-fill construction built by the centreline method in stages to match the rate of placement of tailings. Locally available rock and soils will be used for construction. - A system of spillways will be constructed to allow discharge of flood water during a 1:1,000 year rainfall event. - Water will be reclaimed from the TSF at a rate of 2,788 L/s using a floating pontoon pumping system: . 3 x floating pontoons. . 4 x submersible pumps per pontoon, 300 kW power requirement, 465 L/s capacity. - A TSF water treatment facility will be constructed downstream of the SRD: . 500 L/s capacity. . Three module design, with any two modules capable of meeting the 500 L/s nominal treatment rate. . The plant is designed to discharge waters to local streams that meet all regulatory specifications. . Three products will be produced: • Heavy metal sulphide, for shipment off-site. • Iron/aluminium hydroxide sludge (free of heavy metals), for disposal on-site. • Clean gypsum product for sale. • Power supply: - The project will purchase electrical power via a third party power purchase agreement. Three generating units of 105 MW gross capacity have been specified to meet the expected maximum demand of 256 MW. Power that is in excess to requirements will be fed into the public grid. - The generating units will use coal-fired fluidized-bed technology that allows a variety of fuel qualities, including up to 10% biomass.
For personal use only use personal For - A single-tower, double-circuit 233 kV transmission system will transfer power to the plant site. - Three substations (230 kV, 66 kV, and 33 kV) will distribute power at the site. - A 2 MW standby system will be installed on site to provide emergency back-up for the system. - 80MW OCGT backup generator.
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• Water supply: - Water for the site will be provided by catchment and treatment as required. - Water discharged from the plant will be recycled, with make-up from the FWD. - Potable and fire water systems have been provided in the design.
Figure 2.4 Tampakan flowsheet
Source: Tampakan Copper Gold Project Feasibility Study (25526-000-30R-G01-00001)
Basic performance criteria for the plant are shown in Table 2.4. As discussed previously, nominal throughput of the plant is based on the average of values estimated by three separate consultants, using 50th percentile data. Copper and gold recoveries were estimated from multiple test-work programmes using multiple series of composite samples to be representative of the ore.
AMC is of the opinion that given the FS is now five years old, some aspects of the study may be able to benefit from changes in technology, costs process control systems or other improvements. Before the final project is approved for construction AMC supports the need for further work to confirm the final plant flowsheet, the size of major items of equipment, and the expected performance of the overall plant.
For personal use only use personal For
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Table 2.4 Key performance criteria from LOM plan
Parameter Unit LOM plan Throughput (three grinding lines) Mtpa 66 Feed rate Tph 8,200 Plant utilization % 92 Annual operating time hours 8,060 Copper feed grade % 0.68 Gold feed grade g/t 0.27 Arsenic feed grade % 0.01 Copper recovery % 84.4 Gold recovery % 65.1 Arsenic recovery % 81.7 Concentrate copper grade % 29.8 Concentrate gold grade g/t 9.0 Concentrate arsenic grade % 0.43
Throughput for Year 1 in the LOM plan which is when commissioning and ramp-up of the plant will occur is estimated at 31.7 Mt, with copper and gold recoveries of 81.5% and 62.8% respectively. Concentrate with grades of 32.7% Cu and 10.8 g/t Au are forecast for Year 1. AMC is unable to comment on the reasonableness of the ramp-up plan as details pertaining to ore types processed, and feed rates and recoveries expected have not been reviewed.
2.5.4 Capital expenditure – process plant Initial construction capital cost for the project has been estimated in the FS at $5.9B including power station development costs which have since been outsourced. Table 2.5 shows the capital expenditure estimate for mineral processing and infrastructure, excluding expenditure for mining and power station.
Table 2.5 Initial capital expenditure estimate - excluding mining
Capital Item Year -4 to Year 1 (US$M) Crushing and material handling to concentrator 321.5 Concentrator and site ancillary infrastructure 1,286.3 Tailings management 336.4 Concentrate pumping, dewatering, and port facilities 248.4 Off-site roads, other sustaining capital, and Other 2,068.1 Total 4,260.7
The estimate was prepared by consultants using costs supplied by third party firms for systems designed by them. Wherever possible, the Engineer has used master agreement (firm prices) and formal quotes for major items such as crushers and grinding mills. Earthworks have been estimated using quantities determined from plot plans and topographic maps. Concrete quantities were based on quantities estimated from drawings and general arrangements. Structural steel quantities were based on feasibility-level design drawings. Piping quantities have been factored from similar plants constructed by the Engineer. The estimates and quotations relied upon for the project capital estimates are no longer reliable, given that the quotation periods are now expired and there have been significant changes in process plant and ancillary equipment market conditions, availability and pricing.
For personal use only use personal For The capital cost estimate appears to have been prepared to a feasibility study level of accuracy. The costs of the major items of equipment were known at the time and carry little risk. The consultants have experience with remote construction in areas similar to Tampakan and have estimated from plans and drawings wherever possible. The consultants estimated required contingency to be 13% using an in-house technique, and this is included in the values referred to in Table 2.5. AMC is of the view that a revised feasibility study
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will be necessary in order to ensure up-to-date accuracy of estimates before the project can proceed to construction.
Sustaining capital for the plant and infrastructure appears to have been provided under the Other category in the LOM plan, at an average annual rate of US$13.4M from Year 2 onwards. Separate allowances of US$62.1M per year for development and upkeep of the TSF, and US$22.4M per year for development and upkeep of the water management system are included. A sustaining budget for mining equipment has been provided. However, while the allowance made for upkeep and development of the concentrator (US$13.4M per year) is significant, AMC recommends an average of US$25 M per year, from Year 2 to Year 16 be set aside for sustaining capital for a plant of this size, remoteness, and complexity.
AMC finds the overall capital cost in alignment with other similar plants recently constructed or being designed, but recommends increasing sustaining capital from Year 2 onwards.
2.5.5 Operating cost – process plant The overall processing unit cost estimate averages US$5.01/t milled over the life of the project based on the FS. A breakdown of the estimate is shown in Table 2.6. AMC makes the following observations regarding the processing unit cost estimate: • The estimated unit cost of US$5.01/t milled is consistent with the performance of comparable, large- scale plants. • Power costs are quoted in the FS at a LOM average of US$0.04463/kWh which is quite low. This low operating cost for power must be weighed against the substantial capital cost in construction of a coal- fired power plant at the port, and a transmission system to bring power to the mine site. Power costs account for approximately 25% of the direct concentrator cost. Since the FS was completed, SMI has changed the plan to an outsourced power station build, ownership and operation at a new location (Maasim) with new, longer powerline and pipeline routes, these costs are no longer correct. New estimates will need to be included in operating costs when these are finalized under the power purchase agreement. • Labour costs are comparatively low, accounting for 17% of direct concentrator costs (Labour, Contractors, and Maintenance). Costs for the on-site workforce of approximately 420 were worked up by SMI using current local rates, so the estimates should be sound. • AMC is of the view that a revised feasibility study will be necessary in order to ensure up-to-date accuracy of estimates before the project can proceed to construction.
Table 2.6 Processing unit operating cost
Item Milled US$/t Concentrator 4.19 Pipeline 0.09 Other Site Costs 0.28 G&A 0.45 Total 5.01
2.5.6 Process conclusions The development of Tampakan will require construction of processing facilities at the mine site, a pipeline to transport concentrate slurry to a port located on the coast, concentrate dewatering and handling facilities at the port, a power plant at the port, and a power transmission line to carry power up to the mine, processing plant and campsite. In the FS the capital cost of the project is estimated to be $5.9B including power generation facilities, with construction taking place over five years. A contingency allowance of 13% is
For personal use only use personal For included in the estimate. AMC finds the overall capital cost in alignment with other similar plants but recommends a revised feasibility study be undertaken to increase confidence in the capital and operating cost estimates, allowing for plan and location changes and including increasing the sustaining capital estimate to an average of US$25M per year from Year 2 to Year 17 of Tampakan.
An overland conveyor will carry crushed ore approximately 8.500 m from the primary crusher located at the mine site to the concentrator. ROM ore will be processed at an annual rate of 66 Mtpa through three, parallel
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grinding lines and a conventional copper flotation arrangement featuring rougher flotation, ultrafine regrinding, and three stages of cleaner flotation. Tailings will be stored in a TSF that is part of an integrated tailings and rock storage facility, fresh water dam, and water recovery dam. A steel pipeline of approximately 110 km will carry concentrate slurry to the port near Maasim where dewatering and 90,000 t capacity concentrate storage facilities will be located. The port will be capable of loading filtered concentrate at the rate of 1,500 tph. A coal-fired power plant capable of generation of an estimated 400 MW of power will be constructed at the port site.
Average copper recovery of 84.4% and average gold recovery of 65.1% are estimated over the first phase of Tampakan. The plant is estimated to produce an average 1,173,000 dry tonnes per year of concentrate grading 29.8% Cu, 9.0 g/t Au, and 0.43% As. Recoveries estimated for Tampakan are supported by the testwork that has been conducted.
The estimated unit cost of US$5.01/t milled is consistent with the performance of comparable, large-scale plants. AMC is of the view that a revised feasibility study will be necessary in order to ensure up-to-date accuracy of estimates before the project can proceed to construction.
Management of the As content of the ore as it presents in some concentrate production has been settled using a concentrate blending and marketing approach. The investigation and deployment of As suppression technologies represents an opportunity to be realized by the project should this become a higher priority justifying the essential investment in process development and future plant modifications.
2.5.6.1 Processing Risks AMC identifies some risk that overall comminution behaviour, and therefore plant feed rate; and overall flotation response and, in turn, copper and gold recovery, might not be adequately modelled and estimated without data from all areas of the deposit. Further drilling and testwork will be required to mitigate the risk.
There is a risk that the selection of the selected comminution circuit design may not be optimal.
Comminution results from the various studies do not agree well on key parameters used in design.
The nominal throughput capacity of the plant is based on 50th percentile data. Blending and careful mine planning will be required to maintain a plant feed blend that will allow the plant to actually operate at the nominal designed rate of 2,757 tph (22 Mtpa) for each of the three grinding lines.
2.5.6.2 Processing opportunities Concentrate treatment technologies to remove As may offer an approach to reduce the need for concentrate blending and ensure all product is saleable without further intervention. The comparative economics of all options for As removal should be re-established as the technological routes are further developed, and as market factors dictating penalties and blending charges change.
There is an opportunity to conduct further testwork at the time when new, more widely representative samples of ore are collected, to optimize the primary and secondary grind sizes specified for the plant.
While some Tampakan ore contains potentially viable levels of molybdenum (Mo), test results for Mo recovery were not encouraging and the programme was terminated on economic grounds.
2.6 Infrastructure and product logistics 2.6.1 Existing infrastructure There is negligible existing infrastructure at the Tampakan mine site. There is minimal off-lease existing transport, water, power and telecommunications infrastructure in the surrounding area that has unused
For personal use only use personal For capacity or sufficient capacity to support the project.
The main exception to this observation is road transport. Indophil advises that the existing roads and bridges from the main port in General Santos City to Tampakan are sealed and generally in good condition. The main road from Maasim to General Santos City is also sealed although only has one lane in each direction. The existing road from the Tampakan municipality to the Tampakan site is unsealed. Site access is via an old logging track that is in poor condition.
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In summary, there is negligible existing infrastructure capacity available for use by Tampakan. The project will require construction of all new on-lease and off-lease infrastructure. This was factored into the FS.
2.6.2 Overview of infrastructure requirements Tampakan infrastructure requirements include the following main components to be constructed and operated by SMI: • Mine, water, transport, telecommunications, power distribution, processing, waste rock and tailings management facilities and accommodation. • Concentrate slurry pipeline, pump stations, concentrate filter plant, electricity transmission line, substations and access roads.
The project will also require the following facilities, which will be developed by others, under agreement with SMI: • Power station. • Port facilities including bulk materials storage and handling and ship loading facilities.
These components are discussed in more detail below.
2.6.3 Proposed on-lease infrastructure (mine and processing plant) The general arrangement of the mine comprises two main areas, connected via a rope conveyor and other utilities: • The open pit and waste rock dump area. • The processing, water storage, and TSF area.
The main components of on-lease and off-lease infrastructure (OLI Project) are shown in Figures 2.5 and 2.6 and summarized from the FS:
Open pit and waste rock dump area:
• An open pit mine would be developed that would require a large and extensive fleet of vehicles to undertake and manage the variety of tasks expected on site. • During the life of the mine a drainage tunnel and water treatment facility would be established to minimize the water requiring collection and treatment from the open pit. Mine site utilities including power and water would be distributed across the site by fixed distribution systems. • Mine ancillary facilities would include heavy vehicle maintenance facilities required to support the mine fleet. • A mine explosive plant would provide pads and storage facilities (magazines) for operations. • Both ore and high potential acid forming waste rock would be transported from the open pit mine via an overland conveyor. A crushing and materials handlings facility (stockpile and reclaimer) will would be immediately adjacent to the mine to feed the conveyor. • The ore conveying system would comprise three flights of RopeCon conveyor systems at a length of 9 km. • Water management systems would include a mine pit water management system as follows: - A waste rock storage facility water management system would collect and convey surface runoff and seepage water from the north-east waste rock storage facility for treatment at the mine pit water treatment plant. - A mine pit water treatment plant would be located adjacent to the waste rock storage facility water dam. The treatment plant would be designed to treat surface runoff and seepage from the mine pit water and waste rock storage. Several sediment dams would be constructed
For personal use only use personal For downstream. - A mine pit water management system would collect and convey surface runoff and ground water inflows from the dewatering of the mine pit, surface runoff from the ROM pad and other surface runoff and truck wash from the mine ancillary facilities for treatment at the mine pit water treatment plant.
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The processing, water storage, and tailings storage facilities area:
• The proposed concentrator facilities would include grinding, pebble crushing, flotation and regrinding, concentrate thickening, concentrate holding, and reagent facilities. • The processing facilities cover an area of approximately 580 m by 690 m and would be located 5 km north-east of the mine ancillary facilities. A proposed tailings management facilities would include tailings thickening with a pumphouse and pipeline, tailings and residue storage facilities, water reclaim systems, and other ancillary facilities for the maintenance and servicing of the construction fleet required to progressively raise the TSF dam wall over the period of the mine's operation. • Quarry for the TSF embankment. • A seepage collection dam with two diversions that divert water runoff and a seepage dam water system would convey seepage water to the TSF. • A water treatment plant would be located north of the TSF seepage collection dam. A freshwater dam would be located approximately 3 km from the concentrator. • A freshwater dam riparian release channel, which is also referred to as the low-level outlet facility, would provide water to the river downstream of the TSF. • Ancillary buildings including an administration building, warehouse, workshops, vehicle wash areas, compressed air building and chillers, gatehouse and weighbridge. • A construction and operations accommodation village. • A fire system would have automatic operation with monitoring and control at three control rooms located at the mine ancillary facilities, permanent village and port. • A security system and mine management system. • A plant fuel storage and distribution system. • A waste management facility and satellite waste transfer stations at the power plant, port and on-lease facilities. • Site access and haul roads.
For personal use only use personal For
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Figure 2.5 On-lease infrastructure components
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For personal use only use personal For
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Figure 2.6 Off-lease infrastructure configuration
For personal use only use personal For Source: Tampakan Project Off Lease Infrastructure EIS 2014
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2.6.4 Proposed off-lease infrastructure Power station (by others)
Tampakan will require approximately 350 MW of electricity to support its construction and operation. This power will be sourced from a proposed 415 MW power station to be developed by Alsons Consolidated Resources, Incorporated (Alsons) within the Kamanga Agro-Industrial Ecozone in Maasim.
Indophil advises that the power station is to be developed under a long term power purchase outsource arrangement with Alsons. Alsons are currently constructing the first 100 MW stage of a 200 MW coal-fired power station (including a jetty) adjacent to the proposed Tampakan power station site at Kamanga, Near Maasim.
.A coal handling and storage facility will also be constructed by Alsons to unload the coal ships and transfer the coal to the stockpile and from the stockpile to the power station bunkers. The power station switchyard would comprise 230 kV gas insulated switchgear.
The environmental and social assessment, approvals, environmental and social management and rehabilitation and closure of the power station will also be the responsibility of Alsons.
Transmission line and power supply
The Draft Tampakan Off-Lease Infrastructure Project 2014 (OLI EIS) summary describes the transmission line as follows. • The electricity will be transmitted from the power station in Maasim to a substation located in the concentrator in the mine site via a dedicated 230 kV dual circuit overhead transmission line. • The transmission line will be approximately 97 km long and will be similar to existing high voltage transmission lines used by the National Grid Corporation of the Philippines. • The Tampakan off lease infrastructure will require approximately 15 MW of electricity. Portable generators will supply power during construction. During operations, the project will source its power supply from the power station. • A step-down power substation will provide a supply power from the 230 kV lines to the concentrate pipeline's intermediate pump station facility at a point part way along the concentrate pipeline. Concentrate pipeline
The OLI EIS describes the concentrate pipeline as follows. • Transport of copper-gold concentrate via a predominantly buried 115 km pipeline. The ore from the mine site will be processed into copper-gold concentrate comprising of 45% solids by weight and approximately 55% water. • The concentrate will be pumped from the concentrator to a break pressure tank facility. The concentrate will then flow under gravity (no pump station) from the break pressure tank to an intermediate pump station. • From the intermediate pump station, the concentrate will flow towards the filter plant in Maasim. • The concentrate pipeline will be designed and located to minimize the risk of leakage and breaks, and will be provided with various controls including a high density polyethylene liner to prevent internal corrosion, pressure monitoring stations to detect potential leaks or ruptures, and concentrate relief ponds to collect concentrate in the event of an emergency shutdown of the mine site concentrator.
