TIDMLRL
RNS Number : 0428V
Leyshon Resources Limited
09 December 2013
LEYSHON RESOURCES LIMITED
9 December 2013
DEMERGER OF ENERGY ASSETS
DESPATCH OF NOTICE OF GENERAL MEETING
Further to its announcements of 13 September 2013 and 18 October
2013, Leyshon Resources Limited (AIM/ASX: LRL) (the "Company") is
pleased to announce that, in respect to the demerger of its energy
assets (via the in-specie distribution of shares in Leyshon Energy
Limited to eligible shareholders of the Company) (the "Demerger"),
it has today despatched to shareholders a Notice of Meeting and
Explanatory Memorandum in respect to the approval of the Demerger.
The Company will also seek approval from shareholders to amend its
investing policy.
Leyshon Energy Limited will apply to be admitted to trading on
AIM (refer to the timetable below for indicative timings in respect
to the AIM admission process).
The General Meeting of Shareholders will be held on 13 January
2014.
A copy of the Notice of Meeting and Explanatory Memorandum is
attached to this announcement. Additionally, the documents can be
accessed on the Company's website at www.leyshonresources.com.
The indicative timetable for the Demerger the subject of the
resolutions detailed in the Notice of Meeting is as follows:
Company announces the Proposed 13 September 2013
Demerger
------------------------------------ -----------------------------
Lodgement with ASIC and ASX 9 December 2013
and despatch of Notice
------------------------------------ -----------------------------
Lodgement of application for 12 December 2013
Leyshon Energy's AIM Admission
------------------------------------ -----------------------------
Cut off for lodging proxy 11.30am (WST) on 11 January
form for the Meeting 2014
------------------------------------ -----------------------------
Snapshot date for eligibility 4.00pm (WST) on 11 January
to vote at the Meeting 2014
------------------------------------ -----------------------------
Meeting to approve the Proposed 11.30am on 13 January 2014
Demerger
------------------------------------ -----------------------------
ASX informed of Shareholder 13 January 2014
approvals
------------------------------------ -----------------------------
Completion of Corporate Restructure 14 January 2014
pursuant to the Subscription
Agreement and the Sale and
Purchase Agreement
------------------------------------ -----------------------------
Last day for trading in Shares 14 January 2014
on a "cum return of capital"
basis (Shares trade on ASX
with an entitlement to participate
in the In-Specie Distribution)
------------------------------------ -----------------------------
Commencement of trading in 15 January 2014
Shares on an "ex return of
capital" basis (Shares trade
on ASX without an entitlement
to participate in the In-Specie
Distribution) (Ex-Date)
------------------------------------ -----------------------------
Record Date (5.00pm (GMT) 5.00pm (WST) 21 January 2014
20 January 2014 for Leyshon
Resources DI holders
------------------------------------ -----------------------------
Capital reduction of Leyshon 23 January 2014
Energy Shares to Shareholders
------------------------------------ -----------------------------
Admission of Leyshon Energy 23 January 2014
Shares to trading on AIM and
announcement by Company of
completion of the Proposed
Demerger
------------------------------------ -----------------------------
Despatch of Leyshon Energy 24 January 2014
Share certificates to Eligible
Shareholders
------------------------------------ -----------------------------
Note: The above dates are indicative only and the Directors
reserve the right to change them, subject to the requirements of
the Corporations Act and the Listing Rules.
http://www.rns-pdf.londonstockexchange.com/rns/0428V_-2013-12-9.pdf
http://www.rns-pdf.londonstockexchange.com/rns/0428V_1-2013-12-9.pdf
The Notice of Meeting and Explanatory Memorandum contains a
technical report on the Zijinshan Gas Project by RISC Operations
Pty Ltd ("RISC"), an Australian based, internationally recognised
independent petroleum advisory firm. RISC estimates total project
Original Gas In Place (OGIP) resources amount to 3.1 trillion cubic
feet ("tcf") of low estimate, 4.9 tcf of best estimate and 7.7 tcf
of high estimate. RISC has also estimated total project Best
Estimate Prospective Resources of 1,189 bcf and 2C Contingent
Resources of 77 bcf. Further details on the resource estimates are
contained in the technical report in the Notice of Meeting and
Explanatory Memorandum.
-ENDS-
For further information please contact:
Leyshon Resources Limited
Paul Atherley - Managing Director
Tel: +86 137 1800 1914
admin@leyshonresources.com
Cantor Fitzgerald Europe
David Porter/Rick Thompson (Nominated adviser)
Richard Redmayne (Corporate broking)
Tel: +44 (0)207 894 7000
Pelham Bell Pottinger
Charles Vivian /James MacFarlane
Tel: +44 (0)20 7861 3232
The qualified person, Frank Fu, who has reviewed this
announcement, has 21 years' experience in the oil & gas
industry and is a member of the Society of Petroleum Engineers. He
holds a BS in Geology and Exploration in Shanxi Mining College in
Taiyuan, Shanxi. Frank is currently the Chief Operation Officer for
Leyshon Resource and is based in Leyshon's Beijing office. He
joined company in 2012, prior to this, he had spent the majority of
his career at Conocophillips.
The statements of resources in this announcement have been
independently determined to Society of Petroleum Engineers (SPE)
Petroleum Resource Management Systems (SPE PRMS) standards by
internationally recognised oil and gas consultants RISC Operations
Pty Ltd.
LEYSHON RESOURCES LIMITED
ABN 75 010 482 274
NOTICE OF GENERAL MEETING
EXPLANATORY MEMORANDUM
AND
PROXY FORM
Date of Meeting: Monday 13 January 2014
Time of Meeting: 11:30am (WST)
Place of Meeting: The Heritage Room
The Melbourne Hotel
942 Hay Street
Perth WA 6000
This Notice of General Meeting should be read in its entirety.
If Shareholders are in doubt as to how they should vote, they
should seek advice from their accountant, solicitor or other
professional adviser prior to voting.
Should you wish to discuss any matter please do not hesitate to
contact the Company Secretary by telephone on +61 8 9321 0077.
Shareholders are urged to attend or vote
by lodging the proxy form attached to this Notice
LEYSHON RESOURCES LIMITED
ABN 75 010 482 274
NOTICE OF GENERAL MEETING
Notice is hereby given that a general meeting of Shareholders of
Leyshon Resources Limited (Company) will be held at The Heritage
Room, The Melbourne Hotel, 942 Hay Street, Perth, Western Australia
on Monday 13 January 2014 at 11:30am (WST) (Meeting).
The Explanatory Memorandum provides additional information on
matters to be considered at the Meeting. The Explanatory Memorandum
and the Proxy Form form part of this Notice of Meeting
(Notice).
The Directors have determined pursuant to regulation 7.11.37 of
the Corporations Regulations 2001 (Cth) that the persons eligible
to vote at the Meeting are those who are registered as Shareholders
of the Company on Saturday 11 January 2014at 4:00pm (WST).
Terms and abbreviations used in this Notice will, unless the
context requires otherwise, have the same meaning given to them in
Schedule 1.
AGENDA
1. Resolution 1 - Disposal of the Company's interest in the Leyshon Energy Assets
To consider and, if thought fit, to pass with or without
amendment, as an ordinary resolution the following:
"That, subject to the passing of Resolution 2 and Leyshon
Energy's AIM Admission, for the purposes of Listing Rule 11.2, AIM
Rule 15 and for all other purposes Shareholders approve and
authorise the Company to dispose of its interest in the Leyshon
Energy Assets, the Company's main undertaking, via the in-specie
distribution of its entire shareholding in Leyshon Energy Limited
on the terms and conditions in the Explanatory Memorandum."
Voting Exclusion
The Company will disregard any votes cast on this Resolution by
any person who may obtain a benefit, except a benefit solely in the
capacity of a holder of ordinary securities if this Resolution is
passed, and any associate of those persons. However, the Company
need not disregard a vote in respect of this Resolution if:
(a) it is cast by a person as proxy for a person who is entitled
to vote, in accordance with the directions on the Proxy Form;
or
(b) it is cast by the person chairing the Meeting as proxy for a
person who is entitled to vote, in accordance with a direction on
the Proxy Form to vote as the proxy decides.
2. Resolution 2 - Reduction of capital and in-specie distribution of Leyshon Energy Shares
To consider and, if thought fit, to pass with or without
amendment, as an ordinary resolution the following:
"That, subject to the passing of Resolution 1 and Leyshon
Energy's AIM Admission, for the purposes of sections 256B and 256C
of the Corporations Act, the Constitution and for all other
purposes Shareholders approve and authorise:
(a) a reduction in the issued share capital of the Company,
without the cancellation of any Shares, by an amount equal to the
market value (as assessed by the Directors) of 249,457,212 Leyshon
Energy Shares on the Record Date; and
(b) the above reduction being satisfied, the Company making a
pro-rata in-specie distribution of all the Leyshon Energy Shares
held by the Company to Eligible Shareholders on the terms and
conditions detailed in the Explanatory Memorandum."
3. Resolution 3 - Amendment to the Company's investing policy
To consider and, if thought fit, to pass with or without
amendment, as an ordinary resolution the following:
"That, subject to the passing of Resolutions 1 and 2 and Leyshon
Energy's AIM Admission, and in accordance with AIM Rule 8,
Shareholders approve and authorise the following amendment to the
Company's investing policy:
(a) delete references to "and energy" in paragraphs 3, 4, 7, and 8;
(b) delete reference to "six" and replace with "ten" in paragraph 4;
(c) insert as a new paragraph 5:
"As the Company has disposed of its energy and gas assets to its
wholly-owned subsidiary Leyshon Energy Limited and then distributed
the entire issued share capital of Leyshon Energy Limited in-specie
to Shareholders, the Company has determined to exclude acquisition
and investment opportunities in the oil and gas sector regardless
of the location from its investment policy."; and
(d) delete paragraph 6 and replace it with the following:
"The Company's primary strategy is to pursue acquisition and
investment opportunities in the minerals sector in general,
including those related to its Mt Leyshon asset and drawing on its
China relationships."
(e) insert as a new paragraph 14:
"The Company will be seeking corporate opportunities to merge or
otherwise combine with other mineral companies."
4. Resolution 4 - Confirmation of approval of the Company's current investing policy
To consider and, if thought fit, to pass with or without
amendment, as an ordinary resolution the following:
"That, only in the event that Resolutions 1, 2 and 3 are not
passed, in accordance with AIM Rule 8, Shareholders confirm their
approval of the Company's current investing policy".
BY ORDER OF THE BOARD
Murray Wylie
Company Secretary
Dated: 9 December 2013
LEYSHON RESOURCES LIMITED
ABN 75 010 482 274
EXPLANATORY MEMORANDUM
1. Introduction
This Explanatory Memorandum has been prepared for the
information of Shareholders in connection with the business to be
conducted at the Meeting to be held at The Heritage Room, The
Melbourne Hotel, 942 Hay Street, Perth, Western Australia on Monday
13 January 2014 at 11:30am (WST).
This Explanatory Memorandum forms part of the Notice which
should be read in its entirety. The purpose of this Explanatory
Memorandum is to provide information to Shareholders in deciding
whether or not to pass the Resolutions in the Notice.
This Explanatory Memorandum includes the following information
to assist Shareholders in deciding how to vote on the
Resolutions:
Section 2: Action to be taken by Shareholders
Section 3: Demerger of interest in the Leyshon Energy
Assets
Section 4: Information on the Company and the effect
of the Proposed Demerger
Section 5: Information on Leyshon Energy and the effect
of the Proposed Demerger
Section 6: Resolution 1 - Disposal of the Company's interest
in the Leyshon Energy Assets
Section 7: Resolution 2 - Reduction of capital and in-specie
distribution of Leyshon Energy Shares
Section 8: Resolution 3 - Amendment to the Company's
investing policy
Section 9: Resolution 4 - Confirmation of approval of
the Company's current investing policy
Schedule Definitions
1:
Schedule Summary of key differences between Australian
2: and British Virgin Islands company law and
applicable AIM Rules
Schedule Independent Expert's Report
3:
Schedule Independent Technical Expert's Report
4:
Schedule Amended Investing Policy
5: Current Investing Policy
Schedule
6:
This Explanatory Memorandum contains the terms and conditions on
which the Resolutions will be voted.
A Proxy Form is located at the end of this Explanatory
Memorandum.
Terms and abbreviations used in this Explanatory Memorandum
will, unless the context requires otherwise, have the same meaning
given to them in Schedule 1.
2. Action to be taken by Shareholders
Shareholders should read the Notice and this Explanatory
Memorandum carefully before deciding how to vote on the
Resolutions.
A Proxy Form is located at the end of this Explanatory
Memorandum. This is to be used by Shareholders if they wish to
appoint a representative (a 'proxy') to vote in their place. All
Shareholders are invited and encouraged to attend the Meeting or,
if they are unable to attend in person, sign and return the Proxy
Form to the Company in accordance with the instructions thereon.
Lodgement of a Proxy Form will not preclude a Shareholder from
attending and voting at the Meeting in person.
Please note that:
(a) a member of the Company entitled to attend and vote at the
Meeting is entitled to appoint a proxy;
(b) a proxy need not be a member of the Company; and
(c) a member of the Company entitled to cast two or more votes
may appoint two proxies and may specify the proportion or number of
votes each proxy is appointed to exercise, but where the proportion
or number is not specified, each proxy may exercise half of the
votes.
The enclosed Proxy Form provides further details on appointing
proxies and lodging Proxy Forms.
3. Demerger of interest in the Leyshon Energy Assets
3.1 Introduction
Further to the Company's announcements to ASX on 13 September
2013 and 18 October 2013, the Company is proposing to undertake a
corporate restructure and demerger pursuant to which:
(a) the Company's interests in the unconventional gas project
located on the eastern fringe of the Ordos Gas Basin in central
China, known as the "Zijinshan Gas Project", will be transferred to
a recently incorporated wholly-owned, British Virgin Islands (BVI)
incorporated subsidiary of the Company, Leyshon Energy Limited
(Leyshon Energy), together with cash reserves of approximately
US$35.3 million;
(b) the entire issued share capital of Leyshon Energy will be
distributed pro rata in-specie to Shareholders on the terms and
conditions detailed in this Explanatory Memorandum; and
(c) Leyshon Energy will apply for admission of the Leyshon
Energy Shares to trading on AIM with any such admission to be
subject to Shareholders approving Resolutions 1 and 2.
The matters in paragraph (b) above will not be implemented
unless the Leyshon Energy Shares are admitted to trading on AIM
(refer to Section 3.7 for further details). Shareholders should
note that the Company will not apply for the Leyshon Energy Shares
to be admitted to trading on ASX.
The Meeting has been convened in order to obtain the requisite
Shareholder approvals in respect to the matters in paragraphs (a)
and (b) above.
3.2 Background
In August 2012 the Company completed the acquisition of the
entire issued share capital of Pacific Asia Petroleum Limited
(PAPL). The consideration paid to the vendors was approximately
US$2.5 million in cash and 10,000,000 new ordinary shares of the
Company. PAPL holds an interest in the Zijinshan Gas Project via
its interest in a production sharing contract in the Zijinshan
Area, Shanxi Province of China with China National Petroleum
Corporation (CNPC) (refer to Section 5.10(d) for a summary of the
material terms of the Zijinshan PSC).
Since its acquisition of PAPL (and by extension its acquisition
of an interest in the Zijinshan Gas Project) the Company has
focused on conducting an accelerated exploration and appraisal
programme for the Zijinshan Gas Project, including drilling wells,
conducting flow tests and acquiring seismic data.
In the Company's interim financial report for the six months
ended 30 June 2013 (Financial Report), the Company disclosed that a
loss after tax of US$5.4 million was attributable to the Zijinshan
Gas Project. As at 30 June 2013, an asset value of US$4.86 million
was recognised in the Financial Report in respect of the Zijinshan
Gas Project. A copy of the Financial Report can be found on the
Company's website www.leyshonresources.com.
Refer to Section 5.6(a) for further details of the Zijinshan Gas
Project.
The Company continues to maintain its interest in the Mt Leyshon
Gold Project. On 31 October 2012 the Company announced to ASX
(refer to the Company's September 2012 Quarterly Report) that:
(a) the ball mill scats drilling and preliminary test work
programme at the Mt Leyshon Gold Project indicated that the project
is viable but requires significant capital expenditure for a
relatively modest return (even with the gold price around US$1500
per ounce at that time); and
(b) the Company had determined not to proceed with the Mt
Leyshon Gold Project at this time but proposed to review the
project's development in the event that the price of gold
increased.
Given the recent decline in the prevailing gold price, the
Company does not anticipate investing the level of capital
expenditure required to develop the Mt Leyshon Gold Project until
there is a significant improvement in the gold price. The Company
may consider disposing of all or part of its interest in the Mt
Leyshon Gold Project.
Refer to Section 4.4 for further details of the Mt Leyshon Gold
Project.
Whilst recently focusing on the development of the Zijinshan Gas
Project, the Company has continued to seek additional project
acquisition opportunities in both the energy and mineral sectors,
in Australia and overseas.
In an ASX announcement dated 22 April 2013 and in its Quarterly
Report for the quarter ended 30 June 2013, the Company disclosed
that it was exploring the merits of separating its energy and
mineral businesses. After undertaking a strategic review of the
Company's assets (having regard to the size and scale of the
Company's unconventional gas interests when considered in
conjunction with the Company's mineral exploration interests), the
Board has determined that it considers such separation to be in the
best interests of Shareholders as the separation will provide:
(a) a clear separation of distinct businesses providing the
capability for greater operational and management focus on the
distinct assets;
(b) increased ability to attract capital for project development
via enabling access to different capitals markets;
(c) increased transparency over the group's strategies as each
of the Company and Leyshon Energy's activities and public
disclosures will relate to their respective area of focus (i.e.
mineral exploration for the Company and oil and gas exploration for
Leyshon Energy); and
(d) improved value recognition by allowing current and future
shareholders to select investment in the separate assets.
Refer to Section 3.9 for further details of what the Board
considers to be the advantages and disadvantages of the Company
separating its energy and gold businesses.
Accordingly, the Company has convened the Meeting in order to
obtain the requisite Shareholder approvals to effect the separation
of the respective businesses of the Company.
Refer to Section 3.7 for further details of Leyshon Energy's AIM
Admission process and Section 3.12 for an indicative timetable of
the Proposed Demerger and Leyshon Energy's AIM Admission.
3.3 Corporate Restructure and In-Specie Distribution
(a) Corporate Restructure
In order to effect the demerger of the Company's energy business
(currently consisting of the Zijinshan Gas Project), the Company
proposes to undertake an initial corporate restructure whereby:
(i) ownership of the entire issued share capital of PAPL will be
transferred from the Company to Leyshon Energy (representing the
Company's interest in the Zijinshan Gas Project) in consideration
for the issue by Leyshon Energy of 49,638,141 fully paid ordinary
shares in Leyshon Energy (Leyshon Energy Shares) to the Company;
and
(ii) the Company will subscribe for a further 199,769,071
Leyshon Energy Shares in consideration for a cash payment of
US$35,299,426 to Leyshon Energy,
(together being the Corporate Restructure), following completion
of which:
(iii) Leyshon Energy will hold:
(A) the Company's interest in the Zijinshan Gas Project; and
(B) cash reserves of approximately US$35.3 million,
(together the Leyshon Energy Assets); and
(iv) the Company will hold the entire issued share capital of
Leyshon Energy (being all of the Leyshon Energy Shares on
issue).
The disproportionate allocation of existing cash reserves, which
is heavily weighted to Leyshon Energy, is directly correlated to
the much greater capital needs associated with oil and gas
exploration as compared to goldexploration, including significantly
higher exploration and operational costs. The Directors accordingly
consider the cash allocation of approximately US$35.3 million to
Leyshon Energy as part of the Proposed Demerger to be an
appropriate apportionment of the Company's cash reserves.
The Board considers that the Company should demerge its energy
assets, rather than its gold assets (being the Mt Leyshon Gold
Project), for the following reasons:
(i) as detailed in Section 4.4, Newmont Australia Limited
(Newmont) has assumed obligations associated with the environmental
management and rehabilitation of the Mt Leyshon Gold Project
pursuant to an agreement with the Company. The Directors view this
arrangement with Newmont to be of significant financial advantage
to the Company and its Shareholders and wish to preserve the good
standing of this agreement; and
(ii) the demerger will allow the Company to re-allocate its
capital in accordance with its strategic goals, including
acquisition and investment opportunities in the mineral sector in
Australia, China and elsewhere that complement the Mt Leyshon Gold
Project.
Completion of the Corporate Restructure is subject to and
conditional upon Resolutions 1 and 2 being passed by
Shareholders.
The Company and Leyshon Energy have entered into the:
(i) Sale and Purchase Agreement (refer to Section 5.10(a) for details); and
(ii) Subscription Agreement (refer to Section 5.10(b) for details),
to effect the transactions under the Corporate Restructure.
(b) In-Specie Distribution
Following completion of all matters under the Corporate
Restructure and subject to Leyshon Energy's AIM Admission, the
Company intends to undertake a capital reduction (i.e. a return of
capital) by way of a pro rata in-specie distribution of the
entirety of the Leyshon Energy Shares whereby each Eligible
Shareholder will receive one (1) Leyshon Energy Share for every one
(1) ordinary share in the Company (Share) they hold on the Record
Date (In-Specie Distribution).
For the purposes of this Explanatory Memorandum, the proposed
demerger of the Company's interest in the Leyshon Energy Assets, to
be effected by the In-Specie Distribution, is referred to as the
"Proposed Demerger". The terms "Proposed Demerger" and "In-Specie
Distribution" are used interchangeably in this Explanatory
Memorandum.
The Proposed Demerger is subject to and conditional upon:
(a) Resolutions 1 and 2 being passed by Shareholders; and
(b) Leyshon Energy's AIM Admission (refer to Section 3.7).
3.4 Effect of the Proposed Demerger on Shareholders
Implementation of the Proposed Demerger will not affect the
number of Shares held by Shareholders. Upon the Proposed Demerger
being implemented, Eligible Shareholders will hold:
(a) the same number of Shares as they held immediately before
the Proposed Demerger was implemented; and
(b) one (1) Leyshon Energy Share for every one (1) Share they held as at the Record Date.
Certain information with respect to the taxation implications of
the Proposed Demerger for Shareholders is detailed in Section 3.15.
Shareholders should consider that information carefully and in
addition seek their own taxation advice with respect to their
individual circumstances. Shareholders should also consider the
risks specific to the Proposed Demerger detailed in Section
3.5.
Leyshon Energy is a BVI incorporated company. There are a number
of differences between the protections afforded to shareholders of
Australia companies and BVI companies. Shareholders should refer to
the table in Schedule 2 for a summary of these differences. Note
that the summary in Schedule 2 is provided as a general guide to
those differences between BVI and Australian company law which are
likely to be most significant for Australian shareholders when
deciding whether to hold shares in a BVI incorporated company. It
is not intended to (and cannot) be a comprehensive summary of
Australian or BVI law nor an analysis of all of the consequences
resulting from acquiring, holding or disposing of shares in Leyshon
Energy. The laws, rules, regulations and procedures described in
Schedule 2 are subject to change from time to time, andShareholders
should seek their own independent advice should they require
further information in respect to such differences. Shareholders
should also refer to the risk factors detailed in Sections 3.5(a)
and 5.9(a).
3.5 Risks specific to the Proposed Demerger
If the Proposed Demerger is implemented, Shareholders will
continue to be exposed to risks currently associated with the
Company and also be exposed to a range of additional risks
resulting from the demerging of Leyshon Energy and the Company's
energy assets.
The following risks are not, and should not be relied on as, or
considered to be, an exhaustive list of the risks that Shareholders
may face or be exposed to if the Proposed Demerger is
implemented.
(a) Leyshon Energy is incorporated in BVI
The rights of Leyshon Energy Shareholders will be governed by
BVI law and Leyshon Energy's memorandum of association (Memorandum)
and articles of association (Articles) (together, the Memorandum
and Articles). The rights of shareholders under BVI law differ in
certain respects from the rights of shareholders of companies
incorporated in Australia. As Leyshon Energy is a BVI incorporated
company, Leyshon Energy Shareholders will not be afforded the same
protections as they would have been afforded if Leyshon Energy was
an Australian incorporated company (albeit the Memorandum and
Articles do provide certain protections), including as follows:
(i) a lack of takeover protections, meaning that a party may
obtain a majority stake in Leyshon Energy without Leyshon Energy
Shareholders being made aware of the identity of the holder before
the holder makes the relevant acquisition of Leyshon Energy Shares,
or having had an opportunity to participate in the takeover;
(ii) under BVI law, shareholders holding 30% of voting rights
may require the company to hold a general meeting. However,
pursuant to the Articles, Leyshon Energy Shareholders holding at
least 25% of voting rights may call a meeting of Leyshon Energy.
For an Australian company, shareholders only need to hold 5% (or
obtain signatures from 100 shareholders) to call a meeting of the
company;
(iii) there is no requirement under BVI law for Leyshon Energy
to hold an annual general meeting. However, Leyshon Energy's
Memorandum and Articles provide that it will hold an annual general
meeting at least every 15 months;
(iv) Leyshon Energy will not be required to prepare a
remuneration report, and so Leyshon Energy Shareholders will not
have the opportunity to vote against such report (and the 'two
strikes' rule applicable to the remuneration reports of Australian
companies will not apply). However, under the AIM Rules Leyshon
Energy will be required to disclose details of the remuneration
earned in respect of each financial year by each Leyshon Energy
director;
(v) the prohibition on Australian companies giving termination
benefits (without first obtaining shareholder approval) to certain
employees and officers of the company will not apply to Leyshon
Energy;
(vi) BVI law does not contain equivalent provisions to the
prohibition on related party transactions contained in the
Corporations Act, under which a public company must obtain
shareholder approval before giving a financial benefit to a related
party (which includes a director) unless an exception applies (such
as being on arm's length terms). However, under the AIM Rules
Leyshon Energy must disclose certain details to the market as soon
as the terms of a transaction with a related party is agreed if the
subject of the transaction will exceed certain 'class tests',
including being greater than 5% of Leyshon Energy's gross assets,
profits, turnover, gross capital or market capitalisation (refer to
Schedule 2 for details of the 'class tests' applying under the AIM
Rules). This must include a declaration that Leyshon Energy's
directors consider, having consulted with Leyshon Energy's
Nominated Adviser, that the terms of the transaction are fair and
reasonable insofar as Leyshon Energy Shareholders are concerned. In
addition, Leyshon Energy's accounts must include certain
disclosures with respect to any transaction with a related party
which exceeds 0.25% in any of the 'class tests' specified in the
AIM Rules (refer to Schedule 2);
(vii) there is no obligation under BVI law to report, audit or
lodge accounts. However, under the AIM Rules Leyshon Energy will be
required to prepare a half-yearly report and annual audited
accounts in accordance with certain internationally recognised
financial standards. Leyshon Energy will prepare its accounts in
accordance with IFRS;
(viii) although no such approval is required under BVI law, the
Memorandum and Articles require the approval of 50% of shareholders
holding a particular class of shares in order to vary or cancel the
rights of that class. For an Australian company, unless the
constitution says otherwise, the approval of 75% of the votes cast
by shareholders as well as the approval of shareholders holding 75%
of the votes in that class is required.
Refer to Schedule 2 for further details on the rights and
protections applying to shareholders of BVI companies and companies
listed on AIM. Refer to Section 5.9(a) for the risks inherent in
holding securities in a BVI incorporated company such as Leyshon
Energy.
(b) Lack of project diversity
Following implementation of the Proposed Demerger:
(i) the Company's projects will comprise solely of the Mt
Leyshon Gold Project. The Mt Leyshon Gold Project is on care and
maintenance and is not currently being developed by the Company.
Refer to Section 4.4 for further information; and
(ii) Leyshon Energy will have only one project, the Zijinshan
Gas Project, and cannot guarantee that it will achieve production
of profitable resources from this project. Refer to Section 5.6 for
further information.
As a result, there is a risk of either the Company or Leyshon
Energy (as the case may be) being negatively impacted as a result
of a lack of project diversity.
(c) ASX and AIM compliance risks
Following the Proposed Demerger the Company may face certain ASX
and AIM compliance risks. These include the risk that:
(i) ASX may suspend the quotation of Shares if the Company is
not able to acquire a suitable new business or project (or,
alternatively, to recommence activities in respect to the Mt
Leyshon Gold Project) within six months;
(ii) if the Company makes a significant acquisition, ASX may
require the Company to "re-comply" with the requirements for
listing in Chapters 1 and 2 of the Listing Rules. This may involve
significant costs, the lengthy suspension of Shares from trading on
ASX and a potentially dilutive capital raising; and
(iii) the Shares may be suspended from trading on AIM or the
Company's quotation cancelled if the Company cannot make an
acquisition or acquisitions which constitute a reverse takeover or
otherwise implement its revised investing policy within twelve
months.
For more information on these ASX and AIM compliance risks,
refer to Section 4.5(a).
(d) Funding risk
Following the disposal to Leyshon Energy of cash reserves of
approximately US$35.3 million as part of the Proposed Demerger, the
Company will hold significantly lower cash reserves. While the
Directors are of the opinion that the Company's cash reserves will
be sufficient to conduct the Company's proposed activities
following the implementation of the Proposed Demerger, there is the
risk that further funding may be required by the Company in the
future to support its activities and operations. There can be no
assurance that such funding will be available on satisfactory terms
or at all. The ability of the Company to arrange such financing in
the future will depend in part upon the prevailing capital market
conditions as well as the success of any of any exploration
programmes.