Road upgrades
Off-site roads outside the mine lease area would provide access to site for general, construction, and operations traffic. Various sections require upgrading including General Santos Highway to a village named For personal use only use personal For Snip and upgrades to bridges.
An access road would be constructed along the concentrate pipeline route. Spur roads and access from existing roads and tracks to transmission towers may also require construction.
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Filter plant
The OLI EIS describes the concentrate pipeline as follows. • A filter plant designed to process 2.74 Mtpa of concentrate (dewatering from 45% solids by weight to approximately 92% solids by weight) producing an average 1.34 Mtpa of dewatered concentrate. • Concentrate will be pumped to agitated concentrate storage tanks, then be pumped into the flocculant addition chamber where flocculent and water will be added, before delivery to the thickener, to dewater the concentrate to approximately 60% solids. • The concentrate will then be transferred to the filter plant where pressure filters will dewater the concentrate from 60% solids to approximately 92% solids.
Port facilities
The port would consist of onshore and offshore facilities. • Concentrate filter cake from the filters will discharge continuously and be conveyed to a housed concentrate stockpile prior to shipment. • The concentrate will be shipped from the jetty facilities in Barangay Kamanga, Maasim.
2.6.5 Status of infrastructure design The following summarizes comments on design status and next steps for the mine site infrastructure for Tampakan from the FS: • Long-term modelling of the tailings reclaim water quality would be updated as kinetic testing data and water quality data advance during interim engineering activities. • The use of mine pit and waste rock storage facility water as a potential source for use at the concentrator would be investigated during interim engineering. • Confirmation of the final water management process technologies. • It is anticipated that some PAF material requiring special handling and treatment would be encountered during construction. • Aerial photographic surveys, digital terrain models, and feature surveys were provided. It was considered that the survey would be suitable for the generation of contours with a vertical interval of no less than 1.0 m. • The reliability of hydrological data would be confirmed to refine drainage design to ensure correct sizing of drainage structures. The site-wide water balance would be reassessed as more site-specific climate data becomes available. • Bulk earthworks and road designs for the Study were based upon a limited amount of geotechnical investigation. Detailed geotechnical investigations and analysis would be required to confirm and refine the earthworks design. While these comments previously related to a different off-lease infrastructure configuration, AMC considers that these issues may apply to the new configuration. Further, AMC understands that detailed geotechnical, soils, land ownership, topographical surveys and detailed design have not yet been completed.
AMC concurs with the comments in the FS that each of these technical issues (both on-lease and off-lease) could potentially result in changes to the infrastructure design and capital costs.
2.6.6 Method of infrastructure planning and cost estimates The FS reports that the infrastructure capital cost estimate was prepared based on feasibility level design and quantity take-off inputs provided by several engineering firms. The capital cost estimates are presented in three main sections: • Ore processing and ancillary facilities. For personal use only use personal For • Power plant and transmission lines. • Owner-controlled costs estimated.
The targeted overall estimate accuracy was ±15% including contingency developed in each section of the estimate.
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Quantities for capital cost estimates were generally derived from engineering feasibility studies, typically comprising: • Design Criteria • Technical Specifications/Facility Descriptions • Material Requisitions • General Arrangements • Material Take-offs.
AMC sighted selected engineering design criteria, drawings and facility descriptions used in the development of capital cost estimates.
Pricing estimates for quantities were generally derived from the following methods: • Estimated: Quantities calculated or derived from general Tampakan information. • Take-offs: Quantities calculated from drawings and documents developed for Tampakan. • Factored: Calculated from similar projects based typically on size or capacity ratio. • Allowed: Quantity allowance based on engineering or estimating judgment and is unsupported with engineering data or calculations.
Major equipment pricing was generally derived from the following methods: • Firm price – firm pricing based on an awarded purchase order or contract and include master agreements for major mechanical and electrical equipment. • Budget quote – formal quotation obtained from suppliers based on an engineering-developed material requisition, data sheets, and specifications for Tampakan. • Informal quote – an email quotation obtained from suppliers using a general description of equipment for Tampakan. • Estimated – pricing estimated or factored from other historical data. • Historical – pricing from completed projects escalated to current day. • Subcontract/vendor – pricing derived or supplied by a vendor, subcontractor or other engineering or estimating service. • Allowance – based on current assessment by cost estimators and engineering.
In several instances (power plant and transmission lines, water management system pumps and pipelines, mine area facilities, tailings and freshwater management, rope conveyors, tailings and slurry pipelines) feasibility level studies were prepared separately as inputs to the capital cost estimates. These inputs were reviewed and amended to maintain consistency in pricing and engineering design inputs, prevent duplications or omissions of costs.
The cost estimates were generally based on an engineering, procurement, construction/construction management method of project execution with a certain proportion of the construction work executed on a direct hire basis.
2.6.7 Changes to off-lease infrastructure configuration The scope or procurement method the following components of the project have changed significantly since the preparation of the FS: • The offshore port facilities and elements of the on-shore port facilities are to be provided by Alsons under a long term port and bulk handling service provision agreement. • The power station will be provided by Alsons under a long term power provision agreement. • The concentrate pipeline is now approximately 40 km longer.
For personal use only use personal For • The transmission line is now approximately 40 km longer. • The requirement for a substation mid-way along the transmission line is no longer required.
The cost estimates prepared in the feasibility for these components are now obsolete. There are likely to be a range of other infrastructure facilities and components that have changed since the FS.
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AMC is of the view that infrastructure cost estimates may need to be further refined.
2.6.8 Selected peer review conclusions A peer review of the FS concluded that there were no fatal flaws identified in the capital cost estimates. Summary observations and selected comments from the peer review report of the FS of relevance to the infrastructure capital cost estimates are: • Limited geotechnical information for the foundation design for the port, plant and tailings dam area potentially affecting the accuracy of the design and cost estimates • The transmission line corridor does not have a detailed survey. The direct cost of delay and disruption due to security risks were excluded from the contingency. • Additional drilling to allow detailed foundation designs and materials definitions for the fresh water, tailings dams and quarries is required.
2.6.9 Infrastructure conclusions Based on its review of the FS and cost estimates, AMC concludes: • The FS has considered and includes the likely required on-lease and off-lease infrastructure required for the construction and operation of Tampakan. • A reasonable and thorough approach has been adopted and completed in developing cost estimates for infrastructure requirements AMC has reviewed the cost model at a high level to check that major infrastructure components described in the FS have been transcribed and considered in the financial model. AMC has not reviewed nor validated the accuracy of the cost estimates, nor a detailed analysis of the completeness of the infrastructure capital cost estimates. • The FS and the Peer Review reports identify areas where assumptions and uncertainties could affect infrastructure capital cost estimates, indicating the potential for exceedances beyond the targeted ±15% targeted level of accuracy. • The off-lease infrastructure configuration of the project has changed significantly since the preparation of the FS, and much of the off-lease infrastructure design and costing prepared in the FS is obsolete. • Updated designs and cost estimates will be required to obtain a ±15% cost accuracy target for off- lease infrastructure. AMC is also of the view that a revised feasibility study will be necessary in order to update the accuracy of off-lease infrastructure cost estimates to meet the accuracy targets and to reconsider the projects overall feasibility in view of these updates.
2.7 Statutory approvals 2.7.1 Introduction, scope and limitations This section provides an overview of the primary land access, mining, environmental and social approval requirements for Tampakan, their current status, and likelihood and timing for any outstanding approvals.
It is noted that some components of Tampakan lie within the mining tenures (on-lease), and others are outside existing mining tenures (off-lease). These are discussed separately where appropriate.
2.7.2 Legal and regulatory framework Overview of Philippines mining and environmental regulatory framework
The following points provide a summary from Getting the Deal Through, Mining, Philippines (Prepared by Hector M de Leon Jr, of SyCip Salazar Hernandez & Gatmaitan Lawyers, 2014): • The mining industry is regulated through laws and regulations issued by the national government. Local government units also issue ordinances that may affect mining activities within their respective jurisdictions.
• The principal mining and environmental laws and regulations that regulate the mining industry are For personal use only use personal For Republic Act No. 7942 (the Mining Act) and the Philippines Department of Environment and Natural Resources (DENR) Administrative Order No. 21-10 (DENR Order No. 21-10). The Mining Act is a national law enacted by the Congress of the Philippines, while DENR Order No. 21-10 is the regulation issued by the DENR to implement the provisions of the Mining Act. The DENR is the primary government agency responsible for the regulation of the mining industry.
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• DENR Order No. 21-10 contains detailed provisions on environmental protection. The DENR, the MGB and the EMB are the principal regulatory bodies that administer the Act and regulations. Other local environmental laws of general application may also apply. • DENR Order No. 21-10 contains specific provisions for the development of host and neighbouring communities of a mining project to promote the general welfare of their inhabitants. • The state controls the grant of mining rights in the Philippines. Under the 1987 Philippine Constitution, the state owns all natural resources in the Philippines.
(AMC notes that the FS points out that the Indigenous Peoples Rights Act of 1997 (IPRA) defines "ancestral domain" to comprise, amongst other things, "ancestral lands, forests, pasture, residential, agricultural, and other lands individually owned whether alienable and disposable or otherwise, hunting grounds, burial grounds, worship areas, bodies of water, mineral and other natural resources,…" which would indicate that Indigenous Peoples may own mineral resources on ancestral lands.)
• Under the Mining Act, mining rights may be acquired through a number of tenure options, including a FTAA which is an agreement for the large-scale exploration, development and utilization of mineral resources (i.e. mining projects requiring a minimum investment of US$50M). (The agreement that applies to Tampakan is the Columbio FTAA held by SMI). • The holder of a mineral agreement or an FTAA is obliged to conduct mining operations in accordance with the terms of the agreement and applicable laws and regulation. • An FTAA has a term not exceeding 25 years, renewable for a further 25 years. An FTAA can be held by non-Philippine citizens or corporations that are foreign owned. • The Philippines Constitution establishes an independent judicial system and guarantees adherence to the rule of law and due process, and that the obligations of contracts will not be impaired by subsequent legislation. • The Mining Act does not have provisions dealing with government expropriation of licences. In general, the government may revoke a mining licence or terminate the relevant agreement based on grounds provided by law or based on grounds provided in the permit or the relevant agreement. In addition, the 1987 Philippine Constitution provides that the state, in times of national emergency, when public interest so requires, may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any business affected with public interest. Moreover, under the 1987 Philippine Constitution, private property may not be taken for public use without fair compensation. • A mining contractor must secure an environmental compliance certificate (ECC) from the Environmental Management Bureau prior to the conduct of development works, construction of production facilities, or mine production activities in the contract area. After the issuance of the ECC, the contractor must also submit an environmental protection and enhancement programme (EPEP). In addition, the contractor must submit, on a yearly basis, an annual environmental protection and enhancement programme (AEPEP) based on the approved EPEP. SMI received and accepted the mining and processing ECC in 2013. Other necessary plans have been submitted in 2014. • FTAA contractors must rehabilitate excavated, mined-out, tailings covered and disturbed areas to the condition of environmental safety. The Mining Act requires each contractor to establish and maintain a mine rehabilitation fund (MRF) as a deposit to ensure availability of funds for the satisfactory compliance of commitments stipulated in the EPEP or AEPEP. The MRF is deposited as a trust fund in a government depository bank and is used for physical and social rehabilitation of areas and communities affected by mining activities and for research on the social, technical and preventive aspects of rehabilitation. SMI has prepared and submitted for EMB consideration its Final Mine Rehabilitation and Decommissioning plan in 2014.
Presidential Executive Order No. 79 of Section 2012
Indophil advises that President B.S. Aquino III issued a Presidential Executive Order (EO79) in July 2012, For personal use only use personal For which outlined his administration's policy on mining and mineral development. Implementation if EO79 has resulted in a number of policy and regulatory changes and proposed legislative changes with respect to the issuance of mining and exploration permits, mining revenue sharing (fiscal regime requirements) and other matters. The final effect of all the measures contained in EO79 has yet to be achieved with several aspects the subject of legislative processes in the National Congress.
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It is noted that Section 1 of EO79 specifically states that: "Mining contracts, agreements, and concessions approved before the effectivity of this Order shall continue to be valid, binding, and enforceable so long as they strictly comply with existing laws, rules, and regulations and the terms and conditions of the grant thereof. For this purpose, review and monitoring of such compliance shall be undertaken periodically"
As such, EO79 may not immediately apply to the Columbio FTAA and the project.
South Cotabato open pit mining ban
The Mineral Resource and the proposed open pit mine lies within the South Cotabato Province, whilst the remainder of the project's mining and processing facilities cross the boundaries of South Cotabato into Sarangani, Davao del Sur and Sultan Kudarat Provinces.
The South Cotabato Environmental Code ("An Ordinance Providing for the Environment Code of the Province of South Cotabato", Ordinance No. 4, Series of 2010), currently prohibits (totally and unqualifiedly) open pit mining. The South Cotabato Environment Code appears to be inconsistent with the provisions and terms of the FTAA and the Philippines national Mining Act.
AMC has not reviewed the relevant statutes and instruments in detail, nor the constitutional arrangements of the Philippines, and cannot comment on which statutory instruments may prevail in the event of an inconsistency between the relevant statutory instruments brought into force by different levels of government.
The South Cotabato Environment Code remains in place since 2010 and no political or legal challenge has emerged to force removal or amendment of its effects. Indophil advises that SMI may have some remedies available to it but AMC has insufficient information to comment on the possible resolution of this issue.
2.7.3 Primary approval requirements Mining tenure
The FS states that previous mining claims and mining rights were secured by WMCP (subsequently acquired by SMI) via a number of agreements with various parties to obtain mining rights to the Tampakan mine area.
The FS notes that the Columbio FTAA (FTAA No. 02.95.X1) dated 22 March 1995 has a term of 25 years, renewable for a further 25 years. The FTAA grants to SMI the exclusive right to explore for and, if successful, exploit minerals from the "Contract Area" as well as setting out the rights and obligations of SMI in undertaking this purpose.
The FS also notes that the approval of the Secretary of the DENR will be required for the inclusion of two additional areas into the FTAA contract area for the purpose of Tampakan. These are: • 2266.01 hectares of land that is subject to Exploration Permit No. EP 000001-08-XI held by SMI. • 110.34 hectares of land that is subject to Exploration Permit Application No. 000067-XII-2006 held by Alberto Mining Corporation.
Under the FTAA, SMI is obliged to conform to existing laws and regulations and is entitled to the benefit of any more favourable term or condition resulting from repeal/amendment of any existing law or enactment of new law, regulation or administrative order.
The FTAA sets out a range of provisions, rights and obligations in respect of exploration and development of a mining project. Further information on the current tenement standing is provided in section 1.3.
Access to land For personal use only use personal For Within the proposed mine development site, SMI would require exclusive possession of the land comprising: • Ancestral domain. • Lands of the public domain, more specifically, mineral land.
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Outside of the proposed mine development site, Tampakan would require land for a variety of infrastructure needs, including access roads, a concentrate slurry pipeline, a filter-plant and transmission lines. The land types that would be affected by this infrastructure are: • Lands of the public domain, which includes alienable and disposable agricultural land. • Private land. • Ancestral domain.
SMI would be able to utilize a variety of mechanisms to obtain the necessary rights to land including: • The provisions of the FTAA, which provide for the use of public land without further charge and the right to require the government to acquire surface areas for use. • The Mining Act, including by way of easement rights and voluntary agreements. • The Public Land Act, by way of lease. • The Indigenous Peoples Rights Act through the process of Free and Prior Informed Consent (FPIC). • The provisions of the "Principal Agreements" governing rights and obligations which exist between SMI and a number of local governments and Indigenous Community groups.
Environmental and social approvals overview
The following main project components will require approval: • Mine tenement. • Port and power station facilities including ash dam (approvals to be acquired by Alsons). • Concentrate filter plant. • Transmission corridor (including any sub-stations not located within the mining tenement with a power carrying capacity >138kV). • Access road between the mine and the port and power station at Maasim. • Concentrate pipeline corridor which in part is co-located with the proposed power transmission line. • Resettlement villages.
These components have been grouped into three main approvals processes: • Mine approvals. • Port and power station approvals (to be acquired by Alsons). • Off lease infrastructure approvals, including: - Concentrate pipeline (HDPE lined). - Access road (new and/or upgrades) between the mine and the port and power station at Maasim associated with the concentrate pipeline and transmission line. - Power transmission line between the mine and the port and power station at Maasim. - Community resettlement areas.
Environmental approvals processes
The FS notes that the key regulatory approval required for the commencement of mine construction and operations is an approved Declaration of Mining Feasibility (DMF). Approvals required before a DMF can be granted include: • FPIC from Indigenous Peoples (IPs) and/or Indigenous Cultural Communities. • The ECC.
FPIC needs to be sought and granted by the IP located within the mining tenement area and is required for
For personal use only use personal For both mining and resettlement. The National Commission on Indigenous Peoples (NCIP) issues a Certificate of Precondition following negotiation with the IPs and SMI for FPIC processes to be conducted. Once the certificate of pre-condition is obtained, IP consultations led by the NCIP can commence. At the conclusion of these consultations, the IPs may choose to grant FPIC for their respective areas. Should all communities grant FPIC then SMI may, with the approval of the NCIP, enter into negotiations for memoranda of agreement with each community for development of the project, in accordance with the Indigenous Peoples Rights Act (IPRA) and under the guidance of the NCIP.
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An ECC is the key environmental regulatory approval required for the project. The Environmental Management Bureau (EMB) is responsible for the administration of the ECC approvals. An Environmental and Social Impact Assessment (ESIA) must be prepared and approved prior to the grant of an ECC. In addition, the following documents must also be prepared and approved prior to the grant of DMF by the EMB, MGB and DENR: • An EPEP. • A Social Development Management Plan (SDMP). • A Final Mine Rehabilitation Plan (FMRP). • A survey plan. • Other supporting documents.
The process for acquiring approvals for the off-lease infrastructure is similar to that outlined above, except that a DMF and FMRP are not required.
2.7.4 Current environmental approvals status AMC understands that the status of the key environmental approvals tasks is: • The Mine DMF application has been submitted. • The Mine ESIA has been submitted. • The Mine ECC granted (in February 2013) and accepted (in August 2013). • A Five Year SDMP has been submitted and approved at the Regional level. • The Off-Lease Infrastructure EIS has been prepared, but not yet submitted. • FPIC – The NCIP has commenced the FPIC process.
There are a variety of other permits and approvals necessary before the project can commence development activity. Indophil advises that SMI is developing a permitting plan for submission to the DENR in due course and that approval processes continue to be progressed by SMI and the local and national governments.
2.7.5 Current land access and community agreements AMC understands that the process of obtaining local government unit endorsement has commenced. Formal resolutions of project endorsement will be required from a majority of local governments in the project area. These endorsement processes are expected to take several months to complete with each of the Barangay village, Municipal and Provincial governments directly involved in the project. This demonstration of local social acceptance is crucial for the establishment of social licence to operate.
AMC understands that land acquisition processes will follow-on once the local government endorsement and FPIC processes have been satisfactorily completed.
2.7.6 Timing and likelihood of outstanding approvals AMC has not reviewed an updated detailed overall project approvals schedule for Tampakan. Investor presentations indicate possible DMF approval by late 2014, leading to the start of construction in 2016 with first production in 2019 (subject to approvals).
AMC considers that there is a very large amount of complex land access, environmental, social (community), mining and other approvals work yet to be completed for Tampakan, and that the overall approvals work is likely to take years rather than months. Much of this work can be scheduled to run in parallel with front end design, engineering, procurement, pre-construction and certain construction work, such that the potential for delays from approvals on overall project timeframes can be mitigated to some extent. This is not uncommon in large and complex mining projects.
For personal use only use personal For Specifically, the approval of the DMF is subject to obtaining FPIC from a large number of parties. AMC considers that DMF approval is likely to extend into 2015, if other approvals and land access risks take effect.
As with any large and complex mining project, there are a range of risks of delays in approvals processes from a variety of risk categories, which will require ongoing assessment and management.
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The acceptance of the ESIA and grant of an ECC, acceptance of the five year SDMP and other support from the national government provide some measure of confidence in the overall likelihood of obtaining national government approvals.
The issue of the South Cotabato ban on open pit mining is discussed in section 2.7.2.
2.7.7 Approvals conclusions AMC considers that the following matters are potentially material approval issues: • There are large areas of land held under various types of title that are to be acquired via various processes. • Tampakan involves a large and complex approvals process requiring numerous approvals and endorsements from national and a number of local government units, with potential for uncertainties and conflicts in policy, legislature and regulatory requirements. • The primary approval for the project (the approved DMF) is subject to obtaining FPIC from a large number of parties. AMC considers that DMF approval is likely to extend well into or beyond 2015, if other approvals and land access risks and delays take effect. • Tampakan is one of the first large mining projects in Mindanao with potential for conflicting uncertainties in administrative process and potential lack of established technical and administrative expertise (i.e. organizational capacity) for regulation of mining projects. • The South Cotabato Environment Code in its current form prohibits the development of Tampakan. The apparent inconsistency of the code with the FTAA (of which the National Government of the Philippines is a party) and the Philippines Mining Act is yet to be resolved. The existence of this ban has potentially already delayed this project, there may be potential for a resolution to be found in future, and also a risk that the ban is not removed in any effective way which could further delay or even render it impossible to develop the project. AMC considers that the ability of SMI to successfully address this matter is likely subject to various social, political and legal complexities, and that it is difficult to quantify the likelihood of a successful outcome.
These matters (with the exception of the open pit ban of South Cotabato) are not unique to Tampakan. The effect of these matters is usually extended approval times and additional cost and effort required to obtain approvals.
There also remains a risk of non-approval of Tampakan, potentially requiring amendment of the project and resubmission of applications for approval, or in a worst case, final refusal of the project.
2.8 Environmental management 2.8.1 Project environmental status and overview The following environmental impact assessments have been completed for Tampakan: • Tampakan Copper-Gold Project Mine Environmental and Social Impact Assessment (international standard) (the mine ESIA). • Tampakan Copper-Gold Project Mine Environmental Impact Statement (for Philippines approval process) (the mine EIS). • OLI EIS.
An ECC has been granted and accepted in 2013 for the mining and processing operations of Tampakan. This was supported by the ESIA and EIS prepared and submitted in 2011. The OLI EIS is yet to have the necessary consultation periods completed and is yet to be submitted for ECC approval.
2.8.2 Mine – existing project setting
The mine ESIA summarizes the Tampakan setting as: For personal use only use personal For • The project site is located approximately 65 km north of General Santos City and 14 km east of the Tampakan township. • The project site is characterized by rugged terrain with steep slopes and several mountain peaks, gorges and rivers.
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• Vegetation cover across the project site ranges from native forest to areas that have been extensively logged or cleared for agriculture. The mean annual rainfall for the project site is approximately 2,400 mm per year.
The Tampakan site lies within several government jurisdictions including two regions (Region XI (Davao) Region XII (SOCCSKSARGEN)) of the National Government, four Provinces (Davao del Sur, Sultan Kudarat, South Cotabato, Sarangani), four Municipalities (Kiblawan, Columbio, Tampakan, Malungon) and nine Barangays (Kimlawis, Bololsalo, Tacub, Datal Blao, Danlag, Pula Bato, Tablu, Malabod, Blaan).
2.8.3 Mine – waste rock and tailings management The waste rock and tailings management approach is summarized from Tampakan mine ESIA as follows: • The project will generate approximately 1.65 Bt of waste rock and approximately 1.1 Bt of tailings. • All tailings and approximately 90% of the waste rock are expected to be PAF. • The majority of the waste rock (1.35 Bt) will be stored in the waste rock storage facility (WRSF). All tailings (1.1 Bt) will be stored in the TSF. The majority of the stored tailings will remain saturated below the level of the TSF reclaim pond to control of the oxidation of tailings and production of acid. • High PAF waste rock will be placed in specially constructed cells (within the WRSF) to limit the ingress of water and exposure to oxygen by encapsulating the material within compacted NAF waste rock. These cells will be surrounded by medium and low PAF waste rock. • The final surface of the WRSF will be capped with a cover layer of non-acid forming waste rock and topsoil, and will be revegetated. • Fresh water will be diverted around the WRSF by perimeter drains. This water will be collected in the WRSF seepage collection dams. Water collected in these dams will be treated in the mine pit water treatment plant prior to use in either the concentrator or storage in the TSF reclaim pond. In the closure phase, clean water will be diverted around the WRSF, and seepage will be transferred to the open pit void for storage and management. • The TSF will be located within the Mal River Valley and will cover an area of approximately 1,300 ha. The tailings will be pumped from the concentrator as a slurry and discharged into the TSF at multiple discharge points. A reclaim pond will be maintained on the surface of the TSF to limit potential oxidation of the stored tailings and waste rock below the level of the pond. Tailings above the level of the reclaim pond will be progressively covered with subsequent tailings deposition to control oxidation. • The TSF embankment has been designed as a mixed soil and rock fill embankment with a low permeability core to control seepage. The embankment will be progressively raised in order to provide sufficient tailings storage capacity over the life of the project. • A series of diversion channels will be constructed on the western side of the TSF to divert fresh water runoff around the TSF. Water from the TSF reclaim pond will be re-used in the concentrator. Any excess water from the TSF reclaim pond will be treated at the TSF water treatment. Treated water will comply with Philippines and International discharge water quality standards that are designed to ensure that there will be no adverse impacts on downstream water uses. • A seepage collection dam will be located downstream of the TSF embankment to collect seepage from the stored tailings. Water from the seepage collection dam will either be transferred to the reclaim pond for storage and management, or treated in the TSF water treatment plant prior to discharge from site. • Closure of the TSF will involve creating an oxygen barrier for the majority of the tailings surface by raising the water level of the TSF pond. Any exposed areas of the tailings surface above the level of the final pond will be covered with a 1 m thick soil and NAF rock layer designed to maintain saturation of the underlying tailings surface. Water quality in the TSF pond is expected to improve in the closure phase to a level that will allow overflow from the TSF without treatment. Until this time, excess TSF pond water will continue to be treated in the TSF water treatment plant prior to being discharged from
site. For personal use only use personal For In general, AMC considers that waste rock and tailings issues have been addressed and considered in the mine ESIA and FS.
2.8.4 Mine – flora and fauna The flora and fauna management approach is summarized from the mine ESIA as follows:
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• The majority of the project site (60%) is highly disturbed due to logging, agriculture and kaingin (slash and burn) farming. However, approximately 40% of the site (3,750 ha) contains remnant rainforest vegetation. The remnant rainforest also includes some limited areas of Old Growth Forest, which is protected under Philippine legislation. • The key impact of the project on terrestrial ecology will be the disturbance of approximately 4,000 ha of the project site. This area includes approximately 1,300 ha (35%) of the remnant rainforest on the site. • The main proposed flora and fauna mitigation approach is focused on the establishment of regeneration, conservation and offset areas. These mitigation measures will be developed and implemented through a Biodiversity Management Plan. The Biodiversity Management Plan will also include vegetation clearing procedures, monitoring programmes and research activities related to the terrestrial ecology of the area. • With the proposed mitigation, the project is considered unlikely to directly threaten the occurrence of vegetation communities or significant species in the project site or the region. • The key aquatic habitats within the project site include the Mal River and its associated tributaries. Areas of these aquatic habitats are currently degraded due to clearing of riparian vegetation or poor water quality. Field surveys indicate there are no rare or endangered fish, macro invertebrates or aquatic macrophytes on the project site or in downstream waterways. • The loss of aquatic habitat is proposed to be mitigated through compensatory habitat enhancement. This will be implemented through the Biodiversity Management Plan. The Biodiversity Management Plan will also include a monitoring programme for downstream aquatic ecology. • The adopted site discharge water quality standards have been set at levels that are specifically designed to ensure there are no significant adverse impacts on downstream aquatic ecosystems. Best practice erosion and sediment control measures are also proposed to be implemented on the Tampakan site. This will ensure that downstream waterways and associated aquatic ecology are not adversely impacted by sedimentation.
AMC considers that flora and fauna have been addressed and considered in the mine ESIA and FS. AMC notes that the mine ESIA consultant concludes that, with the proposed mitigation, the project is considered unlikely to directly threaten the occurrence of vegetation communities or significant species in the project site or the region. The grant of the ECC requires that all proposed mitigation measures in the mine ESIA are implemented. AMC understands that the scope and costs of the proposed Biodiversity Management Plan is yet to be detailed and considered in the overall project feasibility studies.
Indophil advises that hundreds of hectares of planting of local tree and other flora species have already been carried out by SMI with the support of local governments and IPs. Indophil also advises that, to date, SMI has been awarded the highest honours for six consecutive years for its excellent environmental performance through the Presidents National Environmental Award Scheme.
2.8.5 Mine – water management The water management approach is summarized from the mine ESIA as follows: • The project water management system has been designed to provide a suitable water supply for the construction and operation of the mine. It is also designed to ensure that the project does not adversely impact the quality or availability of water for downstream water uses during the construction, operations and closure phases. • Specific water management strategies have been developed for each of the key components of the project. These include the open pit, WRSF and TSF. Site drainage systems have been designed to capture and control the volume of poor quality drainage water. This will be achieved by the diversion of clean water away from disturbed areas. • Water management infrastructure has also been designed with a high capacity to contain site drainage water. Site discharge water quality standards were developed as part of the mine ESIA and have been
For personal use only use personal For adopted for the project. These standards will apply to water discharged from the project site. They are designed to ensure that there will be no adverse impacts on downstream water uses including irrigation, drinking water supply and aquatic ecosystems. • Water treatment plants designed to treat site drainage water to the adopted discharge standards are proposed to be installed at the TSF and open pit.
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• Best practice erosion and sediment controls are also proposed to be implemented on the project site in order to manage the potential for sedimentation of downstream waterways. • The Mal River catchment drains the central and eastern portions of the project site. The fresh water dam (FWD) will be constructed on the Mal River and will have a storage capacity of 215,000 ML. • The water supply available from the FWD will be sufficient to enable the controlled release of fresh water to downstream water users, in addition to supplying fresh water for the project. The operating procedures for the FWD controlled release system will be developed in consultation with downstream water users in order to optimize downstream water supply availability. • The Taplan river catchment drains the western portion of the project site. Compensatory releases of fresh water from weirs on the project site and treated water from the water treatment plant near the open pit are proposed in the Taplan river catchment. The compensatory releases will be at flow rates that will offset any potential reduction in downstream river flows in this catchment. • The project is not expected to result in any significant adverse downstream flooding impacts. Peak flood flows in the downstream Mal and Taplan river catchments will reduce as a result of the project due to reductions in the contributing catchment areas and/or the flood attenuation effects of the site water storages. • The FWD spillway will discharge flood water to the Manteo catchment in extreme floods with an average recurrence interval of greater than 1,000 years. In such extreme events it is expected that the Manteo River system would already be subject to flooding. The additional contribution to flood flows from FWD spillway discharge is not expected to significantly increase the extent of downstream flooding and associated flood risk. • The TSF, WRSF and open pit void are the main potential sources of groundwater seepage from the project site. Seepage controls have been included in the TSF design to manage the downstream groundwater impacts and surface water. Seepage controls include clay lining of permeable areas of the base of the tailings storage area and installation of a grout curtain in lateral seepage paths. Groundwater monitoring is proposed and will detect seepage from the waste storage facilities. Seepage detected through monitoring will seepage collection and pump back systems to ensure there are no adverse downstream impacts. • Seepage from water collected in the open pit is not predicted as the open pit void will act as a groundwater sink during the operations and closure phases. • Dewatering in the vicinity of the open pit may affect groundwater levels. In order to mitigate any impacts, SMI has committed to replace any affected community groundwater supplies (shallow wells and springs) with an equivalent alternative supply. • Collection and storage systems will continue to operate in the closure phase, where necessary. The adopted site discharge water quality standards will also continue to be applied during the closure phase and water treatment plants will continue to operate accordingly.
2.8.6 Mine – dust, noise and traffic The dust, noise and traffic impacts and management approach is summarized from the mine ESIA as follows: • The predicted air quality levels are compliant with the adopted project air quality guidelines at all of these villages and towns. • The predicted noise levels are compliant with the adopted noise criteria at all of these villages and towns. Project vibration levels were predicted in the area surrounding the project site including at 47 of the closest neighbouring villages and towns. The predicted vibration levels are compliant with the vibration standards at all of these villages and towns. • Visual effects were determined based on the 3D model and photomontages. The assessment concluded that the overall visual impact of the project will be low. This is because the majority of the project site and project components are screened from view from surrounding areas by topography and/or vegetation. The project will result in night lighting effects due to both direct and diffuse light
For personal use only use personal For effects. However, due to the distance to sensitive visual receptors and the level of screening of the project due to topography and vegetation, the impact is considered to be low.
2.8.7 Mine - environmental management A suite of environmental management plans are proposed in the mine ESIA: • Air Quality Management Plan.
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• Noise Management Plan. • Blast and Vibration Management Plan. • Waste Geochemistry Monitoring Programme. • Site Water Management Plan. • Biodiversity Management Plan. • Erosion and Sediment Control Plan • Rehabilitation and Mine Closure Plan. • Topsoil Management Plan. • Construction Soil Management Plan. • Non-Mine Waste Management Plan.
Additionally, the key statutory management plans include: • Resettlement Action Plans. • Social Development and Management Programme. • Environmental Protection and Enhancement Plan. • Final Mine Rehabilitation and Decommissioning Plan.
2.8.8 Mine – closure and rehabilitation • A Final Mine Rehabilitation and Decommissioning plan has been submitted to the MGB and EMB in addition to the mine ESIA. • Mine closure will involve the decommissioning of the mine site including the TSF, open pit and mine infrastructure areas. • Decommissioning of the open pit will involve the maintenance of a lake in the final void. The final void will have a positive water balance in the closure phase. Excess water from the final void will require treatment and controlled discharge.