Any inability to obtain finance may adversely affect the
business and financial conditions of the Company and, consequently,
its performance. If additional funds are raised through the
issuance of new equity or equity-linked securities of the Company
other than on a pro rata basis to existing Shareholders, the
percentage ownership of Shareholders may be reduced. Shareholders
may experience subsequent dilution and the control of the Company
may change. There can be no guarantee that any further capital
raisings will be successful.
3.6 If the Proposed Demerger is not implemented
If Resolutions 1 and 2 are not passed and/or Leyshon Energy's
AIM Admission does not occur, and accordingly the Proposed Demerger
is not implemented, the Company will maintain its interests in the
Leyshon Energy Assets and Shareholders will retain their current
shareholdings in the Company. There will be no change to the
Company's current investing policy.
3.7 AIM admission
As detailed above, Leyshon Energy will seek admission of the
Leyshon Energy Shares to trading on AIM. The Company has appointed
Cantor Fitzgerald Europe as its Nominated Adviser to assist with
this process.
Following despatch of the Notice to Shareholders, the Company
will lodge an Admission Document with the London Stock Exchange
(the operator of the AIM market) along with certain other documents
required under the AIM Rules in order to meet the requirements for
Leyshon Energy's AIM Admission.
The Company will not implement the Proposed Demerger (even if
Resolutions 1 and 2 are approved by Shareholders) until Leyshon
Energy's AIM Admission has been achieved.
Refer to the indicative timetable in Section 3.12 for details of
key dates in respect to Leyshon Energy's AIM Admission process.
The Company has determined that Leyshon Energy will seek
admission of the Leyshon Energy Shares to trading solely to AIM,
and not to ASX, for the following reasons:
(a) Shares have a significantly higher trading volume on AIM
than ASX, with approximately 89% of all Shares traded in the past
12 months being traded on AIM. Accordingly, listing on ASX would
likely result in only a limited increase in liquidity;
(b) the Company understands that approximately 86% of the Shares
are beneficially held by Shareholders who are resident outside of
Australia; and
(c) ASX has advised the Company that, to satisfy Conditions 3
and 7 of Listing Rule 1.1 and Condition 2 of Listing Rule 2.1, it
would require Leyshon Energy to conduct a capital raising by way of
an offer of Leyshon Energy Shares to new shareholders (i.e.
non-current Shareholders) in order to facilitate Leyshon Energy's
listing on ASX, notwithstanding that following the Proposed
Demerger Leyshon Energy will have cash reserves of approximately
US$35.3 million and does not require additional funding at this
time. Such a capital raising would be dilutive to Leyshon Energy
Shareholders' interests in Leyshon Energy.
Having regard to the above, the Directors do not consider the
additional administrative and legal costs involved in a listing on
ASX to be commensurate to the benefits which Leyshon Energy and
Leyshon Energy Shareholders would receive from Leyshon Energy
Shares trading on ASX.
3.8 Directors' interests
The following table details:
(a) the Directors' interests in the securities of the Company as
at the date of the Notice; and
(b) the number of Leyshon Energy Shares which the Directors (or
their associated parties) will receive in their capacity as
Shareholdersif the Proposed Demerger is implemented:
Director Shares currently Leyshon Energy
held Shares to be
received(1)
-------------------- ------------------ ----------------
Paul C Atherley 31,330,000(2) 31,330,000
-------------------- ------------------ ----------------
Richard P Seville 750,000 750,000
-------------------- ------------------ ----------------
Andrew J Berry III - -
-------------------- ------------------ ----------------
Notes:
(1) Assumes that the number of Shares on issue as at the date of
the Notice does not change prior to the Record Date.
(2) On 31 May 2013, Shareholders approved the issue of 2,500,000
Performance Rights to Mr Paul C Atherley under the Company's
Performance Rights Plan (refer to the Company's Notice of Annual
General Meeting dated 1 May 2013). These Performance Rights have
not yet been issued and will not be issued if the Proposed Demerger
is implemented.
3.9 Advantages and disadvantages of the Proposed Demerger
The Directors believe that the potential advantages and
potential disadvantages to Shareholders of the Proposed Demerger
are as follows:
(a) Advantages
(i) Shareholders will continue to retain their current indirect
interest in the Zijinshan Gas Project through their direct pro rata
shareholding in Leyshon Energy.
(ii) Shareholders will retain their shareholding in the Company
in the same proportion in which it is held prior to the
implementation of the Proposed Demerger.
(iii) The separation of the Company's energy business will allow
the Company, as a stand alone entity, to focus on the Mt Leyshon
Gold Project and mineral acquisition and investment opportunities
whilst enabling Leyshon Energy to focus on the Zijinshan Gas
Project and other potential oil and gas projects. The Proposed
Demerger provides a strategic opportunity to develop Leyshon Energy
as a stand-alone company which can continue with its plan to
explore and ultimately commercialise the Zijinshan Gas Project.
(iv) The Proposed Demerger should allow for a greater focus on
the exploration and development of the Zijinshan Gas Project and
should enable a more transparent market value to be placed on the
Zijinshan Gas Project, whilst the Company continues to review high
quality mineral investment opportunities in China and elsewhere,
including the Mt Leyshon Gold Project.
(v) The Proposed Demerger will mean that each of the Company and
Leyshon Energy will have a primary focus that will not be affected
by events or occurrences relating to other projects. The Company's
principal focus will be on mineral acquisition and investment
opportunities and Leyshon Energy's principal focus will be on the
Zijinshan Gas Project and other projects in the oil and gas sector
in which it may acquire an interest.
(b) Disadvantages
(i) The Proposed Demerger will result in two separate companies
each with their own running costs and management, resulting in
additional costs being incurred.
(ii) Shareholders may incur additional transaction costs if they
wish to dispose of their interest in Leyshon Energy and will only
be able to trade their Leyshon Energy Shares on AIM.
(iii) There is no guarantee that the Shares or the Leyshon
Energy Shares will increase in value following the Proposed
Demerger and the admission of the Leyshon Energy Shares to trading
on AIM.
(iv) A decrease in diversity within the Company (in terms of
potential income streams) as a result of the Proposed Demerger,
which may be disadvantageous to Shareholders.
(v) As Leyshon Energy is incorporated in BVI, the rights of
Leyshon Energy Shareholders are governed by BVI law. BVI law
differs materially, including regarding the rights of shareholders,
from the law governing companies incorporated in Australia. In
particular, the takeover provisions in the Corporations Act do not
apply to Leyshon Energy, and there are no takeover protections
under BVIlaw. This means that Leyshon Energy Shareholders will not
be afforded the takeover protections currently available to
Shareholders, including the right to:
(A) know the identity of any bidder who proposes to acquire a
substantial interest in Leyshon Energy;
(B) have the benefits of prescribed time periods and information
requirements to enable them to assess the merits of a takeover
proposal; and
(C) have a reasonable and equal opportunity to participate in
the benefits flowing from a takeover proposal.
Refer to Sections 3.5(a) and 5.9(a) for further details of the
risks associated in holding shares in a BVI company and to Schedule
2 for details of the rights and protections applying to
shareholders in BVI companies.
Shareholders should also note that the Directors do not intend
to raise capital by offering additional Leyshon Energy Shares to
investors via an initial public offer when seeking Leyshon Energy's
AIM Admission. As a result, Shareholders' interests in the Leyshon
Energy Assets will not be subject to dilution, and there will be
essentially no change to the beneficial ownership structure of the
Leyshon Energy Assets following the Proposed Demerger and Leyshon
Energy's AIM Admission.
3.10 Independent Expert's Report and provision of information
In order to provide Shareholders with proper and full disclosure
to enable them to assess the merits of the Proposed Demerger and to
determine whether to vote in favour of Resolutions 1 and 2 to
approve the Proposed Demerger, the Board appointed BDO Corporate
Finance (WA) Pty Ltd (BDO) as an independent expert to examine the
Proposed Demerger and to provide an opinion as to whether the
potential advantages of the implementation of the Proposed Demerger
outweighs its potential disadvantages to Shareholders.
A copy of the independent expert's report prepared by BDO
(Independent Expert's Report) is in Schedule 3 and BDO has
consented to the use of this report in the form and context it is
used in this Explanatory Memorandum.
The opinion expressed in the Independent Expert's Report by BDO
is that the potential advantages of the Proposed Demerger outweigh
the potential disadvantages to Shareholders. Shareholders are
encouraged to read the Independent Expert's Report in its
entirety.
To the best of the Directors' knowledge, all information and
matters that are material and reasonably required for Shareholders
to make an informed decision on the Resolutions have been provided
to Shareholders in this Explanatory Memorandum.
3.11 Directors' recommendations and voting
The Directors unanimously recommend that Shareholders vote in
favour of the Resolutions for the following reasons:
(a) after a comprehensive assessment of all available material
information, the Directors believe that the Proposed Demerger is in
the best interests of Shareholders for the following reasons:
(i) Shareholders will continue to retain an interest in both the
Mt Leyshon Gold Project and the Zijinshan Gas Project following the
Proposed Demerger;
(ii) the separation of the Leyshon Energy Assets from the
Company will enable the Company to focus on the Mt Leyshon Gold
Project and potential mineral investment opportunities; and
(iii) following completion of the Proposed Demerger, both the
Company and Leyshon Energy will have a primary focus that will not
be impacted by factors affecting other projects. The Company's
focus will be on the Mt Leyshon Gold Project and acquiring other
potential mineral projects, whereas Leyshon Energy's principal
focus will be on the Zijinshan Gas Project and other potential oil
and gas acquisition and investment opportunities; and
(b) the Directors strongly believe that the benefits of the
implementation of the Proposed Demerger outweigh the disadvantages
(refer to Section 3.9).
In making their recommendation, the Directors advise
Shareholders to read this Explanatory Memorandum in its entirety
(including the Independent Expert's Report) and to seek their own
independent financial advice.
The Directors have each undertaken to vote in favour of the
Resolutions in respect of their direct and indirect shareholdings
in the Company, representing a total of 34,396,324 Shares or
approximately 13.79% of the Shares on issue, subject to the
application of voting exclusions under the Listing Rules. Further
details of the Directors' interests in the Company's securities are
detailed in Section 3.8.
3.12 Timetable and Record Date
Subject to the Listing Rules, Corporations Act and the
requirements of the AIM Rules, the Company anticipates that
completion of the Proposed Demerger and Leyshon Energy's AIM
Admission will take place in accordance with the following
indicative timetable:
Company announces the Proposed 13 September 2013
Demerger
------------------------------------ -----------------------------
Lodgement with ASIC and ASX 9 December 2013
and despatch of Notice
------------------------------------ -----------------------------
Lodgement of application for 12 December 2013
Leyshon Energy's AIM Admission
------------------------------------ -----------------------------
Cut off for lodging proxy 11.30am (WST) on 11 January
form for the Meeting 2014
------------------------------------ -----------------------------
Snapshot date for eligibility 4.00pm (WST) on 11 January
to vote at the Meeting 2014
------------------------------------ -----------------------------
Meeting to approve the Proposed 11.30am on 13 January 2014
Demerger
------------------------------------ -----------------------------
ASX informed of Shareholder 13 January 2014
approvals
------------------------------------ -----------------------------
Completion of Corporate Restructure 14 January 2014
pursuant to the Subscription
Agreement and the Sale and
Purchase Agreement
------------------------------------ -----------------------------
Last day for trading in Shares 14 January 2014
on a "cum return of capital"
basis (Shares trade on ASX
with an entitlement to participate
in the In-Specie Distribution)
------------------------------------ -----------------------------
Commencement of trading in 15 January 2014
Shares on an "ex return of
capital" basis (Shares trade
on ASX without an entitlement
to participate in the In-Specie
Distribution) (Ex-Date)
------------------------------------ -----------------------------
Record Date (5.00pm (GMT) 5.00pm (WST) 21 January 2014
20 January 2014 for Leyshon
Resources DI holders)
------------------------------------ -----------------------------
Capital reduction of Leyshon 23 January 2014
Energy Shares to Shareholders
------------------------------------ -----------------------------
Admission of Leyshon Energy 23 January 2014
Shares to trading on AIM and
announcement by Company of
completion of the Proposed
Demerger
------------------------------------ -----------------------------
Despatch of Leyshon Energy 24 January 2014
Share certificates to Eligible
Shareholders
------------------------------------ -----------------------------
Note: The above dates are indicative only and the Directors
reserve the right to change them, subject to the requirements of
the Corporations Act and the Listing Rules.
It is important to note that any person who acquires Shares on
or after the Ex-Date detailed in the indicative timetable above
will not have an entitlement to participate in the In-Specie
Distribution, and so will not receive Leyshon Energy Shares.
3.13 ASIC and ASX
Final copies of the Notice and this Explanatory Memorandum have
been lodged with ASIC and ASX. Neither ASIC, ASX nor any of their
respective officers take any responsibility for the contents of the
Notice or this Explanatory Memorandum.
3.14 Overseas Shareholders
The In-Specie Distribution of Leyshon Energy Shares to
Shareholders as part of the Proposed Demerger will be subject to
the legal and regulatory requirements in each Shareholder's
relevant jurisdiction. If the requirements in any jurisdiction
where a Shareholder is resident are held to:
(a) restrict or prohibit the distribution of Leyshon Energy Shares as proposed;
(b) impose on the Company an obligation to prepare a prospectus
or other similar disclosure document; or
(c) otherwise impose on the Company an undue burden,
the Leyshon Energy Shares to which the relevant Shareholder is
entitled will not be issued to that Shareholder and will instead be
sold by the Company on that Shareholder's behalf as soon as
practicable after the date of Leyshon Energy's AIM Admission.
If the Company elects to sell the Leyshon Energy Shares on a
Shareholder's behalf, it will then account to that Shareholder for
the net proceeds of sale (after deducting the costs and expenses of
the sale). As the return of capital is being represented and
satisfied by the In-Specie Distribution and security prices may
vary from time to time (assuming a liquid market is available), the
net proceeds of sale to such Shareholder may be more or less than
the notional value of the reduction of capital.
It will be the responsibility of each Shareholder to comply with
the laws to which they are subject in the jurisdictions in which
they are resident.
In summary:
(a) Leyshon Energy Shares that will not be issued to a
Shareholder as a result of (a) to (c) above will be held by a
nominee for the purpose of selling those Leyshon Energy Shares
(Leyshon Sale Facility Shares);
(b) the Leyshon Sale Facility Shares will be sold as soon as
practicable following the Record Date;
(c) the net proceeds from the sale of the Leyshon Sale Facility
Shares will then be distributed to the relevant Shareholders as
soon as practicable after the relevant sale; and
(d) no brokerage will be charged by the nominee to Shareholders
for the sale of the Leyshon Sale Facility Shares.
Shareholders should note that there is no guarantee that the
Company will be able to sell any Leyshon Energy Shares on a
Shareholder's behalf or that the net proceeds of any sale will
equal or exceed the notional value of the reduction in capital
represented by those Leyshon Energy Shares.
3.15 Taxation implications
Each Shareholder should seek and rely on their own professional
taxation advice, specific to their particular circumstances, in
relation to the taxation consequences of the Proposed Demerger.
Neither the Company, nor any of its officers or advisers, accepts
liability or responsibility with respect to such consequences or
the reliance by any Shareholder on any part of the following
summary.
The following is a general summary of the Australian taxation
consequences for Shareholders who receive Leyshon Energy Shares in
respect of the In-Specie Distribution, based on the applicable
Australian taxation law at the date of the Notice. Shareholders
from jurisdictions other than Australia should not make any
inferences from this summary regarding their own tax position.
The following summary only applies to Shareholders who, as of
the Record Date, hold their Shares on capital account for tax
purposes, and not on revenue account, and are not subject to the
taxation of financial arrangements rules in relation to gains and
losses on their Shares.
The application of tax legislation can vary according to the
individual circumstances of each Shareholder. This summary is not
intended, and should not be relied upon, as specific taxation
advice to any individual Shareholder. The comments in this summary
are of a general nature only, may not apply to your specific
circumstances, and cannot be relied upon for accuracy or
completeness.
The Company has not applied, and does not intend to apply, for a
class ruling from the Australian Tax Office in respect to the
In-Specie Distribution.
(a) Australian taxation implications for Australian resident
Shareholders who choose demerger roll-over relief
The In-Specie Distribution is a CGT event for each Shareholder.
A capital gain may arise for Shareholders as a result of the return
of capital under the Proposed Demerger to the extent that the
capital returned exceeds CGT cost base of the Shares.
Demerger roll-over relief will be available in respect of the
Proposed Demerger. Any capital gain referred to above will be
disregarded to the extent that Shareholders choose to obtain
demerger roll-over relief. This means no income tax will be payable
on the capital gain under the Proposed Demerger where the demerger
roll-over relief is chosen by a Shareholder. A capital loss will
not arise.
Each Shareholder must recalculate the cost base and reduced cost
base of the Shares and the Leyshon Energy Shares for CGT purposes.
This is done by apportioning the total cost base and reduced cost
base of the Shares held by that Shareholder just before the
In-Specie Distribution between:
(i) the Shares held by that Shareholder just after the In-Specie Distribution; and
(ii) the Leyshon Energy Shares distributed to that Shareholder.
The apportionment must be done on a reasonable basis, based on
the market values of the Shares and the Leyshon Energy Shares just
after the In-Specie Distribution (to be advised by the Company once
the In-Specie Distribution is complete), or a reasonable
approximation of those market values. These adjustments apply
separately to all Shareholders regardless of whether demerger
roll-over relief is chosen. Further information in relation to the
apportionment of tax cost bases will be provided to Shareholders in
due course after the In-Specie Distribution occurs.
Further, no part of the In-Specie Distribution arising under the
Proposed Demerger will be an assessable dividend to
Shareholders.
On a future disposal of the Leyshon Energy Shares, certain
Shareholders (such as individuals and complying superannuation
funds) may be entitled to a CGT discount if they have held their
Shares for at least 12 months. For these purposes, Shareholders can
treat their Leyshon Energy Shares as having been acquired on the
date that they acquired the corresponding original Shares.
(b) Australian taxation implications for Australian resident
Shareholders who do not choose demerger roll-over relief
A Shareholder who does not choose demerger roll-over relief will
have the same tax consequences as a Shareholder who does choose
demerger roll-over relief, except that any capital gain arising to
the extent the In-Specie Distribution exceeds the Shareholder's CGT
cost base of the Shares will not be disregarded. Shareholders may
be entitled to discount CGT treatment. Shareholders should seek
appropriate tax advice to determine the application of the CGT
discount in their specific circumstances.
If the In-Specie Distribution does not exceed the CGT cost base
in the Shares, no capital gain will be made.
Shareholders will not make a capital loss as a result of the
return of capital under the Proposed Demerger.
(c) Australian taxation implications for non-resident Shareholders
Shareholders who are not residents of Australia for income tax
purposes will generally not have any Australian CGT implications
under the Proposed Demerger, unless their shares represent "taxable
Australian property". This will generally be the case where:
(i) they (together with associates) hold an interest in the
Company of 10% or more at the time of the In-Specie Distribution or
for a continuous period of at least 12 months in the 24 months
immediately preceding the In-Specie Distribution; and
(ii) certain other conditions relating to the underlying assets
of the Company are satisfied.
As such, if non-resident Shareholders do not hold, or have not
held, an interest in the Company of 10% or more as described above,
they should not be subject to CGT under the Proposed Demerger. If
they do hold such an interest, they should consult their tax
adviser in relation to whether other relevant conditions are
satisfied as this may result in an Australian CGT liability.
For the avoidance of doubt:
(iii) the cost base and reduced cost base of the Shares and the
Leyshon Energy Shares must be recalculated in the manner described
above; and
(iv) for the purposes of determining eligibility for the CGT
discount, each Leyshon Energy Share will be treated as having been
acquired at the time that the corresponding original Share was
acquired.
The In-Specie Distribution will not be subject to dividend
withholding tax.
(d) Taxation implications for the Company
The transfer of the Leyshon Energy Shares from the Company to
Shareholders in respect of the In-Specie Distribution is not
expected to have any adverse CGT implications for the Company.
4. Information on the Company and the effect of the Proposed Demerger
4.1 Capital structure of the Company
The Company currently has 249,457,212 Shares on issue. The
number of Shares on issue will remain unchanged as a result of the
implementation of the Proposed Demerger.
On 31 May 2013 Shareholders approved the issue of 2,500,000
Performance Rights to Mr Paul C Atherley under the Company's
Performance Rights Plan (refer to the Company's Notice of Annual
General Meeting dated 1 May 2013). These Performance Rights have
not yet been issued and will not be issued if the Proposed Demerger
is implemented. The Company has no other Performance Rights or
Options on issue.
4.2 Corporate structure of the Company
The Company has a number of subsidiary companies incorporated in
various jurisdictions, the large majority of which are currently
dormant and do not hold any assets. These subsidiary companies are
likely to remain dormant following the Proposed Demerger.
The following diagram details the current corporate structure of
the Company and its respective subsidiaries:
(Please refer to separate pdf attachment for charts).
The following diagram details the corporate structure of the
Company and its respective subsidiaries following the
implementation of the Proposed Demerger:
(Please refer to separate pdf attachment for charts).
4.3 Board and management of the Company
The current Directors are:
(a) Mr Paul C Atherley;
(b) Mr Richard Seville; and
(c) Mr Andrew Berry III.
Following the implementation of the Proposed Demerger, the Board
intends that there will be a complete separation of management
between the Company and Leyshon Energy. Mr Paul Atherley will
assume a position on Leyshon Energy's board and, as soon as the
Company is able to appoint a suitably qualified managing director,
will resign as managing director of the Company. The Company also
intends to change the Board composition by adding Directors with
suitable skills and experience to the Board.
Refer to Section 5.5 for details on the board composition of
Leyshon Energy following the implementation of the Proposed
Demerger.
4.4 Business of the Company following the Proposed Demerger
Following the implementation of the Proposed Demerger, the
Company's assets will comprise solely of the Mt Leyshon Gold
Project along with cash reserves of approximately US$3 million. The
Directors are comfortable that the Company's cash reserves
following the Proposed Demerger will be sufficient for the Company
to maintain the Mt Leyshon Gold Project and to enable it to
undertake investigations on potential acquisition opportunities
(refer to paragraph (b) below) for at least two years from
completion of the Proposed Demerger.
The Company plans to review high quality mineral investment
opportunities in China and elsewhere to complement the Mt Leyshon
Gold Project.
(a) Mt Leyshon Gold Project
The Mt Leyshon Gold Project is located 28 kilometres south of
Charters Towers in Queensland. The Mt Leyshon Gold Project operated
from 1987 to 2002 as an open pit gold mine producing over 2.5
million ounces of gold from a 1.5 gram per tonne ore body and 2.3
million ounces of silver during its mine life.
The Mt Leyshon mine site has been significantly rehabilitated. A
"Closure and Rehabilitation Plan" was submitted during the second
quarter of 2012 to the Department of Environment and Resource
Management (Qld). Newmont is performing the rehabilitation on
behalf of the Company. Pursuant to an agreement between the Company
and Newmont, Newmont is responsible for all environmental
obligations in respect of the Mt Leyshon leases in perpetuity
regardless of changes to those obligations arising from changes to
regulatory requirements and has indemnified the Company to that
affect.
In June 2012, the Company commenced a drill and test work
programme on a large stockpile of ball mill scat at the Mt Leyshon
Gold Project. The programme was designed to follow up a number of
previous studies that had shown that depending on the treatment
route selected, between 100,000 and 175,000 ounces of gold could be
recovered through the retreatment of the highly mineralised
material. The material was stockpiled at a time when gold prices
averaged around US$300 per ounce and the most recent of the
previous studies was based on a gold price of US$780 per ounce. The
stockpile comprised approximately 12-15 million tonnes of highly
mineralised ball mill scats.
However, the ball mill scats drilling and preliminary test work
programme indicated that the Mt Leyshon Gold Project is viable but
requires significant capital expenditure for a relevantly modest
return (even with gold prices in excess of US$1,500 per ounce). The
Directors decided on the completion of the programme that the
returns from the project did not warrant the significant capital
expenditure required and agreed to review the project's development
in the event that the price of gold increased.
The Mt Leyshon Gold Project will continue to remain in care and
maintenance until further notice. The Company may elect to dispose
of all or part of its interest in the Mt Leyshon Gold Project.
(b) Other opportunities
A number of early stage mineral projects in Africa and Asia are
currently being evaluated for potential acquisition by the Company.
In addition, the Company will seek corporate opportunities to merge
or otherwise combine with other mineral companies.
4.5 Risk factors applicable to the Company following the Proposed Demerger
At any time, the Company's activities expose it to normal
business and industry risks such as liquidity risk, exploration and
development success risk, operating risk and environmental risk.
Following the implementation of the Proposed Demerger, these risks
will continue to apply and will continue to be appropriately
managed to the extent possible. In addition, as a result of the
change in the focus of the Company's activities pursuant to the
Proposed Demerger (as detailed in Section 4.4), the Company may be
newly exposed to certain risks, or face a greater exposure to
certain existing risks, including but not limited to the
following:
(a) ASX and AIM compliance risks
Following implementation of the Proposed Demerger, the Shares
will continue to be traded on ASX. However, if the Company is not
able to identify, and make an announcement of its intention to
acquire, a suitable new business or project (or, alternatively, to
recommence activities in respect to the Mt Leyshon Gold Project)
within six months of completing the disposal of the Leyshon Energy
Assets as part of the Proposed Demerger, ASX may exercise its
discretion under the Listing Rules to suspend the quotation of
Shares on ASX. This suspension would continue until the Company
makes an announcement acceptable to ASX about its future activities
whereby a suitable new business or project is identified.
Following the implementation of the Proposed Demerger the
Company intends to pursue opportunities to acquire additional
mineral exploration and production assets and/or merge or otherwise
combine with other mineral companies. Any such acquisition may be
considered by ASX to constitute a significant change to the nature
or scale of the Company's activities. In this case, ASX may require
the Company to "re-comply" with the requirements for listing in
Chapters 1 and 2 of the Listing Rules. This involves having to
re-satisfy ASX's admission requirements, which may include (but not
be limited to):
(i) the issue of a prospectus, product disclosure statement or
information memorandum with accompanying reports from independent
experts (i.e. technical and accounting);
(ii) potentially undertaking a consolidation in order to satisfy
the A$0.20 minimum share price required by the Listing Rules;
(iii) potentially having to undertake a capital raising which
would be dilutive to existing Shareholders; and
(iv) satisfying all other requirements of the Listing Rules as
if the Company was undertaking an initial public offering of its
securities.
This process may involve significant expenses, including legal
and other advisors' fees, and may take up to six months to
complete. During this period, the Company's securities may be
suspended from trading.
In the event that the Company is required to raise additional
funds as part of a re-compliance, any issue of securities to raise
such funds would involve existing Shareholders being diluted.
There is no guarantee that, if it is required to "re-comply"
with Chapters 1 and 2 of the Listing Rules, the Company will be
able to meet these requirements. If it is unable to do so, the
Shares will not be listed on ASX.
Following completion of the Proposed Demerger the Shares will
continue to be traded on AIM. However, the Company will have to
make an acquisition or acquisitions which constitute a reverse
takeover under Rule 14 of the AIM Rules or otherwise implement its
revised investing policy within twelve months of such completion.
If it does not do so, then the Shares may be suspended from trading
on AIM or its quotation may be cancelled.
(b) Funding risk
Following the disposal to Leyshon Energy of cash reserves of
approximately US$35.3 million as part of the Proposed Demerger, the
Company will have significantly lower cash reserves on hand. While
the Directors are of the opinion that the Company's cash reserves
will be sufficient to conduct the Company's proposed activities
following the implementation of the Proposed Demerger, there is the
risk that further funding may be required by the Company in the
future to support its activities and operations. There can be no
assurance that such funding will be available on satisfactory terms
or at all. The ability of the Company to arrange such financing in
the future will depend in part upon the prevailing capital market
conditions as well as the success of its exploration programmes (if
any).
Any inability to obtain finance may adversely affect the
business and financial conditions of the Company and, consequently,
its performance. If additional funds are raised through the
issuance of new equity or equity-linked securities of the Company
other than on a pro rata basis to existing Shareholders, the
percentage ownership of Shareholders may be reduced. Shareholders
may experience subsequent dilution and the control of the Company
may change. There can be no guarantee that any further capital
raisings will be successful.
(c) The Company will have only one project
Following implementation of the Proposed Demerger the Company's
assets will comprise solely of the Mt Leyshon Gold Project. As
announced to Shareholders in October 2012, the Mt Leyshon Gold
Project is not currently operational and the Company is not
currently proceeding with its development at this time. The Company
may elect to dispose of all or part of its interest in the Mt
Leyshon Gold Project, in which case ASX and/or AIM compliance
issues may have to be addressed (as detailed in Section 4.5(a)
above). Refer to Sections 3.2, 3.5 and 4.4 for further
information.
(d) Liquidity and realisation risk
There can be no guarantee that an active market in Shares will
ensue following the implementation of the Proposed Demerger. There
may be fewer buyers or sellers of Shares than at present, which may
increase the volatility of the market price of Shares. It may also
affect the prevailing market price at which Shareholders are able
to sell their Shares.
(e) Mineral price risk
Operating in the gold market, the Company has historically been
exposed to risks relating to changes in the market prices of gold
and certain other minerals, which in the past has fluctuated
widely. Following the Proposed Demerger, the Company will focus
primarily on mineral acquisition and investment opportunities, and
so changes in the market price of gold and certain other minerals
may have a greater effect than is presently the case on the
profitability of the Company's operations and its financial
condition.
The market price of gold and certain other minerals is set in
the world market and is affected by numerous industry factors
beyond the Company's control including the demand for precious
metals, expectations with respect to the rate of inflation,
interest rates, currency exchange rates, the demand for jewellery
and industrial products containing metals, mineral production
levels, inventories, cost of substitutes, changes in global or
regional investment or consumption patterns, sales by central banks
and other holders, speculators and producers of metals in response
to any of the above factors and global and regional political and
economic factors.