2.8.9 Mine – contingent liability and rehabilitation fund The FS summarizes the Contingent Liability and Rehabilitation Fund (i.e. environmental security deposit) requirements for Tampakan as follows: • The Contingent Liability and Rehabilitation Fund would be established as an environmental guarantee fund mechanism and comprises: - The Mine Rehabilitation Fund. - The Mine Waste and Tailings Fees. - The Final Mine Rehabilitation and Decommissioning Fund. • The Mine Rehabilitation Fund would be: - Required to be established and maintained by SMI to ensure availability of funds for the compliance with the commitments set out in the EPEP and the AEPEP. - Deposited as a trust fund in a Government depository bank and maintained by SMI. - Used for "physical and social rehabilitation of areas and communities affected by mining activities and for research on the social, technical and preventive aspects of rehabilitation". • The Mine Rehabilitation Fund would be in two forms: - A Monitoring Trust Fund (MTF) – the MTF would be for the exclusive use in the monitoring programme approved by the Mine Rehabilitation Fund Committee and would not be less than the amount of PHP 150 000 unless increased by the Secretary of the DENR. - A Rehabilitation Cash Fund – this fund would be intended to ensure compliance with the approved rehabilitation activities and schedules as set out in the EPEP/AEPEP and would be
For personal use only use personal For equivalent to ten percent of the total amount needed to implement the EPEP or PHP 5 000 000, whichever is lower. • The Mine Waste and Tailings Fees Reserve Fund would be collected by payment to the MGB based on the amount of mine waste and mill tailings generated during that period and would be used for payment of compensation for any damages caused and/or payment for research projects approved by the Contingent Liability and Rehabilitation Fund Steering Committee.
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• The Final Mine Rehabilitation and Decommissioning Fund would be required to be established by SMI to ensure that the full cost of the approved Mine Closure Plan is accrued before the end of the operating life of the mine. The Final Mine Rehabilitation and Decommissioning Fund would be used solely for the implementation of the approved Mine Closure Plan.
2.8.10 Mine – closure cost estimate The FS reports that an estimate of the mine closure costs was prepared based on a conceptual rehabilitation and mine closure plan. The majority of the closure costs are assumed to be incurred over a five year period commencing in 2032, the final year of production. The water treatment plant located at the mine adit is assumed to operate for a period of 50 years from cessation of operations.
The mine closure costs were estimated at $349M in 2010 real dollar terms.
The mine closure cost estimates are based entirely on mine site and do not include closure and rehabilitation costs for off lease infrastructure (as described in the OLI EIS). The mine closure cost estimates do not appear to align with the categorization and various components of the Contingent Liability and Rehabilitation Fund described in section 2.8.9.
2.8.11 Off-lease infrastructure environmental management The key features and environmental management approach for the concentrate pipeline, transmission line, filter plant and associated facilities are summarized from the draft Off-Lease Infrastructure Environmental Impact Statement (OLI EIS) 2014 and presented below.
Overview of the OLI Project
The OLI Project will support the operations of Tampakan through the: • Transmission of electricity via an overhead power transmission line with an approximate length of 97 km. • Transport of copper-gold concentrate from the mine site concentrator via a predominantly buried 115 km pipeline • Dewatering of copper-gold concentrate in a concentrate filter plant designed to process 2.74 Mtpa of concentrate (dewatering from 45% solids by weight to approximately 92% solids by weight) over the life of the project and producing an average 1.34 Mtpa of dewatered concentrate for export.
The OLI Project does not include the proposed power station or port facilities, as these components will be provided by Alsons under agreement with SMI. Separate approvals will be sought by Alsons for those components, and the OLI EIS does not consider the effects of those components.
The OLI Project will be located in the provinces of South Cotabato and SOCCSKSARGEN. The concentrate will be pumped from the concentrator to the filter plant in Maasim.
Overview of existing environmental conditions
The following points extracted from the OLI EIS provide a brief overview of the existing environment of the project: • A study area of 1 km width for the length of the transmission line and concentrate pipeline was defined for the project. It is noted however that while the Tampakan OLI Project study corridor is 1 km in width, the actual disturbance area will be much narrower. On average, the final (post rehabilitation) impact footprint will be 40 m in width within the 1 km study corridor. • The majority of the length of the 97 km transmission line and 115 km pipeline infrastructure corridor will be located adjacent to existing roads and highways in disturbed and modified agricultural lands.
For personal use only use personal For • The north-eastern section of the infrastructure corridor will pass through closed forest areas while the mid-section and southern portions of the corridor will traverse the Silway River and Sarangani Bay Water Quality Management Areas. • The study area consists of about 56% of alienable and disposable land and approximately 44% of forestland. Within the project's identified disturbance footprint of 472 ha, approximately 244 ha (52%) is classified as alienable and disposable while 228 ha (48%) is forestland. The majority of the study
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area has been significantly impacted and modified by human activity, especially by agricultural activities. • Agriculture is the most dominant land use of the study area, which occurs in approximately 86% of the study area. Agricultural activities in the area include high value cropping, farming and grazing. High value crops produced within the study area include pineapple, banana and papaya. There are also cultivated areas that support coconut, corn, asparagus and rice. About 404.72 ha (86% of 472 ha) of lands within the project's disturbance footprint is used for various agricultural activities. • There are no lands in the study area that are covered by the Comprehensive Agrarian Reform Programme (CARP) of the Department of Agrarian Reform (DAR). • The 14-ha filter plant site is located within the Kamanga Agro-Industrial Economic Zone. The Kamanga Agro-Industrial Economic Zone was declared as an economic zone in March 2011 by Presidential Proclamation 134.
Summary of potential environmental impacts and management approach
The following points were selected by AMC and extracted from the OLI EIS to provide a summary of key environmental issues and the corresponding proposed management approach. AMC notes that the vast majority of impacts associated with the transmission lines and pipelines are short term construction disturbances that are largely closed out following completion of construction and rehabilitation works. The following summary focuses on issues with the potential for longer term impacts: • Land use and classification assessment: - Loss or restricted use of land by landowners with an estimated 735 privately-owned land parcels to be impacted by the project. SMI will seek to secure easement agreements with the owners of the affected land parcels (including ancestral lands) to minimize relocation and economic displacement. SMI will pay a fair value for all impacted lands. Out of the 472 ha of the project footprint, approximately 357 ha (76%) may be returned to restricted-height agricultural use during operations. • Geology, geomorphology and geohazards assessment and pipeline leaks or failures: - The final design of the project infrastructure will consider site-specific ground conditions, geotechnical assessments and probable maximum flood events. The structures will also adhere to local and international design guidelines and standards. The concentrate pipeline will be designed and located to minimize the risk of leakage and breaks by following the measures indicated in the pipeline controls and leakage monitoring. - Placement of infrastructure as additional structural loads on areas underlain by compressible materials (i.e. compressible clay-laden soils) or bed foundation with structural weaknesses may cause surface instability. About 46% of the study area is underlain by compressible materials and thus susceptible to surface instability. Site-specific conditions will be included in the final design of the various project infrastructure to account for the characteristics of the soil and substrate in these areas. In places where structural weaknesses are encountered at construction such as faults and fractures, geotechnical support will be applied where required. - About 15% (or 71 ha) of the project's disturbance footprint located proximal to or within areas with moderate to very steep slopes (> 18%). Site-specific slope and ground conditions will be given particular consideration in the final design of the facilities and infrastructure to reduce the inducement of slope failures in areas with slopes >18%. - The copper-gold concentrate is not classified as hazardous to humans (moderate toxicity – irritant). In the event that spills occur, clean up crews will be dispatched to recover spilt concentrate and make good the affected areas. Personal protective equipment will be required for clean up crews. The concentrate is insoluble in water. • Soils: - Earthworks, construction activities and clearing, particularly in areas with >18% slopes, will require erosion controls. A detailed Erosion and Sediment Control Plan will be developed prior For personal use only use personal For to the commencement of construction works. • Terrestrial ecology assessment: - Approximately 472 ha may be cleared of vegetation as a result of construction activities of the project. Approximately 424 ha (90%) of the project's disturbance footprint consists of either grassland or agricultural/plantation areas which are highly disturbed and modified. About 5 ha of Tropical Lower Montane Rainforest and 14.5 ha of Tropical Lowland Evergreen Rainforest are
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within the project's disturbance footprint. The project disturbance footprint passes through 0.47 ha of planted mangrove area located along the national highway. - The final alignment will be routed to have the least impact on high value habitats (in particular, remnant forest areas) with final alignment modifications determined during the detailed design phase. The transmission towers will be strategically located to areas where the least impact to high value vegetation communities will incur. - In exchange for the forest communities to be cleared, an equivalent forested community will be identified and set aside for conservation efforts or an equivalent area of forest community will be regenerated. - A total of 42 endemic terrestrial fauna species were recorded. Most of these were observed along the segment of the OLI Project study area within the mine project site. SMI preferentially located the project along cultivated areas, natural grasslands and brushland to avoid habitats with high species diversity including endemic and threatened species. Ground verification will be conducted before clearing forest patches and whenever feasible, endemic and threatened fauna species will be collected and relocated in areas with similar habitat and which will not be impacted by the development activities. • Cultural heritage assessment: - A systematic archaeological excavation will be conducted in the Bantilan Clan Certificate of Ancestral Land Title in coordination with the National Museum, the National Historical Commission of the Philippines and the NCIP in order to further verify and understand the prehistoric significance of the site. The re-alignment of the project infrastructure or salvaging of artefacts will be considered if the area is deemed historically and culturally significant. - Cultural heritage sites including a rock shelter and one burial site were identified within the OLI Project study area in Barangay Tablu, Tampakan. These sites would not be directly impacted by the proposed works. The rock shelter and burial site identified 68 m and 47 m respectively from the OLI Project centreline in Barangay Tablu in Tampakan (a highland area) are to be retained, and no construction facilities (e.g. laydown areas, temporary camps, site offices, etc) are to be located within 200m of these sites. • Electric and magnetic fields: - The electric and magnetic fields assessment conducted for the OLI Project concluded that the proposed 230 kV overhead transmission line will not pose electric and magnetic fields health issues based on published scientific literature and the proposed OLI Project design. SMI will disseminate information regarding perceived electric and magnetic fields risks and the levels to be encountered from the operation of the transmission line. The calculated levels for the line being well below international limits (i.e. magnetic field level of 56 mg compared to limits of 830 mg to 300 mg; and electric field of 0.52 kV/m compared to 4.167 to 5 kV/m, with a significant drop in the magnetic field and electric field levels at the edge of the easement width).
Abandonment, decommissioning and rehabilitation concept
The OLI EIS proposes a conceptual decommission and rehabilitation approach for the OLI Project post mine closure: • The closure, decommissioning and rehabilitation of the OLI Project will occur after 20 years of operations, concurrent with the closure of the mine. The facility abandonment, decommissioning and rehabilitation procedures of SMI for the OLI Project will be in accordance with the requirements of Philippine regulations, international guidelines and SMI's corporate standards to ensure that facility closure is characterized by: - Safe final landforms. - Suitable final land uses are identified and achieved. - Stable communities are established in the vicinity of the closed facility.
- Lasting social and environmental benefits are imparted to the host communities. For personal use only use personal For • The final closure and decommissioning options and procedures of the OLI Project will be developed as part of the overall Tampakan Copper-Gold Project Final Mine Rehabilitation and Decommissioning Plan. • The plan will be developed in coordination with the DENR-EMB, MGB and key stakeholder groups, and will be submitted to DENR-EMB and MGB for approval prior to implementation.
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2.8.12 Potential material environmental risks Potential material environmental risks are outlined below.
Environmental risks
The environmental assessments and FS were assessed and considered the environmental risks associated with the project and have proposed a range of environmental impact management measures and plans for preparation and implementation throughout the project. As with most copper-gold mining projects, waste rock, tailings and water management are potentially material environmental risks that will require careful ongoing monitoring and management.
Environmental management costs
The totals for community and environment related preliminary cost estimates are included in the FS.
AMC considers that environmental management costs should be revised in more detail, as the project scope and environmental requirements become more certain.
Project closure costs
The mine closure costs (US$349M in 2010 real dollar terms) have been included in the overall capital cost estimates and commercial models for Tampakan.
However, AMC is uncertain if this allowance includes all components of the Contingent Liability and Rehabilitation Fund described in the FS, specifically: • The Mine Rehabilitation Fund. • The Mine Waste and Tailings Fees. • The Final Mine Rehabilitation and Decommissioning Fund.
The cost allowances may need to be revised as the project is further refined and the environmental and social requirements for the project become more certain.
AMC has not been able to identify abandonment, decommissioning and rehabilitation costs from the available documentation for the OLI Project. AMC has not been able to identify whether these have been included in the overall FS cost estimates for Tampakan. AMC is of the view that the transmission line is likely to be transferred or acquired by another party, and is unlikely to be dismantled and rehabilitated. AMC is of the view that decommissioning and rehabilitation of the pipeline is relatively straight forward (when compared to a mine site) and that the cost of decommissioning the pipeline might not be a material cost.
2.8.13 Environmental conclusions AMC considers that the following matters are potentially material environmental issues: • The environmental assessments and FS have assessed and considered the environmental risks associated with the project and have proposed a range of environmental impact management measures and plans for preparation and implementation throughout the project. As with most copper- gold mining projects, waste rock, tailings and water management are potentially material environmental risks that will require careful ongoing monitoring and management. • The totals for community and environment related preliminary cost estimates are included in the FS. • AMC considers that environmental management costs should be revised in more detail, as the project scope and environmental requirements become more certain. • AMC is unable to determine if all components of the Contingent Liability and Rehabilitation Fund have been included in the cost estimates for the project, specifically, The Mine Rehabilitation Fund, The For personal use only use personal For Mine Waste and Tailings Fees and The Final Mine Rehabilitation and Decommissioning Fund. • AMC has not been able to identify abandonment, decommissioning and rehabilitation costs from the available documentation for the OLI Project. AMC has not been able to identify whether these have been included in the overall FS cost estimates for Tampakan. AMC is of the view that the transmission line is likely to be transferred or acquired by another party, and is unlikely to be dismantled and rehabilitated. AMC is of the view that decommissioning and rehabilitation of the pipeline is relatively
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straight forward (when compared to a mine site) and that the cost of decommissioning the pipeline might not be a material cost.
2.9 Social and community 2.9.1 Introduction Tampakan development has been delayed for many years and in this time there have been a number of changes in project ownership and management and also in the political, social, and legislative context of the Philippines. As a result of this, project development may suffer from certain kinds of legacy issues, but also from a lack of focus and variation in its overall approach to the documentation and management of social issues, contexts, and management strategies. This is reflected in the documents that were available for assessment by AMC.
2.9.2 Government There is a complex regional and national political system. This is subject to a range of influences, and the development and expression of regulations of material concern may be unpredictable or require clarification.
The Tampakan project area takes in multiple districts. The ability of district governments to make regulations that may be in contradiction to legislation and administration (such as the current provincial government of South Cotabato district ban on open pit mining effective October 17, 2010) may be resolvable but is likely to involve lengthy government engagement and/or legal action which has the potential to delay project development and/or discourage project investment.
2.9.3 Non-government organizations There are highly active and socially and politically sophisticated non-government organizations (NGOs) with international connections operating in the Tampakan area which are directly opposed to the development of the project.
NGO-driven anti-mining, anti-development, and anti-foreign sentiments are present locally and nationally (and to some extent internationally) and are likely to present continuing challenges to the maintenance of a social licence to operate (which will take in FPIC). They will also create reputational risks for international investors and developers.
2.9.4 Geopolitical Tampakan is located in a socially and politically charged area of the Philippines with a history of insurgency, and political and social resistance.
2.9.5 Community and land access Tampakan is a high significance, complex project covering a large area and multiple infrastructure elements with their own particular areas and impacts.
Project elements such as power supply, open pit, waste dump, TSF and water supply, transportation systems and port are all effectively projects in their own right which will likely have distinct stakeholder groups and associated risks and impacts which may not be contained within the Tampakan area. This will add further complexity to the management of social risks.
2.9.6 Artisanal mining There is a history of low-level alluvial mining in the Tampakan area.
Although alluvial mining appears relatively marginal in the project area (unsuitable geology, low returns), it is present and remains as a potential driver of project social complexity and instability in conjunction with other For personal use only use personal For social risks.
2.9.7 Indigenous people Tampakan requires the resettlement of several thousand people, some 70% of whom are composed of local indigenous B'laan with strong customary and legal claims and rights with the respect to the project area. The magnitude of the resettlement task in this context is substantial.
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Indigenous rights and claims with respect to the project area are a necessary part of planning for and conduct of resettlement. This is because indigenous claims are unlikely to be diminished by any resettlement package and will likely require the development and negotiation of appropriate compensation and programmes. The context for these negotiations and strategies as outlined in either the Preliminary Resettlement Action Plan or Social Development Management Plan is preliminary.
There has been project related in-migration on a significant scale. In-migration is related to speculation concerning the resettlement process, but also to access potential opportunities and resource flows relating to the project. This in-migration may lead to some local conflicts, particularly with respect to the unresolved status of indigenous claims to the project area.
2.9.8 Social and community risks Tampakan is considered to demonstrate a number of social risks with a potential to cause delays, disturbance, or closure of a project.
On balance, the social and community risks to the development and operation of Tampakan will necessitate considered and careful management. It is likely that there will be further delays to the development of this project, and this has been amply demonstrated by the history of the project to date. It is also possible that there will be disturbances to development and production within the project should social and political instability continue in the long term. Also, Government relations are complex and require careful management to achieve development and operation of Tampakan. Given the current circumstances, there may be instances where development or production is interrupted for short or medium term periods.
Management of project-related social risk involves costs and management time and effort that may impact on the profitability of the project. Specifically this would involve costs and expenditures exceeding those implied by either Philippine government regulations of current social management documents including the SDMP.