A decline in the market price of gold or certain other minerals
for any sustained period may have a material adverse impact on the
Company's ability to finance exploration activities, cash flow and
results of operations of the Company's potential projects and
anticipated future operations. Such a decline also could have a
material adverse impact on the ability of the Company to finance
the exploration and development of its existing (if applicable) and
future mineral projects. A decline in the market price of gold or
certain other minerals may also require the Company to write-down
its material reserves which would have a material adverse effect on
the value of the Company's securities.
Shareholders should also refer to the risks specific to the
Proposed Demerger detailed in Section 3.5.
4.6 Pro forma balance sheet of the Company
The pro forma consolidated balance sheet for the Company
following implementation of the Proposed Demerger is as
follows:
Leyshon Resources Limited
Pro-forma Condensed Consolidated Balance Sheets
(Amounts in US Dollars)
Unaudited
Audit Reviewed Pro Forma Actual Pro Forma
30-Jun-13 30-Jun-13 30-Sep-13 30-Sep-13
US$ US$ US$ US$
ASSETS
Current Assets
Cash and cash equivalents 40,062,039 4,515,852 38,349,426 3,000,000
Trade and other receivables 248,593 84,730 229,358 94,093
Total Current Assets 40,310,632 4,600,582 38,578,784 3,094,093
--------------- ---------- ----------- ----------
Non-Current Assets
Other financial assets 13,699 13,699 13,968 13,968
Property, plant and equipment 241,840 165,132 231,281 164,865
Exploration and evaluation
assets 4,860,026 - 4,955,516 -
Total Non-Current Assets 5,115,565 178,831 5,200,765 178,833
--------------- ---------- ----------- ----------
TOTAL ASSETS 45,426,197 4,779,413 43,779,549 3,272,926
--------------- ---------- ----------- ----------
LIABILITIES
Current Liabilities
Trade and other payables 6,501,069 1,535,224 7,565,951 1,538,162
Current tax liabilities 19,384 19,384 - -
Provisions 92,933 58,208 90,719 64,811
Total Current Liabilities 6,613,386 1,612,816 7,656,670 1,602,973
--------------- ---------- ----------- ----------
Non-Current Liabilities
Deferred tax liability 1,121,544 - 1,143,580 -
--------------- ---------- ----------- ----------
Total Non-Current Liabilities 1,121,544 - 1,143,580 -
--------------- ---------- ----------- ----------
TOTAL LIABILITIES 7,734,930 1,612,816 8,800,250 1,602,973
--------------- ---------- ----------- ----------
NET ASSETS 37,691,267 3,166,597 34,979,299 1,669,953
=============== ========== =========== ==========
Proposed transactions adjusting the audit reviewed balance sheet
of 30 June 2013 and unaudited balance sheet of 30 September 2013 in
the pro forma balance sheets above are as follows:
(a) The subscription for Leyshon Energy Shares for total cash
cost of US$35,299,426. The receipt of Leyshon Energy Shares as
consideration for the sale of PAPL.
(b) The in-specie distribution of the investment in Leyshon
Energy via a return of capital (being the In-Specie Distribution).
There is a nil effect on the net assets disclosed in the pro forma
balance sheets resulting from the Leyshon Energy Shares as
consideration for the sale of PAPL and subsequent In-Specie
Distribution of the investment in Leyshon Energy via a return of
capital. Subsequently PAPL will be deconsolidated from the
Company.
5. Information on Leyshon Energy and the effect of the Proposed Demerger
5.1 Background
Leyshon Energy was incorporated on 27 March 2013 under the laws
of BVI for the purpose of facilitating the Proposed Demerger.
5.2 BVI incorporation
The international jurisdiction of BVI has been selected on the
basis of the favourable tax structuring available for Leyshon
Energy's current (and any future) energy assets.
The Company considered the following to be key advantages of
transferring the Leyshon Energy Assets to a BVI incorporated
entity:
(a) there are no income or other taxes for BVI incorporated
companies or their directors, officers and shareholders; and
(b) BVI has an independent legal and judicial system which is secure and stable.
Refer to Schedule 2 for further details on the rights and
protections applying to shareholders of BVI companies and sections
3.5(a) and 5.9(a) for the risks inherent in holding securities in a
BVI incorporated company such as Leyshon Energy.
5.3 Capital structure of Leyshon Energy
Leyshon Energy currently has 50,000 Leyshon Energy Shares on
issue, all of which are held by the Company. Leyshon Energy has not
issued any other securities.
Following the completion of the Proposed Demerger, Leyshon
Energy will have 249,457,212 Leyshon Energy Shares on issue as
follows:
Existing Leyshon Energy Shares on issue
at the date of this Notice 50,000
------------------------------------------------ ------------
Leyshon Energy Shares to be issued pursuant
to the Sale and Purchase Agreement 49,638,141
------------------------------------------------ ------------
Leyshon Energy Shares to be issued pursuant
to the Subscription Agreement 199,769,071
------------------------------------------------ ------------
Total Leyshon Energy Shares on issue following
completion of the Proposed Demerger 249,457,212
------------------------------------------------ ------------
5.4 Corporate structure of Leyshon Energy
The following diagram shows the corporate structure of Leyshon
Energy (and its subsidiaries) following the implementation of the
Proposed Demerger:
(Please refer to separate pdf attachment for charts).
5.5 Board and management of Leyshon Energy
Following the implementation of the Proposed Demerger, the Board
intends that there will be a complete separation of management
between the Company and Leyshon Energy. Following the Proposed
Demerger, the directors of Leyshon Energy will be:
(a) Mr John Manzoni as Non-Executive Chairman.
Mr Manzoni is a highly experienced international oil and gas
executive. During his 24 years with BP he held a number of
positions including Chief Executive of Refining and Marketing,
spanning six businesses across 100 countries. Whilst with BP
he:
(i) became a leading member of the executive team that helped BP
grow to become one of the world's largest energy companies; and
(ii) managed the integration of acquired companies, including
the origination and leading of the acquisition of Amoco, then the
largest industrial merger in business history.
He was Chief Executive Officer of Talisman Energy from 2007-2012
and led the company through a period of significant growth to a
market capitalisation of US$30 billion. He was named International
Business Leader of the Year in 2010 by the Canadian Chamber of
Commerce.
He is currently a Non Executive Director of SAB Miller.
Mr Manzoni currently resides in the United Kingdom.
(b) Mr Paul C Atherley as Managing Director.
Mr Atherley graduated in mining engineering from the Royal
School of Mines, Imperial College in 1982 and has over 25 years
industry operating experience. He was an Executive Director of the
Investment Bank arm of HSBC Australia where he undertook a range of
advisory roles in the resources sector.
During this period he completed a number of acquisitions and
financings of resource projects in Australia, South East Asia,
Africa and Western Europe.
He is an experienced Managing Director with well established
relationships in China as well as the London and Australian capital
markets. He is the Vice Chairman of the British Chamber of Commerce
and currently serves on the Executive Committee of the European
Union Energy Working Group in Beijing.
Mr Atherley currently resides in China.
(c) Mr Kim Howell as Non-Executive Director.
Mr Howell is a highly experienced international oil and gas
executive with 40 years of experience with BG Group plc and
Atlantic Richfield Company (ARCO).
During his 25 year career with ARCO, he held various management
positions in Mergers & Acquisition, Assets Management,
Reservoir Engineering, Strategic Planning and Investor
Relations.
He was Vice President for Commercial, responsible for BG Group's
global commercial functions. He became Group Head of the Mergers
& Acquisition department of BG Group plc and was responsible
for over 90 transactions totalling more than $22 billion.
He has a BSc in Mechanical Engineering from Stanford University
and an MSc in Petroleum Engineering from the University of Southern
California.
He is a member of the Institute of Directors, the Association of
International Petroleum Negotiators and the Society of Petroleum
Engineers. He has been a director of BG subsidiary companies and is
currently a director of a UK property management limited
company.
Mr Howell currently resides in the United Kingdom.
Following the implementation of the Proposed Demerger, Leyshon
Energy proposes to appoint a further suitably qualified executive
director. Leyshon Energy also intends, following the Proposed
Demerger, to establish an appropriate key management personnel and
director incentive securities plan.
Refer to Section 5.10 for a summary of the material terms of
engagement for each of Messrs Manzoni, Atherley and Howell.
5.6 Business of Leyshon Energy following the Proposed Demerger
Following the implementation of the Proposed Demerger, Leyshon
Energy intends to primarily focus on the continued exploration and
development of the Zijinshan Gas Project. Leyshon Energy will also
actively seek acquisition and investment opportunities in the oil
and gas sector.
(a) Zijinshan Gas Project
The Zijinshan Gas Project comprises the Zijinshan PSC which
covers an area on the eastern fringe of the prolific Ordos Gas
Basin in central China, which covers an area of 705.4 km(2) . The
Zijinshan PSC is with CNPC, which is the largest oil and gas
producer in China. PAPL is the operator of the Zijinshan PSC and
has a 100% working interest in the exploration phase of the
Zijinshan PSC. PAPL is responsible for all the exploration costs
during the exploration phase of the PSC and assumes all exploration
risks for the Zijinshan Gas Project. The Zijinshan PSC is valid for
30 years and expires in 2038. The exploration period under the
Zijinshan PSC expired on 30 April 2013. PAPL has reached agreement
in principal with CNPC to extend the exploration period of the
Zijinshan PSC to the end of 2017, albeit this extension process
remains to be formally completed (refer to Section 5.9(c)and the
Company's announcement dated 2 May 2013).
CNPC has the right to "back in" to the project with a 40%
interest at the development stage, in which case the development
costs required for the development operations will be borne by PAPL
and CNPC in proportion to their participating interests (PAPL 60%
and CNPC 40%).
The Company acquired the Zijinshan PSC pursuant to its
acquisition of PAPL from Houston-based CAMAC Energy Inc., which was
completed on 6 August 2012 (refer to the Company's announcements
dated 18 July 2012 and 25 July 2012 and the Company's annual report
for the financial year ended 30 June 2012 for further details).
Following the Company's acquisition of PAPL, PAPL completed the
drilling and flow testing of the ZJS5 and ZJS6 wells, and the
drilling of the ZJS7 well. Drilling at both ZJS5 and ZJS6
intersected multiple potential pay zones, with initial results
indicating that ZJS5 had encountered nine potential pay zones with
a total thickness of 56 metres and ZJS6 had encountered 15
potential pay zones with a total thickness of 80 metres. Encouraged
by the then results of drilling, on 25 February 2013, the Company
announced an accelerated 2013 work programme comprising drilling of
up to six wells, conducting eight flow tests and the acquisition of
300 KM of 2D seismic data.
Flow testing for wells ZJS5 and ZJS6 was then undertaken.
Following the hydraulic facture stimulation of one of the target
zones in well ZJS5, a free gas flow rate of 160,000 scf/day was
achieved over eight hours of stable flow at a tubing head pressure
of 200psi. Analysis of the results to date suggests that further
flow may be possible from untested potential pay zones. A formation
pressure test in well ZJS5, after a three week shut-in period,
recorded 16.5MPa/2425psi on a single zone, significantly higher
than that recorded in nearby wells in the same strata.
Testing of well ZJS6 was suspended due to technical issues. The
well had a total depth of 2,105 metres with 80 metres of cumulative
potential pay interval intersected across 15 potential pay zones.
Several of the zones tested, which elsewhere in the field are dry,
produced water. It has not been possible to isolate or to
accurately define the source of the water nor to determine whether
these are issues specific to well ZJS6 or more general to this area
of the licence. Accordingly a decision was made by the Zijinshan
PSC partners to discontinue testing on the well. The well may be
revisited at a later date to attempt to isolate the water and to
test different zones.
PAPL has also completed the drilling and electric logging of
well ZJS7. Well ZJS7 is located approximately three kilometres to
the northeast of well ZJS5, in the central part of the 380 square
kilometre central depression area. The well was drilled without
safety incident to a total depth of 2,266 metres. The analysis of
logs and samples is ongoing, however initial results indicated that
multiple potential pay zones have been encountered, a number of
which have exhibited relatively high porosity measurements. The
potential pay zones intersected include deeper zones which are the
main production horizons elsewhere in the Ordos Basin. A few of the
zones have exhibited relatively low resistivity suggesting that
water may be present. Side core samples have been taken and a
decision will be taken on which zones will be flow tested once the
laboratory results and the final logging interpretation results
have been received and analysed.
Interpretation of the recently acquired 318 kilometres of 2D
seismic data has been completed. The interpretation results will
initially be used to assist in identifying the locations of the
next wells. Later they will be used to assist in resource
assessment and are required as supporting data for a Chinese
Reserve Report submission (as required under the Chinese regulatory
regime).
The wells in the current exploration programme are ideally
located within approximately 10 kilometres of a tie-in point on the
recently commissioned Lin-Lin pipeline which supplies the growing
demand in Shanxi Province. Recent discussions with potential
off-take partners suggest that there continues to be a shortage of
locally sourced gas to feed the pipeline and as a result prices are
continuing to rise.
In an announcement dated 17 September 2013 on the results of
drilling ZJS7, the Company advised that the exploration and
appraisal of the Zijinshan Gas Project remains at a relatively
early stage and accordingly each well will be fully evaluated
before proceeding with the subsequent well. The Company also
advised that this would likely result in slower progress in the
overall programme than originally planned (and as announced on 25
February 2013) and that an assessment of the rate of progress of
the ongoing programme will be undertaken once the full results from
the latest well are known and once it has been agreed with CNPC.
Subject to finalising plans for the new programme with CNPC, and
dependent on results, Leyshon Energy and CNPC are considering a
programme with a total expenditure of approximately US$16.8 million
pursuant to the 2013/14 exploration and appraisal programme for the
Zijinshan Gas Project, comprising inter alia, drilling 3 wells, and
fracking/testing 2 wells, with the remainder comprising principally
Zijinshan PSC maintenance costs and geology studies (refer to
Section 5.6(c) for further details).
An Independent Technical Expert's Report containing more
detailed information on the Zijinshan Gas Project is at Schedule 4.
Note that in recognition of Leyshon Energy's resource reporting
obligations, Leyshon Energy will ensure that all disclosures of
resources and reserves are prepared in accordance with the Society
of Petroleum Engineers Petroleum Resources Management System
(SPE-PRMS).
(b) Acquisition and investment opportunities
As recently announced, the Company has been actively pursuing
acquisition and investment opportunities in the oil and gas sector,
in particular those which draw on its established operations in
China. There are a number of divestment processes underway for
assets in the region for which the Company has advanced its
interest in the normal course of business. A number of these
acquisition opportunities have been reviewed by the proposed
directors of Leyshon Energy, who have determined that they could be
of interest to Leyshon Energy if the Proposed Demerger is
implemented. In addition, preliminary discussions have been held
with prospective debt and equity financiers with respect to these
potential acquisitions and a positive response has been received
regarding the level and types of funding which could be available
to Leyshon Energy should it identify and successfully complete any
acquisitions. Leyshon Energy intends to aggressively pursue these
opportunities, a number of which have the potential to be advanced
quite rapidly following implementation of the Proposed
Demerger.
(c) Use of cash reserves
Following the implementation of the Proposed Demerger, Leyshon
Energy will hold approximately US$35.3 million in cash reserves. As
noted above, the exploration and appraisal programme for the
Zijinshan Gas Project remains under review and expenditures have
yet to be finalised for the new programme.
Subject to finalising plans for the new programme with CNPC, and
dependant on results, Leyshon Energy is considering an exploration
and appraisal programme (for the remainder of 2013 and for 2014)
with total estimated expenditure of approximately US$16.8 million
pursuant to the initial 2013/14 exploration and appraisal
programmefor the Zijinshan Gas Project. A breakdown of this
estimated expenditure is as follows:
Zijinshan Gas Project - Estimated 2013/14 Exploration and
Appraisal Programme (US$ million) (1)
Expenditure Item US$
------------------------------------------ ----
Drilling - 3 wells 8.0
------------------------------------------ ----
Fracking/Testing - 2 wells 4.3
------------------------------------------ ----
Zijinshan PSC Maintenance Costs 2.8
------------------------------------------ ----
Geology Studies 1.0
------------------------------------------ ----
Other Expenses(2) 0.7
------------------------------------------ ----
Total 16.8
------------------------------------------ ----
(1) The above figures are indicative only, and represent
management's best estimates of exploration and appraisal costs for
the Zijinshan Gas Project for the remainder of 2013 and for 2014.
As with any budget, intervening events, including exploration
success or failure, and new circumstances have the potential to
affect the manner in which the above funds are ultimately
applied.
(2) General office and administration expenses.
The remaining cash reserves of approximately US$18.5 million
will be held by Leyshon Energy following implementation of the
Proposed Demerger and will be utilised as required for the
following purposes:
(i) identifying potential acquisitions in the oil and gas
sectors, including satisfying expenditures which may be incurred in
respect of related legal, financial, accounting and other due
diligence investigations;
(ii) funding future acquisitions if so identified;
(iii) paying director and key management fees and salaries; and
(iv) financing unanticipated expenditures relating to the
Zijinshan Gas Project not detailed in the 2013/14 exploration and
appraisal programme.
Prior to the Zijinshan Gas Project reaching production stage (or
the acquisition of a producing asset), Leyshon Energy will be an
oil and gas exploration company. Shareholders should note that the
Company does not anticipate that the Zijinshan Gas Project will
generate positive cash flows in the short term. Accordingly, it is
anticipated that Leyshon Energy will generate losses for the
foreseeable future.
In addition, Leyshon Energy will be exposed to the risks
associated with projects such as the Zijinshan Gas Project, as well
as the risks facing exploration companies generally (refer to
Section 5.9 for details of the risks applicable to an investment in
Leyshon Energy Shares following implementation of the Proposed
Demerger).
5.7 Independent Technical Expert's Report
In order to provide Shareholders with proper and full disclosure
in respect of the Zijinshan Gas Project, the Board appointed RISC
Operations Pty Ltd (RISC) as an independent technical expert to
provide a report in respect of the Zijinshan Gas Project. A copy of
the independent technical expert's report prepared by RISC
(Independent Technical Expert's Report) is in Schedule 4 and RISC
has consented to the use of this report in the form and context it
is used in this Explanatory Memorandum.
5.8 Financial information
Refer to Section 5.11 for a pro forma balance sheet of Leyshon
Energy following the implementation of the Proposed Demerger.
Following the implementation of the Proposed Demerger, Leyshon
Energy will have sufficient working capital to carry out its
objectives (refer to Section 5.6).
5.9 Risk factors applicable to Leyshon Energy following the Proposed Demerger
If the Proposed Demerger proceeds, there are a number of risk
factors which may affect the future operating and financial
performance of Leyshon Energy and the future investment performance
of Leyshon Energy Shares. This Section summarises the risks to
which Leyshon Energy will be exposed to as a participant in the oil
and gas industry (i.e. risks to which the Company is currently and
has been exposed to as a participant in the oil and gas industry),
together with the further risks to which Leyshon Energy will be
exposed.
Shareholders should note that they are currently exposed to many
of these risks via the Shares they currently hold in the Company.
However, Shareholders will also be exposed to some additional risks
such as the risk of directly holding shares in a BVI incorporated
company (refer to Sections 3.5(a) and 5.9(a) and Schedule 2 for
further information on the differences between the shareholder
protection afforded to shareholders in BVI and Australia).
Shareholders should also refer to Section 5.12 for important
further information concerning Leyshon Energy Shares.
Many of the risks identified in this Section are outside of the
control of Leyshon Energy. In deciding whether or not to approve
the Proposed Demerger and receive a direct investment in Leyshon
Energy via the In-Specie Distribution of the Leyshon Energy Shares,
Shareholders should carefully consider the risks set out in this
Section and in Section 3.5 (risks specific to the Proposed
Demerger) together with the other information set out in this
Explanatory Memorandum.
(a) Specific risk factors - BVI risks
Absence of takeover regulation for BVI companies
As a BVI incorporated company, Leyshon Energy is not directly
subject to any laws or procedures governing the conduct of, or
restrictions in respect to, transactions affecting the control of
Leyshon Energy or takeover offers such as those which exist in the
UK pursuant to the City Code or in Australia under the Corporations
Act.
In Australia, takeovers and control transactions are regulated
by Chapter 6 of the Corporations Act, the provisions of which are
based on a number of key principles. These include that, in order
for the acquisition of control to take place in an efficient,
competitive and informed market, shareholders in an Australian
company should:
(i) know the identity of a bidder / acquirer of shares in a company;
(ii) have the benefits of prescribed time periods and
information requirements to enable them to assess the merits of a
takeover proposal; and
(iii) as far as practicable, have a reasonable and equal
opportunity to share in the benefits of the proposal.
The Corporations Act contains a general rule (subject to certain
exceptions) that a person must not acquire a "Relevant Interest" in
issued voting shares of a company if, because of the transaction, a
person's voting power in the company:
(i) increases from 20% or below to more than 20%; or
(ii) increases from a starting point which is above 20% but less than 90%,
unless the acquisition is expressly permitted by one of the
"exceptions" in section 611 of the Corporations Act. These include
an off-market takeover bid made to all shareholders, an
unconditional on-market takeover bid on ASX, "creeping
acquisitions" of not more than 3% of voting shares every 6 months,
acquisitions approved by shareholders who are unassociated with the
parties to the transaction, and indirect acquisitions of shares in
a downstream company resulting from the authorised acquisition of
shares in an upstream listed company.
The BVI Business Companies Act 2004 (BVI Business Companies Act)
does not prescribe a regime for the conduct of takeovers in respect
to BVI incorporated companies, and there are no restrictions under
BVI company law on a person acquiring interests in the voting
shares of a BVI company, regardless of the voting power those
shares confer on their holder. Accordingly, Leyshon Energy
Shareholders will not have the protection of the principles and
provisions of the Corporations Act detailed above.
Leyshon Energy's Articles do require Leyshon Energy Shareholders
to notify Leyshon Energy (who must then notify the market) if, as a
result either of an acquisition or disposal of Leyshon Energy
Shares or changes in the total voting rights attached to Leyshon
Energy's Shares, the percentage of voting rights which that
shareholder holds, or has control over, reaches, exceeds or falls
below 3% and each additional change of 1% or more. However, this
requirement only applies post-acquisition of Leyshon Energy Shares.
There is the risk that a party or parties may obtain a majority
stake in Leyshon Energy without other Leyshon Energy Shareholders
first knowing the identity of the acquirer of having had an
opportunity to receive an offer for their Leyshon Energy Shares. In
this scenario, Leyshon Energy Shareholders may be left as minority
shareholders in a majority-owned company.
Enforcement of judgments in BVI
All of Leyshon Energy's assets will be located outside of
Australia following the completion of the Proposed Demerger. As a
result, it may be difficult for Leyshon Energy Shareholders to
enforce in Australia or the UK judgments obtained in Australian or
UK courts against Leyshon Energy. Uncertainty exists as to whether
courts in BVI will enforce judgements obtained in other
jurisdictions, including Australia and the UK, against Leyshon
Energy or its directors or officers under the securities laws of
those jurisdictions, or entertain actions in BVI against Leyshon
Energy or its directors or officers under the securities laws of
other jurisdictions.
Related party transactions
The Corporations Act requires that a public company must obtain
shareholder approval before giving a financial benefit to a related
party (which includes a director) unless the benefit is given on
arm's length terms. The BVI Business Companies Act does not contain
equivalent restrictions on related party transactions.
The prohibition on giving termination benefits to certain
employees and officers of a company in Chapter 2D of the
Corporations Act does not apply to BVI incorporated companies. This
means that Leyshon Energy will not be required to obtain Leyshon
Energy Shareholder approval before giving benefits to persons
holding a managerial or executive office in Leyshon Energy in
connection with those persons' retirement from an office or
position of employment with Leyshon Energy.
Pursuant to the AIM Rules, Leyshon Energy must disclose certain
details to the market as soon as the terms of a transaction with a
related party which exceeds 5% in any of the 'class tests'
specified in the AIM Rules is agreed (refer to Schedule 2 for
details of the 'class tests' applying under the AIM Rules). This
must include a declaration that Leyshon Energy's directors
consider, having consulted with Leyshon Energy's Nominated Adviser,
that the terms of the transaction are fair and reasonable insofar
as Leyshon Energy Shareholders are concerned. In addition, Leyshon
Energy's accounts must include certain disclosures with respect to
any transaction with a related party which exceeds 0.25% in any of
the 'class tests' specified in the AIM Rules (refer to Schedule
2).
Meetings
There is no requirement under BVI law for Leyshon Energy to hold
an annual general meeting. However, Leyshon Energy's Memorandum and
Articles provide that Leyshon Energy must hold an annual general
meeting at least every 15 months.
The ability for Leyshon Energy Shareholders to require Leyshon
Energy to hold a general meeting of Leyshon Energy is significantly
more limited under BVI law than under the laws applying to
Australian companies. Under BVI law, shareholders holding 30% of
voting rights may require the company to hold a general meeting.
For Australian companies, only 5% (or 100 shareholders) is
required. However, Leyshon Energy's Memorandum and Articles provide
that shareholders holding 25% of voting rights may require Leyshon
Energy to hold a general meeting.
Accounts and the "two strikes" rule
There is no obligation under BVI company law to report, audit or
lodge accounts. However, if Leyshon Energy is listed on AIM it will
be required to prepare a half-yearly report and annual audited in
accordance with certain internationally recognised financial
standards. Leyshon Energy will prepare its accounts in accordance
with IFRS.
Leyshon Energy will not be required to prepare a remuneration
report containing disclosure on the remuneration received by key
management personnel of the company. Neither Leyshon Energy's
Memorandum or Articles nor the BVI Business Companies Act contain
an equivalent to the "two strikes" rule relating to remuneration
reports in Part 2G.2 Division 9 of the Corporations Act, which
enables shareholders to put to the vote a "spill resolution".
However, under the AIM Rules Leyshon Energy will be required to
disclose details of the remuneration earned in respect of each
financial year by each Leyshon Energy director;
Changes to the Memorandum and Articles
For an Australian company to change its constitution, a special
resolution of shareholders is required. Leyshon Energy, as a BVI
company, may amend its Memorandum or Articles by a simple
resolution of directors, which is a much lower threshold and means
that Leyshon Energy Shareholders may not have a say in changes to
the Memorandum or Articles which may affect them.
However, the rights attaching to Leyshon Energy Shares may only
be varied with the consent in writing of or by a resolution passed
by the holders of more than 50% of the issued Leyshon Energy
Shares. In addition, no amendment may be made by a resolution of
directors:
(i) to restrict the rights or powers of the Leyshon Energy
Shareholders to amend the Memorandum or Articles;
(ii) to change the percentage of Leyshon Energy Shareholders
required to pass a resolution of Leyshon Energy Shareholders to
amend the Memorandum or Articles;
(iii) in circumstances where the Memorandum or Articles cannot
be amended by the Leyshon Energy Shareholders; or
(iv) to various clauses in the Memorandum governing the rights of Leyshon Energy Shares.
(b) Specific risk factors - market risks
AIM Market and foreign exchange risk
As noted above, the Proposed Demerger will not be implemented
until such time as the Company is able to satisfy all of the
requirements for the admission of the Leyshon Energy Shares to
trading on AIM (refer to Section 3.7). Leyshon Energy will not seek
to list on ASX. Currently, Shareholders may monetise their
(indirect) investment in the Leyshon Energy Assets by selling their
Shares on either AIM or ASX. Following implementation of the
Proposed Demerger, Leyshon Energy Shareholders will only be able to
monetise their investment in the Leyshon Energy Assets by selling
their Leyshon Energy Shares on AIM, and not on ASX. This may mean
that Shareholders' investment in the Leyshon Energy Assets could be
less liquid following implementation of the Proposed Demerger, as
Leyshon Energy Shares will only trade on one, rather than two,
exchanges.
In addition, as Leyshon Energy Shares will only be listed on AIM
and not on ASX, they will trade only in GBP, and not also in
Australian Dollars (as is currently the case with the Shares). This
means that following implementation of the Proposed Demerger,
Shareholders will face a greater exposure to fluctuations in the
value of the British Pound than is currently the case.
Share market
Leyshon Energy Shares may trade at higher or lower prices than
they are originally listed at. The price at which Leyshon Energy
Shares trade may be affected by the financial performance of
Leyshon Energy as well as external factors over which Leyshon
Energy will have no control. These include movements on
international share and commodity markets, local interest rates and
exchange rates, domestic and international economic conditions,
government taxation, market supply and demand, foreign policy and
relationships between countries in which Leyshon Energy has
operations or offices and other legal, regulatory or policy
changes.
Liquidity and realisation risk
There can be no guarantee that an active market in Leyshon
Energy Shares will develop. There may be relatively few, or many,
potential buyers or sellers of Leyshon Energy Shares at any given
time. This may increase the volatility of the market price of
Leyshon Energy Shares. It may also affect the prevailing market
price at which Leyshon Energy Shareholders are able to sell their
Leyshon Energy Shares.
(c) Specific risk factors - Zijinshan Gas Project and industry risks
Leyshon Energy will have only one project
Following implementation of the Proposed Demerger, Leyshon
Energy will only have one project - the Zijinshan Gas Project.
Accordingly, there is a material risk that in the event Leyshon
Energy is unable to renew the granted Zijinshan PSC beyond its
current expiry dates or does not comply with the Zijinshan PSC
conditions, Leyshon Energy's interest in the project may be
relinquished. Leyshon Energy cannot guarantee that it will achieve
production of profitable resources from the Zijinshan Gas
Project.
Leyshon Energy has no reason to believe that the renewal of the
Zijinshan PSC the subject of the Zijinshan Gas Project would not be
granted however it cannot guarantee that the Zijinshan PSC will be
renewed beyond its current expiry dates. Refer to Section 5.6 for
further information on the Zijinshan PSC.
Zijinshan PSC interest, exploration licence, title and payment
obligations
PAPL does not hold the exploration license the subject of the
Zijinshan PSC. It is a common practice of Sino-foreign production
sharing contract co-operation for oil and gas in China that the
exploration license is held by the Chinese party, in this case
CNPC. Therefore title to the underlying assets the subject of the
Zijinshan PSC is dependent upon CNPC holding a valid and subsisting
exploration licence for the relevant area. The exploration licences
require that, inter alia, the holder complies with certain minimum
expenditure requirements as set by Ministry of Land and Resources
(MOLAR). There is a risk that if either MOLAR or the Chinese
state-owned enterprise participant to the Zijinshan PSC exercises
its right to audit the expenditures of PAPL under the Zijinshan
PSC, the minimum expenditure requirements may be found not to have
always been strictly adhered to within the relevant year. PAPL
confirms that it has either met the requirements for minimum spend
or that any under-expenditure has been made up, or will be made up,
in the following year, however there is a risk that another party
may form a different view of PAPL's compliance. Notwithstanding any
prior technical non-compliance, MOLAR has on previous occasions
subsequently extended exploration licences.
The Zijinshan PSC is valid for 30 years and expires in 2038. The
exploration license underlying the Zijinshan PSC expires on 7 May
2014. The exploration licence can be renewed for a further two
years upon each renewal application. In addition, production
sharing contracts prescribe an expiry date for the exploration
period under the production sharing contract itself. In the case of
the Zijinshan PSC, the exploration period expired on 30 April 2013.
Agreement has been reached with CNPC to extend the exploration
period of the Zijinshan PSC to the end of 2017 although the
extension remains to be formally completed.
PAPL has met all the requirements for the extension of the
exploration period under the Zijinshan PSC and an application for
the approval of such extension was submitted well ahead of the
required date. The preparation for the extension commenced late
last year and is expected to take several months to complete. It is
common for extension applications, once agreed between the
production sharing contract partners, to extend beyond the date of
expiry whilst the various regulatory approvals are achieved and for
exploration activities to continue as normal during this period.
PAPL will continue to meet its required exploration expenditures in
advance of the completion of the extension to the exploration
period. There can, however, be no assurance that the extension to
the exploration period of the Zijinshan PSC will be formally
completed which may limit the ability of Leyshon Energy to explore,
and thereby benefit from, any potential of the Zijinshan Gas
Project.
Further, Leyshon Energy will continue to be exposed to various
risks that may adversely affect its proposed activities and
Zijinshan PSC interests, including:
(i) being unable, if it is required, to secure farm-in partners
on acceptable terms to help fund the drilling of future wells on
any of its prospects in order to meet Zijinshan PSC exploration
commitments;
(ii) financial failure, non-compliance with obligations or
default by any participant to the Zijinshan PSC;
(iii) insolvency or other managerial failure by any of the
contractors used by any participant to the Zijinshan PSC; and
(iv) insolvency or other managerial failure by any of the other
service providers used by any participant to the Zijinshan PSC.
Exploration risks
The availability of a ready market for gas and hydrocarbon
products which may be sold by Leyshon Energy depends upon numerous
factors beyond its control, the exact effects of which cannot be
accurately predicted. These factors (the list of which is not
exhaustive) include: general economic activity, the world gas
price, the marketability of the hydrocarbons produced, action taken
by other producing nations, the availability of transportation
capacity, the availability and pricing of competitive fuels, and
the extent of governmental regulation and taxation.
All drilling to establish productive hydrocarbon reserves is
inherently speculative. The techniques presently available to
geophysicists, geologists, petro-physicists, reservoir and
petroleum engineers, and other technical specialists to identify
the existence and location of accumulations of gas are indirect and
subject to a wide variety of variables which are subjective in
nature with respect to the environment in which they exist and are
not precise in their application, and therefore, a considerable
amount of personal judgment is involved in the selection of any
prospect for drilling or identifying potentially profitable
producing hydrocarbon accumulation. In addition, even when drilling
successfully and a well is completed as a producing gas well,
unforeseeable operating problems may arise which render it
uneconomical to produce such gas.
The evaluation (for example, through new seismic surveys) and
drilling of exploration targets may be delayed or disrupted by the
availability of drilling rigs or other technical contractors,
adverse weather, or technical hazards such as unusual or unexpected
formations or pressures. Drilling may result in unprofitable
efforts, not only with respect to dry wells, but also with respect
to wells which, though yielding some hydrocarbons, are not
sufficiently productive to justify commercial development.
Furthermore, the successful completion of a well does not assure a
profit on investment or recovery of drilling, completion and
operating costs.
Resource and reserve estimates
Hydrocarbon resource and reserve estimates are expressions of
judgement based on knowledge, experience and industry practice.
They are therefore imprecise and depend to some extent on
interpretations, which may prove to be inaccurate. Estimates that
were reasonable when made may change significantly when new
information from additional drilling and analysis become available.
This may result in alterations to development and production plans
which may, in turn, adversely affect operations.
Project development and operating risks
If Leyshon Energy achieves exploration success that leads to a
decision to develop production operations, the development and
ongoing production from such operations may be adversely affected
by various factors, including failure to achieve predicted well
production flow rates, mechanical failure or plant breakdown,
unanticipated reservoir problems, adverse weather conditions,
industrial and environmental accidents, industrial disputes, delays
due to government actions, infrastructure availability and
unexpected shortages or increases in the costs of consumables,
spare parts, plant and equipment.
No/limited history
Having been incorporated on 27 March 2013, Leyshon Energy does
not have any operating history (although PAPL does), although it
should be noted that the directors of Leyshon Energy have between
them significant operational experience. No assurances can be given
that Leyshon Energy will achieve commercial viability through the
successful exploration and/or development of the Zijinshan Gas
Project or future projects. Until Leyshon Energy is able to realise
value from its projects, it is likely to incur ongoing operating
losses.
Environmental and safety risks
The operations and proposed activities of Leyshon Energy are
subject to the laws of China and regulations concerning the
environment. As with most exploration projects and production
operations, Leyshon Energy's activities are expected to have an
impact on the environment, particularly if advanced exploration or
field development proceeds. Environmental compliance is an ongoing
responsibility of Leyshon Energy. Leyshon Energy intends to conduct
its activities to the highest standard of environmental practice,
including compliance with all environmental laws.
Nevertheless, there are certain risks inherent in Leyshon
Energy's proposed activities such as accidental leakages or spills,
or other unforeseen circumstances which could subject Leyshon
Energy to significant liabilities for damages, clean-up costs or
penalties. Whilst Leyshon Energy intends to procure insurance
against many of these liabilities, it is possible that insurance
may not cover such liabilities.
Economic and price risks
Changes in the general economic climate in which Leyshon Energy
proposes to operate may adversely affect the financial performance
(i.e. future costs and revenues) of Leyshon Energy and the value of
its exploration assets. In particular, changes in the current and
expected future price of gas can change rapidly and significantly
and this can have a substantial effect on the value of Leyshon
Energy's proposed exploration assets and the potential future
revenue and profits that might be earned from any successful
development of those assets.
Gas prices are influenced by many factors affecting gas demand
and supply including global industrial production levels and
economic sentiment, inflation and interest rates, industrial
disputes, wars and other military activity, technological
advancements, forward selling activities, government environmental
policies, gas infrastructure investment, marketability of
production, consumer demand, availability and acceptance of
alternative fuels, availability of pipeline capacity, weather
conditions and general exploration success.
Additional requirements for capital
The funds to be held by Leyshon Energy following the Proposed
Demerger are considered sufficient to meet its intended current
exploration and evaluation objectives for approximately the next
four years (refer to Section 5.6(c) for details regarding the
anticipated use of Leyshon Energy's cash reserves). Additional
funding may be required in the event exploration costs exceed
Leyshon Energy's estimates or to enable Leyshon Energy to implement
any investment or acquisition which it may identify from time to
time (refer to Section 5.6(b)). Leyshon Energy may seek to raise
further funds through equity or debt financing, joint ventures,
production sharing arrangements or other means. Failure to obtain
sufficient financing for Leyshon Energy's existing or proposed
activities and future projects may result in delay and indefinite
postponement of exploration, development or production on Leyshon
Energy's properties or even loss of a property interest.
There can be no assurance that additional finance will be
available when needed. Even if available, the terms of the
financing might not be favourable to Leyshon Energy and might
involve substantial dilution to Leyshon Energy Shareholders.
Further, Leyshon Energy, in the ordinary course of its operations
and developments, may be required to issue financial assurances,
particularly insurances and bond/bank guarantee instruments to
secure statutory and environmental performance undertakings and
commercial arrangements. Leyshon Energy's ability to provide such
assurances is subject to external financial and credit market
assessment, and its own financial position. Loan agreements and
other financing arrangements such as debt facilities, convertible
note issues and finance leases (and any related guarantee and
security) that may be entered into by Leyshon Energy may contain
covenants, undertakings and other provisions which, if breached,
may entitle lenders to accelerate repayment of loans, and there is
no assurance that Leyshon Energy would be able to repay such loans
in the event of an acceleration. Enforcement of any security
granted by Leyshon Energy or default under a finance lease could
also result in the loss of assets.
Reliance on key personnel
Leyshon Energy's success, in part, depends upon the continued
performance, efforts, abilities and expertise of its key management
personnel, as well as other management and technical personnel
including those employed or to be employed on a contractual basis.
The loss of the services of its key management personnel could have
a material adverse effect on the financial position, financial
performance, cash flows, growth prospects, ability to pay dividends
and the share price of Leyshon Energy.
Insurance risks
Leyshon Energy intends to insure its operations in accordance
with industry practice. However, in certain circumstances, Leyshon
Energy's insurance may not be of a nature or level to provide
adequate insurance cover. The occurrence of an event that is not
covered or fully covered by insurance could have a material adverse
effect on the business, financial condition and results of Leyshon
Energy.
Insurance against all risks associated with gas exploration and
production is not always available and where available the costs
can be prohibitive.
Increasing competitiveness of alternative energy sources
The increasing competitiveness of alternative energy sources,
including solar and wind power, may lead to less demand for oil and
gas in the medium to long term, and in turn, Leyshon Energy's
services. Without the benefit of government subsidies or mandates,
alternative energy sources have generally not been competitive with
oil and gas. However, changes in technology and consumer
preferences have begun to alter fuel choices, an example being the
growing popularity of alternatively fuelled vehicles.
Furthermore, alternative energy sources have been increasingly
competitive due to governmental support in the forms of tax relief
and subsidies for alternative energy providers, the adoption of cap
and trade regimes, carbon taxes, increased efficiency standards and
incentives or mandates for renewable energy. Governments are also
promoting research into new technologies to reduce the cost and
increase the scalability of alternative energy sources. These
measures could reduce demand for oil and gas in the medium to
long-term, thereby reducing demand for Leyshon Energy's
services.
Force majeure
Leyshon Energy's projects now or in the future may be adversely
affected by risks outside its control including labour unrest,
civil disorder, war, subversive activities or sabotage, fires,
floods, explosions or other catastrophes, epidemics or quarantine
restrictions.
(d) Specific risk factors - China risks
In addition to the general and industry-specific risk factors
for Leyshon Energy there are also a number of risk factors which
apply to Leyshon Energy's current and future investment prospects
in China. China's economy differs from the economies of most
developed countries in many respects, including government
intervention, level of development, growth rate, control of foreign
exchange and allocation of resources.
Changes in government policies
Industry in China is subject to the policies which are
implemented by the Chinese Government from time to time. These
policies may have a material impact on the proposed business and
the assets of Leyshon Energy. The Chinese Government may, for
instance and without being exhaustive of possible changes to
policies, withdraw subsidies or forms of preferential treatment
such as tax benefits or favourable financing arrangements or alter
its current treatment of, or policy regarding, foreign contractor
participation in production sharing contracts or the treatment of
exploration and development of oil and gas resources.
Economic considerations
China is a planned economy and is subject to the 5 year plans
formulated by the Chinese Government and the implementation of
these plans. In recent years, the Chinese Government has introduced
economic reforms aimed at transforming the Chinese economy from a
planned economy into a market economy with socialist
characteristics. These economic reforms allow greater utilisation
of market forces in the allocation of resources and greater
autonomy for enterprises in their operations. However, many rules
and regulations implemented by the Chinese Government are still at
an early stage of development, and further refinements and
amendments are necessary to enable the economic system to develop
into a more sophisticated form. It is unclear how future economic
reforms and macroeconomic measures to be adopted by the Chinese
Government will affect the country's economic development. Further,
there can be no assurance that such measures will be applied
consistently and effectively or that Leyshon Energy will benefit
from or will be able to capitalise on such reforms. Indeed the
business of Leyshon Energy may be adversely affected by any
reform.
Demand for gas and hydrocarbons
The success of the Zijinshan Gas Project is largely dependent on
demand for its gas and hydrocarbon products which in turn is
dependent on the Chinese economy. There can be no certainty that
strong growth will continue in China or that the economy will not
slow, or continue to slow, materially. If the Chinese economy does
not continue to grow or if it slows materially, continues to slow,
stops growing or goes into recession, there may be no market for
product produced by the Zijinshan Gas project. This would have an
adverse impact on the performance and profitability of Leyshon
Energy.
Political and social considerations
China has been undergoing a series of political reforms since
1978. It is expected that such reforms will continue. Such reforms
have in the past resulted in significant economic growth and social
progress. However, there can be no assurance that any future reform
policy of the Chinese Government will be effective. Leyshon
Energy's business may be affected by such future reforms.
Legal considerations
Since 1979, many laws and regulations dealing with economic
matters with respect to general and foreign investments have been
promulgated in China. In 1982, the Chinese National People's
Congress amended the constitution to attract foreign investments
and to safeguard the "lawful rights and interests" of foreign
investors in China. Since then, the trend of legislation has been
to enhance the protection afforded to foreign investors and to
allow more active control to foreign investors in China. However,
despite significant improvements in its legal system and ongoing
changes to the rules of business in China, there still exist
difficulties in obtaining swift and equitable enforcement and in
obtaining enforcement of judgments by a court of another
jurisdiction in China. Further, as a result of political changes,
the interpretations of statutes and regulations may be subject to
government policies. Such uncertainties may affect Leyshon Energy's
operations and accordingly, its profitability.
The enforcement of the Labour Contract Law
On 29 June 2007, the National People's Congress of China enacted
the Labour Contract Law, (Labour Contract Law) which became
effective on 1 January 2008. The Labour Contract Law establishes
more restrictions and increases costs for employers to dismiss
employees under certain circumstances, including specific
provisions related to fixed-term employment contracts,
non-fixed-term employment contracts, task-based employment,
part-time employment, probation, consultation with the labour union
and employee representative's council, employment without a
contract, dismissal of employees, compensation upon termination and
for overtime work, and collective bargaining. According to the
Labour Contract Law, unless otherwise provided by law, an employer
is obliged to sign a labour contract with an indefinite term with
an employee if the employer continues to hire the employee after
the expiration of two consecutive fixed-term labour contracts.
Severance pay is required if a labour contract expires without
renewal because the employer refuses to renew the labour contract
or provides less favourable terms for renewal. In addition, under
the Regulations on Paid Annual Leave for Employees, which became
effective on 1 January 2008, employees who have served more than
one year for an employer are entitled to a paid vacation ranging
from 5 to 15 days, depending on the number of the employee's
working years at the employer. Employees who waive such vacation
time at the request of employers shall be compensated for three
times their regular salaries for each waived vacation day. The
Chinese Government may in the future enact further labour-related
legislation that increases labour costs and restricts operations of
Leyshon Energy.
Repatriation of local currency
Repatriation is subject to a mixture of controls and
regulations. While the Chinese government is generally relaxing
restrictions on foreign trade and investment, there is no certainty
that all future local currency holdings can be repatriated. These
controls may have an adverse effect on the financial position,
financial performance, cash flows, growth prospects, ability to pay
dividends and share price of Leyshon Energy.
Foreign exchange risk
Leyshon Energy will report its financial results and maintain
its accounts in United States Dollars and its functional currency
will also be United States Dollars. It operates in China where the
principal currency is the Yuan (also known as the Renminbi). The
external value of the Yuan is affected by changes in policies of
the Chinese Government and to international economic and political
developments. From 1994, the conversion of the Yuan into foreign
currencies, including Hong Kong Dollars and United States Dollars,
was based on rates set by the People's Bank of China, which were
set daily based on the previous day's interbank foreign exchange
market rates and current exchange rates on the world financial
markets. The Yuan to United States Dollar exchange rate experienced
volatility prior to 1994, including periods of sharp devaluation,
and the Chinese Government was under international pressure to
allow this rate to float.
On 21 July 2005, the People's Bank of China reformed the Yuan
exchange rate regime by moving to a managed floating exchange rate
based on market supply and demand with reference to a basket of
currencies. From that date, the Yuan was no longer pegged to the
United State Dollar. The People's Bank of China will periodically
adjust the Yuan exchange rate band as necessary and, as a
consequence, the Yuan exchange will be more flexible than before.
Therefore there is a risk that the fluctuations in the Yuan
exchange rate may be greater than were previously experienced and
any large appreciation or devaluation of the Yuan against the
United States Dollar could have an adverse effect on Leyshon
Energy's business and operating results.
In addition, financial markets in many Asian countries have in
the past experienced severe volatility. As a result, some Asian
currencies have been subject to significant devaluation from time
to time. The devaluation of some Asian currencies may have the
effect of rendering exports from China more expensive and less
competitive. An appreciation in the value of the Yuan could have a
similar effect.
Currency conversion
Foreign exchange transactions continue to be subject to
significant foreign exchange controls. These limitations could
affect Leyshon Energy's ability to obtain foreign exchange through
debt or equity financing, or to obtain foreign exchange for capital
expenditures.
Foreign investment
In China, foreign companies could be required to work within a
framework which is different to that imposed on local companies.
The Chinese Government could also prevent and/or influence the sale
of interests to companies registered in China, which may reduce the
value of investments and/or mining projects located in China.
Approval process
Nearly all projects in China require government approval. There
can be no certainty that future approvals for Leyshon Energy
projects will be granted in a timely manner, or at all.
Lack of operational assets and geographic diversification
Following implementation of the Proposed Demerger, all of
Leyshon Energy's operational assets will be located in China. As a
result, Leyshon Energy's business will be disproportionately
exposed to adverse developments affecting this region. These
potential adverse developments could result from, among other
things, changes in governmental regulation, political instability
in the region, capacity constraints with respect to the pipelines
connected to Leyshon Energy's wells, curtailment of production,
disputes with residents on the a block, or adverse weather
conditions in or affecting this region. Due to Leyshon Energy's
lack of diversification in asset type and location, an adverse
development in Leyshon Energy's business or in this operating area
may affect its financial condition and results of operations.
Regulatory risk
Any failure to comply with applicable laws and regulations or
permits, even if inadvertent, could result in material fines,
penalties or other liabilities. In extreme cases, failure could
result in suspension of Leyshon Energy's activities or forfeiture
of the Zijinshan PSC.
The impact of actions by the Chinese Government may affect
Leyshon Energy's operations including matters such as necessary
approvals, taxation and royalties which are payable on the proceeds
of the sale of any successful production. Further, the ongoing
conditions in relation to the Zijinshan PSC as well as the renewal
of the Zijinshan PSC are each to a certain extent a matter of
governmental discretion and no guarantee can be given in this
regard.
(e) General risk factors
Dependence on general economic conditions
The operating and financial performance of Leyshon Energy is
influenced by a variety of general economic and business
conditions, including levels of consumer spending, inflation,
interest rates and exchange rates, access to debt and capital
markets, government fiscal, monetary and regulatory policies.
Prolonged deterioration in general economic conditions, including
an increase in interest rates or a decrease in consumer and
business demand, could be expected to have a material adverse
impact on Leyshon Energy's business or financial condition. Changes
to laws and regulations or accounting standards which apply to
Leyshon Energy from time to time could adversely impact on Leyshon
Energy's earnings and financial performance.
Tax risk
Any change in Leyshon Energy's tax status or the tax applicable
to holding Leyshon Energy Shares or in taxation legislation or its
interpretation, could affect the value of the investments held by
Leyshon Energy, affect Leyshon Energy's ability to provide returns
to Leyshon Energy Shareholders and/or alter the post-tax returns to
Leyshon Energy Shareholders.
Legislative and regulatory changes
Legislative or regulatory changes, including property or
environmental regulations or regulatory changes could have an
adverse impact on approvals and licences held by Leyshon Energy
which in turn may adversely impact on the rights or ability of
Leyshon Energy to continue its operations.
Litigation risk
Leyshon Energy is exposed to possible litigation risks including
tenure disputes, environmental claims, occupational health and
safety claims and employee claims. Further, Leyshon Energy may be
involved in disputes with other parties in the future which may
result in litigation. Any such claim or dispute if proven, may
impact adversely on Leyshon Energy's operations, financial
performance and financial position. Leyshon Energy is not currently
engaged in any litigation.
Managing growth
As Leyshon Energy and its operations expand, it will be required
to continue to improve, and where appropriate, upscale its
operational and financial systems, procedures and controls and
expand, retain, manage and train its employees. There is a risk of
a material adverse impact on Leyshon Energy's financial performance
if it is not able to manage its expansion and growth efficiently
and effectively.
Dividends
There is no guarantee as to future earnings of Leyshon Energy or
that Leyshon Energy will be profitable at any time and there is no
guarantee that Leyshon Energy will be in a financial position to
pay dividends at any time. The amount of dividends (if any) may be
adversely affected by changes in currency exchange rates.
Dissolution
In severe cases, any, all or a combination of the risks outlined
in this Section 5.9 may mean that Leyshon Energy is unable to pay
debts as they fall due which may in turn lead to the winding up or
dissolution of Leyshon Energy. In these circumstances Leyshon
Energy Shares may lose all or a substantial part of their
value.
5.10 Material contracts
(a) Sale and Purchase Agreement
On 5 December 2013, the Company entered into a share sale and
purchase agreement with Leyshon Energy under which the Company
agreed to sell and Leyshon Energy agreed to purchase 100% of the
issued share capital in PAPL for consideration of the issue of
49,638,141 Leyshon Energy Shares to the Company (Sale and Purchase
Agreement). PAPL is the holder of a 100% interest in the
exploration period of the Zijinshan PSC. For further details on the
Zijinshan PSC refer to the Independent Technical Expert's Report in
Schedule 4.
The passing of Resolutions 1 and 2 is a condition precedent to
completion of the Sale and Purchase Agreement.
(b) Subscription Agreement
On 5 December 2013, the Company entered into a subscription
agreement with Leyshon Energy pursuant to which the Company agreed
to subscribe for 199,769,071 Leyshon Energy Shares for total
consideration of US$35,299,426 (Subscription Agreement).
The passing of Resolutions 1 and 2 is a condition precedent to
completion of the Subscription Agreement.
(c) Separation Deed
On 5 December 2013, the Company entered into a separation deed
with Leyshon Energy, pursuant to which the orderly separation of
Leyshon Energy from the Company will be facilitated and the rights
and liabilities of both parties following the implementation of the
Proposed Demerger recorded.
The passing of Resolutions 1 and 2 and Leyshon Energy's AIM
Admission are conditions precedent to completion of the Separation
Deed.
(d) Zijinshan PSC
On 26 October 2007, PAPL entered into the Zijinshan PSC with
China United Coalbed Methane Corporation Ltd (CUCBM), pursuant to
which PAPL and CUCBM agreed to jointly explore for, develop,
produce and sell coalbed methane, liquid hydrocarbons and coalbed
methane products that may exist in the Zijinshan block located on
the Eastern flank of the Ordos Basin, Shanxi Province, China.
CUCBM's interests, rights and obligations under the PSC were
subsequently transferred to CNPC pursuant to the Modification
Agreement (refer to Section 5.10(e)).
PAPL is responsible for all the exploration costs during the
exploration phase of the PSC and assumes all exploration risks. In
the event that a coalbed methane field having a commercial mining
value is discovered, the development costs required for the
development operations will be borne by PAPL and CNPC in proportion
to their participating interests (PAPL 60% and CNPC 40%). Further
material terms of the Zijinshan PSC are as follows:
Contract term Commencement Date: 21 March 2008
Contract Term: 30 years
CNPC has a back-in right of 40%
in the development phase of the
project
Minimum obligations Exploration phase 1: 3 wells, 50km2
seismic, minimum exploration expenditure
of US$2,800,000
Exploration phase 2: 4 wells, minimum
exploration expenditure of US$2,000,000
Minimum annual spend:
* RMB2,000/km2 for the first exploration year
* RMB5,000/km2 for the second exploration year
* RMB10,000/km2 for the third exploration year and also
the exploration year thereafter
Signature bonuses US$300,000 total (US$150,000 at
signing, US$150,000 at first development)
Fees For each of training and an assistance
fee, US$50,000 per year payable
during exploration and US$200,000
per year during production.
Exploration fees
* 1st year - Exempt
* 2nd - 3rd years - 50% of RMB100/km2
* 4th - 7th years - 75% of an additional
RMB100/km2/year
* 8th year - RMB500/km2 capped
Training fee US$50,000 per year during exploration
US$200,000 per year during production
Royalty
*
* 1 - 2.5 BCM - 1%
* 2.5 - 5.0 BCM - 2%
* >5.0 BCM - 3%
(e) Modification Agreement
On 23 June 2011, PAPL, CUCBM and CNPC entered into an agreement
to modify the Zijinshan PSC (Modification Agreement), pursuant to
which CUCBM agreed to transfer all of its interests, rights and
obligations under the PSC to CNPC. The Modification Agreement was
approved by the Ministry of Commerce of the PRC on 23 August 2011.
The Modification Agreement is governed by the laws of the PRC.
(f) Letter of Appointment as Director - Mr John Manzoni
On 3 September 2013, the Company entered into a letter of
appointment with John Alexander Manzoni, whereby he agreed to act
as Non-Executive Chairman of Leyshon Energy with effect from 1
October 2013. He will receive an annual fee of GBP100,000 payable
by equal monthly instalments in arrears, which will be reviewed
annually. Leyshon Energy may also, in its absolute discretion,
create a performance rights plan, and thereunder grant to him
options over Leyshon Energy Shares equivalent to 1-2% of the issued
capital of Leyshon Energy (as at the date of Leyshon Energy's AIM
Admission). The letter of appointment contains detailed provisions
regarding confidentiality, intellectual property and other matters
and post-termination restrictive covenants.
Mr Manzoni's appointment is for an indefinite period terminable
on written notice by him to Leyshon Energy, or non-re-election by
Leyshon Energy Shareholders as and when required by the AIM Rules
or resolution of Leyshon Energy Shareholders or Leyshon Energy
directors passed at a meeting of Leyshon Energy Shareholders or
Leyshon Energy directors respectively.
(g) Letter of Appointment - Mr Kim Howell
On 6 September 2013, the Company entered into a letter of
appointment with Mr Kim Howell, whereby he agreed to act as
Non-Executive Director of Leyshon Energy with effect from 1 October
2013. He will receive an annual fee of GBP60,000 payable by equal
monthly instalments in arrears, which shall be reviewed annually.
Leyshon Energy may also, in its absolute discretion, create a
performance rights plan, and thereunder grant to him options over
Leyshon Energy Shares equivalent to 1-2% of the issued capital of
Leyshon Energy (as at the date of Leyshon Energy's AIM Admission).
The letter of appointment contains detailed provisions regarding
confidentiality, intellectual property and other matters and
post-termination restrictive covenants.
Mr Howell's appointment is for an indefinite period terminable
on written notice by him to Leyshon Energy, or non-re-election by
Leyshon Energy Shareholders as and when required by the AIM Rules
or resolution of Leyshon Energy Shareholders or Leyshon Energy
directors passed at a meeting of Leyshon Energy Shareholders or
Leyshon Energy directors respectively.
(h) Mr Paul Atherley
On 4 November 2013, the Company, Leyshon Energy Limited, North
Asia Metals Pty Ltd (NAM) and Mr Atherley entered into a deed of
variation and novation pursuant to which Mr Atherley's service
agreement with the Company (under which NAM is paid for providing
Mr Atherley's services to the Company) will be novated to Leyshon
Energy, subject to and effective from implementation of the
Proposed Demerger and Leyshon Energy's AIM Admission. Mr Atherley
(through NAM) will receive consultancy fees of US$460,000 per annum
and an expatriate allowance of US$105,000 per annum. The service
agreement contains detailed provisions regarding confidentiality,
intellectual property and other matters and restrictive
covenants.
The service agreement is for a term of 3 years. It may be
terminated by Leyshon Energy by providing no more than 3 months'
notice and by NAM by providing at least 6 months' notice.