Tampakan can find an effective middle ground between a security focus and social development and agreement-based programmes but this will require further analysis, planning, and capacity building.
2.9.9 Social and community conclusions The material social and community risks for Tampakan appear to be: • The building and maintenance of a social licence to operate. • The careful management of Indigenous Peoples' rights and claims to the project area, • The timely and cost effective completion of resettlement while managing issues related to the first two major risks.
2.10 Risks – summary AMC assesses the summary risks for Tampakan as follows:
A project delay may result from: • The ban on open pit mining in South Cotabato. • Complex approvals process. • Time taken to obtain project funding. • Minority party: the decision to proceed relies on the majority shareholder. • Tenure: further approvals and consents are required to proceed to development of Tampakan.
Delays, disturbance and early closure of the project may result from social and community issues:
• The ability to build a licence to operate. For personal use only use personal For • Resettlement. • Management of Indigenous Peoples expectations.
Project viability – elements which may affect the economic viability of Tampakan: • The current cost estimates for capital and operating expenditures may be incorrect.
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• Mineral Resource.
Production and operational risks may affect productivity, cost, delays and disturbance: • Human resource capability and the ability to effectively train and develop the required workforce. • Equipment vendor scale and capability. • PAF encapsulation, wet weather and steep terrain. • Blending and careful mine planning will be required to achieve required plant feed blend. • Management of tailings dams in a high rainfall area.
2.11 Tampakan Valuation Indophil's key asset is a 37.5% economic interest in SMI that holds Tampakan which includes Mineral Resources and was the subject of the FS. A Mineral Resource has been estimated for the project, but an Ore Reserve has not.
AMC considers that there are significant areas of the project as envisaged in the FS that require more investigation, as listed in 2.10 Summary risks. There have also been significant changes in the project plan (such as pipeline route and port location) since the FS. Given the time that has already elapsed since the FS was completed, the cost estimates for the project will also require updating. Together with other impediments such as the time it will take to obtain the necessary approvals and permits, AMC concludes that it will be some years before it is likely that an implementation decision for Tampakan can be made. Therefore, AMC classifies Tampakan as a pre-development project per the VALMIN Code.
AMC uses a number of methods to value pre-development and exploration projects that are amongst those methods traditionally used in the mining industry, and which are described in Appendix C to this report.
Because of the nature of pre-development and exploration projects, their valuation is necessarily subjective. Therefore AMC prefers, wherever reasonable, to use more than one valuation method when valuing such projects.
AMC has used the yardstick value method as its primary valuation method for Tampakan. This is a commonly used method for valuing projects where a Mineral Resource has been estimated, but a current feasibility study and Ore Reserve estimate have not been completed.
AMC also considers that there is enough information available from the FS and other work done on Tampakan upon which to base a reasonably quantifiable range of production and capital and operating cost expectations, and judgement of likely product revenues, and that, in combination, these reasonably indicate that the project could become economic. From those expectations, a net present value (NPV) can be calculated, as would be done in a feasibility study. AMC then applies an appropriate risk factor that is commensurate with the pre-development status of the project concerned and refers to the result as an Expected Value. As part of this Expected Value method, AMC applies a range of risk factors of between 0.1 and 0.9 to the NPV, depending on the degree of uncertainty in the assumptions made in formulating the inputs to the NPV calculations. AMC has also determined a range of Expected Values for Tampakan as a secondary method to provide a "reality check" on the results of the yardstick value method referred to above.
2.11.1 Tampakan Valuation – Yardstick method Where a Mineral Resource has been quantified, yardstick values can be applied that have been determined from comparable transactions. In this method, a value per unit of metal contained in the Mineral Resource is calculated from transactions and applied to the contained metal in the Mineral Resource that is the subject of the valuation.
AMC has identified a number of transactions for large-tonnage, low-grade copper deposits that indicate
For personal use only use personal For yardstick values. None of these deposits are in the Philippines. Many of the mineral deposits that are the subject of the transactions (as is also the case for the Tampakan deposit) include subordinate metals that may add value, especially gold, silver and molybdenum. Metallurgical recoveries and metal prices would need to be assumed to determine copper equivalent values for the subordinate metals. Due to the difficulty of determining a copper equivalent value for the subordinate metals, AMC has assumed that most of the value in the transaction is indicated by the contained copper in the Mineral Resource in determining the yardstick values and in applying them to the Tampakan Mineral Resource.
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All of the transactions considered include tenements with reported Mineral Resources and were at a FS or pre-development stage at the time of the transaction. Most of the transactions deal with project tenements. A number of corporate transactions, where the company that holds the project tenements has been taken over, have been considered where AMC has concluded that most of the value in the target company is provided in the project containing the Mineral Resource.
The comparable transactions used to derive yardstick values are for projects in a range of countries (Appendix D). Standard and Poor's sovereign ratings for these countries range from CCC for Argentina to AAA for Australia, with other countries ranged in between. Standard and Poor's sovereign ratings for the Philippines is in the middle of the range at BBB. AMC considers that in addition to overall country risk, Tampakan is exposed to specific risks, including the possibility for the current ban on open pit mining to remain and the security risk in the Mindanao region along with the potential for legislative changes that may adversely affect a long lead time project such as Tampakan. Tampakan is also at a pre-development stage and the feasibility study will need to be updated before the project proceeds to development. AMC has taken these issues into account by selecting yardstick values at the lower end of the range indicated by the comparable transactions.
The transactions considered by AMC indicate a wide range of copper yardstick values from $9/t to $340/t of contained copper in Mineral Resources. AMC considers it appropriate to determine a more restricted range of values and to select yardstick values at the low end of the range. The lower end of range includes projects at a similar pre-development stage without Ore Reserves similar to Tampakan. Commentary on comparable transaction project status is also provided in Appendix D. AMC concluded that a range of yardstick values between $20/t and $51/t of contained copper in Mineral Resources was appropriate.
AMC notes that the yardstick value range is unusually wide and comments that this is indicative of projects where there is a large range of potential outcomes. It should be noted that AMC has included consideration of the Frieda River transaction which indicates a significantly lower yardstick relative to the yardstick values indicated from the other transactions considered. Frieda River is a particularly relevant transaction because: • It has a similar size and grade of Mineral Resource at 2,135 Mt at 0.49% Cu (Tampakan 2,940 Mt at 0.52 % Cu). • It has a similar mine life at 18 years (Tampakan 17 years). • It is the most recent transaction at November 2013.
AMC has applied the yardstick values to contained copper indicated by the 2009 Mineral Resource estimate. A revised Mineral Resource estimate was reported in a public statement by Indophil in January 2012. That estimate was not prepared by Indophil and AMC has been unable to review that estimate for the purpose of this report due to the unavailability of the supporting documentation and other information.
Applying the range of yardstick values to contained copper indicated by the 2009 Mineral Resource estimate indicates a value for Tampakan of between $270M and $689M and for Indophil's 37.5% economic interest a value between $101M and $258M.
As the Freida River transaction is a particularly relevant transaction the Preferred Value is weighted towards the bottom of the range, rather than using a mid-point. The Preferred Value for Tampakan is $410M, implying a value of $154M for Indophil's 37.5% economic interest.
2.11.2 Tampakan Valuation – Expected Value method AMC has determined an Expected Value range for Tampakan based on a projection of mining and processing tonnages, grades, production and costs sourced from the FS. BDO provided AMC with commodity price inputs, which are around 30% higher than those used in the FS.
Additionally, because the FS is out-of-date, AMC has increased the capital and operating costs by 20%
For personal use only use personal For relative to those used in the FS. AMC also assumed that a single concentrate is produced, with the cleaning of Arsenic incurring additional treatment charges.
Tampakan is subject to substantial project approval, sovereign, social licence, implementation and operational risk factors as discussed earlier in this report. Based on its consideration of a range of scenarios, AMC has chosen to approximate the impact of those risk factors by assuming that there will be further delay in commencement of the project and that the project would prematurely cease production. Accordingly,
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AMC's Expected Value determination is based on a five year delay to project commencement, and continuation of operations for only ten years. Key aspects of the inputs to AMC's Expected Value determination (on a 100% project basis) are summarized in Table 2.7.
Table 2.7 Expected Value inputs – assumptions and variations from the FS
Item Value Feasibility Variation Risks considered Construction commencement June 2019 Delay of 5 years Ban on open pit mining Approvals Project Funding Project viability Minority party Social and community Mine life – full years of 10 years at 66 Mtpa Reduction of 7 years Tenure production Developing country risk Social and community Tonnes and grade processed 689 Mt at an average grade No variation. Values taken from – 0.75% Cu, 0.29 g/t Au and 0.01 the schedule, the initial schedule % As contains higher grades than for LOM Tonnes and grade confidence Based on the Measured and No variation – Indicated Mineral Resource estimate Copper and gold recovery Cu 84.4%, Au 65.1% No variation – Product Single product with additional Feasibility has 2 products, one Human resource operator skills cleaning charges for As high As. Production and operational risks Capital expenditure $7,200M 20% Increase Project viability Operating Costs $662/t of dry concentrate 20% Increase Project viability produced Production and operational risks
Commodity prices $2.88/lb Cu and $1,236/oz Au Increase – Feasibility was Project viability $2.2/lb Cu & $700/oz Au
There are, however, significant technical and commercial risks to the project, which can only be evaluated through completion of an updated feasibility study.
Although AMC considers the Expected Value inputs as outlined above to be a reasonable reflection of the project, there is no certainty that an updated feasibility study will find that the project is viable, and that such a project will be implemented. In recognition of that risk, AMC considers that a probability factor of 0.3 to 0.5 is appropriate to apply for its Expected Value determination for Tampakan.
It should be noted that the Expected Value determination is sensitive to the assumed commodity prices, capital cost, delays and life of operation.
Having applied a probability factor of 0.3 to 0.5, AMC's Expected Value range for Tampakan is $310M to $516M and, for Indophil's 37.5% interest, is a range of $116 M and $194 M.
2.11.3 Tampakan Valuation – summary Applying the range of yardstick values to contained copper indicated by the 2009 Mineral Resource estimate indicates a value for Tampakan of between $270M and $689M and for Indophil's 37.5% economic interest a value between $101M and $258M.
As the Freida River transaction is a particularly relevant transaction the Preferred Value is weighted towards For personal use only use personal For the bottom of the range, rather than using a mid-point. The Preferred Value for Tampakan is $410M, implying a value of $154M for Indophil's 37.5% economic interest.
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3 Exploration properties In addition to Tampakan, Indophil has an exploration portfolio that has recently been reduced to two project areas.
Indophil holds a 25% interest in a mineral production sharing agreement (MPSA) covering 45.47 km2 that constitutes the Manat Gold Project (MPSA 094-97-XI) located in Nabunturan and Maco, Davao del Norte. The interest is held through a joint venture agreement between Indophil's subsidiary Southern Exploration. The MPSA is held by Alsons Development and Investment Corporation which is awaiting approval of its declaration of mining project feasibility (DMPF). Indophil has an option to earn up to a 30% interest in the Manat Gold Project. Indophil has been in the process of exiting this project. AMC has not attributed any value to the minor interest in a small exploration area.
The Balatoc Copper Gold Project consists of exploration permit applications covering 50.70 km2 filed by Balatoc Resources Exploration Corporation (BREC). Geophilippines Inc. has an option to own an interest in the project and Indophil has a heads of agreement with Geophilippines Inc. to earn up to 85% of the project. The applications were initially denied. The applications were initially denied and are subject of ongoing appeals AMC does not attribute value to tenement applications, except where an application is underlain by a preceding title (e.g. a mining lease application over granted exploration tenements). Considering their
status, AMC has not attributed any additional value to these exploration tenement applications. For personal use only use personal For
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4 Qualifications AMC is a firm of mineral industry consultants whose activities include the preparation of independent technical specialist's reports, and due diligence reports on, and reviews of, mining and exploration projects for purposes related to equity and debt funding, and public reports. In these assignments, AMC and its subconsultants act as an independent party.
Neither AMC nor its subconsultants have any business relationship or association with Indophil or BDO Corporate Finance (BDO).
While some employees of AMC and its subconsultants may have small direct or beneficial shareholdings in Indophil, neither AMC nor the contributors to this report nor members of their immediate families have any interests in Indophil that could be reasonably construed to affect their independence. AMC has no pecuniary interest, association or employment relationship with Indophil.
Indophil will pay AMC a professional fee, estimated at A$130,000 (excluding GST, taxes and government charges) according to AMC's normal per diem rates, for the preparation of this ITSR, plus reimbursement of out-of-pocket expenses. The fee is not contingent upon the outcome of the Scheme, and AMC will receive no other benefit for the preparation of this ITSR.
In a letter relating to our engagement, Indophil agreed to comply with those obligations of the commissioning entity under the VALMIN Code including that to the best of its knowledge and understanding, complete, accurate and true disclosure of all relevant material information will be made.
AMC has not audited the Mineral Resources, mining and processing schedules, cost estimates or other information provided by Indophil. AMC has reviewed the information to the extent necessary to satisfy itself that the information AMC has in relation to the valuation of the exploration properties, is sufficient.
Indophil has been provided with a draft of this ITSR to enable correction of any factual errors and notation of any material omissions.
Indophil represented in writing that, to the best of its knowledge, it has provided AMC with all material information relevant to its Mineral Assets described in this ITSR.
This ITSR and the conclusions in it are effective at 10 November 2014. Those conclusions may change in the future with changes in relevant metal prices, exploration and other technical developments in regard to the proposed operation, resource and exploration tenements and the market for mineral properties.
Indophil has provided AMC with indemnities in regard to damages, losses and liabilities related to or arising out of its engagement other than those arising from illegal acts, bad faith or negligence on its part or its reliance on unauthorized statements from third parties.
This ITSR has been provided to BDO for the purposes of it forming its opinion and preparing its independent expert's report (IER) in relation to the Scheme. AMC has given its consent for its report to be appended to the IER and for it to be provided to shareholders and has not withdrawn that consent before their lodgement with the Australian Securities & Investments Commission. Neither this ITSR nor any part of it may be used for any other purpose without written consent.
The signatories to this report are corporate members of the AusIMM and bound by its Code of Ethics.
Yours faithfully For personal use only use personal For
K Sommerville L J Gillett FAusIMM (CP) FAusIMM (CP) Principal Mining Engineer Director
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Appendix A List of abbreviations
2004 JORC Code Australasian Code for Reporting of DMF Declaration of Mining Feasibility Exploration Results, Mineral DMPF Declaration of Mining Project Resources and Ore Reserves, The Feasibility JORC Code 2004 Edition, Effective DMPF Declaration of mining project December 2004, Prepared by the feasibility Joint Ore Reserves Committee of the Australasian Institute of Mining and DWi Drop Weight Index Metallurgy, Australian Institute of ECC Environmental Compliance Geoscientists and Minerals Council Certificate of Australia (JORC) EGF Environmental Guarantee Fund 2012 JORC Code Australasian Code for Reporting of EMB Environmental Management Bureau Exploration Results, Mineral Resources and Ore Reserves, The EMF Environmental Monitoring Fund JORC Code 2012 Edition. Effective EO79 Presidential Executive Order 20 December 2012 and mandatory EPEP Environmental protection and from 1 December 2013. Prepared by enhancement programme the Joint Ore Reserves Committee of ESIA Environmental and Social Impact the Australasian Institute of Mining Assessment and Metallurgy, Australasian Institute of Geoscientists and Minerals FeS Pyrite Council of Australia (JORC). FMRP Final Mine Rehabilitation Plan % Percent FPIC Free and Prior Informed Consent from the Indigenous Peoples (Cu,Fe)12As4S13 Tennantite AAS Atomic absorption spectrometry FS SMI Tampakan Copper Gold Project Feasibility Study AEPEP Annual environmental protection and enhancement programme FTAA Columbio Financial and Technical Assistance Agreement AlO(OH) Diaspore FWD Fresh water dam AMC AMC Consultants Pty Ltd g/t Grams per tonne Alsons Alsons Consolidated Resources, Incorporated Hg Mercury APDI A/S Power Development Inc HPAF High potentially acid forming APIC Alsons Prime Investments IER Independent Expert's Report Corporation Indophil Indophil Resources NL As Arsenic IPRA Indigenous Peoples Rights Act of Au Gold 1997 Augusta Augusta Resource Corporation IPs Indigenous Peoples BDO BDO Corporate Finance ISO International Organization for Standardization Bi Bismuth ITSR Independent Technical Specialist's BREC Balatoc Resources Exploration Report Corporation koz Thousand ounces BWi Bond Ball Mill Index kt Thousand tonnes CARP Comprehensive Agrarian Reform Programme kWh/t Kilowatt hour per tonne CLRF Contingent Liability and LOM Life-of-mine Rehabilitation Fund LGUs Local government units COG Cut-off grade m3 Cubic metres CRMs Certified reference materials MGB Philippines Government Mines and Cu Copper Geosciences Bureau Mineral Assets Mineral assets of Indophil Cu2S Chalcocite the Mining Act Republic Act No. 7942 (Philippines) Cu3AsS4 Enargite MMT Multi-sectoral monitoring team Cu5FeS4 Bornite Mo Molybdenum CuFeS2 Chalcopyrite CuS Covellite MPSA Mineral production sharing agreement DAR Department of Agrarian Reform For personal use only use personal For MRF Mine rehabilitation fund Davao del Sur Province of Davao del Sur in Region XI Mt Million tonnes DENR Philippines Department of MTF Monitoring Trust Fund Environment and Natural Resources NCIP National Commission of Indigenous DENR Order No. Administrative Order No. 21-10 Peoples 21-10 NGOs Non-government organizations
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NPV Net present value t Tonnes NSG Non-sulphide gangue Ta Abrasion Index Offer APIC offer Tampakan Tampakan copper-gold project OK Ordinary kriging the mine EIS Tampakan Copper-Gold Project OLI Project off-lease infrastructure Mine Environmental Impact Statement OLI EIS Draft Tampakan Copper-Gold Project Off Lease Infrastructure the mine ESIA Tampakan Copper-Gold Project Environmental Impact statement Mine Environmental and Social 2014 Impact Assessment PAF Potentially acid forming TSF Tailings storage facility PEM Prospectivity enhancement multiplier US$ 2014 United States dollars PLI Point Load Index VALMIN Code Code for the Technical Assessment and Valuation of Mineral and ppb Parts per billion Petroleum Assets and Securities for QA/QC Quality assurance/quality control Independent Expert Reports. The RWi Bond Rod Mill Index VALMIN Code 2005 Edition, SABC SAG ball mill/pebble crusher Prepared by the VALMIN Committee, a joint committee of the SAG Semi-autogenous grinding Australasian Institute of Mining and Sb Antimony Metallurgy, the Australian Institute of Scheme Scheme of Arrangement Geoscientists and the Mineral Industry Consultants Association Se Selenium with the participation of the SiO2 Quartz Australian Securities and Investment SMC SAG Mill comminution Commission, the Australian Stock SMI Sagittarius Mines Inc Exchange Limited, the Minerals Council of Australia, the Petroleum SOCCSKSARGEN Region of the Philippines, located in Exploration Society of Australia, the central Mindanao, and is officially Securities Association of Australia designated as Region XII and representatives from the SDMP Social Development Management Australian finance sector. Plan WHO World Health Organization South Cotabato An Ordinance providing for the WMCP Western Mining Corporation Environmental environment code of the Province of Philippines Code South Cotabato, Ordinance No. 4, Series of 2010 WRSF Waste rock storage facility SRD Seepage recovery dam
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Appendix B Report contributors
The contributors to this report include:
Name Qualifications Affiliations Involvement Kate Sommerville BEng (Geological), Post Graduate AMC Principal Mining Project Manager and mining Diploma Mining, Masters of Engineer aspects. Business Administration Lawrie Gillett BEng (Mining) (Hons) AMC Director/Global Peer review. DipGeosc (Mineral Economics) Practice Leader – Corporate Consulting Dean Carville B App Sc (App. Geology) AMC Geology Manager – Geology, Mineral Resources and Perth valuations. Principal Geologist Peter Allen BEng (Environmental) AMC Principal Environmental management and Environmental Engineer infrastructure. Rob Chesher BSc Metallurgy (Hons) AMC General Manager – Metallurgy processing. Brisbane Principal Consultant John Cook PhD in Anthropology AMC subconsultant. Review social and community BA Anthropology (Hons) aspects.
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Appendix C Exploration Valuation and other methods
Various methods have been traditionally used to value mineral exploration tenements that may or may not include a Mineral Resource.
In relation to the development status of a mineral asset, the VALMIN Code8 provides the following categories: • Exploration areas: properties where mineralization may or may not have been identified, but where a Mineral Resource has not been estimated. • Advanced exploration areas: properties where considerable exploration has been undertaken and specific targets have been identified that warrant further detailed evaluation, usually by drill testing, trenching, or some other form of detailed geological sampling. A Mineral Resource may or may not have been estimated but sufficient work will have been undertaken on at least one prospect to provide a good understanding of the type of mineralization present and encouragement that further work may lead to estimation of a Mineral Resource. • Pre-development projects: properties where Mineral Resources have been estimated and their extent determined (possibly incompletely), but where a decision to proceed with development has not been made. • Development projects: properties for which a decision has been made to proceed with construction or production, but which are not yet commissioned or are not yet operating at design levels. • Operating mines: properties, particularly mines and processing plants which have been commissioned and are in production.
The valuation of exploration projects, particularly those for which it is not possible to quantify Mineral Resources, is very subjective. There are, however, several generally accepted procedures to value exploration projects and AMC has used such methods as appropriate to arrive at balanced judgments of value.
Where possible, AMC attempts to use more than one method before selecting the valuation appropriate to that project. Values have been rounded, outliers in contributing estimates sometimes excluded. AMC has considered the following methods of valuation:
The past expenditure method A prospectivity enhancement multiplier (PEM) generally between 0.5 and 3.0 is applied to past expenditure which we judge to be effective in regard to future prospectivity.
The yardstick value method Rules of thumb or yardstick values can be used for properties where a Mineral Resource has been quantified, particularly in the case of gold. A value per contained ounce of gold or gold equivalent (based on treatment recoveries and net smelter return factors) is assigned to an actual Mineral Resource or to a preliminary mineralization estimate. The yardstick values AMC has considered are based on our assessment of transactions in recent years.
Actual or comparable transaction method A value is determined by reference to either actual transactions for the property in question or to recent transactions for projects considered to be similar to those under review. Comparable transactions are normally converted to a value per unit area.
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8 Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports. The VALMIN Code 2005 Edition, Prepared by the VALMIN Committee, a joint committee of the Australasian Institute of Mining and Metallurgy, the Australian Institute of Geoscientists and the Mineral Industry Consultants Association with the participation of the Australian Securities and Investment Commission, the Australian Stock Exchange Limited, the Minerals Council of Australia, the Petroleum Exploration Society of Australia, the Securities Association of Australia and representatives from the Australian finance sector.
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Joint venture terms method Many transactions on exploration tenements are of a farm-in nature and AMC assesses a "cash equivalent" value for them by assessing from the terms the "deemed expenditure" on the property at the time of the deal, discounted by a time and probability factor for the likelihood that the farm-in will complete its earning requirement. AMC adjusts the resulting value for any other terms of the joint venture or for the results of work carried out since the commencement of the farm-in.
Expected value method Expected values are estimated where it is reasonably possible to target a range of economic parameters that can be applied to a project that may result from ongoing exploration, usually with allowance for the costs of that ongoing exploration and with a probability or risk factor for the chances of that exploration being successful.
Values for exploration properties vary widely with time and also with the nature of the deal, the purpose of the valuation and/or the strategic value of the property to the hypothetical buyer. A cash transaction will normally be at the low end of a value range obtained by methods discussed above. Share market values, as in a float, will often be at the higher end.
Valuation of mineral tenements is normally carried out for groups of tenements as small tenements may have almost no stand-alone value. An individual tenement holds its value as part of a group of tenements covering a larger area with exploration potential or covering a complete Mineral Resource rather than part of it.
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Appendix D Comparable transactions
Buyer Seller Year Project Location Copper Copper (Mt Cu) (US$/t Cu) Marubeni Corp Antofagasta PLC 2011 Antucoya Chile 3.43 340 Cumbres Andinas SA CST Mining Group Limited 2012 Mina Justa Peru 3.32 217 Hudbay Minerals Inc Norsemont Mining 2011 Constancia Peru 1.61 289 Hudbay Minerals Inc Augusta Resources Corp 2014 Rosemont Arizona 4.40 82 PanAust Limited Unnamed seller 2012 Carmen Chile 0.20 90 Oz Minerals Ltd Consortium 2011 Carrapateena Australia 3.00 83 PanAust Limited Codelco 2011 Inca de Oro Chile 1.19 70 Cupric Canyon Capital CP Hana Mining Limited 2013 Ghanzi Botswana 1.79 41 First Quantum Minerals Ltd Lumina Copper Corp 2014 Taca Taca Argentina 13.00 32 PanAust Limited Glencore 2013 Frieda River PNG 10.68 9 Weighted average 86
Commentary on transactions by buyer and seller
Marubeni Corp/Antofagasta PLC On 15 December 2011, Marubeni announced that it signed a Memorandum of Understanding with Antofagasta to become a 30% partner in the Antucoya copper project for cash consideration of US$350M. Antucoya is located in Chile, and at announcement date had reported reserves of 642 Mt at 0.35% Cu and resources of 1,106 Mt at 0.31% Cu. Development of the project was scheduled to commence in 2012 with initial production targeted from 2014. Antucoya was expected to produce 80 ktpa Cu through open pit mining and heap leach process over an initial 20 year mine life at an estimated development cost of US$1.3B.
Cumbres Andinas SA (Minsur S.A.)/CST Mining Group Limited In April 2012, CST Mining Group announced that it had agreed to sell its 70% stake in the Mina Justa copper project in Peru to a subsidiary of Minsur S.A. for US$505M. Development of the project was forecast to cost US$745M (100% basis) and the production from open pit operation was expected to average 110 ktpa (100% basis) Cu over the life of mine with initial production commencing in 2013. The project was scheduled to have a mine life of 11.5 years and at the time of the transaction, had reported reserves of 163 Mt (100% basis) at 0.80% Cu and resources of 413 Mt (100% basis) at 0.79% Cu.
Hudbay Minerals Inc/Norsemont In January 2011, Hudbay Minerals announced an agreement to acquire Norsemont Mining to gain access to the 100%-owned Constancia copper project in Peru. The scrip and cash transaction implied a valuation of C$520M for the Constancia project. The project was expected to produce 78 ktpa Cu from open pit operation over 15 year mine life and with initial production targeted to commence in 2016. Capital expenditure was estimated in the range of US$900M to US$950M. At announcement date, the Constancia project had reported reserves of 277 Mt at 0.43% Cu and resources of 441 Mt at 0.41% Cu.
Hudbay Minerals Inc/Augusta In February 2014, Hudbay Minerals offered to acquire Augusta Resource Corporation (Augusta), with Augusta shareholders to receive 0.315 Hudbay shares for each Augusta share. The offer price of ~C$2.96
For personal use only use personal For per Augusta share was subsequently revised by Hudbay to ~C$3.56 per share. In June 2014, Augusta announced that it had agreed to accept the revised offer following continual permitting issues at its key asset,
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Indophil Resources NL – Independent Technical Specialist's Report BDO Corporate Finance (WA) Pty Ltd 214063
the Rosemont project located in the USA. The offer implied a valuation of $604M for Augusta's 80%9 interest in the Rosemont project. The Rosemont projected was expected to produce 110 ktpa (100% basis) Cu from open pit operation over an initial 21 year mine life. Capital expenditure was estimated at US$1.2B (100% basis) and production was targeted to commence in 2018. At announcement date, the Rosemont project had reported reserves of 667 Mt (100% basis) at 0.44% Cu and resources of 1,056 Mt (100% basis) at 0.41% Cu.
PanAust/Unnamed seller In August 2012, PanAust Ltd (PanAust) acquired the balance of tenements it did not already own in the Carmen copper-gold deposit, located in Chile. The total consideration paid for Carmen deposit was US$14M in two tranches; US$6M paid in 2010 and the remaining US$8M paid in August 2012. The deposit had reported resources of 45.8 Mt at 0.34% Cu. It was expected that the deposit would be developed as a satellite open pit to augment Inca de Oro mill feed and improve the economics of the Inca de Oro project.
OZ Minerals/Consortium On 9 March 2011, OZ Minerals announced an agreement to purchase the Carrapateena copper-gold project located in South Australia from Rudy Gomez (58%), Teck Australia (34%) and various minorities (8%) for US$250M. At the time of transaction, the project had no reported JORC resources (only a non-JORC estimate in the range of 225 Mt to 250 Mt at 1.2% Cu to 1.3% Cu). A Pre-feasibility Study was expected to be completed within 24 to 36 months from the purchase to establish an underground mining operation at Carrapateena.
PanAust/Codelco On 1 March 2010, PanAust announced an offer to acquire an effective 59.5% interest in Codelco's Inca de Oro copper-gold project for a total equity investment of US$45M including US$23M towards future development costs. As at the date of announcement the project, which is located in Chile, had reported resources of 259 Mt at 0.46% Cu. A Pre-feasibility Study was nearing completion targeting production of 50 ktpa (100%) Cu from open pit operation over 10+ years mine life.
Cupric Canyon/Hana Mining On 24 October 2012, Curpric Canyon Capital (Cupric Canyon) entered into an agreement to acquire Hana Mining Limited (Hana Mining), with the offer valuing Hana Mining's equity at C$82M. Cupric Canyon Capital held a 19% interest in Hana Mining prior to the announcement of the transaction. Hana Mining's key asset was its 100% interest in the Ghanzi copper-silver project located in Botswana. A Preliminary Economic Assessment of the project had been completed in May 2012 and was based on producing 30 ktpa Cu from open pit operation over an initial 13 years mine life. Capital expenditure was estimated at US$285M. At the time of transaction, the project had reported resources of 248 Mt at 0.70% Cu.
PanAust/Glencore On 1 November 2013, PanAust announced an agreement to acquire Glencore Xstrata plc's 80% interest in the Frieda River Copper-Gold Project in Papua New Guinea. The transaction consideration included staged cash payments with the first instalment of US$25m paid upon transaction close and a second instalment of US$50m to be paid on 31 December 2015. In addition, PanAust agreed to pay Glencore a 2% net smelter return royalty to a maximum of US$50m on successful completion of development of the project. The Government of PNG had an option to acquire10 up to 30% interest in the project and in the event the government elected to exercise its option, PanAust would sell down its interest in the project to 55% (Highlands Pacific, the project's JV partner, to sell down to a 15% share). At the announcement of the transaction, PanAust reported a revised development capex estimate of US$1.5B to US$1.8B (100% basis) for the Frieda River project with production targeted at 100 ktpa (100% basis) Cu from open pit operation over an 18 year mine life. The Frieda River project included reported resources of 2,135 Mt (100% basis) at
0.49% Cu. For personal use only use personal For
9 United Copper & Moly ("UCM"), a company formed by Korea Resources and LG International had an earn-in agreement to acquire 20% interest in the Rosemont Project by funding US$176m of project expenditure. As at February 2014 UCM had funded US$70M of pre-construction costs to acquire 7.95% interest in the project. 10 The Government of PNG was required to contribute towards its pro-rata share of historical and future development costs.
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180 Indophil Resources NL Scheme Booklet Indophil Resources NL – Independent Technical Specialist's Report BDO Corporate Finance (WA) Pty Ltd 214063
Appendix E Indophil tenement list
Project Tenement Indophil Interest Other Participants Granted Expiry Area Tampakan FTAA 02-95-XI 37.50% Glencore plc 22 March 1995 22 March 2020 23,571 ha Tampakan companies Manat MPSA 094-97-XI Option agreement Alsons Development and Investment Corp 20 November 1997 8 November 20121 1,547 ha Balatoc - Option agreement Geophilippines Inc Application 50.7 km2 1 Declaration of Mining Project Feasibility submitted
For personal use only use personal For
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Indophil Resources NL Scheme Booklet 181 ANNEXURE 1. INDEPENDENT EXPERT’S REPORT (AND INDEPENDENT TECHNICAL SPECIALIST’S REPORT) (CONTINUED)
Indophil Resources NL – Independent Technical Specialist's Report BDO Corporate Finance (WA) Pty Ltd 214063
Appendix F Document list
Consultant FullMiningReportV8 Consultant MiningLostTimeForWeather Consultant, Peer Review of the Feasibility Study for the Tampakan Copper Project, Mindanao, Philippines (August 2010). Consultant_reserves_calc_v08fr Draft Tampakan Copper Gold Project Off Lease Linear Infrastructure Environmental and Social Impact Assessment (SMI and Consultants, 2012). Draft Tampakan Copper Gold Project Power Station, Port and Filter Plant Environmental and Social Impact Assessment (SMI and consultants, 2011). Environmental and Social Impact Assessments FIN-ACC-DSH-Project Financial Model (IRN 2013)-Dec 2013_Impairment_Final. GIS-CAF-MAP-0001-Infrastructure Layout for MGB_a1-20140515 Indophil Background Presentation - July 2010 Indophil-TenementStatusReportCleanOct13Final Off-Lease Infrastructure Environmental Impact Assessment (OLI-EIA) 2014 PeerReview_Tampakan_DE00081 Preliminary Resettlement Action Plan SMI Tampakan Copper Gold Project Feasibility Study 2010 SMI Tampakan Copper Gold Project Feasibility Study April 2010 SMI, Tampakan Copper Gold Project – ESIA Execution Strategy (April 2010). Social Development Management plan Social Impact Management plan Tampakan Copper Gold Project Mine Environmental and Social Impact Assessment (international standard) (SMI and Consultant, 2011) Tampakan Copper Gold Project Mine Environmental Impact Statement (for Philippines approval process) (SMI and AECOM, 2010) Tampakan Copper Gold Project XCu Pre Feasibility Study, Xstrata Copper, April 2009. Tampakan Copper Project Feasibility Study 25526-000-30R-G01-00001. Tampakan Copper Project Feasibility Study. Tampakan Copper-Gold Pre-feasibility Study, Indophil Resources NL, September 2006. Tampakan Project Off Lease Infrastructure EIS 2014.