5.11 Pro forma balance sheet of Leyshon Energy
The pro forma consolidated balance sheet for Leyshon Energy
following implementation of the Proposed Demerger is set out
below:
Leyshon Energy Limited
Pro-forma Condensed Consolidated Balance Sheets
(Amounts in US Dollars)
Unaudited Unaudited
Actual Pro Forma Actual Pro Forma
30-Jun-13 30-Jun-13 30-Sep-13 30-Sep-13
US$ US$ US$ US$
ASSETS
Current Assets
Cash and cash equivalents 50,000 35,546,187 50,000 35,349,426
Trade and other receivables - 163,863 - 135,265
Total Current Assets 50,000 35,710,050 50,000 35,484,691
---------- ----------- ---------- -----------
Non-Current Assets
Property, plant and equipment - 76,708 - 66,416
Exploration and evaluation
assets - 4,860,026 - 4,955,516
Total Non-Current Assets - 4,936,734 - 5,021,932
---------- ----------- ---------- -----------
TOTAL ASSETS 50,000 40,646,784 50,000 40,506,623
---------- ----------- ---------- -----------
LIABILITIES
Current Liabilities
Trade and other payables - 4,965,845 - 6,027,789
Provisions - 34,725 - 25,908
Total Current Liabilities - 5,000,570 - 6,053,697
---------- ----------- ---------- -----------
Non-Current Liabilities
Deferred tax liability - 1,121,544 - 1,143,580
---------- ----------- ---------- -----------
Total Non-Current Liabilities - 1,121,544 - 1,143,580
---------- ----------- ---------- -----------
TOTAL LIABILITIES - 6,122,114 - 7,197,277
---------- ----------- ---------- -----------
NET ASSETS 50,000 34,524,670 50,000 33,309,346
========== =========== ========== ===========
Proposed transactions adjusting the unaudited balance sheets in
the pro forma balance sheets are as follows:
(a) The issue of Leyshon Energy Shares for total cash proceeds of US$35,299,426.
(b) The issue of Leyshon Energy Shares as consideration for the
acquisition of PAPL, and the consolidation of PAPL assets and
liabilities in the pro forma balance sheets.
5.12 Information concerning the Leyshon Energy Shares
Leyshon Energy Shares are not currently listed for quotation on
any stock exchange, however the Proposed Demerger is conditional on
Leyshon Energy's AIM Admission (refer to Section 3.7). As Leyshon
Energy is a BVI incorporated company, the Leyshon Energy Shares
will be considered as foreign securities for the purposes of CREST.
As foreign securities cannot be held or traded in CREST, Eligible
Shareholders may instead be issued Leyshon Energy DIs rather than
Leyshon Energy Shares, in order to enable Leyshon Energy
Shareholders to settle their Leyshon Energy Shares through CREST.
In order to be issued with Leyshon Energy DIs, Eligible
Shareholders will be required to hold Leyshon Resources DIs as at
the Record Date. If the holder does not hold Leyshon Resources DIs
as at the Record Date, the holder will receive a share certificate
from the BVI registrar. Eligible Shareholders will then have the
option to stay on the BVI register in certificated form or move to
a broker with a UK CREST position to trade in the form of Leyshon
Energy DIs.
A Depositary will be appointed to hold and issue the Leyshon
Energy DIs representing Leyshon Energy Shares (Depositary). The
Depositary will hold the Leyshon Energy Shares on trust for the
relevant Leyshon Energy Shareholders, with this trust relationship
to be documented in a deed poll to be executed by the Depositary
(Deed Poll). The Deed Poll will also set out the procedure for
holders of Leyshon Energy DIs to vote at general meetings of
Leyshon Energy and to exercise other procedural shareholder rights,
which will be transferred to the Depositary with the Leyshon Energy
Shares.
Holders of Leyshon Energy DIs will be entitled to receive
notices of meetings and other notices issued by Leyshon Energy,
exercise the voting rights attached to the underlying Leyshon
Energy Shares and receive any dividends paid by Leyshon Energy from
time to time to Leyshon Energy Shareholders.
The Leyshon Energy DIs will be independent English securities
and will be held on a register maintained by the Depositary.
The Leyshon Energy DIs will have the same security code and ISIN
number as the underlying Leyshon Energy Shares which they represent
and will not require a separate admission to trading on AIM.
Participation in CREST is voluntary and Eligible Shareholders
who wish to hold their Leyshon Energy Shares in certificated form
may do so. However, they will not then be able to settle their
Leyshon Energy Shares through a brokerage account in CREST and will
have their holding recorded on the Leyshon Energy share register in
BVI. Pending the despatch of share certificates (as applicable),
instruments of transfer will be certified against the share
register.
Australian Eligible Shareholders wishing to hold Leyshon Energy
DIs in CREST, rather than holding their Leyshon Energy Shares in
certificated form on Leyshon Energy's share register in BVI
register, should either:
(a) transfer their Shares to CREST prior to the Record Date, in
which they will receive Leyshon Energy DIs representing Leyshon
Energy Shares in CREST. To do this a Shareholder must use the
services of a broker with a CREST position; or
(b) wait until they have received their Leyshon Energy Share
certificate and lodge with a broker with a CREST position. In this
case their certificated holding will be transferred from Leyshon
Energy's share register in BVI to CREST.
If Shareholders have any questions in relation to CREST or
Leyshon Energy DIs they should contact Computershare UK on +44
(0870) 707 1124 or Computershare Australia on +61 (03) 9415 4000
(outside Australia) or 1300 850 505 (within Australia).
A summary of the more significant rights that will attach to the
Leyshon Energy Shares is set out below. This summary is not
exhaustive and does not constitute a definitive statement of the
rights and liabilities of Leyshon Energy Shareholders. Full details
of the rights attaching to Leyshon Energy Shares are set out in
Leyshon Energy's Memorandum and Articles, copies of which are
available on request.
(a) General meetings
Any director may convene a general meeting at such times and in
such place as the director considers necessary or desirable. Each
member of Leyshon Energy is entitled to receive not less than 14
days' notice of every general meeting and to receive all notice,
accounts and other documents required to be sent to members under
the Articles, the laws of the BVI or the regulations applicable to
AIM.
Leyshon Energy Shareholders can request a general meeting
provided Leyshon Energy Shareholders entitled to exercise 25% or
more of the voting rights in respect of the matter for which the
meeting is requested make such request in writing. Leyshon Energy's
Memorandum and Articles provide that it will hold an annual general
meeting at least every 15 months.
(b) Voting rights
Each Leyshon Energy Share confers upon the Leyshon Energy
Shareholder the right to one vote at a meeting of Leyshon Energy
Shareholders or on any resolution of Leyshon Energy Shareholders. A
Leyshon Energy Shareholder may be represented at a meeting of
Leyshon Energy Shareholders by a proxy who may speak and vote on
behalf of the Leyshon Energy Shareholder.
Holders of Leyshon Energy DIs will have the right to exercise
the voting rights attached to the underlying Leyshon Energy
Shares.
(c) Distributions
Each Leyshon Energy Share confers on the Leyshon Energy
Shareholder the right to an equal share in any distributions paid
by Leyshon Energy. The directors of Leyshon Energy may by
resolution of directors authorise a distribution at a time and of
an amount they think fit if they are satisfied, on reasonable
grounds, that immediately after the distribution, the value of
Leyshon Energy's assets will exceed its liabilities and Leyshon
Energy will be able to pay its debts as they fall due.
Distributions may be paid in money, Leyshon Energy Shares or other
property. Notice of any dividend that may have been declared shall
be given to each Leyshon Energy Shareholder as specified in the
Articles and all distributions unclaimed for 3 years after having
been declared may be forfeited by resolution of directors for the
benefit of Leyshon Energy.
Holders of Leyshon Energy DIs will have the right to receive any
distributions or dividends paid by Leyshon Energy to Leyshon Energy
Shareholders from time to time.
(d) Liquidation
Leyshon Energy presently has only issued one class of shares,
which all rank equally in the event of liquidation. Leyshon Energy
may by resolution of Leyshon Energy Shareholders or by a resolution
of directors (subject to the BVI Business Companies Act) appoint a
voluntary liquidator.
Follow the payment or discharge of, all claims, debts,
liabilities and obligations of Leyshon Energy, any surplus assets
shall then be distributed amongst Leyshon Energy Shareholders in
accordance with the Memorandum and Articles.
(e) Purchase of own Leyshon Energy Shares
Leyshon Energy may redeem, purchase or otherwise acquire all or
any Leyshon Energy Shares with the consent of the Leyshon Energy
Shareholders whose Leyshon Energy Shares are to be redeemed,
purchased or acquired. Leyshon Energy may only offer to acquire
Leyshon Energy Shares if, at the relevant time, the directors
determine by resolution of directors that immediately after the
acquisition the value of Leyshon Energy's assets will exceed its
liabilities and Leyshon Energy will be able to pay its debts as
they fall due.
(f) Transfer of Leyshon Energy Shares
In order for a Leyshon Energy Shareholder to transfer his
Leyshon Energy Shares, he must deliver to Leyshon Energy an
executed instrument of transfer which contains the name and address
of the transferee. The transfer of a Leyshon Energy Share is
effective when the name of the transferee is entered on the
register of members of Leyshon Energy. The Leyshon Energy directors
may not resolve to refuse or delay the transfer of a Leyshon Energy
Share unless the relevant Leyshon Energy Shareholder has failed to
pay an amount due in respect of that Leyshon Energy Share.
(g) Takeover protection
As a BVI incorporated company, Leyshon Energy will not be
subject to the takeover regime in Chapter 6 of the Corporations
Act, and there are no takeover provisions under the laws of BVI. In
particular, unlike under the Corporations Act there are no
restrictions under BVI company law on a person acquiring interests
in the voting shares of a BVI company, regardless of the voting
power those shares confer on their holder.
Pursuant to the Memorandum and Articles, which incorporate
Chapter 5 of the Disclosure and Transparency Rules of the UK
Financial Conduct Handbook (DTR 5), Leyshon Energy Shareholders
must notify Leyshon Energy if, as a result either of an acquisition
or disposal of Leyshon Energy Shares or changes in the total voting
rights attached to Leyshon Energy's Shares, the percentage of
voting rights which that shareholder holds, or has control over,
reaches, exceeds or falls below 3% and each additional change of 1%
or more.
Refer to Section 5.9(a) for more information.
(h) Other material terms
(i) Variation of rights
The rights attaching to Leyshon Energy Shares may only, whether
or not Leyshon Energy is being wound up, be varied with the consent
in writing of or by a resolution passed by the holders of more than
50% of the issued Leyshon Energy Shares.
(ii) Amendment of Memorandum and Articles
Subject to paragraph (i) above, Leyshon Energy may amend its
Memorandum or Articles by a resolution of Leyshon Energy
Shareholders or a resolution of directors, save that no amendment
may be made by a resolution of directors:
(A) to restrict the rights or powers of the Leyshon Energy
Shareholders to amend the Memorandum or Articles;
(B) to change the percentage of Leyshon Energy Shareholders
required to pass a resolution of Leyshon Energy Shareholders to
amend the Memorandum or Articles;
(C) in circumstances where the Memorandum or Articles cannot be
amended by the Leyshon Energy Shareholders; or
(D) to various clauses in the Memorandum governing the rights of Leyshon Energy Shares.
(iii) Pre-emption rights of Leyshon Energy Shareholders
Leyshon Energy's Memorandum and Articles provide that section 46
of the BVI Business Companies Act will apply to Leyshon Energy.
Section 46 provides that, before issuing shares that rank or would
rank as to voting or distribution rights, or both, equally with or
prior to shares already issued by Leyshon Energy, the directors of
Leyshon Energy will offer the shares to existing Leyshon Energy
Shareholders in such a manner that, if the offer was accepted by
those shareholders, the existing voting or distribution rights, or
both, of those shareholders would be maintained. Shares offered to
existing Leyshon Energy Shareholders in this manner shall be
offered at such price and on such terms as the shares are to be
offered to other persons, and the offer must remain open for
acceptance for a reasonable period of time.
Pursuant to the Memorandum and Articles, the pre-emption rights
contained in section 46 will not apply:
(A) in any period between an annual general meeting of Leyshon
Energy and the next following annual general meeting, to an issue
or series of issues of shares for cash not exceeding 25% of the
aggregate nominal amount of Leyshon Energy's issued share capital
as at the date of the prior annual general meeting;
(B) to the extent that holders of more than 75% of the issued
Leyshon Energy Shares resolve or consent in writing otherwise;
or
(C) to a particular issue of shares if these are, or are to be,
wholly or partly paid up otherwise than in cash.
(iv) Directors
Retirement, removal and vacation of office
At the annual general meeting of Leyshon Energy, one-third of
the directors for the time being, or if their number is not three
or a multiple of three, then the nearest number to but not less
than one-third, shall retire from office and each director shall
retire from office at least once every three years.
Subject to the Articles, the directors to retire by rotation at
each annual general meeting shall include, so far as necessary to
obtain the number required, any director who wishes to retire and
not offer himself for re-election and any further number shall be
those directors who have been longest in office since their last
re-election or appointment. As between persons who became or were
last re-elected on the same day, those to retire shall, unless they
agree otherwise among themselves, be determined by lot. A retiring
director shall be eligible for re-election.
If Leyshon Energy at the meeting at which a director retires by
rotation does not fill the vacancy, the retiring director shall be
deemed to have been reappointed except where at the meeting it is
resolved not to fill the vacancy or where the retiring director has
given notice in writing to Leyshon Energy that he is not willing to
be re-elected.
Any director may be removed from office with or without cause,
by a resolution of shareholders, being an affirmative vote of a
majority of in excess of 50% of the votes of the Leyshon Energy
Shares entitled to vote thereon, present and voting at a meeting of
Leyshon Energy Shareholders called for the purposes of removing the
director or for purposes including the removal of the director or
by a written resolution passed by at least 75% of the votes of
Leyshon Energy Shareholders entitled to vote.
Any director may be removed from office with cause, by
resolution of directors passed at a meeting of directors called for
the purpose of removing the director or for purposes including the
removal of the director.
The office of a director shall be vacated if:
(A) he only held office as a director for a fixed term and such term expires;
(B) he is removed from office pursuant to the Articles or any
applicable law or becomes prohibited by law from being a
director;
(C) he dies, becomes bankrupt, has an interim receiving order
made against him, makes any arrangement or compounds with his
creditors generally or applies to the court for an interim order in
connection with a voluntary arrangement under any legislation
relating to insolvency;
(D) an order is made by any court of competent jurisdiction on
the ground (however formulated) of mental disorder for his
detention or for the appointment of a guardian or receiver or other
person to exercise powers with respect to his property or affairs
or he is admitted to hospital in pursuance of an application for
admission for treatment under any legislation relating to mental
health and the Board resolves that his office be vacated;
(E) he is absent, without permission of Leyshon Energy's board,
from board meetings for six consecutive months (whether or not an
alternate director attends in his place) and the Board resolves
that his office be vacated;
(F) he is removed from office by notice in writing addressed to
him at his address as shown in Leyshon Energy's register of
directors and signed by not less than three-quarters of all the
directors in number (without prejudice to any claim for damages
which he may have for breach of contract against Leyshon
Energy);
(G) in the case of a director who holds executive office, his
appointment to such office terminated or expires and board resolves
that his office be vacated; or
(H) he resigns his office by notice to Leyshon Energy.
Votes of directors
A director shall not vote on, or be counted in the quorum in
relation to any resolution of Leyshon Energy's board or of a
committee of the board concerning any contract, arrangement,
transaction or any other proposal whatsoever to which Leyshon
Energy is or is to be a party and in which he has an interest which
(together with any interest of any person connected with him) is to
his knowledge a material interest (otherwise than by virtue of his
interest in shares or debentures or other securities of, or
otherwise in or through, Leyshon Energy).
A director shall be entitled to vote and be counted in a quorum
in respect of any resolution concerning any of the following
matters:
(A) the giving of any guarantee, security or indemnity in
respect of money lent or obligations incurred by him or any other
person at the request of or for the benefit of Leyshon Energy or
any of its subsidiary undertakings;
(B) the giving of any guarantee, security or indemnity in
respect of a debt or obligation of Leyshon Energy or any of its
subsidiary undertakings for which he himself has assumed
responsibility in whole or in part under a guarantee or indemnity
or by the giving of security;
(C) the giving of any other indemnity where all other directors
of Leyshon Energy are also being offered indemnities on
substantially the same terms;
(D) any proposal concerning an offer of shares or debentures or
other securities of or by Leyshon Energy or any of its subsidiary
undertakings in which offer he is or may be entitled to participate
as a holder of securities or in the underwriting or
sub-underwriting of which he is to participate;
(E) any proposal concerning any other body corporate in which he
(together with persons connected with him) does not to his
knowledge have an interest in 1% or more of the issued equity share
capital of any class of such body corporate (calculated exclusive
of any shares of that class in that company held as treasury
shares) nor to his knowledge hold 1% or more of the voting rights
available to members of such body corporate;
(F) any proposal relating to an arrangement for the benefit of
the employees of Leyshon Energy Limited or any of its subsidiary
undertakings which does not award him any privilege or benefit not
generally awarded to the employees to whom such arrangement
relates;
(G) any proposal concerning insurance which Leyshon Energy
Limited proposes to maintain or purchase for the benefit of
directors of Leyshon Energy Limited or for the benefit of persons
who include directors of Leyshon Energy Limited; or
(H) any proposal concerning the funding of expenditure by one or
more directors on defending proceedings against him or them, or
doing anything to enable such director or directors to avoid
incurring such expenditure.
(v) Conversion of loans or other debt instruments
The Articles do not restrict Leyshon Energy from issuing
convertible loans or other debt instruments, which may be converted
to Leyshon Energy Shares (subject to the relevant terms and
conditions attaching to such convertible loan or debt instrument).
Leyshon Energy directors are accordingly free to authorise the
issue of convertible loans or other debt instruments by a
resolution of the directors on such terms and at such time and to
such persons as they in their sole discretion deem fit. Any shares
issued on the conversion of such instruments would be subject to
the provisions of section 46 of the BVI Business Companies Act as
that section applies in the Memorandum and Articles (refer to
Section 5.12(h)(iii) above).
(vi) Issue of Leyshon Energy Shares
Leyshon Energy Shares and other securities may be issued at such
times, to such persons, for such consideration and on such terms as
the directors may by resolution determine. However, any issue of
securities must be effected in accordance with the provisions of
section 46 of the BVI Business Companies Act, as that section
applies in the Memorandum and Articles (refer to Section
5.12(h)(iii) above).
(vii) Disclosure of substantial shareholdings
A shareholder in a public company incorporated in the UK whose
shares are admitted to trading on AIM is required pursuant to DTR 5
to notify the company if the percentage of their (direct or
indirect) voting rights in the company exceeds or falls below
certain thresholds. Although as a BVI incorporated company Leyshon
Energy is not subject to the Disclosure and Transparency Rules,
Leyshon Energy's Memorandum and Articles provide that the
provisions of DTR 5 will nonetheless apply to Leyshon Energy.
Accordingly, Leyshon Energy Shareholders shall, to the extent
they are lawfully able to do so, comply with the requirements of
DTR 5 and notify Leyshon Energy if, as a result either of an
acquisition or disposal of Leyshon Energy Shares or changes in the
total voting rights attached to Leyshon Energy's Shares, the
percentage of voting rights which that shareholder holds or
controls reaches, exceeds or falls below 3%, and in respect of each
additional change of 1% or more. The AIM Rules require Leyshon
Energy to then disclose this information to the market without
delay.
If it comes to the attention of the Leyshon Energy directors
that a Leyshon Energy Shareholder has not so notified Leyshon
Energy, they may issue a 'restriction notice' to the shareholder.
The restriction notice may limit the rights attached to the Leyshon
Energy Shares which should have been the subject of notification
under DTR 5 (Default Shares), including with respect to voting
rights. If the Default Shares represent 0.25% or more of the issued
Leyshon Energy Shares, the directors may also suspend the payment
of dividends (in cash or scrip) with respect to those shares and
may refuse to recognise the transfer of those shares.
5.13 Dividend policy
Leyshon Energy will seek to generate capital growth for Leyshon
Energy Shareholders through the appraisal, exploration and
appropriate development of its assets. It is not anticipated that
the Leyshon Energy Board will recommend a dividend in the short to
medium term following the implementation of the Proposed Demerger.
However, subject to the availability of sufficient distributable
profits, it is intended that Leyshon Energy will commence the
payment of dividends when it becomes commercially prudent to do so
and will adopt a progressive dividend policy thereafter.
5.14 Corporate governance and internal controls
Following Leyshon Energy's AIM Admission, it is intended that
Leyshon Energy's directors will comply, so far as practicable, with
the good governance guidelines set out in the UK Corporate
Governance Code (Code). Whilst AIM companies are not obliged to
comply with the Code, it is intended that Leyshon Energy's
directors will comply with the Code so far as is appropriate having
regard to the size and development of Leyshon Energy and in
consultation with the Leyshon Energy's Nominated Adviser from time
to time.
It is intended that Leyshon Energy will have two non-executive
directors, and that the Leyshon Energy board will retain full and
effective control over Leyshon Energy. It is intended that Leyshon
Energy will hold regular board meetings at which financial and
other reports are considered and, where appropriate, voted on.
Apart from regular meetings, additional meetings will be arranged
when necessary to review strategy, planning, operational and
financial performance, risk, capital expenditure and human resource
and environmental management. Leyshon Energy's board will also be
responsible for monitoring the activities of the executive
management.
Following implementation of the Proposed Demerger, Leyshon
Energy's directors will establish an audit committee and a
remuneration committee with formally delegated duties and
responsibilities.
The audit committee, which will initially comprise Mr Kim Howell
and Mr John Manzoni, with Mr Howell acting as Chairman, will
determine and examine any matters relating to the financial affairs
of Leyshon Energy including the terms of engagement of Leyshon
Energy's auditors and, in consultation with the auditors, the scope
of the audit. In addition it will monitor the quality of internal
controls, consider the financial performance, position and
prospects of Leyshon Energy and ensure they are properly monitored
and reported on.
The remuneration committee, which will initially comprise Mr Kim
Howell and Mr John Manzoni, with Mr Howell acting as Chairman, will
review the performance of the executive directors and senior
executives and set the scale and structure of their remuneration
(having regard to the interests of Leyshon Energy Shareholders),
determine the payment of bonuses to the executive directors and
consider Leyshon Energy's bonus and incentive arrangements for
employees.
Having regard to the size and development of Leyshon Energy, it
is not intended that a nominations committee will be formed.
Following Leyshon Energy's AIM Admission, Leyshon Energy's
directors will comply with Rule 21 of the AIM Rules relating to
directors' dealings and will take all reasonable steps to ensure
compliance by Leyshon Energy's applicable employees. Leyshon Energy
will operate a share dealing code for directors and employees in
accordance with the AIM Rules.
6. Resolution 1 - Disposal of the Company's interest in the Leyshon Energy Assets
6.1 General
Listing Rule 11.2 and AIM Rule 15 restrict the Company's ability
to dispose of its main undertaking (that is, its main asset or
business, or substantially all of its assets and businesses)
without obtaining Shareholder approval.
Pursuant to the Proposed Demerger, the Company will dispose of
the Leyshon Energy Assets (refer to Section 3.3 for further
details).
The Leyshon Energy Assets comprise the main undertaking of the
Company. Accordingly, Resolution 1 seeks Shareholder approval under
Listing Rule 11.2 and AIM Rule 15 for the Company to dispose of its
interest in the Leyshon Energy Assets pursuant to the Proposed
Demerger.
Resolution 1 is an ordinary resolution. Resolution 1 is subject
to the approval of Resolution 2 and Leyshon Energy's AIM
Admission.
6.2 Proposed Demerger
Refer to Section 3 for a description of the Proposed
Demerger.
6.3 Financial effect of the Proposed Demerger on the Company
Refer to Section 4.6for an assessment of the financial effect of
the Proposed Demerger on the Company.
6.4 Impact of Proposed Demerger on Shareholders
Refer to Section 3.4 for a summary of the impact of the Proposed
Demerger on the interests of Shareholders.
6.5 Advantages and disadvantages of Proposed Demerger
Refer to Section 3.9 for a summary of the advantages and
disadvantages to Shareholders of the Proposed Demerger.
6.6 Future of the Company after the Proposed Demerger
Following the implementation of the Proposed Demerger the
Directors will actively seek acquisition opportunities of gold and
mineral exploration and production assets that will increase
Shareholder value. As the Company is disposing of its main
undertaking pursuant to the Proposed Demerger it will consider the
application of Listing Rule 11.1.2 (Shareholder approval of the
acquisition) and Listing Rule 11.1.3 (application of Chapters 1 and
2 of the Listing Rules to the acquisition) at the time of any
future acquisition. Depending on the size and nature of any
acquisition these Listing Rules may apply to the transaction. Refer
to Sections 3.5(c) and 4.5(a) for further information.
Refer to Section 4.4 for further details regarding the business
of the Company following the Proposed Demerger.
6.7 Future of the Company if the Proposed Demerger is not approved
Refer to Section 3.6 for a description of the future of the
Company if the Proposed Demerger is not approved by
Shareholders.
6.8 Specific information required by ASX Listing Rule 11.2 and AIM Rule 15
For the purposes of Listing Rule 11.2 and AIM Rule 15,
information regarding the disposal of the Leyshon Energy Assets is
provided in this Explanatory Memorandum, including, but not limited
to:
(a) the effect of the disposal of the Leyshon Energy Assets on the Company; and
(b) whether the disposal of the Leyshon Energy Assets is fair
and reasonable to Shareholders.
A voting exclusion statement is included in the Notice.
6.9 Other material information
There is no other information material to the making of a
decision by a Shareholder whether or not to approve Resolution 1
(being information that is known to any of the Directors and which
has not been previously disclosed to Shareholders) other than as
disclosed in this Explanatory Memorandum.
6.10 Directors' recommendation
The Directors recommend that Shareholders vote in favour of
Resolution 1. Refer to Section 3.11 for further details regarding
the Directors' recommendation.
7. Resolution 2 - Reduction of capital and in-specie distribution of Leyshon Energy Shares
7.1 General
Subject to Shareholder approval of the Resolutions and Leyshon
Energy's AIM Admission, the Company proposes to demerge its
interests in the Leyshon Energy Assets by undertaking an In-Specie
Distribution of the entirety of the Leyshon Energy Shares on issue
to Shareholders, on a pro rata basis pursuant to an equal capital
reduction under section 256B of the Corporations Act (refer to
Section 3.3 for further details).
Following completion of the Corporate Restructure, the Company
will hold all of the Leyshon Energy Shares on issue. The Company is
seeking Shareholder approval to enable the Company to then reduce
its share capital by conducting the In-Specie Distribution of 100%
of the Leyshon Energy Shares on issue to Eligible Shareholders.
Based on the current number of Shares on issue as at the date of
the Notice, the number of Leyshon Energy Shares which Eligible
Shareholders will receive pursuant to the In-Specie Distribution
will be one (1) Leyshon Energy Share for every one (1) Share they
hold on the Record Date. Shareholders will not be required to pay
any consideration for the Leyshon Energy Shares as the Company will
make an appropriate capital reduction in its books to reflect the
In-Specie Distribution.
The In-Specie Distribution must be approved by Shareholders in
accordance with section 256C of the Corporations Act (refer to
Section 7.5). Refer to Section 3.12 for details of the indicative
timetable and Record Date for the Proposed Demerger.
Resolution 2 is an ordinary resolution. Resolution 2 is subject
to the approval of Resolution 1 and Leyshon Energy's AIM
Admission.
7.2 Leyshon Energy Assets
The Zijinshan Gas Project, together with cash reserves of
approximately US$35.3 million, comprise the Leyshon Energy Assets,
which will be demerged from the Company pursuant to the Proposed
Demerger. Refer to Section 5.6(a) for details of the Zijinshan Gas
Project.
7.3 Business of the Company and Leyshon Energy following the Proposed Demerger
Refer to Sections 4.4 and 5.6 for an outline of the activities
and business of the Company and Leyshon Energy following the
implementation of the Proposed Demerger.
7.4 Effect of In-Specie Distribution on the Company
If Shareholder approval is obtained for the In-Specie
Distribution and Leyshon Energy's AIM Admission occurs, the
Company's total and net assets, and total equity (by the dollar
amount of the book value of its Shares), will be reduced. The
Company estimates that the effect of the In-Specie Distribution
will be a capital reduction of approximately US$0.13 per Share
(based on the number of Shares on issue as at the date of the
Notice).
7.5 Corporations Act requirements
Section 256B(1) of the Corporations Act provides that a company
may reduce its share capital if the reduction:
(a) is fair and reasonable to the company's shareholders as a whole;
(b) does not materially prejudice the company's ability to pay its creditors; and
(c) is approved by shareholders under section 256C of the Corporations Act.
The proposed capital reduction via the In-Specie Distribution is
an equal reduction as:
(a) it relates only to ordinary Shares;
(b) it applies to each holder of ordinary Shares in proportion
to the number of ordinary Shares they hold; and
(c) the terms of the reduction are the same for each holder of ordinary Shares.
As the proposed capital reduction via the In-Specie Distribution
is an equal reduction, section 256C of the Corporations Act
requires Shareholder approval of the proposed reduction by way of
an ordinary resolution.
The Directors consider that the proposed reduction of capital
via the In-Specie Distribution of the entirety of the Leyshon
Energy Shares on issue on a pro rata basis to Shareholders:
(a) does not materially prejudice the Company's ability to pay its creditors;
(b) will not result in the Company being insolvent at the time
of the In-Specie Distribution or become insolvent as a result of
the In-Specie Distribution; and
(c) is fair and reasonable to Shareholders as a whole, as the
In-Specie Distribution of Leyshon Energy Shares will be on a pro
rata basis.
7.6 Listing Rule requirements
In accordance with Listing Rule 7.20, the following information
is provided:
(a) as a result of the proposed In-Specie Distribution, the
number of Shares on issue will not change; and
(b) in determining the number of Leyshon Energy Shares an
Eligible Shareholder will receive, fractional entitlements arising
on the reduction of capital will be rounded down.
7.7 ASIC disclosure requirements in relation to Leyshon Energy Shares
In respect of the Proposed Demerger, the Corporations Act
restricts:
(a) the Company from transferring the Leyshon Energy Shares to
Eligible Shareholders within 12 months of their issue; and
(b) Leyshon Energy Shareholders from on-selling the Leyshon
Energy Shares within 12 months of receiving them from the
Company,
unless the Company issues a prospectus providing disclosure
against the Leyshon Energy Shares or is granted relief from ASIC
from so doing.