For personal use only use personal For
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182 Indophil Resources NL Scheme Booklet Indophil Resources NL – Independent Technical Specialist's Report BDO Corporate Finance (WA) Pty Ltd 214063
Our Offices Australia Adelaide Brisbane Level 1, 4 Greenhill Road Level 21, 179 Turbot Street Wayville SA 5034 Australia Brisbane Qld 4000 Australia T +61 8 8201 1800 T +61 7 3230 9000 F +61 8 8201 1899 F +61 7 3230 9090 E [email protected] E [email protected]
Melbourne Perth Level 19, 114 William Street 9 Havelock Street Melbourne Vic 3000 Australia West Perth WA 6005 Australia T +61 3 8601 3300 T +61 8 6330 1100 F +61 3 8601 3399 F +61 8 6330 1199 E [email protected] E [email protected]
Canada Toronto Vancouver 90 Adelaide Street West, Suite 300 Suite 202, 200 Granville Street Toronto, Ontario M5H 3V9 Canada Vancouver BC V6C 1S4 Canada T +1 416 640 1212 T +1 604 669 0044 F +1 416 640 1290 F +1 604 669 1120 E [email protected] E [email protected]
United Kingdom Maidenhead Registered in England and Wales Company No. 3688365 Level 7, Nicholsons House Nicholsons Walk, Maidenhead Berkshire SL6 1LD United Kingdom T +44 1628 778 256 F +44 1628 638 956 E [email protected] Registered Office: 11 Welbeck Street London, W1G 9XZ United Kingdom
amcconsultants.com
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Indophil Resources NL Scheme Booklet 183 Annexure 2 Notice of
Scheme Meeting For personal use only use personal For
184 Indophil Resources NL Scheme Booklet ANNEXURE 2. NOTICE OF SCHEME MEETING
INDOPHIL RESOURCES NL ACN 076 318 173 NOTES (COMPANY) Material accompanying this Notice of Meeting Notice is given that, by an order of the Supreme Court of This Notice of Meeting and the Resolution should be read in Victoria pursuant to section 411(1) of the Corporations Act conjunction with the booklet of which this notice forms part 2001, a meeting of shareholders of the Company (other than (Scheme Booklet). Terms used in this Notice of Meeting, unless the Excluded Shareholders) will be held at the offices of Baker & otherwise defined, have the same meaning as set out in the McKenzie, Level 19, 181 William Street, Melbourne, Victoria on Glossary in Section 10. 18 December 2014 at 10:00am Melbourne time. A copy of the Scheme of Arrangement document is contained BUSINESS OF MEETING in Annexure 3 to this Scheme Booklet. The purpose of the Scheme Meeting is to consider and, if A proxy form accompanies this Notice of Meeting. thought fit, to agree to a Scheme of Arrangement (with or without modification) to be made between the Company and Voting the Scheme Shareholders. The Independent Directors unanimously recommend that you RESOLUTION vote in favour of the Resolution in the absence of a Superior Proposal. Each Independent Director who holds Indophil “That pursuant to and in accordance with section 411 of the Shares intends to vote his Indophil Shares in favour of the Corporations Act, the Scheme of Arrangement (the terms Scheme in the absence of a Superior Proposal. of which are described in this Scheme Booklet of which the notice convening this meeting forms part) is agreed to (with Majorities required or without any modification) as approved by the Supreme In accordance with section 411(4)(a) of the Corporations Court of Victoria.” Act, for the Scheme to be Effective, the Resolution must be passed by: • unless the Court orders otherwise, a majority in number (more than 50%) of holders of ordinary shares (other than Kay Donehue the Excluded Shareholders) present and voting on the Company Secretary Resolution at the Scheme Meeting (either in person or by proxy, attorney or by corporate representative); and Dated 12 November 2014 • at least 75% of the votes cast on the Resolution at the Scheme Meeting by holders of ordinary shares (other than the Excluded Shareholders) entitled to vote on the Resolution (either in person or by proxy, attorney or by corporate representative). The vote will be conducted by poll. Court approval In accordance with section 411(4)(b) of the Corporations Act, to become Effective, the Scheme (with or without modification) must be approved by order of the Court. If the Resolution set out in this Notice of Meeting is agreed to by the Requisite Majorities set out above and the conditions precedent set out in the Scheme and in the Scheme Implementation Agreement are satisfied or waived, the Company intends to apply to the Court for the necessary orders to give effect to the Scheme. Determination of entitlement to attend and vote For the purposes of the Scheme Meeting, Indophil Shares will be taken to be held by the persons or entities who are registered as members (as recorded in the Register) at 7:00pm (Melbourne time) on 16 December 2014 (other than Excluded Shareholders). Accordingly, share transfers registered after that time will be disregarded in determining entitlements to attend
For personal use only use personal For and vote at the Scheme Meeting.
Indophil Resources NL Scheme Booklet 185 ANNEXURE 2. NOTICE OF SCHEME MEETING (CONTINUED)
How to vote The returning of a proxy form or registering of a proxy by If you are an Indophil Shareholder (other than an Excluded internet will not preclude an Indophil Shareholder from attending Shareholder) entitled to attend and vote at the Scheme Meeting, in person and voting at the Scheme Meeting, if the Indophil you may vote by: Shareholder is entitled to attend and vote. • attending the Scheme Meeting in person; Please note that proxy forms must be received by the Indophil • appointing a proxy to vote on your behalf; Share Registry by no later than 10:00am (Melbourne time) on 16 December 2014. • appointing an attorney to vote on your behalf; or • in the case of a corporation which is an Indophil Voting by attorney Shareholder, by appointing an authorised corporate Your attorney may attend the Scheme Meeting and vote representative to attend and vote on its behalf. on your behalf. Voting in person Indophil Shareholders who wish to vote by attorney at the To vote in person at the Scheme Meeting, you must attend the Scheme Meeting must, if they have not already presented Scheme Meeting to be held at the offices of Baker & McKenzie, an appropriate power of attorney to Indophil for notation, Level 19, 181 William Street, Melbourne, Victoria on deliver to the Indophil Share Registry the original or certified 18 December 2014. The Scheme Meeting will commence at copy of the power of attorney by post (as per the addresses 10:00am (Melbourne time). specified in Section 2.5 of the Scheme Booklet) so that it is received by the Indophil Share Registry before the Scheme An Indophil Shareholder (other than an Excluded Shareholder) Meeting commences or alternatively, it should be brought to who is entitled to vote and wishes to attend and vote at the the Scheme Meeting. Scheme Meeting in person will be admitted to the Scheme Meeting and given a voting card on disclosure of their name An attorney will be admitted to the Scheme Meeting and and address at the point of entry to the Scheme Meeting. If given a voting card upon providing written evidence of their you are attending the Scheme Meeting, you are asked to arrive appointment, their name and address and the identity of their at least 30 minutes prior to the time the Scheme Meeting is to appointer at the point of entry to the Scheme Meeting. Your commence, so that your shareholding may be checked against attorney is asked to arrive at least 30 minutes prior to the time the Register and attendance noted. the Scheme Meeting is to commence so that their appointment can be verified. Voting by proxy Voting by corporate representative An Indophil Shareholder (other than an Excluded Shareholder) entitled to attend and vote at the meeting is also entitled to To vote at the Scheme Meeting (other than by proxy or by vote by proxy. A personalised proxy form is enclosed with this attorney), a corporation that is an Indophil Shareholder (other Scheme Booklet. You may appoint not more than two proxies than an Excluded Shareholder) must appoint a person to act as to attend and act for you at the Scheme Meeting. A proxy need its representative. The appointment must comply with section not be an Indophil Shareholder. If two proxies are appointed, 250D of the Corporations Act. each proxy may be appointed to represent a specified number An authorised corporate representative will be admitted to the or proportion of your votes. If no such number or proportion Scheme Meeting and given a voting card on providing written is specified, each proxy may exercise half of your votes. Split evidence of their appointment including any authority under votes will be disregarded for the purposes of the requirement in which it is signed, their name and address and the identity of section 411(4)(a)(ii) of the Corporations Act. their appointer at the point of entry to the Scheme Meeting. If you do not instruct your proxy on how to vote, your proxy may Corporate representatives are asked to arrive at least 30 vote as he or she sees fit at the Scheme Meeting. minutes prior to the time the Scheme Meeting is to commence so that their appointment can be verified. Shareholders who return their proxy form(s) with a direction on how to vote, but do not nominate the identity of their proxy, Jointly held securities will be taken to have appointed the chairman of the Scheme If Indophil Shares are jointly held, only one of the joint Meeting as their proxy to vote on their behalf. If a proxy form is shareholders is entitled to vote. If more than one shareholder returned but the nominated proxy does not attend the meeting, votes in respect of jointly held Indophil Shares, only the vote the chairman of the Scheme Meeting will act in place of the of the shareholder whose name appears first on the Register nominated proxy and vote in accordance with any instructions. will be counted. Proxy appointments in favour of the chairman of the Scheme Meeting, the company secretary of Indophil or any Director Lodgement of proxies, powers of attorney and authorities
which do not contain a direction will be used to support the Completed proxy forms should be returned to the Indophil For personal use only use personal For resolution to approve the Scheme. Share Registry using the enclosed reply paid envelope, or as indicated on the proxy form, by no later than 10:00am A proxy will be admitted to the Scheme Meeting and given a (Melbourne time) on 16 December 2014. voting card on providing written evidence of their name and address at the point of entry to the Scheme Meeting. Your Powers of attorney and authorities, or certified copies of powers proxy is asked to arrive at least 30 minutes prior to the time the of attorney and authorities, should be provided to the Indophil Scheme Meeting is to commence so that their appointment Share Registry before, or brought to, the Scheme Meeting. can be verified. Note that the Indophil Share Registry only receives post on Business Days.
186 Indophil Resources NL Scheme Booklet Annexure 3 Scheme of
Arrangement For personal use only use personal For
Indophil Resources NL Scheme Booklet 187 ANNEXURE 3. SCHEME OF ARRANGEMENT
Scheme of Arrangement
Indophil Resources NL The holders of fully paid ordinary shares in Indophil Resources NL as at the Scheme Record Date, other than Excluded Shareholders
Baker & McKenzie ABN 32 266 778 912 For personal use only use personal For Level 19 181 William Street Melbourne VIC 3000 Australia www.bakermckenzie.com Email - [email protected] Email - [email protected] Email - [email protected]
i Scheme of Arrangement
188 Indophil Resources NL Scheme Booklet
Table of contents
1 Definitions and interpretation 1
2 Preliminary 3
3 Conditions precedent 4
4 Implementation of Scheme 5
5 Dealings in Target Shares 7
6 Quotation of Target Shares 8
7 General Scheme provisions 8
For personal use only use personal For
ii Scheme of Arrangement
Indophil Resources NL Scheme Booklet 189 ANNEXURE 3. SCHEME OF ARRANGEMENT (CONTINUED)
Scheme of Arrangement pursuant to section 411 of the Corporations Act 2001 (Cth)
between Indophil Resources NL (ACN 076 318 173) of Level 3, 411 Collins Street, Melbourne VIC 3000 (Target)
and The holders of fully paid ordinary shares in Target as at the Scheme Record Date, other than Excluded Shareholders
Operative provisions 1 Definitions and interpretation
Definitions 1.1 In this document, unless the context requires otherwise:
ADI has the meaning given in the Banking Act 1959 (Cth)
ASIC means the Australian Securities and Investments Commission.
ASPL means ASX Settlement Pty Ltd (ABN 49 008 504 532).
ASX means ASX Limited (ACN 008 624 691) or, where the context requires, the securities market which it operates.
ASX Settlement Rules means the ASX Settlement Operating Rules.
Bidder means Alsons Prime Investments Corporation of 2286 Chino Roces Avenue, Makati City, Philippines.
Business Day means a day that is not a Saturday, Sunday, public holiday or bank holiday in Melbourne, Victoria.
CHESS means the Clearing House Electronic Subregister System of share transfers operated by ASPL.
Corporations Act means the Corporations Act 2001 (Cth).
Court means the Supreme Court of Victoria or such other court of competent jurisdiction under the Corporations Act agreed in writing by Bidder and Target.
Deed Poll means the deed poll in respect of the Scheme executed by Bidder in favour of each Scheme Shareholder.
Effective means, when used in relation to the Scheme, the coming into effect, under section 411(10) of the Corporations Act, of the Scheme Order.
Effective Date means the date on which an office copy of the Scheme Order approving the For personal use only use personal For Scheme is lodged with ASIC.
Excluded Shareholder means Bidder, Alsons Corporation and Alsons Consolidated Resources, Inc.
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190 Indophil Resources NL Scheme Booklet
Implementation Date means the third Business Day after the Scheme Record Date, or such other day as Bidder and Target agree in writing.
Register means the register of shareholders of Target.
Registered Account has the meaning given in clause 4.6(a).
Registered Address means the address of each Scheme Shareholder as recorded in the Register as at the Scheme Record Date.
Related Body Corporate has the meaning given in the Corporations Act.
Scheme means this scheme of arrangement under Part 5.1 of the Corporations Act between Target and Scheme Shareholders, subject to any alterations or conditions made or required by the Court under section 411(6) of the Corporations Act and approved in writing by Target and Bidder.
Scheme Consideration means $0.30 in respect of each Scheme Share.
Scheme Implementation Agreement means the scheme implementation agreement between Target and Bidder.
Scheme Meeting means the meeting of Target Shareholders ordered by the Court to be convened under section 411(1) of the Corporations Act in relation to the Scheme.
Scheme Order means the orders of the Court approving the Scheme, with or without modification, under section 411(4)(b) of the Corporations Act.
Scheme Record Date means 7.00 pm on the fifth Business Day after the Effective Date.
Scheme Share means a Target Share held by a Scheme Shareholder as at the Scheme Record Date.
Scheme Shareholder means each person who holds a Target Share as at the Scheme Record Date (excluding each Excluded Shareholder).
Second Court Date means the first day on which the Court hears the application for the Scheme Order, or if the application is adjourned or subject to appeal for any reason, the first day on which the adjourned or appealed application is heard.
Sunset Date means:
(a) 5.00pm on 27 February 2015 or, if clause 6.4 of the Scheme Implementation Agreement applies, 29 May 2015 (or any earlier date agreed between Target and Bidder in accordance with clause 6.4(b) of the Scheme Implementation Agreement); or
(b) such other date and time as agreed in writing between Target and Bidder.
Target Share means an issued fully paid ordinary share in Target.
For personal use only use personal For Target Shareholder means each person who is registered in the Register as a holder of a Target Share.
Target Share Registry means Computershare Investor Services Pty Limited (ACN 078 279 277).
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Indophil Resources NL Scheme Booklet 191 ANNEXURE 3. SCHEME OF ARRANGEMENT (CONTINUED)
Trust Account has the meaning given in clause 4.5.
Interpretation 1.2 In this document:
(a) unless the context requires otherwise, a reference:
(i) to the singular includes the plural and vice versa;
(ii) to a gender includes all genders;
(iii) to a document or instrument is a reference to that document or instrument as amended, consolidated, supplemented, novated or replaced;
(iv) to a clause, paragraph, Schedule or Annexure is to a clause, paragraph, Schedule or Annexure of or to this document;
(v) to a law includes any legislation, judgment, rule of common law or equity or rule of any applicable stock exchange, and is a reference to that law as amended, consolidated, supplemented or replaced and includes a reference to any regulation, by-law or other subordinate legislation;
(vi) to any time is to Melbourne time;
(vii) to "$" is to the lawful currency of Australia;
(b) the words "including" or "includes" means "including, but not limited to", or "includes, without limitation" respectively;
(c) where a word or phrase is defined, its other grammatical forms have a corresponding meaning;
(d) headings are for convenience only and do not affect interpretation of this document;
(e) if a payment or other act must (but for this clause) be made or done on a day that is not a Business Day, then it must be made or done on the next Business Day; and
(f) if a period must be calculated from, after or before a day or the day of an act or event, it must be calculated excluding that day. 2 Preliminary
Target 2.1 Target is a public no liability company, incorporated in Australia and taken to be registered in Victoria. Its registered office is at Level 3, 411 Collins Street, Melbourne VIC 3000.
2.2 Target is admitted to the official list of ASX and Target Shares are quoted on ASX.
2.3 As at 5 November 2014, Target's issued equity securities comprise:
For personal use only use personal For (a) 1,203,146,194 ordinary shares; and
(b) 2,370,000 options all of which have vested, provided that pursuant to the terms of issue of these options, if Target Shareholders approve the Scheme by the requisite majorities in the Scheme Meeting, any option that has not been
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192 Indophil Resources NL Scheme Booklet
exercised by 5pm on the later of (A) 7 days of the date of the Scheme Meeting and (B) the Implementation Date (subject to any restriction on exercise which a holder may agree with the Target) will automatically lapse.
Bidder
2.4 Bidder is a company limited by shares, incorporated in the Philippines. Its registered office is at 2286 Chino Roces Avenue, Makati City, Philippines.
Effect of Scheme 2.5 If the Scheme becomes Effective:
(a) Bidder will provide or procure the provision of the Scheme Consideration to Scheme Shareholders in accordance with the terms of the Scheme;
(b) all of the Scheme Shares, together with all rights and entitlements attaching to the Scheme Shares at the Implementation Date, will be transferred to Bidder and Target will enter Bidder in the Register as the holder of the Scheme Shares.
(c) in consideration of the transfer of the Scheme Shares, subject to Bidder depositing funds into the Trust Account in accordance with clause 4.5, Target will pay or procure the payment of the Scheme Consideration to each Scheme Shareholder on behalf of the Bidder in accordance with the Scheme.
Scheme Implementation Agreement
2.6 Target and Bidder have entered into the Scheme Implementation Agreement which sets out the terms on which Target and Bidder have agreed to implement the Scheme.