The Board are of the view that the disproportionately high cost
involved in the Company preparing a prospectus disclosing against
the Leyshon Energy Shares in addition to the Notice and this
Explanatory Memorandum for the approval of the Proposed Demerger is
not justified, and considers that these costs would outweigh any
benefits received by Shareholders from the receipt of a prospectus.
In considering the cost of preparing a prospectus, the Directors
reviewed costs associated with advisers' fees, printing costs and
ASIC filing fees, and concluded that the total additional cost to
the Company of preparing a prospectus as a disclosure document for
the Leyshon Energy Shares would be approximately $400,000.
The Company submitted an application to ASIC for relief from
this obligation to issue a prospectus disclosing against the
Leyshon Energy Shares, in accordance with the policies set out in
ASIC Regulatory Guide 188. Specifically, the Company submitted that
the proposed In-Specie Distribution involved a capital reduction
where there is no significant change to Shareholders' overall
investment, and no change to the underlying business and assets
that Shareholders will hold an interest in.
ASIC granted the relief sought by the Company, allowing the
Company to provide all information required by the Corporations Act
in relation to the Proposed Demerger in the Notice, without being
required to also issue a prospectus disclosing against the Leyshon
Energy Shares. This has avoided unnecessary expenditure by the
Company on advisers' fees and printing and postage costs involved
in the preparation and issue of a prospectus. No application form
is necessary to effect the transfer of Leyshon Energy Shares from
the Company to its Shareholders pursuant to the Proposed
Demerger.
The Company confirms, in accordance with the requirements of the
ASIC relief granted, that the Notice is substantially the same as
the draft Notice which was provided by the Company to ASIC in
support of its application for relief under Regulatory Guide
188.
7.8 Directors' interests
Refer to Section 3.8 for an outline of the Directors' interests
in the Company's securities before and after the implementation of
the Proposed Demerger.
7.9 Effect of Proposed Demerger on securities of the Company
(a) Effect on Shares
The Company currently has 249,457,212 Shares on issue. The
number of Shares on issue will remain unchanged if the Proposed
Demerger is implemented.
(b) Effect on Options
The Company does not currently have any Options on issue.
7.10 Timetable and Record Date
Refer to Section 3.12 for an indicative timetable of the
Proposed Demerger and key dates to be aware of.
7.11 Other material information
There is no other information material to the making of a
decision by a Shareholder whether or not to approve Resolution 2
(being information that is known to any of the Directors and which
has not been previously disclosed to Shareholders) other than as
disclosed in this Explanatory Memorandum.
7.12 Directors' recommendation
The Directors recommend that Shareholders vote in favour of
Resolution 2. Refer to Section 3.11 for further details regarding
the Directors' recommendation.
8. Resolution 3 - Amendment to the Company's investing policy
8.1 General
The Company is an investing company for the purposes of the AIM
Rules and as such is required to have an investing policy which
must be approved by Shareholders. The current investing policy was
approved and authorised by Shareholders at the Company's annual
general meeting on 30 November 2009 and was set out in the
Company's admission document dated 31 December 2010.
If the Proposed Demerger is approved, the separation of the
Company's energy business will allow the Company to focus on the Mt
Leyshon Gold Project and mineral investment opportunities whilst
enabling Leyshon Energy to focus on the Zijinshan Gas Project and
other opportunities in the oil and gas sector. The Company seeks
Shareholder approval to amend its investing policy to reflect the
Company's focus following the implementation of the Proposed
Demerger on gold and other minerals exploration and investment
opportunities.
Shareholder approval is accordingly sought to make the following
amendments to the Company's investing policy:
(a) remove references to "energy" in paragraphs 3, 4, 7, and 8
(refer to Schedule 6), to reflect the demerger of the Company's
energy business and focus;
(b) update paragraph 4 to reflect the fact that the Company now
has ten years experience in China, rather than six (as was the case
when the investing policy was last updated);
(c) include the following new paragraph 5:
"As the Company has disposed of its energy and gas assets to its
wholly-owned subsidiary Leyshon Energy Limited and then distributed
the entire issued share capital of Leyshon Energy Limited in-specie
to Shareholders, the Company has determined to exclude acquisition
and investment opportunities in the oil and gas sector regardless
of the location from its investment policy.";
(d) delete paragraph 6 and replace it with the following:
"The Company's primary strategy is to pursue acquisition and
investment opportunities in the minerals sector in general,
including those related to its Mt Leyshon asset and drawing on its
China relationships."; and
(e) include the following new paragraph 14:
"The Company will be seeking corporate opportunities to merge or
otherwise combine with other mineral companies."
A copy of the Company's current investing policy is at Schedule
6. A copy of the Company's amended investing policy (incorporating
the above amendments sought by Resolution 3) is at Schedule 5.
8.2 Directors' recommendation
The Directors recommend that Shareholders vote in favour of
Resolution 3. Refer to Section 3.11 for further details regarding
the Directors' recommendations.
9. Resolution 4 - Confirmation of approval of the Company's current investing policy
9.1 General
The Company is an investing company for the purposes of the AIM
Rules and as such is required to have an investing policy which
must be approved by Shareholders. The current investing policy was
previously approved and authorised by Shareholders at the Company's
annual general meeting on 30 November 2009 and was set out in the
Company's admission document dated 31 December 2010.
If Resolutions 1 and 2 and 3 are not passed, and the Proposed
Demerger consequently does not proceed,Resolution 4 will be
proposed at the Meeting in order that the Company may seek ongoing
approval of Shareholders of its current investing policy in
accordance with Rule 8 of the AIM Rules.
A copy of the Company's current investing policy is at Schedule
6.
If Resolutions 1, 2 and 3 are passed, Resolution 4 will not be
proposed at the Meeting.
9.2 Directors' recommendation
In the event that Resolutions 1, 2 and 3 are not passed, the
Directors recommend that Shareholders vote in favour of Resolution
4. Refer to Section 3.11 for further details regarding the
Directors' recommendations.
1.1
Schedule 1 - Definitions
In this Explanatory Memorandum and the Notice, the following
terms have the following meanings unless the context otherwise
requires:
Admission Document means a document produced pursuant to Rule
3 of the AIM Rules in order to effect Leyshon
Energy's AIM Admission.
AIM means the market of that name operated by the
London Stock Exchange.
AIM Rules means the AIM Rules for companies as published
by AIM.
Articles has the meaning given to it in Section 3.5(a)
of this Explanatory Memorandum.
ASX means ASX Ltd ABN 98 008 624 691 and, where
the context requires, the Australian Securities
Exchange operated by ASX Ltd.
BCM means billion cubic metres.
BDO means BDO Corporate Finance (WA) Pty Ltd.
Board means the board of Directors.
BVI means the British Virgin Islands.
BVI Business Companies means the BVI Business Companies Act 2004.
Act
CGT means Australian capital gains tax.
China means the People's Republic of China.
Chinese Reserve Report means a report estimating the quantity of gas
reserves expected to be recovered from the
Zijinshan Gas Project on a proved, probable
and possible reserves basis.
CNPC means China National Petroleum Corporation.
Company means Leyshon Resources Limited ABN 75 010
482 274.
Computershare Australia means Computershare Investor Services Pty Ltd.
Computershare UK means Computershare Investor Services Plc.
Corporate Restructure has the meaning given to it in Section 3.3.
Corporations Act means the Corporations Act 2001 (Cth).
CREST means the computerised system for trading shares
in uncertificated form operated by Euroclear
UK and Ireland Limited.
CUCBM means China United Coalbed Methane Corporation
Ltd.
Depositary has the meaning given to it in Section 5.12.
Director means a director of the Company.
DTR 5 means Rule 5 of the Disclosure and Transparency
Rules (as amended from time to time) of the
UK Financial Conduct Authority Handbook.
Eligible Shareholder means a Shareholder who is validly recorded
on the Company's register of Shareholders on
the Record Date and who is eligible to participate
in the In-Specie Distribution.
Explanatory Memorandum means this explanatory memorandum attached
to the Notice, which provides information to
Shareholders about the Resolutions contained
in the Notice.
GBP means British Pound Sterling.
IFRS means the standards and interpretations adopted
by the International Accounting Standards Board,
as amended from time to time.
Independent Expert's has the meaning given to it in Section 3.10.
Report
Independent Technical has the meaning given to it in Section 5.7.
Expert's Report
In-Specie Distribution has the meaning given to it in Section 3.3.
Leyshon Energy means Leyshon Energy Limited, a company incorporated
in BVI as a BVI Business Company with BVI Company
Number 1766943.
Leyshon Energy's means the admission of the Leyshon Energy Shares
AIM Admission to trading on AIM and such admission becoming
effective in accordance with the AIM Rules.
Leyshon Energy Assets has the meaning given to it in Section 3.3.
Leyshon Energy Depositary means the dematerialised depositary interest
Interest or Leyshon issued by the Depositary in respect of, and
Energy DI representing on a one-for-one basis, Leyshon
Energy Shares.
Leyshon Energy Share means a fully paid ordinary share in the capital
of Leyshon Energy and (if the context so requires)
a Leyshon Energy DI.
Leyshon Energy Shareholder means the holder of a Leyshon Energy Share
and (if the context so requires) a holder of
a Leyshon Energy DI.
Leyshon Resources means the dematerialised depositary interest
Depositary Interest in respect of, and representing on a one-for-one
or Leyshon Resources basis, Shares.
DI
Listing Rules means the listing rules of ASX.
London Stock Exchange means London Stock Exchange plc.
Meeting means the general meeting of the Company the
subject of the Notice.
Memorandum has the meaning given to it in Section 3.5(a).
Memorandum and Articles has the meaning given to it in Section 3.5(a).
Mt Leyshon Gold Project has the meaning given to it in Section 4.4(a).
Newmont means Newmont Australia Limited.
Nominated Adviser means Cantor Fitzgerald Europe.
Notice means the notice of general meeting accompanying
this Explanatory Memorandum.
Proposed Demerger has the meaning given to it in Section 3.3.
Proxy Form means the proxy form attached to the Notice.
Official List means the official list of ASX.
Option means an option to acquire a Share.
PAPL means Pacific Asia Petroleum Limited, a company
incorporated in Hong Kong.
Performance Right means a performance right issued under the
Performance Rights Plan.
Performance Rights means the Leyshon Resources Performance Rights
Plan Plan adopted by Shareholders at the annual
general meeting of the Company held on 31 May
2013.
PRC means the People's Republic of China
Proposed Demerger means the Corporate Restructure and the In-Specie
Distribution.
psi means pounds per square inch.
Record Date means the record date to determine the Eligible
Shareholders for the In-Specie Distribution
as detailed in Section 3.12.
Resolutions means the resolutions contained in the Notice.
RISC means RISC Operations Pty Ltd.
RMB or Renminbi means Chinese Yuan.
Sale and Purchase has the meaning given in Section 5.10(a).
Agreement
scf means standard cubic feet.
Section means a section of this Explanatory Memorandum.
Share means a fully paid ordinary share in the capital
of the Company.
Shareholder means the holder of a Share.
Subscription Agreement has the meaning given in Section 5.10(b).
Zijinshan Gas Project has the meaning given to it in Section 3.1(a).
Zijinshan PSC means the Production Sharing Contract for Exploitation
of Coalbed Methane Resources in Zijinshan Area,
Shanxi Province, in the PRC by and between
China United Coalbed Methane Corporation Ltd
(CUCMB) and PAPL dated 26 October 2007 as amended
by the First Modification Agreement of the
PSC dated 23 June 2011 to change the Chinese
party from CUCMB to CNPC.
Schedule 2 - Summary of key differences between Australian and
British Virgin Islands company law and applicable AIM Rules
As Leyshon Energy is a BVI incorporated company, the
Corporations Act provisions summarised in the 'Australian law'
section below do not apply to it. Also, as Leyshon Energy will not
be listed on ASX, it will not be subject to the Listing Rules.
Leyshon Energy, and Leyshon Energy Shareholders' rights, will
instead be governed by British Virgin Islands law, the Memorandum
and Articles (refer to Section 5.12) and applicable AIM Rules (as
detailed below).
Area of law
Australian law British Virgin Islands law Applicable AIM Rules
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Share capital
and issue * The constitution of a typical Australian public * Under BVI law and the Memorandum and Articles, * Note: References below to information to be
of shares company authorises the board to issue shares, options Leyshon Energy Shares may be issued, and options to 'disclosed' or 'notified' means delivery of such
and other securities with preferred, deferred or acquire Leyshon Energy Shares may be granted, at such information to a Regulatory Information Service
other special rights or such restrictions, whether times, to such persons, for such consideration and on (approved by the London Stock Exchange plc) for
with regards to dividends, voting, return of capital such terms as the directors may determine. distribution to the public.
and other matters as the directors may decide.
* The Memorandum and Articles provide for certain * The AIM Rules do not place any general restrictions
* The constitution typically does not impose any pre-emption rights for existing Leyshon Energy on the share capital of an AIM company or the issue
maximum limit on the number of shares. Shareholders. Before issuing shares that rank or of securities by an AIM company.
would rank equally (with respect to voting or
distribution rights) with or prior to shares already
* Under Australian law a company, as part of its legal issued by the Leyshon Energy, the directors of * Where securities are issued on a non pre-emptive
personality, has the power to issue and cancel shares Leyshon Energy shall offer the shares to existing basis and they meet the requirements of a Substantial
in the company. In addition to this power a company Leyshon Energy Shareholders so as to enable them to Transaction or a Related Party Transaction (both
may also issue bonus shares, preference shares and maintain their existing voting or distribution defined below), then certain disclosure obligations
partly paid shares. rights. Shares offered to existing Leyshon Energy shall apply to the AIM company.
Shareholders in this manner must be offered on the
same price and terms as the shares to be offered to
* A company has the power to determine the terms of and other persons, and the offer must remain open for * Schedule 3 to the AIM Rules requires a comparison to
rights and restrictions attaching to the shares it acceptance for a reasonable period of time. be made between the size of a transaction and the
issues. size of the AIM company on several bases by the use
of percentage ratios relating to asset value, profits,
* Pursuant to the Memorandum and Articles, the turnover, consideration and market capitalisation
pre-emption rights described above will not apply: (known as the "class tests"). Transactions entered
into by the Company with the same party in any 12
month period will be aggregated for the purposes of
o in any period between an applying the class tests.
annual general meeting of
Leyshon Energy and the next
following annual general * Under AIM Rule 12 (Substantial transactions), where
meeting, to an issue or series an AIM company proposes any substantial transaction
of issues of shares for cash which exceeds 10% in any of the class tests (a
not exceeding 25% of the "Substantial Transaction"), the AIM company must
aggregate nominal amount issue notification without delay as soon as the terms
of Leyshon Energy's issued of such substantial transaction are agreed,
share capital as at the date disclosing the information specified by Schedule Four
of the prior annual general of the AIM Rules. A Substantial Transaction includes
meeting; a non pre-emptive issue of securities which exceeds
o to the extent that holders 10% in any of the class tests, save where such
of more than 75% of the issued transaction is to raise finance and does not involve
Leyshon Energy Shares resolve a change in the fixed assets of the AIM company or
or consent in writing otherwise; its subsidiaries.
or
o to a particular issue of
shares if these are, or are * Under AIM Rule 13 (Related party transactions), where
to be, wholly or partly paid an AIM company proposes any transaction with a
up otherwise than in cash. related party which exceeds 5% in any of the class
* A statement of the maximum number of shares that the tests (a "Related Party Transaction"), the AIM
company is authorised to issue or that the company is Company must issue notification without delay as soon
authorised to issue an unlimited number of shares, as the terms of a such are agreed disclosing:
and the classes of shares that the company is
authorised to issue, and if the company is authorised
to issue two or more classes of shares, the rights, o the information specified
privileges, restrictions and conditions attaching to by Schedule Four of the AIM
each class of shares, must be included in the Rules;
company's memorandum of association. o the name of the related
party concerned and the nature
and extent of their interest
* Shares may be issued for consideration in any form, in the transaction; and
including money, a promissory note, or other written o a statement that with the
obligation to contribute money or property, real exception of any director
property, personal property (including goodwill and who is involved in the transaction
knowhow), services rendered or a contract for future as a related party, its directors
services. The consideration for a share with par consider, having consulted
value shall not be less than the par value of the with its nominated adviser,
share. that the terms of the transaction
are fair and reasonable insofar
as its shareholders are concerned.
* If shares are to be issued by a company for a * A Related Party Transaction includes a non
consideration other than money, then the directors pre-emptive issue of securities to a director or a
are required to pass a resolution stating: Substantial Shareholder of the AIM company (and
certain associated persons). A "Substantial
Shareholder" being any person with a legal or
o the amount to be credited beneficial interest directly or indirectly in 10% or
for the issue of the shares; more of any class of AIM securities (excluding
o their determination of treasury shares) or 10% or more of the voting rights
the reasonable present cash (excluding treasury shares) of an AIM company
value of the non-money consideration (subject to certain limited exceptions).
for the issue; and
o that, in their opinion,
the present cash value of * In addition, in certain limited circumstances a
the non-money consideration further admission document will be required to be
for the issue is not less produced by the AIM company when it issues additional
than the amount to be credited shares pursuant to AIM Rule 27 (for example, when
for the issue of the shares. seeking admission of a new class of securities).
* An AIM company's accounts must include certain
disclosures with respect to any transaction with a
related party which exceeds 0.25% in any of the class
tests.
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Share
buy-backs * Under Australian law, a company may reduce its share * The BVI Business Companies Act provides that a * The provisions of AIM Rules 12 (Substantial
and share capital if the reduction is fair and reasonable to company may purchase, redeem or otherwise acquire its transactions) and 13 (Related party transactions)
reductions the company's shareholders as a whole, does not own shares, either in accordance with the procedures shall apply (as noted above) where the share buy back
materially prejudice the company's ability to pay its set out in the BVI Business Companies Act, or any constitutes a Substantial Transaction or a Related
creditors and is approved by shareholders in other procedure as provided for in the company's Party Transaction.
accordance with the Corporations Act and relevant memorandum and articles of association. The BVI
filings are made and the statutory time period is Business Companies Act does not apply to a company to
adhered to. the extent that they are negated, modified or * AIM Rule 21 (Restriction on deals) restricts a
inconsistent with the provisions contained in a company from buying back its shares during a close
company's memorandum and articles. period (where it is in possession of unpublished
* Under the Corporations Act, if the reduction is an price sensitive information, or two months before
equal reduction, it must be approved by an ordinary publication of the half-yearly accounts or annual
resolution passed at a general meeting of the * Under the BVI Business Companies Act, the directors results).
company. However, if the reduction is a selective may make an offer to purchase, redeem or otherwise
reduction, it must be approved by either a: acquire the shares in a company provided that the
offer is either made:
o special resolution passed
at general meeting of the o to all shareholders and
company with no votes cast would, if successful, leave
by those who are to receive the relative voting and distribution
consideration as part of rights unaffected, and affords
the reduction; or each shareholder a reasonable
o a resolution agreed to opportunity to accept the
at a general meeting by offer; or
all ordinary shareholders. o to one or more shareholders
In addition, if the reduction and consented to in writing
involves the cancellation by all shareholders, or otherwise
of shares, it must also permitted by the memorandum
be approved by a special or articles of association.
resolution passed at a Where the offer is to one
meeting of the shareholders or more shareholders pursuant
whose shares are to be to the memorandum or articles
cancelled. of association, the directors
* Under Australian law, a company may buy back its own must have passed a resolution
shares if the buy-back does not materially prejudice to the effect that in their
the company's ability to pay its creditors and the opinion the purchase, redemption
company follows the procedures laid down in the or other acquisition would:
Corporations Act. * benefit the remaining shareholders; and
* Under the Corporations Act: * that the proposed offer is fair and reasonable to the
company and the remaining shareholders.
o shareholder approval
by ordinary resolution * A shareholder may apply to the Court in BVI for an
will be required if the order restraining the proposed purchase, redemption
buy-back will exceed more or other acquisition on the grounds that:
than 10% of the company's
issued capital within a
12 month period; and o the purchase, redemption
o shareholder approval or other acquisition is not
will be required by special in the best interests of
resolution if the buy-back the remaining shareholders;
will not qualify as an or
equal access buy-back (a o the terms of the offer
buy-back will qualify as and the consideration offered
an equal access buy-back for the shares are not fair
if it, among other things, and reasonable to the company
it relates only to ordinary or the remaining shareholders.
shares and the offer is * Shares in the company can be redeemed otherwise than
made equally to all holders at the option of the company if such share is
of ordinary shares, otherwise redeemable at the option of the shareholder and the
the buy-back will be a shareholder gives proper notice to the company of his
selective buy-back). intention to redeem the share.
* Under BVI law a company may hold shares that have
been purchased, redeemed or otherwise acquired as
treasury shares if the memorandum or articles of the
company do not prohibit it from holding treasury
shares (Leyshon Energy's Memorandum and Articles do
not prohibit it holding treasury shares); the
directors resolve that shares to be purchased,
redeemed or otherwise acquired shall be held as
treasury shares; and the number of shares purchased,
redeemed or otherwise acquired, when aggregated with
shares of the same class already held by the company
as treasury shares, does not exceed 50% of the shares
of that class previously issued by the company,
excluding shares that have been cancelled.
* All the rights and obligations attaching to a
treasury share are suspended and cannot be exercised
by or against the company while it holds a share as a
treasury share.
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Winding up
* Voluntary winding up requires the company to pass a * The company's voluntary liquidation commences at the * The AIM Rules do not place any restrictions on the
special resolution that it be wound up voluntarily. time at which notice of the voluntary liquidator's winding up of an AIM company. However, any proposed
Subject to the provisions of the Corporations Act appointment is filed, irrespective of whether the winding up will give rise to disclosure obligations
regarding preferential payments, upon winding up the appointment is brought about by a resolution of the under AIM Rule 11 (General disclosure of price
property of the company must be applied in company's directors or its shareholders. sensitive information).
satisfaction of its liabilities equally and, unless
the company's constitution otherwise provides, be
distributed among the members according to their * A company shall commence to wind up and dissolve by a * In addition, should the AIM company propose a
rights and interests in the company. resolution of directors upon expiration of such time disposal of its business and/or assets which exceeds
as may be prescribed by its memorandum or articles 75% in any of the class tests (a "Fundamental Change
for its existence or if the company has never issued of Business") prior to the winding up, then the
* For winding-up in insolvency or by the court, a any shares or upon the happening of an event which provisions of AIM Rule 15 (Fundamental changes of
distribution of the surplus assets can only be made has been specified by the memorandum or articles as business) shall apply. Where AIM Rule 15 applies such
by order of the court. an event that shall terminate the existence of the Fundamental Change of Business must be:
company. A company many only be placed into solvent
voluntary liquidation if it has no liabilities or if
it is able to pay its debts as they fall due and the o conditional on the consent
value of its assets equals or exceeds the value of of its shareholders being
its liabilities. If the company does not satisfy this given in general meeting;
test then it can only be placed into (insolvent) o notified without delay
voluntary liquidation in accordance with the disclosing the information
procedure set out in Part XII, Division 2 of the BVI specified in Schedule Four
Business Companies Act and the Insolvency Act 2003. of the AIM Rules and insofar
as it is with a related party,
the additional information
* The first step in implementing a voluntary required by AIM Rule 13 (Related
liquidation requires the company's directors to party transactions); and
approve a Liquidation Plan. A Liquidation Plan must o accompanied by the publication
specify: of a circular containing
details of the disposal and
any proposed change in the
o the reasons for the liquidation business together with information
of the company; specified above and convening
o the directors' estimate the general meeting.
of the time required to complete * Shareholder consent under AIM Rule 15 (Fundamental
the liquidation; changes of business) may not be required where the
o whether the liquidator disposal is the result of insolvency proceedings.
is authorised to carry on
the company's business if
he determines that to do
so would be in the best interests
of the company's creditors
or shareholders;
o the names and addresses
of each individual to be
appointed liquidator, and
the remuneration proposed
to be paid to each. It should
be emphasised here that only
individuals (not corporate
entities) can be appointed
liquidators; and
o whether the liquidator
is required to send all the
company's shareholders a
statement of account prepared
or caused to be prepared
by the liquidator in respect
of his actions or transactions.
* In addition to approving the Liquidation Plan, the
directors must make a declaration of solvency stating
that, in their opinion, the company is and will be
able to discharge, pay or provide for its debts as
they fall due.
* The declaration of solvency is a serious matter for
the company's directors and they must have reasonable
grounds for their opinion that the company is and
will continue to be able to pay or provide for its
debts in full as they fall due.
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Takeovers
* The Corporations Act places restrictions on a person * There are no restrictions under BVI company law on a * There are no restrictions under the AIM Rules on a
acquiring relevant interests in the voting shares of person acquiring interests in the voting shares of a takeover offer for an AIM-listed company; however,
an Australian unlisted public company which has more BVI company, regardless of the voting power those large acquisitions by an AIM company which constitute
than 50 members, or an Australian listed company, shares confer on their holder. a Reverse Takeover (defined below) are covered by AIM
where, as a result of the acquisition, that person's Rule 14 (Reverse takeovers).
or someone else's voting power in the company
(together with the voting power of their associates) * A member of a BVI company is entitled, on giving
increases: written notice to the company, to inspect and take * A "Reverse Takeover" is any acquisition or
copies of (among other things) the company's register acquisitions in a twelve month period which for an
of members, although the directors may refuse to AIM company would:
o from 20% or below to allow this if they are satisfied that it would be
more than 20%; or contrary to the company's interests. If the directors
o from a starting point refuse to allow access to the register, the member o exceed 100% in any of the
that is above 20% and below may apply to court for an order that he be allowed class tests;
90%. access, and the court may make such order as it o result in a fundamental
* Certain exceptions apply, such as acquisitions of considers just. change in its business, board
relevant interests in voting shares made under or voting control; or
takeover bids or made with shareholder approval, or o in the case of an investing
creeping acquisitions of not more than 3% in a 6 * Subject to the memorandum or articles of association company, depart materially
month period. of a company, members of the company holding 90% of from its investing policy
the votes of the outstanding shares entitled to vote (as stated in its admission
may give a written instruction to a company directing document or approved by shareholders
* The Corporations Act permits compulsory acquisition the company to redeem the shares held by the in accordance with the AIM
of the shares for which acceptances have not been remaining members. Leyshon Energy's Memorandum and Rules).
received, where a bidder holds not less than a 90% Articles do not prohibit this compulsory redemption * Any agreement which would effect a Reverse Takeover
relevant interest in the relevant securities. mechanism. Upon receipt of the written instruction, must be:
the company is required to redeem the shares
specified in the written instruction irrespective of
* Takeover bids must treat all shareholders alike and whether or not the shares are by their terms o conditional on the consent
must not involve any collateral benefits. redeemable and to give written notice to each member of its shareholders being
whose shares are to be redeemed stating the given in general meeting;
redemption price and the manner in which the o notified without delay
redemption is to be effected. disclosing the information
specified by Schedule Four
of the AIM Rules and insofar
as it is with a related party,
the additional information
required by AIM Rule 13 (Related
party transactions); and
o accompanied by the publication
of an admission document
in respect of the proposed
enlarged entity and convening
the general meeting.
* Where shareholder approval is given for the reverse
takeover, trading in the AIM securities of the AIM
company will be cancelled. If the enlarged entity
seeks admission, it must make an application in the
same manner as any other applicant applying for
admission of its securities for the first time.
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Limitation
on directors' * Under the Corporations Act a company or a related * BVI law does not limit the extent to which a * Under AIM Rule 31 (AIM company and directors'
liability body corporate must not exempt a person (whether company's articles of association may provide for responsibility for compliance), an AIM company must
directly or via an interposed entity) from a indemnification of officers and directors, except to ensure that each of its directors accepts full
liability to the company incurred as an officer of the extent any such provision may be held by the responsibility, collectively and individually, for
the company. court to be contrary to public policy (e.g. for its compliance with the AIM Rules.
purporting to provide indemnification against the
consequences of committing a crime). Any expenses
* A company or a related body corporate cannot that are the subject of the indemnification must be * An AIM company must also ensure that each director
indemnify a director from any of the following reasonably incurred. discloses to the company without delay all
liabilities incurred as an officer of the company: information which the company needs in order to
comply with the company's disclosure obligations
* An indemnity will be void and of no effect and will under AIM Rule 17 (Disclosure of miscellaneous
o a liability owed to the not apply to a person unless the person acted information) insofar as that information is known to
company; honestly and in good faith and in what he believed to the director or could with reasonable diligence be
o a liability for a pecuniary be in the best interests of the company and, in the ascertained by the director.
penalty or a compensation case of criminal proceedings, the person had no
order incurred under the reasonable cause to believe that his conduct was
Corporations Act; or unlawful.
o a liability that is owed
to someone other than the
company or a related body * Nonetheless, it is possible that an indemnity may
corporate and did not arise apply notwithstanding the breach by a director of his
out of conduct in good or her statutory duties.
faith. This prohibition
does not apply to legal
costs (but the Corporations
Act also restricts a company
from indemnifying directors
against certain types of
legal costs).
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Disclosure
of * Under the Corporations Act, a shareholder who begins * There is no obligation to inform a BVI company of any * Under AIM Rule 17 (Disclosure of miscellaneous
substantial or ceases to have a substantial holding in a company beneficial interests in that company's shares, nor information), any relevant changes to any
holdings listed on ASX or has a substantial holding in a any obligation under BVI company law to inform any "Significant Shareholder" (being any person with a
company listed on ASX and there is a movement by at third party of any interest (legal or beneficial) holding of 3% or more in any class of the company's
least 1% in their holding, must give a notice to the held in a BVI company. AIM securities (excluding treasury shares)) must be
company and ASX. A person has a substantial holding notified by the AIM company without delay ('relevant
if that person and that person's associates have a changes' meaning an increase or decrease of a
relevant interest in 5% or more of the voting shares * A member of a BVI company is entitled, on giving Significant Shareholders' holding in the AIM company
in the company. written notice to the company, to inspect and take through any single percentage).
copies of (among other things) the company's register
of members, although the directors may refuse to
allow this if they are satisfied that it would be * The notes to AIM Rule 17 (Disclosure of miscellaneous
contrary to the company's interests. If the directors information) require an AIM company incorporated
refuse to allow access to the register, the member outside of the UK to use all reasonable endeavours to
may apply to court for an order that he be allowed comply with the provisions of AIM Rule 17,
access, and the court may make such order as it notwithstanding that the local law applicable to such
considers just. AIM company does not include provisions which are
similar (as BVI law does not).
* However, Leyshon Energy's Memorandum and Articles
incorporate the provisions of DTR 5. Accordingly,
Leyshon Energy Shareholders must notify Leyshon
Energy if, as a result either of an acquisition or
disposal of Leyshon Energy Shares or changes in the
total voting rights attached to Leyshon Energy's
Shares, the percentage of voting rights which that
shareholder holds, or has control over, reaches,
exceeds or falls below 3% and in respect to each
additional change of 1% or more. Leyshon Energy must
then disclose this information to the market "without
delay".
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Protection
of minority * Under Australian law, a shareholder of an Australian * The BVI Business Companies Act introduced a series of * There are no provisions in the AIM Rules which govern
shareholders company may apply to the court under the Corporations remedies available to members. Where a company minority protection actions such as derivative
Act to bring an action in cases of conduct which is incorporated under the BVI Business Companies Act actions.
either contrary to the interests of shareholders as a conducts some activity which breaches the BVI
whole, or oppressive to, unfairly prejudicial to, or Business Companies Act or the company's memorandum
unfairly discriminatory against, any shareholders in and articles of association, the court can issue a
their capacity as a shareholder, or themselves in a restraining or compliance order. Members can now also
capacity other than as a shareholder. bring the following actions:
o derivative actions: these
may be brought at the discretion
of the court, where the court
concludes that:
* the company does not intend to bring, diligently
continue or defend, or discontinue the proceedings;
or
* it is in the interests of the company that the
conduct of the proceedings should not be left to the
directors or to the determination of the shareholders
or members as a whole;
o personal actions (for breach
of a duty owed by the company
to the shareholder as a member);
and
o representative actions:
where a member of a company
brings proceedings against
the company and other members
have the same or substantially
the same interest in relation
to the proceedings, the court
may appoint that member to
represent all or some of
the members having the same
interest and the court's
powers include the ability
to make an order
* as to the control and conduct of the proceedings;
* as to the costs of the proceedings; and
* directing the distribution of any amount ordered to
be paid by a defendant in the proceedings among the
members represented.
* The traditional English basis for members' remedies
have also been incorporated into the BVI Business
Companies Act - where a member of a company considers
that the affairs of the company have been, are being
or are likely to be conducted in a manner likely to
be oppressive, unfairly discriminating or unfairly
prejudicial to him, he may now apply to the court for
an order on such conduct.
* Any member of a company may petition the court which
may make a winding up order if the court is of the
opinion that it is just and equitable that the
company should be wound up.
* The BVI Business Companies Act provides that any
member of a company is entitled to payment of the
fair value of his shares upon dissenting from any of
the following:
o a merger;
o a consolidation;
o any sale, transfer, lease,
exchange or other disposition
of more than 50% in value
of the assets or business
of the company if not made
in the usual or regular course
of the business carried on
by the company, but not including:
* a disposition pursuant to an order of the court
having jurisdiction in the matter;
* a disposition for money on terms requiring all or
substantially all net proceeds to be distributed to
the members in accordance with their respective
interest within one year after the date of
disposition; or
* a transfer pursuant to the power of the directors to
transfer assets for the protection thereof;
o a redemption of 10%, or
fewer of the issued shares
of the company required by
the holders of 90% or more
of the shares of the company
pursuant to the terms of
the BVI Business Companies
Act; and
o an arrangement, if permitted
by the court.
* Generally, any other claims against a company by its
shareholders must be based on the general laws of
contract or tort applicable in BVI or their
individual rights as shareholders as established by
the company's memorandum and articles of association.
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Accounting
and auditors * Under the Corporations Act a company must report to * A company must keep such records that are sufficient * An AIM company must prepare half-yearly reports
members for a financial year by providing financial to show and explain the company's transactions and pursuant to AIM Rule 18 (Half-yearly reports), such
reports for the year, a directors' report for the will, at any time, enable the financial position of reports to be notified without delay and in any event
year and an auditor's report on the financial report the company to be determined with reasonable not later than three months after the end of the
or a concise report as specified under the accuracy. relevant period.
Corporations Act.
* There is no obligation under BVI company law to * An AIM company must publish annual audited accounts
* The directors of a public company must appoint an report, audit or lodge accounts. that must be sent to shareholders without delay and
auditor within 1 month after the day on which the in any event no later than six months after the end
company is registered; however this appointment is of the financial year to which they relate pursuant
subject to confirmation at the next annual general to AIM Rule 19 (Annual Accounts).
meeting (AGM). A public company must appoint an
auditor of the company to fill any vacancy in the
office of auditor at each subsequent AGM. * An AIM company incorporated outside of the EEA must
prepare and present these accounts in accordance with
certain standards, which in the case of Leyshon
Energy shall be International Accounting Standards.
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Directors'
remuneration * The Corporations Act requires companies to provide * BVI company law does not impose on a company any * The admission document must contain information on
members with a remuneration report setting out the obligation to provide members with a remuneration directors' remuneration pursuant to AIM Rule 3
details of remuneration of key management personnel report. (Admission document) and Schedule 2(b)(i)) of the AIM
(which includes any executive directors of a company Rules.
listed on ASX) (Remuneration Report).
* There is no equivalent under BVI law to the "two
strikes" rule which applies to ASX listed Australian * AIM Rule 19 (Annual Accounts) also requires an AIM
* The Remuneration Report must be put to a member vote companies (see the 'Australian law' column). company's annual audited accounts to contain details
at the AGM of a company listed on ASX. Where the of directors' remuneration earned in respect of the
Remuneration Report receives a "no" vote of 25% or financial year by each director of the company during
more for two consecutive years, members will vote to that period.
determine whether the directors will need to stand
for re-election within 90 days (known as a Spill
Resolution). This is known as the "two strikes" rule.
* If the Spill Resolution passes with 50% or more of
the eligible votes cast, another meeting of members
must be held within 90 days for the re-election of
directors.
* The Corporations Act also requires member approval
for certain remuneration payments to related parties
(including directors).
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Transactions
requiring * The Corporations Act requires that a public company * Subject to the memorandum or articles of a company, * Where there is a Reverse Takeover (defined above),
shareholder must get shareholder approval before giving a any sale, transfer, lease, exchange or other shareholders must give consent in a general meeting
approval financial benefit to a related party unless the deal disposition, other than a mortgage, charge or other pursuant to AIM Rule 14 (Reverse takeovers).
is on arm's length terms. encumbrance or the enforcement thereof, of more than
50% in value of the assets of the company, other than
a transfer by the company to trustees to protect the * Where there is a Fundamental Change of Business
company's assets, if not made in the usual or regular (defined above) shareholders must give consent in a
course of the business carried on by the company must general meeting pursuant to AIM Rule 15 (Fundamental
be approved by both the directors and by a resolution changes of business).
of the shareholders.
* Leyshon Energy's Memorandum and Articles provide that
the directors may by resolution of directors
determine that any sale, transfer, lease, exchange or
other disposition is in the usual or regular course
of the business carried on by the company and such
determination is, in the absence of fraud,
conclusive.
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Disclosure
of directors' * The Corporations Act requires a director with a * A director is obliged to disclose any interests he * For the purposes of AIM Rule 13 (Related party
interests material personal interest in a matter that relates may have in a transaction to be entered into by the transactions) a director of an AIM company is a
in to the affairs of the company to notify the other company (although, in accordance with Leyshon related party and therefore the disclosure
transactions directors of this interest. Unless approved by the Energy's Memorandum and Articles, he remains entitled requirements applicable to Related Party Transactions
other directors or ASIC, the interested director must in certain circumstances to vote on the transaction, (set out above) will apply to transactions between
not be present while the matter is being considered attend meetings in relation to it and be counted for the AIM company and its directors.
or vote on the matter. the purposes of the quorum). Should he fail to do so,
the transaction will be voidable by the company,
unless the material facts of the interest are * AIM Rule 17 (Disclosure of miscellaneous information)
disclosed to the members and the members nevertheless also requires that an AIM company must issue
ratify or approve the transaction, or the company notification without delay of any deals by directors
receives fair value for it. disclosing, insofar as it has such information, the
information specified by Schedule 5 of the AIM Rules.
For these purposes "deal" includes:
o any change whatsoever in
the holding of AIM securities
held by the director or a
member of the director's
family; and
o the acquisition, disposal
or discharge (in whole or
in part) of a related financial
product referenced to AIM
securities of the AIM company
held by the director or a
member of the director's
family.
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Proxies and * N/A
voting * Voting at a meeting of a company is generally by a * Voting at a meeting of the company is generally by
show of hands unless a poll is demanded. Members are show of hands unless the chairman decides to conduct
generally permitted to appoint up to 2 proxies in a poll or a member demands a poll. Members may be
writing to represent and vote on behalf of a member represented by a proxy.
at a meeting.
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Variations * N/A
of * Under Australian law, the constitution sets out the * The BVI Business Companies Act does not expressly
shareholders' mechanism for the variation or cancellation of the provide that class rights may only be varied with the
rights rights attached to shares in a particular class. consent of a specific majority of the holders of
shares of the relevant class.
* Where the constitution does not address the issue of
variation or cancellation of class rights, under the * However, Leyshon Energy's Memorandum and Articles
Corporations Act a special resolution is required provide that the rights attached to any class may
(that is, the shareholders of all classes) in favour only be varied, whether or not Leyshon Energy is in
of varying or cancelling the rights attached to a liquidation, with the consent in writing of or by a
particular class of shares. It also requires either: resolution passed at a meeting by the holders of not
that the shareholders in that class pass a special less than 50% of the issued shares in that class.
resolution in favour of the variation or cancellation,
or alternatively the written consent of shareholders
with at least 75% of the votes in that class.
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Right to * N/A
require * Under the Corporations Act, the directors of a * Under BVI law, shareholders holding 30% of voting
meetings company must, on a request in writing (stating any rights may require the company to hold a general
resolutions to be proposed at the meeting) from meeting.
members with at least 5% of the votes that may be
cast at the general meeting, or at least 100 members
who are entitled to vote at the meeting, call and * However, Leyshon Energy's Memorandum and Articles
arrange to hold a general meeting. provide that the directors must call a meeting of
members if requested in writing to do so by members
entitled to exercise at least 25% of the voting
rights in respect of the matter for which the meeting
is requested.
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Annual * N/A
general * Under the Corporations Act, a public company must, in * There is no requirement under the BVI Business
meetings addition to any other meeting it holds, hold an AGM Companies Act for a company to hold an AGM.
at least once in each calendar year.
* However, Leyshon Energy's Memorandum and Articles
* The directors of a public company must lay before the provide that it will hold an annual general meeting
AGM a financial report, directors' report and at least every 15 months.
auditor's report for the last financial year.
* The business of an AGM may include (even if not
referred to in the notice of meeting) the
consideration of the annual financial report,
directors' report and auditor's report, the election
of directors; the appointment of the auditor; and the
fixing of the auditor's remuneration.
* The chairperson must allow a reasonable opportunity
for the members as a whole at the meeting to ask
questions about, or make comments on, the management
of the company and various other issues.
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Amendments
to the * For an Australian company to change its constitution, * Leyshon Energy, as a BVI company, may amend its * An AIM company is required to keep a copy of its
constitution a special resolution of shareholders is required. Memorandum or Articles by a simple resolution of current constitutional documents available on its
or memorandum directors. website pursuant to AIM Rule 26 (Company information
and articles disclosure).
of
association * However, Leyshon Energy's Memorandum and Articles
provide that the rights attaching to Leyshon Energy
Shares may only be varied with the consent in writing
of or by a resolution passed by the holders of more
than 50% of the issued Leyshon Energy Shares. In
addition, no amendment may be made by a resolution of
directors:
o to restrict the rights
or powers of the Leyshon
Energy Shareholders to amend
the Memorandum or Articles;
o to change the percentage
of Leyshon Energy Shareholders
required to pass a resolution
of Leyshon Energy Shareholders
to amend the Memorandum or
Articles;
o in circumstances where
the Memorandum or Articles
cannot be amended by the
Leyshon Energy Shareholders;
or
o to various clauses in the
Memorandum governing the
rights of Leyshon Energy
Shares.
-------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -----------------------------------------------------------------
Schedule 3 - Independent Expert's Report
LEYSHON RESOURCES LIMITED
Independent Expert's Report
2 December 2013 BDO CORPORATE FINANCE (WA) PTY LTD
Financial Services Guide
2 December 2013
BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 ("we" or
"us" or "ours" as appropriate) has been engaged by Leyshon
Resources Limited ("Leyshon") to provide an independent expert's
report on the proposal to demerge Pacific Asia Petroleum Limited
("PAPL") from Leyshon. You will be provided with a copy of our
report as a retail client because you are a shareholder of
Leyshon.
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.
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 for
this engagement is approximately $20,000.
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.
Other Assignments - In May 2013 BDO Corporate Finance (WA) Pty
Ltd was engaged to report on transactions in relation to the
submission by Leyshon Energy to trading its shares on AIM, and BDO
received fees in relation to these engagements that are not
contingent on any outcome.
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 Leyshon Resources 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
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TABLE OF CONTENTS
1. Introduction 2
2. Summary and Opinion 2
3. Scope of the Report 4
4. Outline of the Proposal 5
5. Profile of Leyshon Resources Limited 5
6. Profile of PAPL 13
7. Profile of Leyshon Energy 15
8. Economic analysis 15
9. Industry analysis 16
10. Advantages of approving the Proposal 19
11. Disadvantages of approving the Proposal 20
12. Other key factors relevant to assessing the Proposal 21
13. Conclusion 22
14. Sources of information 23
15. Independence 23
16. Qualifications 24
17. Disclaimers and consents 24
Appendix 1 - Glossary of Terms 26 2
2 December 2013
The Directors
Leyshon Resources Limited
Suite 3, Level 3
1292 Hay Street
WEST PERTH, WA 6005
Dear Sirs
INDEPENDENT EXPERT'S REPORT
1. Introduction
Leyshon Resources Limited ("Leyshon" or "the Company") intends
to transfer all of its shares in its wholly owned subsidiary
Pacific Asia Petroleum Limited ("PAPL") to Leyshon Energy Limited
("Leyshon Energy") in consideration for Leyshon Energy shares and
demerge Leyshon Energy.
The demerger is proposed to be undertaken via an in-specie
distribution of the entire share capital of Leyshon Energy to
existing Leyshon shareholders on a pro rata basis pursuant to an
equal capital reduction under section 256B of the Corporations Act
("the Proposal").
2. Summary and Opinion
2.1 Purpose of the report
The directors of Leyshon 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
advantages of the proposed demerger of PAPL outweigh the
disadvantages to the non associated shareholders of Leyshon
("Shareholders").
Our Report is prepared in order to assist the Shareholders in
their decision whether to approve the Proposal. Our Report is to be
included in the Explanatory Memorandum for Leyshon to be sent to
all Shareholders to assist them in deciding whether to approve the
Proposal.
2.2 Approach
There is no requirement under ASX Listing Rules or Corporations
Act Regulations for Leyshon to engage an independent expert in
relation to the Proposal. Our Report has been prepared having
regard to Australian Securities and Investments Commission ("ASIC")
Regulatory Guide 111 ("RG 111"), 'Content of Expert's Reports' and
Regulatory Guide 112 ("RG 112") 'Independence of Experts'.
In arriving at our opinion, we have assessed the terms of the
Proposal as outlined in the body of this report. We have
considered:
-- How the advantages of the Proposal compare to the disadvantages of the Proposal; and
-- Other factors which we consider to be relevant to the
Shareholder in their assessment of the Proposal.
2
2.3 Opinion
We have considered the terms of the Proposal as outlined in the
body of this report and have concluded that, in the absence of a
superior offer, the advantages outweigh the disadvantages to
Shareholders.
2.4 Advantages and disadvantages
We have considered the analysis in sections 10 and 11 of this
report, in terms of both the advantages and disadvantages of the
Proposal:
Advantages (section 10) Disadvantages (section 11)
Clear separation of distinct Loss of synergies / increased
businesses on-going costs
Opportunity to separately access Reduced liquidity of shares
capital markets
Shareholder flexibility One-off costs of listing on AIM
Takeover potential Loss of diversification
Possible increase in cost of funds
In our opinion, the position of Shareholders if the Proposal is
approved is more advantageous than the position if the Proposal is
not approved. In particular we note that:
-- The Shareholders will have the same ownership interest in the
same proportions in the demerged entities as they currently do in
Leyshon and PAPL. Shareholders can replicate a diversification that
would be lost by Leyshon following the demerger by retaining their
investments in Leyshon and Leyshon Energy;
-- The demerger will result in two discrete companies that are
able to focus on their own activities, that are more transparent to
investors who will be able to consider the attributes and
performance of each company in the context of respective peer
groups, and will provide Shareholders with the flexibility to
choose their exposure to each company;
These advantages are considered to outweigh the disadvantages,
which include:
-- Leyshon Energy shares will only trade on AIM. The directors
do not intend to apply for admission to the ASX;
-- Increased costs due to a loss of synergies and one off costs
in relation to application to listing; and
-- The possibilities that the demerged entities will incur
increased costs of funds and experience decreased liquidity.
2.5 Other key matters
Other key matters we have considered include:
Section Description
12.1 We are not aware of any alternative transactions
12.2 Shareholder protection and regulations of British
Virgin Islands
12.3 Value to be received by ineligible Shareholders
3
3. Scope of the Report
3.1 Purpose of the Report
There is no requirement under ASX Listing Rules or Corporations
Act Regulations for Leyshon to engage an independent expert in
relation to the Proposal.
Notwithstanding the above, Leyshon engaged BDO to prepare this
report to provide to Shareholders to assist them in deciding
whether to accept or reject the Proposal.
3.2 Regulatory guidance
In determining the basis of our evaluation and opinion, we have
had regard to the views expressed by the ASIC in RG 111.
RG 111.35 and RG 111.36 suggest:
In the case of a demerger, if there is not;
-- a change in underlying economic interests of security holders;
-- a change of control; or
-- selective treatment of different security holders;
then the issue of "value" may be of secondary importance.
An expert should provide an opinion as to whether the advantages
of the demerger outweigh the disadvantages.
An expert may choose to consider whether the value of the
demerged entities is greater than or less than the value of the
original entity.
RG 111.38 states that in a demerger, security holders will
typically have to balance issues such as the benefits of a greater
focus afforded to the demerged entities against increased costs and
reduction in diversified earnings streams.
In determining whether the advantages of the Proposal outweigh
the disadvantages, we have had regard to the views expressed by
ASIC in RG 111. This Regulatory Guide suggests that an opinion as
to whether the advantages of a transaction outweigh the
disadvantages should focus on the purpose and outcome of the
transaction, that is, the substance of the transaction rather than
the legal mechanism to affect it.
RG 111 sets out that the expert should inquire whether further
transactions are planned between the entity, the vendor or their
associates and if any are contemplated determine if these are at
arm's length. RG 111 also suggests that an expert should consider
whether the transaction will deter the making of a takeover
bid.
3.3 Adopted basis of evaluation
RG 111 suggests that the main purpose of an independent expert's
report is to adequately deal with the concerns that could
reasonably be anticipated of those persons affected by the
transaction.
Having regard to RG 111, we have completed our Report as
follows:
-- An investigation into the advantages and disadvantages of the
Proposal (Sections 8 and 9); and
-- An analysis of any other issues that could be reasonably
anticipated to concern Shareholders as a result of the Proposal
(Section 10).
4
We note the Proposal does not require an assessment of fairness
to be undertaken, as there is no offer or consideration of which we
can evaluate the fairness. Such an assessment is undertaken when
analysing control transactions. As there is no change in the
underlying economic interests of security holders or change in
control, the Proposal to demerge PAPL is not a control
transaction.
4. Outline of the Proposal
The Proposal is for the Company to transfer all of its shares in
its subsidiary, PAPL, and approximately US$35.3 million cash to
Leyshon Energy in exchange for Leyshon Energy shares and then
demerge Leyshon Energy. If the Proposal is approved then the entire
issued share capital of Leyshon Energy will be issued pro rata to
existing Leyshon Shareholders.
Under the Proposal, Shareholders will receive one Leyshon Energy
share for every one Leyshon share which they are registered as
owning at the demerger record date. Immediately following the
Proposal, Leyshon shareholders will hold an interest in Leyshon
Energy in proportion to their interest in Leyshon prior to the
Proposal.
Ineligible foreign Shareholders will not receive Leyshon Energy
shares. Shares that would otherwise have been attributed to
ineligible shareholders will be sold by Leyshon on that
Shareholder's behalf as soon as is practicable after the record
date, and will then account for the net proceeds of the sale to
that Shareholder.
The members of the Board of Leyshon Energy will consist of Mr
John Manzoni, Mr Paul Atherley, and Mr Kim Howell following the
completion of the proposal. Both companies will seek to change
their respective board compositions following completion of the
Proposal.
Following the Proposal, Leyshon Energy intends to list on the
AIM exchange. The Proposal will not be implemented unless Leyshon
Energy shares are admitted to trading on AIM.
5. Profile of Leyshon Resources Limited
5.1 History
Leyshon is a China focused resource company focused on the
Zijinshan block located on the Eastern flank of the Ordos Basin,
which is China's second largest and regarded by Leyshon as one of
the world's major gas producing basins.
Leyshon was incorporated in Australia in 1983 and obtained
admission to the ASX during January 1985 as well as readmission to
the Alternative Investment Market ("AIM"). The Company's head
office is located in Perth, Western Australia. Its board of
Directors comprise of the following members:
-- Paul Atherley - Managing Director
-- Andrew Berry III - Non-Executive Director
-- Richard Seville - Non-Executive Director
The Company ceased trading on AIM in December 2009 following
disposal of its interest in the Zheng Guang gold zinc project in
Heilongjiang province, China, for a profit of $28.4 million. The
Company was readmitted to AIM in December 2010 and raised
approximately $7 million before costs as it sought to make new
investments. The shares were placed with a number of high profile
Beijing based institutional investors, including China-focused
investment firm, IDG Capital Partners, which became a major
shareholder.
5
In August 2012 the Company acquired Hong Kong based company,
PAPL, from Houston based CAMAC Energy Inc. The acquisition was
completed on 6 August 2012 for a consideration of US$2.5 million in
cash and the issue of 10,000,000 fully paid ordinary shares.
5.2 Projects
Zijinshan Gas Project
The acquisition of Hong Kong based company PAPL from Houston
based CAMAC Energy Inc was completed on 6 August 2012 for a
consideration of US$2.5 million in cash and the issue of 10,000,000
fully paid ordinary shares. PAPL's key asset is a 100% interest in
the Zijinshan Production Sharing Contract ("PSC") located on the
eastern fringe of the prolific Ordos Gas Basin in Central China.
Please see section 6 for further details of the Zijinshan Gas
Project.
Mt Leyshon gold mine
The Mt Leyshon gold mine consists of five mining licenses that
are 100% owned by Leyshon. The mine operated from 1987 as an open
pit gold mine producing over 2.5 million ounces of gold and 2.3
million ounces of silver. The mine was closed in 2002.
Leyshon and Newmont Australia Limited ("Newmont") entered into a
management agreement in respect of the closure of the Mt Leyshon
gold mine. Prior to this restructure, under statutory requirement
Leyshon had entered into compensation agreements with landholders,
part of whose land was covered by the Company's mining leases at Mt
Leyshon. Advance compensation until 2002 was paid on the basis that
production from Mt Leyshon would have ceased by this time. Leyshon
and Newmont have reached settlement for the landholder compensation
agreements, and the Company is required to make a final payment of
$1.1 million under the landholder compensation agreements. Leyshon
has continuing primary responsibility to the landholders while it
remains the holder of the mining leases. Newmont continues to
undertake rehabilitation responsibilities.
Preliminary testwork programme carried out in 2012 indicated
that the Mt Leyshon gold project is viable but requires significant
capital for a relatively modest return, and the Company has decided
not to proceed with the project at this time.
5.3 Historical Balance Sheet
Reviewed as Audited as Audited as
at at at
30-Jun-13 30-Jun-12 30-Jun-11
US$ $ $
Cash and cash equivalents 40,062,039 51,014,837 52,901,790
Trade and other receivables 187,473 780,286 743,088
Other assets 61,120 18,675 8,923
TOTAL CURRENT ASSETS 40,310,632 51,813,798 53,652,801
Other financial assets 13,699 15,000 15,000
Plant and equipment 241,840 23,187 29,177
Exploration and evaluation 4,860,025 - -
assets
TOTAL NON-CURRENT ASSETS 5,115,564 38,187 44,177
TOTAL ASSETS 45,426,196 51,851,985 53,697,978
Trade and other payables 6,501,069 1,268,538 183,873
Current tax liabilities 19,384 173,732 313,589
Provisions 92,933 60,719 62,890
TOTAL CURRENT LIABILITIES 6,613,389 1,502,989 560,352
Trade and other payables - 1,042,771 -
Deferred tax liability 1,121,544 - -
TOTAL NON CURRENT LIABILITIES 1,121,544 1,042,771 -
TOTAL LIABILITIES 7,734,930 2,545,760 560,352
NET ASSETS 37,691,266 49,306,225 53,137,626
Issued capital 50,071,050 70,675,495 71,102,376
Reserves 3,285,967 (2,643) (18,613)
Accumulated losses (22,665,751) (21,366,627) (17,946,137)
TOTAL EQUITY 37,961,266 49,306,225 53,137,626
Source: Reviewed financial report for the half year ended 30
June 2013, Audited Statement of Financial Position as at 30 June
2012 and 30 June 2011
Effective 1 January 2013, the Company changed its presentation
currency from Australian dollars ($) to United States dollars
(US$).
The most significant asset on the balance sheet of Leyshon is
cash and cash equivalents. Cash decreased from $51.1 million at
June 2012 to $40.1 million at 30 June 2013 primarily due to the
acquisition of PAPL for which consideration included $2.4 million
in cash, expenditure on exploration and evaluation of $2.3 million,
and costs associated with the buy-back of shares of $0.9
million.
During the year ended 30 June 2013 the Company purchased
4,854,171 shares at an average of $0.18 per share under an on
market share buy-back programme. The programme was extended to 13
September 2013.
7
Exploration and evaluation assets of $5.3 million were
recognised on acquisition of PAPL in August 2012, as well as plant
and equipment of $0.2 million. Subsequent exploration expenditure
has been expensed in the income statement and will be until such a
point that it can be determined that costs can be recouped through
future successful development of the Zijinshan Gas Project.
Deferred tax liabilities of $1.2 million are recognised in
relation to PAPL under AASB 112 "Income Taxes". On the basis that
future revenue is from operations in China, an income tax benefit
will be received representing the amortisation of deferred tax
liability in line with amortisation of the related exploration and
evaluation assets.
Trade and other payables include amounts payable in relation to
Mt Leyshon compensation agreements that the Company has entered
into under statutory requirement with landholders whose lands were
covered by the Company's mining leases at the Mt Leyshon site.
Under the agreements, Leyshon is required to make payments
totalling $1.1 million.
5.4 Historical Statement of Comprehensive Income
Reviewed as Audited as Audited as
at at at
30-Jun-13 30-Jun-12 30-Jun-11
US$ $ $
Revenue 743,138 3,064,425 3,011,462
Expenditure
Exploration expenditure 5,503,328 20,975 83,050
Project evaluation 856,589 1,398,283 1,282,960
Administration expenses 901,283 1,760,426 1,539,408
AIM readmission expenses - - 399,254
Foreign exchange losses/(gains) (1,792,826) 12,955 13,933
Mt Leyshon holding costs 46,204 3,014,171 224,484
(Loss) before income tax (4,771,440) (3,142,385) (531,637)
Income tax expense (10,603) (278,105) (248,347)
Loss for the period (4,782,043) (3,420,490) (779,984)
Exchange differences on
translating foreign operations (5,348,272) 15,970 (24,479)
Total comprehensive loss
for the period (10,130,315) (3,404,520) (804,733)
Source: Reviewed financial report for the half year ended 30
June 2013, Audited Statement of Financial Position as at 30 June
2012 and 30 June 2011
Effective 1 January 2013, the Company changed its presentation
currency from Australian dollars ($) to United States dollars
(US$).
Exploration expenses have been incurred following the
acquisition of PAPL in August 2012. In the period to 30 June 2013
drilling, wire logging and flow testing of two of wells was
completed on PAPL's Zijinshan Gas Project.
During the year ended 30 June 2011 the company completed its
readmission to AIM, and placed 30,435,130 shares, and incurred
associated costs of $0.4 million.
8
Mt Leyshon holding costs have been incurred in relation to the
compensation agreement with landholders whose lands were covered by
the Company's mining leases at the Mt Leyshon mine site, as noted
in section 5.3 above.