Deed Poll 2.7 The Scheme attributes actions to Bidder but does not itself impose an obligation on Bidder to perform those actions. Bidder has executed the Deed Poll in favour of each Scheme Shareholder under which it has covenanted, subject to the Scheme becoming Effective, to perform certain steps attributed to it under the Scheme and to do all things necessary or desirable to implement the Scheme, including to pay or procure the payment of Scheme Consideration. 3 Conditions precedent
Conditions precedent to Scheme
3.1 The Scheme is conditional on and will have no force or effect until, the satisfaction of each of the following conditions precedent:
(a) all of the conditions precedent set out in clause 3.1 of the Scheme Implementation Agreement, other than those in clauses 3.1(c) and 3.1(d), having been satisfied or waived in accordance with the terms of the Scheme Implementation Agreement, before 8:00 am on the Second Court Date or such other time specified in that
For personal use only use personal For condition precedent;
(b) as at 8.00 am on the Second Court Date, neither the Scheme Implementation Agreement nor the Deed Poll having been terminated in accordance with its terms;
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Indophil Resources NL Scheme Booklet 193 ANNEXURE 3. SCHEME OF ARRANGEMENT (CONTINUED)
(c) the Court making the Scheme Order;
(d) any other conditions made or required by the Court under section 411(6) of the Corporations Act in relation to the Scheme, and which are acceptable to Target and Bidder, having been satisfied; and
(e) the Scheme Order (and, if applicable, any orders under section 411(6)) of the Corporations Act approving the Scheme coming into effect, under section 411(10) of the Corporations Act, on or before the Sunset Date,
and the provisions of clauses 4, 5 and 6 will not come into effect unless and until each of these conditions precedent has been satisfied.
Certificate in relation to conditions precedent
3.2 Prior to or at the Court hearing on the Second Court Date, Target and Bidder will each provide to the Court a certificate, or such other evidence as the Court requests, confirming (in respect of matters within their knowledge) whether or not all of the conditions precedent to the Scheme other than those in clauses 3.1(c), 3.1(d) and 3.1(e), have been satisfied or waived.
3.3 The giving of a certificate by each of Target and Bidder under clause 3.2 will, in the absence of manifest error, be conclusive evidence of the satisfaction or waiver of the conditions precedent referred to in the relevant certificate.
Termination
3.4 Without limiting any rights under the Scheme Implementation Agreement, if the Scheme Implementation Agreement is terminated in accordance with its terms before the Scheme becomes Effective, each of Bidder and Target are released from:
(a) any further obligation to take steps to implement the Scheme; and
(b) any liability with respect to the Scheme.
Sunset Date
3.5 The Scheme will lapse and have no further force or effect if the Effective Date has not occurred on or before the Sunset Date. 4 Implementation of Scheme
Lodgement of Scheme Order
4.1 Target must lodge with ASIC in accordance with section 411(10) of the Corporations Act an office copy of the Scheme Order as soon as practicable, and in any event by no later than 5.00 pm on the first Business Day after the date on which the Court makes that Scheme Order.
Transfer of Scheme Shares
4.2 Subject to the Scheme becoming Effective and the payment of the Scheme Consideration in For personal use only use personal For accordance with clauses 4.5 to 4.6, on the Implementation Date the Scheme Shares, together with all rights and entitlements attaching to them as at the Implementation Date, will be transferred to Bidder without the need for any further act by any Scheme Shareholder by:
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194 Indophil Resources NL Scheme Booklet
(a) Target delivering to Bidder a duly completed share transfer form executed on behalf of the Scheme Shareholders (which may be a master share transfer form) to transfer all the Scheme Shares to Bidder;
(b) Bidder duly executing this transfer form and delivering this transfer form to Target for registration; and
(c) to the extent applicable, Target effecting a valid transfer of Scheme Shares under section 1074D of the Corporations Act.
4.3 As soon as practicable after receipt of the transfer form or completion of the transfer procedure, Target must enter the name and address of Bidder in the Register as the holder of the Scheme Shares.
4.4 To the extent permitted by law, the Scheme Shares will be transferred to Bidder free from all mortgages, charges, liens, encumbrances, pledges, security interests and other interests of third parties of any kind.
Payment of Scheme Consideration
4.5 Target must use its best endeavours to procure that by no later than the Business Day before the Implementation Date, Bidder deposits in cleared funds an amount equal to the aggregate amount of the Scheme Consideration payable to each Scheme Shareholder, in an Australian dollar denominated trust account in Australia operated by Target (Trust Account) as trustee for the Scheme Shareholders (except that any interest on the amount will be for the account of Bidder).
4.6 Subject to funds having been deposited in accordance with clause 4.5, by no later than 3 Business Days after the Implementation Date, Target must pay or procure the payment from the Trust Account to each Scheme Shareholder an amount equal to the number of Scheme Shares held by the Scheme Shareholder multiplied by the Scheme Consideration by:
(a) making or procuring a deposit into an account with an ADI in Australia notified by the Scheme Shareholder to Target and recorded in or for the purposes of payment of dividends in the Register as at the Scheme Record Date (Registered Account); or
(b) if Target has not been notified by the Scheme Shareholder of a Registered Account, despatching or procuring the despatch to the Scheme Shareholder of a cheque, by pre- paid ordinary post (or, if the Registered Address of the Scheme Shareholder is outside Australia, by pre-paid airmail post) in an envelope addressed to the Registered Address as at the Record Date. In the case of Scheme Shares held in joint names any cheque required to be paid to Scheme Shareholders will be payable to the joint holders and be sent to the holder whose name appears first in the Register as at the Scheme Record Date.
Unclaimed Consideration 4.7 If:
For personal use only use personal For (a) in the case of a deposit under clause 4.6(a), the deposit is rejected or refunded or a Registered Account which has previously been notified is no longer valid; or
(b) in the case of the despatch of a cheque under clause 4.6(b), a cheque properly despatched by or on behalf of Target is:
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(i) returned to Target (or its agents) as undelivered;
(ii) not presented by a Scheme Shareholder within six months after the Implementation Date; or
(iii) Target reasonably believes that a Scheme Shareholder is not known at a Scheme Shareholder's Registered Address,
then Target may cancel the relevant cheque and credit the amount payable to the relevant Scheme Shareholder to a separate bank account of Target to be held until the Scheme Shareholder claims the amount, or the amount is dealt with in accordance with any applicable unclaimed moneys legislation. An amount credited to the account is to be treated as having been paid to the Scheme Shareholder when credited to the account. Target must maintain records (for the minimum period required by applicable law) of the amounts paid, the people who are entitled to the amounts, and any transfers of the amounts. 5 Dealings in Target Shares
Determination of Scheme Shareholders 5.1 Each Scheme Shareholder will be entitled to participate in the Scheme.
5.2 For the purpose of determining who is a Scheme Shareholder, dealings in Target Shares will only be recognised if:
(a) in the case of dealings of the type to be effected by CHESS, the transferee is registered in the Register as the holder of the relevant Target Shares by the Scheme Record Date; and
(b) in all other cases, share transfer forms in registrable form or transmission applications in respect of those dealings are received by the Target Share Registry by the Scheme Record Date.
Target's obligation to register 5.3 Target must register any registrable transfers or transmission applications of the kind referred to in clause 5.2(b) by the Scheme Record Date.
Transfers after the Scheme Record Date
5.4 If the Scheme becomes Effective, a Target Shareholder (and any person claiming through that holder) must not dispose of, or purport or agree to dispose of, any Target Shares or any interest in them after the Scheme Record Date (other than a transfer to Bidder in accordance with the Scheme and any subsequent transfers by Bidder or its successors in title).
5.5 Target will not accept for registration, nor recognise for any purpose, any transfer or transmission application in respect of Target Shares received after the Scheme Record Date (other than a transfer to Bidder in accordance with the Scheme and any subsequent transfers by Bidder or its successors in title).
For personal use only use personal For Maintenance of Register
5.6 For the purpose of determining entitlements to the Scheme Consideration, Target will, until the Scheme Consideration has been paid or dispatched to Scheme Shareholders, maintain or
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procure the maintenance of the Register in accordance with this clause 5. The Register in this form will solely determine entitlements to the Scheme Consideration.
Effect of certificates and holding statements
5.7 From the Scheme Record Date, each certificate or holding statement for Scheme Shares will cease to have any effect as a document of title in respect of the Scheme Shares or otherwise (other than holding statements in favour of Bidder and its successors in title).
5.8 Each entry on the Register as at the Scheme Record Date (other than entries in respect of the Excluded Shareholders and their successors in title) will cease to have any effect other than as evidence of the entitlements of Scheme Shareholders to the Scheme Consideration in respect of the Scheme Shares relating to that entry.
Information to be made available to Bidder
5.9 As soon as reasonably practicable after the Scheme Record Date and in any event at least three Business Days before the Implementation Date, Target will give to Bidder or as it directs or procure that Bidder be given or as it directs, details of the name, address and number of Scheme Shares held by each Scheme Shareholder as shown in the Register at the Scheme Record Date in the form Bidder reasonably requires. 6 Quotation of Target Shares 6.1 Target will apply to ASX for suspension of trading of Target Shares on ASX with effect from the close of trading on the Effective Date.
6.2 If the Scheme has been fully implemented in accordance with its terms, on the date determined by Bidder, Target will apply to ASX for the termination of the official quotation of Target Shares on ASX and to have Target removed from the official list of ASX. 7 General Scheme provisions
Appointment of Target as agent and attorney
7.1 Each Scheme Shareholder, without the need for any further act, irrevocably appoints Target and each of the directors and officers of Target (jointly and severally) as its agent and attorney for the purpose of doing all things and executing all deeds, instruments, transfers and other documents that may be necessary or desirable to give full effect to the Scheme and the transactions contemplated by it, including but not limited to:
(a) enforcing the Deed Poll against Bidder;
(b) in the case of Scheme Shares in a CHESS holding:
(i) causing a message to be transmitted to ASPL in accordance with the ASX Settlement Rules to transfer the Scheme Shares held by the Scheme Shareholder from the CHESS subregister of Target to the issuer sponsored subregister operated by Target or the Target Share Registry at any time after Bidder has paid or procured the payment of the Scheme Consideration which For personal use only use personal For is due under this Scheme to Scheme Shareholders; and
(ii) completing and signing on behalf of Scheme Shareholders any required form of transfer of Scheme Shares;
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(c) in the case of Scheme Shares registered in the issuer sponsored subregister operated by Target or the Target Share Registry, completing and signing on behalf of Scheme Shareholders any required form of transfer; and
(d) in all cases, executing any document or doing any other act necessary or desirable to give full effect to this Scheme and the transactions contemplated by it, including executing a proper instrument of transfer of Scheme Shares for the purposes of section 1071B of the Corporations Act (which may be a master transfer of all the Scheme Shares),
and Target accepts such appointment. Target, as attorney and agent of each Scheme Shareholder, may sub-delegate its functions, authorities or powers under this clause 7.1 to all or any of its directors and officers (jointly, severally or jointly and severally).
7.2 Target may sub-delegate its functions, authorities or powers under clause 7.1 as agent and attorney of each Scheme Shareholder to any or all of its directors or officers.
Agreement by Scheme Shareholders 7.3 Each Scheme Shareholder agrees to:
(a) the transfer of its Scheme Shares together with all rights and entitlements attaching to those Scheme Shares to Bidder in accordance with the terms of the Scheme; and
(b) the variation, cancellation or modification (if any) of the rights attached to its Target Shares constituted by or resulting from the Scheme.
Warranty by Scheme Shareholders 7.4 Each Scheme Shareholder is deemed to have warranted to Target, and is deemed to have authorised Target to warrant to Bidder as agent and attorney for the Scheme Shareholder, that:
(a) all of its Scheme Shares (including all rights and entitlements attaching to them) transferred to Bidder under the Scheme will, on the date of the transfer, be fully paid and free from all mortgages, charges, liens, encumbrances, pledges, security interests and other interests of third parties of any kind; and
(b) it has full power and capacity to sell and transfer its Scheme Shares (including all rights and entitlements attaching to them) to Bidder.
Title to Scheme Shares
7.5 On and from the Implementation Date, subject to Bidder depositing the Scheme Consideration in accordance with clause 4.5, and pending registration by Target of Bidder in the Register as the holder of the Scheme Shares, Bidder will be beneficially entitled to the Scheme Shares.
Appointment of Bidder as sole proxy 7.6 On and from the Implementation Date, subject to Bidder depositing the Scheme Consideration in accordance with clause 4.5, and until registration by Target of Bidder in the Register as the
For personal use only use personal For holder of the Scheme Shares, each Scheme Shareholder:
(a) without the need for any further act irrevocably appoints Bidder and each of its directors, officers and secretaries (jointly and each of them separately) as its agent and
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attorney to appoint an officer or agent nominated by Bidder as its sole proxy and where applicable, corporate representative to:
(i) attend shareholders' meetings of Target;
(ii) exercise the votes attached to the Scheme Shares registered in the name of the Scheme Shareholder; and
(iii) sign any shareholders' resolution of Target;
(b) undertakes not to attend or vote at any such meetings or sign any such resolutions, whether in person, by proxy or by corporate representative other than under clause 7.6;
(c) must take all other actions in the capacity of a registered holder of Scheme Shares as Bidder reasonably directs; and
(d) acknowledges and agrees that in exercising the powers referred to in this clause 7.6, Bidder and each of the directors, officers and secretaries of Bidder may act in the best interests of Bidder as the intended registered holder of the Scheme Shares.
7.7 Target undertakes in favour of each Scheme Shareholder that it will appoint the officer or agent nominated by Bidder as that Scheme Shareholder's proxy or, where applicable, corporate representative in accordance with clause 7.6(a).
Scheme alterations and conditions
7.8 If the Court proposes to approve the Scheme subject to any alterations or conditions under section 411(6) of the Corporations Act, Target may, by its counsel or solicitors, and with the consent of Bidder, consent to those alterations or conditions on behalf of all persons concerned, including, for the avoidance of doubt, all Scheme Shareholders.
Effect of Scheme
7.9 The Scheme binds Target and all Scheme Shareholders (including those who do not attend the Scheme Meeting, do not vote at the meeting or vote against the Scheme) and, to the extent of any inconsistency and to the extent permitted by law, overrides the constitution of Target.
No liability when acting in good faith 7.10 Neither Target nor Bidder, nor any of their respective officers or agents, will be liable to a Target Shareholder for anything done or omitted to be done in the performance of the Scheme in good faith.
Notices
7.11 Where a notice, transfer, transmission application, direction or other communication referred to in the Scheme is sent by post to Target, it will not be deemed to be received in the ordinary course of post or on a date other than the date (if any) on which it is actually received at
Target's registered office or at the Target Share Registry. For personal use only use personal For 7.12 The accidental omission to give notice of the Scheme Meeting or the non-receipt of such a notice by any Target Shareholder will not, unless so ordered by the Court, invalidate the Scheme Meeting or the proceedings of the Scheme Meeting.
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Further assurances
7.13 Each party must, at its own expense, whenever requested by the other party, promptly do or, to the extent reasonably practicable, arrange for others to do everything, including executing any documents, reasonably necessary to give full effect to this Scheme and the transactions contemplated by this Scheme.
Costs and stamp duty
7.14 Bidder will pay all stamp duty (if any) and any related fines, penalties and interest payable on the transfer by Scheme Shareholders of the Scheme Shares to Bidder.
Governing law and jurisdiction 7.15 This Agreement is governed by the laws of Victoria. Each party irrevocably and unconditionally:
(a) submits to the non-exclusive jurisdiction of the courts of Victoria; and
(b) waives, without limitation, any claim or objection based on absence of jurisdiction or
inconvenient forum. For personal use only use personal For
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252 Indophil Resources NL Scheme Booklet CORPORATE DIRECTORY
DIRECTORS LEGAL ADVISER Brian Phillips Baker & McKenzie Chairman (Non-Executive) Level 19, 181 William Street Richard Laufmann Melbourne VIC 3000 Chief Executive Officer and Managing Director Tony Robbins FINANCIAL ADVISERS Director (Executive) Citigroup Global Markets Australia Pty Limited Kyle Wightman Level 23, Citigroup Centre Director (Non-Executive) 2 Park Street David Carland Sydney NSW 2000 Director (Non-Executive) Nicasio Alcantara Grant Samuel Corporate Finance Pty Ltd Director (Non-Executive) Level 6, 1 Collins Street Frederic DyBuncio Melbourne VIC 3000 Director (Non-Executive) INDEPENDENT EXPERT BDO Corporate Finance (WA) Pty Ltd COMPANY SECRETARY 38 Station Street Kay Donehue Subiaco WA 6008
WEBSITE INDEPENDENT TECHNICAL SPECIALIST www.indophil.com AMC Consultants Pty Ltd Ground Floor, 9 Havelock Street SECURITIES EXCHANGE LISTING West Perth WA 6005 Indophil Resources NL is listed on the ASX (Code: IRN)
PRINCIPAL AND REGISTERED OFFICE Indophil Resources NL Level 3, 411 Collins Street Melbourne VIC 3000 Telephone: +61 3 8620 5800
SHARE REGISTRY Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford VIC 3067 Telephone: +61 3 9415 5000
SHAREHOLDER INFORMATION LINE Telephone: 1300 723 095 (within Australia)
Telephone: +61 3 9415 4337 (outside Australia) For personal use only use personal For
INDOPHIL RESOURCES NL SCHEME BOOKLET For personal use only use personal For