5.5 Capital Structure
The share structure of Leyshon as at 30 November 2013 is
outlined below:
Number
Total ordinary shares on issue 249,457,212
Top 20 shareholders 207,666,827
Top 20 shareholders - % of shares
on issue 83.2%
Source: Leyshon company website 2 December 2013
The ordinary shares held by the most significant shareholders as
at 30 November 2013 are detailed below:
Name Number of Ordinary Percentage of
Shares Held Issued Shares
(%)
COMPUTERSHARE CLEARING PTY
LTD <CCNL DI A/C> 127,066,512 50.9%
NORTH ASIA METALS LTD 31,330,000 12.6%
NEWMONT NGL HOLDINGS PTY
LTD 12,500,000 5.0%
ARREDO PTY LTD 6,000,000 2.4%
CITICORP NOMINEES PTY LTD 4,199,748 1.7%
MR IAN PETER MIDDLEMAS 3,500,000 1.4%
BLACK GOLD NOMINEES PTY
LTD 2,949,500 1.2%
YSY INVESTMENTS PTY LTD 2,740,714 1.1%
NATIONAL NOMINEES LIMITEDYSY
INVESTMENTS PTY LTD 2,348,527 0.9%
CLEVELAND INVESTMENT GLOBAL
LTD 2,202,824 0.9%
Total top 10 194,837,825 78.1%
Others 54,619,387 21.9%
Total ordinary shares on
Issue 249,457,212 100.00%
Source: Leyshon company website 2 December 2013
*The most significant shareholder, Computershare Clearing Pty
Ltd, relates to a centralised deposit company which represents the
investments of numerous individuals traded on AIM.
Leyshon also had 2,500,000 performance rights on issue, held by
Mr Paul Atherley. These performance rights have the following
conditions relating to the Zijinshan PSC attached:
Performance condition Vesting performance rights
Pilot production - commencement
of gas sales. 1,250,000
Approval of Chinese Reserves
Report by the relevant Chinese
authorities. 625,000
Approval of Overall Development
Plan by the relevant Chinese
authorities. 625,000
9
5.6 Quoted market share price
The following charts provide a summary of the share price
movement over the 12 months to 1 December 2013. Leyshon is listed
on both AIM and ASX. We have analysed the share price movement and
trading volumes on AIM and ASX separately.
(Please refer to separate pdf attachment for charts).
10
The daily price of Leyshon shares from 2 December 2012 to 1
December 2013 has ranged from a low of $0.110 on 28 November 2013
to a high of $0.300 on 31 May 2013. During this period a number of
announcements were made to the market. The key announcements are
set out below:
Date Announcement Closing Share Closing Share
Price Following Price Three Days
Announcement After Announcement
$ (% movement) $ (% movement)
29/10/2013 Quarterly Cashflow Report 0.135 4 0% 0.125 6 7%
29/10/2013 Quarterly Activities Report 0.135 4 0% 0.125 6 7%
17/09/2013 ZJS7 Well Drilling Completed 0.175 6 8% 0.160 6 9%
Separation of Energy and
13/09/2013 Mineral Assets 0.150 4 0% 0.175 5 17%
31/07/2013 Quarterly Cashflow Report 0.200 5 8% 0.205 5 2%
31/07/2013 Quarterly Activities Report 0.200 5 8% 0.205 5 2%
Commenced Drilling Well
23/07/2013 ZJS7 0.190 4 0% 0.190 4 0%
Update on Well ZJS6 And
17/06/2013 Well ZJS7 0.215 6 16% 0.180 6 16%
Commercial Flow Recorded
28/05/2013 At Well ZJS5 0.260 5 18% 0.285 5 10%
22/05/2013 Update On Well Testing 0.235 5 7% 0.220 6 6%
Exploration Period Extension
2/05/2013 To 2017 0.210 4 0% 0.200 6 5%
22/04/2013 Quarterly Cashflow Report 0.230 5 2% 0.220 6 4%
22/04/2013 Quarterly Activities Report 0.230 5 2% 0.220 6 4%
2/04/2013 Update On Well Testing 0.265 5 2% 0.230 6 13%
18/03/2013 Commencement Of Testing 0.280 5 4% 0.265 6 5%
Commences $20 million
Exploration and Appraisal
25/02/2013 Programme 0.230 6 2% 0.245 5 7%
25/01/2013 Quarterly Cashflow Report 0.210 4 0% 0.235 5 12%
25/01/2013 Quarterly Activities Report 0.210 4 0% 0.235 5 12%
Second Well Encounters
9/01/2013 Multiple Pay Zones 0.220 5 5% 0.205 6 7%
Completed Flow Testing
18/12/2012 ZJS5 0.250 6 12% 0.200 6 20%
Commenced Flow Testing
10/12/2012 ZJS5 and Drilling ZJS6 0.270 6 2% 0.280 5 4%
The announcement of completion of flow testing at the ZJS5 well
on 18 December 2012 saw Leyshon's share price fall 12% to $0.250
and three days later the share price had fallen a further 20% to
$0.200.
On 28 May 2013, Leyshon announced commercial flow had been
recorded at the Company's ZJS5 well and this saw the share price
rise 18% to $0.260.
On 17 June 2013, Leyshon announced that is has discontinued the
testing of well ZJS6. The market reacted negatively to the news
with the share price falling 16% on the day of the announcement
before decreasing a further 16% in the three days following.
On 17 September 2013, Leyshon announced that it had completed
drilling its ZJS7 well. The share price declined 8% on the day of
the announcement and a further 9% in the three days following.
To provide further analysis of the market prices for a Leyshon
share, we have also considered the weighted average market price
for 10, 30, 60 and 90 day periods to 1 November 2013 on ASX and
AIM.
11
ASX
Share Price per unit 1-Dec-13 10 Days 30 Days 60 Days 90 Days
Closing price $0.115
Weighted average price $0.113 $0.122 $0.138 $0.146
AIM
Share Price per unit 1-Dec-13 10 Days 30 Days 60 Days 90 Days
Closing price GBP0.068
Weighted average price GBP0.063 GBP0.070 GBP0.083 GBP0.088
An analysis of the volume of trading in Leyshon shares on ASX
and AIM for the twelve months to 1 December 2013 is set out
below.
ASX
Trading Days Share price Share price Cumulative As a % of
volume
low high traded Issued capital
1 Day $0.115 $0.115 62,019 0.02%
10 Days $0.110 $0.120 623,602 0.25%
30 Days $0.110 $0.145 5,458,990 2.19%
60 Days $0.110 $0.190 10,018,114 4.02%
90 Days $0.110 $0.220 12,258,842 4.91%
180 Days $0.110 $0.300 49,611,622 19.89%
1 Year $0.110 $0.300 93,695,013 37.56%
AIM
Trading Days Share price Share price Cumulative As a % of
volume
low high traded Issued capital
1 Day GBP0.068 GBP0.069 163,654 0.07%
10 Days GBP0.059 GBP0.070 8,007,717 3.21%
30 Days GBP0.059 GBP0.088 24,239,266 9.72%
60 Days GBP0.059 GBP0.114 53,396,219 21.40%
90 Days GBP0.059 GBP0.118 70,214,313 28.15%
180 Days GBP0.059 GBP0.205 201,847,535 80.91%
1 Year GBP0.059 GBP0.219 338,098,232 135.53%
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
12
of its shares cannot be considered relevant. In the case of
Leyshon trading volumes on ASX, 37.56% of the shares were traded
over a 12 month period and 19.89% were traded over a 180 day
trading period. Whilst on AIM, 135.53% of the shares were traded
over a 12 month period and 80.91% were traded over a 180 day period
to 1 December 2013.
The tables above indicate that Leyshon shares display a moderate
level of liquidity on ASX and a high level of liquidity on AIM,
with 37.56% and 135.53% of the Company's current issued capital
being traded in a twelve month period to 1 December2013 on ASX and
AIM, respectively. The tables also illustrate that the majority of
trading of Leyshon shares took place in the six months ended June
2013, which corresponds the trading post acquisition of PAPL.
6. Profile of PAPL
6.1 History
PAPL is an exploration and development company active in the oil
and gas sector in China. PAPL is a company incorporated under the
laws of Hong Kong in 2008. The company's head office is located in
Beijing. PAPL was acquired by Leyshon from Houston based CAMAC
Energy Inc in August 2012.
6.2 Projects
The Zijinshan Gas Project comprises the Zijinshan PSC located on
the eastern fringe of the Ordos Gas Basin in central China, which
covers an area of 705.4km2. The Zijinshan PSC is with China
National Petroleum Company ("CNPC"), which is the largest oil and
gas producer in China. PAPL is the operator of the Zijinshan PSC
and has a 100% working interest in the exploration phase of the
Zijinshan PSC. PAPL is responsible for all the exploration costs
during the exploration phase of the PSC and assumes all exploration
risks for the Zijinshan Gas Project. The Zijinshan PSC is valid for
30 years and expires in 2038.
CNPC has the right to back in to the project with a 40% interest
at the development stage, in which case the development costs
required for the development operations will be borne by PAPL and
CNPC in proportion to their participating interests (PAPL 60% and
CNPC 40%).
Following the Company's acquisition of PAPL, PAPL completed the
drilling and flow testing of two wells, ZJS5 and ZJS6. Drilling at
both wells intersected multiple potential pay zones, with initial
results indicating that ZJS5 has encountered nine potential pay
zones with a total thickness of 56 metres and ZJS6 has encountered
15 potential pay zones with a total thickness of 80 metres.
Flow testing for wells ZJS5 and ZJS6 has been conducted.
Following the hydraulic facture stimulation of one of the target
zones in well ZJS5 a free gas flow rate of 160,000 scf per day has
been achieved over eight hours of stable flow at a tubing head
pressure of 200psi. Analysis of the results to date suggests that
further flow may be possible from untested potential pay zones. The
recently completed formation pressure test in well ZJS5, after a
three week shut-in period, recorded 16.5MPa/2425psi on a single
zone, significantly higher than that recorded in nearby wells in
the same strata.
Testing of well ZJS6 was suspended due to technical issues. The
well has a total depth of 2,105 metres. Several of the zones
tested, which elsewhere in the field are dry, have produced water.
It has not been possible to isolate or to accurately define the
source of the water nor to determine whether these are issues
specific to well ZJS6 or more general to this area of the licence.
Accordingly the decision has been made to discontinue testing on
the well for the current time and to focus exploration and
appraisal efforts on the upcoming programme. It is possible that
the well may be revisited at later date to attempt to
13
isolate the water and to test different zones. However
information on the target zones has been gathered which the Company
considers will be valuable for testing future wells.
Both wells ZJS5 and ZJS6 are part of an initial programme
designed to explore and test the potential for commercial gas
production in a highly prospective and unexplored central
depression area. Following encouraging results from the programme
to date, the Zijinshan PSC partners have accelerated the 2013/14
exploration and appraisal programme, with total estimated costs of
US$16.8 million, with the main objective to define a resource
sufficient to delineate and submit a Chinese Reserve Report
("CRR"). Interpretation of the recently acquired 318 kilometres of
2D seismic data has been completed. Initially the interpretation
results will be used to assist in identifying the locations of the
next wells. Later they will be used to assist in resource
assessment and are required as supporting data for the CRR
submission.
The wells in the current exploration programme are located
within approximately 10km of a tie-in point on the recently
commissioned Lin-Lin pipeline which supplies the growing demand in
Shanxi Province.
In an announcement dated 17 September 2013 on the results of
drilling ZJS7, the Company advised that the exploration and
appraisal of the Zijinshan Gas Project remains at a relatively
early stage and accordingly each well will be fully evaluated
before proceeding with the subsequent well. The Company also
advised that this would likely result in slower progress in the
overall programme than originally planned (and as announced on 25
February 2013) and that an assessment of the rate of progress of
the ongoing programme will be undertaken once the full results from
the latest well are known and once it has been agreed with
CNPC.
6.3 Historical Balance Sheet
Audited as Audited as Audited as
at at at
30-Jun-13 31-Dec-12 31-Dec-11
US$ US$ US$
Prepayments and deposits 163,863 123,256 68,245
Due from subsidiaries 164,619 58,056 3,410
Cash and cash equivalents 496,187 1,275,926 849,559
TOTAL CURRENT ASSETS 824,669 1,457,238 921,214
Plant and equipment 226,708 210,272 162,448
Investment in a subsidiary - 1 1
TOTAL NON-CURRENT ASSETS 226,708 210,273 162,449
TOTAL ASSETS 1,051,377 1,667,511 1,083,663
Other payables and accruals 5,000,750 2,582,497 786,956
Due to ultimate holding
company 13,464,735 11,256,975 8,252,172
Due to subsidiaries - - 1,264,185
TOTAL CURRENT LIABILITIES 18,465,305 13,839,472 10,303,313
NET LIABILITIES (17,413,928) (12,171,962) (9,219,651)
Issued capital 1 1 1
Accumulated losses (17,413,929) (12,171,963) (9,219,652)
TOTAL EQUITY (17,413,928) (12,179,962) (9,219,651)
Source: Audited financial statements for the year ended 31
December 2012, Audited financial statements as at 30 June 2013
14
6.4 Historical Statement of Comprehensive Income
Audited 6 months Audited year Audited year
to 30-Jun-13 to 31-Dec-12 to 31-Dec-11
US$ US$ US$
Other income and gains 463 1,262,168 1,106,608
Staff costs (672,941) (894,430) (872,819)
Depreciation (20,881) (14,683) (49,638)
Exploration and other expenses (4,546,173) (3,303,748) (3,107,555)
Loss before tax (5,239,532) (2,950,693) (2,923,404)
Income tax expense (2,434) (1,618) -
Total comprehensive loss
for the period (5,241,966) (2,952,311) (2,923,404)
Source: Audited financial statements for the years ended 31
December 2011 and 31 December 2012, Audited financial statements as
at 30 June 2013
Other income related to gains on waiver of amounts due to fellow
subsidiaries. $4.9 million exploration and other expenditure was
incurred in the six months to 30 June 2013. This primarily related
to the seismic processing as well as testing, facing and drilling
at wells ZJS5 and ZJS6.
Amounts due from subsidiaries relate to funding provided to a
subsidiary for the Zijinshan Gas ZJS project. Amounts due to
subsidiaries and the ultimate holding company relate to amounts due
to Leyshon, which has been subsidising the PAPL Zijinshan Gas ZJS
project since it was acquired in August 2012. As PAPL is currently
in the exploration period, the funds from Leyshon are also received
to fund Beijing office running costs, including, payroll, rent and
other overheads.
7. Profile of Leyshon Energy
Leyshon Energy was incorporated on 27 March 2013 under the laws
of the British Virgin Islands for the purpose of facilitating the
Proposal. Its board of Directors will comprise of the following
members if the Proposal is implemented:
-- John Manzoni
-- Paul Atherley
-- Kim Howell
8. Economic analysis
Recent information is consistent with global growth running a
bit below average this year, with reasonable prospects of a pick-up
next year. Commodity prices have declined from their peaks, but
generally remain at high levels by historical standards. Inflation
in most countries is well contained.
Overall, global financial conditions remain very accommodative.
Volatility in financial markets has abated recently. Long-term
interest rates remain very low and there is ample funding available
for creditworthy borrowers.
In Australia, the economy has been growing a bit below trend
over the past year and the unemployment rate has edged higher. This
is likely to persist in the near term, as the economy adjusts to
lower levels of mining investment. Further ahead, private demand
outside the mining sector is expected to increase at a
15
faster pace, though considerable uncertainty surrounds this
outlook. There has been an improvement in indicators of household
and business sentiment recently, but it is still too soon to judge
how persistent this will be. Public spending is forecast to be
quite weak.
Recent data on prices show inflation consistent with the
medium-term target. The Reserve Bank of Australia's assessment is
that this is likely to remain the case over the next one to two
years.
The easing in monetary policy that has already occurred since
late 2011 has supported interest-sensitive spending and asset
values. The full effects of these decisions are still coming
through, and will be for a while yet. The pace of borrowing has
remained relatively subdued overall to date, though recently there
have been signs of increased demand for finance by households.
There is also continuing evidence of a shift in savers' behaviour
in response to declining returns on low-risk assets. Housing and
equity markets have strengthened further, trends which should in
time be supportive of investment.
The Australian dollar, while below its level earlier in the
year, is still uncomfortably high. A lower level of the exchange
rate is likely to be needed to achieve balanced growth in the
economy.
At the meeting on 5 November 2013, the Reserve Bank of
Australia's Board judged that the setting of monetary policy
remained appropriate, and will continue to assess the outlook and
adjust policy as needed to foster sustainable growth in demand and
inflation outcomes consistent with the target.
Source: www.rba.gov.au Statement by Glenn Stevens, Governor:
Monetary Policy Decision 5 November 2013
9. Industry analysis
9.1 Background
The industry generated revenue of $4.2 trillion in 2008 and is
expected to generate revenue of $4.5 trillion in 2013, yielding
annualized growth of about 1.3%. Revenue is expected to expand 3.0%
in 2013, which represents a slowdown from extremely large gains
during 2010 and 2011, when oil prices surged. Large spikes in the
price of oil and gas have largely been behind the industry's
expansion over the period, however, industry performance was not
without its pitfalls with an almost 40.0% drop in revenue during
the global recession in 2009.
The global oil and gas exploration and production industry is
highly concentrated among a few large companies, which are
vertically integrated, multinational conglomerates. Key markets
include the developing nations of Brazil, Russia, India and China,
and the emerging industrial capacities of these countries have been
driving up global demand and the cost for raw energy
commodities.
Source: Ibisworld
9.2 Reserves
The proved global reserve of natural gas at the end of 2012 was
measured at 187.3 trillion cubic metres, which is a 20.9% increase
on the reserve at the end of 2002. The Middle East, Europe and
Eurasia are the biggest players collectively representing 74% of
total proved gas reserves. The United States of America is the
largest producer with 20.4% of world output, followed by Russia
with 17.6%.
16
Global Proved Gas Reserves - end 2012
(Please refer to separate pdf attachment for charts).
9.3 Price Trends
Supply and demand factors are most influential in driving
fluctuations in oil and gas prices. For example meetings held by
OPEC to determine short term oil supply are often followed by
volatile price movements. The graph below highlights the dramatic
change in oil and gas prices in and around the time of the global
financial crisis. In the six months from June 2008 onwards, the
price of oil peaked at approximately $US140 a barrel and plummeted
towards a low of $US30 a barrel.
NYMEX Futures
(Please refer to separate pdf attachment for charts).
17
There has been much conjecture regarding the recovery of oil
prices post the 2008 financial crisis, given that the economy
environment has remained relatively weak and has experienced a slow
recovery. The graph above illustrates how natural gas prices were
highly correlated with oil prices between 2007 and 2010. However,
in the year 2011 there has been a divergence in natural gas and oil
prices. This is believed to have been sparked by developments in
shale gas production and has meant that natural gas prices have
been at record discounts to oil prices. Since the divergence noted
in 2011 the oil and gas prices have generally moved in the same
direction with a forecasts predicting a similar trend.
9.4 Outlook
Gas production has increased over the last 20 years and is
forecast to continue doing the save in the short to long term
future. The graph below illustrates a narrowing gap in production
between oil and gas over the next 20 years. This reflects the idea
that although oil is expected to be slowest growing fuel over the
next 20 years. This is in stark contrast to natural gas which is
forecast to be the fastest growing fossil fuel globally.
Historical and forecast oil and gas production
(Please refer to separate pdf attachment for charts).
Substitutes for oil & gas include coal, solar power, wind
power, hydroelectricity and nuclear energy. While there is
sustained pressure to find alternative forms of energy, the reality
is that oil, gas and coal still account for the large majority of
energy production around the world. As reserves are depleted and
alternative fuels become more available with advances in
technology, these traditional fuel sources will face a more
apparent threat of substitution. However for the medium term future
oil and gas will continue to play a major role in all
economies.
18
10. Advantages of approving the Proposal
We have considered the following advantages when assessing
whether the Proposal is reasonable.
Advantage Description
Clear separation The demerger will result in two discrete and
of distinct businesses very different businesses each with differing
areas of focus. This will allow both companies
to focus on their respective objectives and
thereby be unaffected by events of occurrences
relating to other projects: Leyshon will focus
on its gold exploration and gold investment
opportunities in China and elsewhere; and Leyshon
Energy will focus on the development of the
Zijinshan Gas Project held by PAPL and other
potential oil and gas projects.
The Proposal will allow both companies to further
develop in their own right, having regard solely
to their business objectives and core competencies.
Increased transparency The demerger will allow a more transparent view
may lead to opportunity of both Leyshon and Leyshon Energy's strategies
to separately access as it will allow investors to consider the attributes
capital markets and performance of each company in the context
and increased liquidity of respective peer groups.
This increased transparency may provide the
opportunity for both Leyshon Energy and Leyshon
to separately access capital markets. A demerger
can allow the companies to re-allocate their
capital in accordance with their strategic goals.
This increased transparency may result in shares
in the companies being more attractive to investors,
and thereby result in increased liquidity of
the shares.
Shareholder flexibility The Shareholders will have the same ownership
interest in the same proportions in the demerged
entities as they currently do in Leyshon and
PAPL immediately following the implementation
of the Proposal.
The demerger will provide Shareholders with
a clear investment choice between the two companies,
and the flexibility to choose their exposure
to each company. In particular, to choose whether
to be exposed to the gas assets of Leyshon Energy
and/or the Mt Leyshon gold mine and any future
investments of Leyshon.
Shareholders can also choose to realise their
investments in either the Mt Leyshon gold mine
or the Zijinshan gas project.
We note that ineligible Shareholders will not
retain an interest in PAPL.
Takeover potential A key outcome of the demerger process is the
creation of two businesses with narrower and
more focused objectives. The separation of PAPL
from Leyshon may broaden the market of acquirers
of both companies, as the acquirers' investment
criteria may be more aligned with the business
of one of Leyshon or Leyshon Energy but not
both. As such, recently demerged entities are
often identified as potential takeover targets.
Takeovers are typically seen to create value
for shareholders as the bidder is typically
required to pay a premium for control over the
quoted market price of the shares.
19
11. Disadvantages of approving the Proposal
If the Proposal is approved, in our opinion, the potential
disadvantages to Shareholders include those listed in the table
below:
Disadvantage Description
Loss of synergies The proposed demerger will result in two listed
/ increased on-going entities, each with their own separate management
costs structure.
Both Leyshon and Leyshon Energy will incur additional
operating costs as a result of being separate
companies. Both companies will be required to
maintain a separate board of directors and will
incur costs associated with information technology
and other corporate functions. As stand-alone
companies both will also incur AIM and/or ASX
listing related costs, share register costs,
and other regulatory costs including legal accounting
and insurance expenses.
Potential reduced Leyshon Energy intends to apply for admission
liquidity to AIM, and does not intend to apply for admission
to ASX. Therefore shareholders will only be
able to trade Leyshon Energy shares on AIM.
We note that the proposed demerger will not
be implemented unless Leyshon Energy shares
are admitted to trading on AIM.
Following listing on AIM, the ability of Leyshon
Energy to transact its shares will depend on
the liquidity of its shares. Similarly, the
ability to transact shares will depend on their
liquidity. Leyshon's shares have shown a high
level of liquidity on AIM with approximately
136% being traded over the last 12 months. This
is compared a moderate level of liquidity of
Leyshon Shares on the ASX with approximately
38% of its issued capital traded in the twelve
months prior to the date of this report.
The Proposal will result in two smaller companies
compared to Leyshon prior to the Proposal, with
different risk profiles. Therefore it is possible
that Leyshon and Leyshon Energy will have reduced
liquidity after the Proposal.
One-off costs Leyshon Energy will incur one-off listing expenses
and adviser fees relating to its submission
to list on the AIM.
Loss of diversification The proposed demerger will create two smaller
companies each with a less diversified portfolio
of assets. The loss of diversification inherent
in each company's portfolio of assets following
the Proposal may result in a greater impact
on the performance of one business in the event
of unfavourable economic and market conditions,
where that business is no longer supported by
the other.
Equally, a strong performance in one business
will not be hindered by the need to support
an underperforming business. For completeness,
we note whilst the diversification of Leyshon
and PAPL operating together will be lost, Shareholders
(excluding ineligible Shareholders) will be
able to replicate this diversification in their
portfolio by retaining their investments in
Leyshon and Leyshon Energy. As noted in section
9, the ability of Shareholders to determine
their level of diversification held is considered
to be advantageous.
20
Disadvantage Description
Increased cost Following the Proposal Leyshon and Leyshon Energy
of funds will no longer have the combined financial support,
asset base or credit profile associated with
being part of a larger, combined group. As a
result the companies may have higher costs of
debt and equity.
We note that Leyshon had a strong cash position
at 30 June 2013 of US$40.1 million, and that
approximately US$35.3 million of this is to
be paid to Leyshon Energy in consideration for
shares, to continue to fund exploration activities
at the Zijinshan Gas Project. Leyshon intends
to continue to focus on gold exploration and
gold investment opportunities in China and elsewhere,
and is considering a number of potential options
that may facilitate acquisition and investment
opportunities available to the Company including
possible joint ventures and mergers. The Company
has not entered into any binding agreements
in regard to any of these potential options.
The Directors are of the view that the funds
remaining in Leyshon will be sufficient to achieve
its objectives and to maintain the Mt Leyshon
gold mine for at least two years from completion
of the proposed merger.
12. Other key factors relevant to assessing the Proposal
12.1 Alternative proposals and further transactions
Leyshon considers that an alternative demerger of the Mt Leyshon
gold mine would be difficult as the project covers five mining
leases with several landholder compensation agreements and
settlements. We are not aware of any further alternatives to the
Proposal.
If the Proposal is not approved then Leyshon and PAPL will not
demerge. Shareholders will continue to hold their interests in
Leyshon, and their interests in PAPL as a wholly owned subsidiary
of Leyshon.
The directors of Leyshon have confirmed that no further
transactions are planned other than as detailed in this report and
the Notice of Meeting.
12.2 Shareholder protection and regulations of British Virgin
Islands
Leyshon Energy is registered in the British Virgin Islands
("BVI") and as such is regulated by the country's securities laws.
The regulatory environment in the BVI is secure and stable, however
there are a number of differences between the protections afforded
to shareholders in Australia and in the British Virgin Islands.
Shareholders should refer to the Notice of Meeting for a summary of
these differences.
Protection provided by the BVI Business Companies Act 2004 to
minority shareholders includes the following:
-- Shareholders may apply to the courts where the majority
shareholders are causing unfair prejudice to their rights;
-- Shareholders may initiate a derivative action in the name of the company;
-- Any disposition of more than 50% of the value of the assets
of the company needs to be approved by a resolution of the
shareholders;
21
-- Unless contrary to the company's interests, a shareholder has
the right to inspect the company's memorandum and articles of
association, the register of shareholders, the register of
directors, minutes of meetings and resolutions of shareholders
-- Shareholders are ensured to receive fair value for their
shares when they dissent from a company's decision to enter into
certain types of transactions; and
-- Shareholders can bring an action against the company in their
own name for a breach of a duty owed by the company to the
shareholder.
Risks of holding shares in a BVI incorporated company include
(but are not limited to):
-- A lack of takeover protections;
-- A requirement that shareholders hold at least 30% of voting
rights to call a company meeting. This compares with a requirement
to hold 5% of an Australian company (We note that, pursuant to
Leyshon Energy's Articles, its shareholders holding at least 25% of
voting rights may call a company meeting);
-- There is no requirement to hold an annual general meeting.
However, the Memorandum and Articles of Association of Leyshon
Energy provide that it will hold an annual general meeting;
-- Leyshon Energy will not be required to prepare a remuneration report; and
-- Leyshon Energy's Memorandum and Articles of Association
require the approval of 50% of shareholders holding a particular
class of shares in order to vary or cancel the rights of that
class. For an Australian company, unless the constitution says
otherwise, the approval of 75% of the votes cast as well as the
approval of shareholders holding 75% of the votes in that class is
required.
Following subsequent listing by Leyshon Energy on AIM it will be
subject to the rules and policies of this stock exchange and
therefore will be subject to the same rules and policies as Leyshon
is currently under this exchange.
12.3 Ineligible Shareholders
As the value to be realised by ineligible Shareholders is
dependent on the net value that the Company is able to obtain,
there is a risk that ineligible Shareholders may not receive a cash
value for their shares which reflects the value of Leyshon Energy
shares that will be held by eligible Shareholders.
13. Conclusion
We have considered the terms of the Proposal as outlined in the
body of this report and have concluded that the advantages of the
Proposal outweigh the disadvantages of the Proposal to the
Shareholders of Leyshon.
22
14. Sources of information
This report has been based on the following information:
-- Draft Notice of General Meeting and Explanatory Statement on
or about the date of this report;
-- Draft deed of indemnity between Leyshon and Leyshon Energy;
-- Audited financial statements of Leyshon for years ended 30 June 2012 and 30 June 2011;
-- Reviewed financial statements of Leyshon for the six months ended 30 June 2013;
-- Audited financial statements of PAPL for the year ended 31
December 2012 and year ended 31 December 2011;
-- Audited financial statements of PAPL for the six months ended 30June 2013;
-- Share registry information;
-- Information in the public domain; and
-- Discussions with Directors and Management of Leyshon.
15. Independence
BDO Corporate Finance (WA) Pty Ltd is entitled to receive a fee
of $20,000 (excluding GST and reimbursement of out of pocket
expenses). 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
Leyshon in respect of any claim arising from BDO Corporate Finance
(WA) Pty Ltd's reliance on information provided by the Leyshon,
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 Leyshon 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 Leyshon 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 Leyshon, or their associates, other
than in connection with the preparation of this report.
A draft of this report was provided to Leyshon 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).
23
16. 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 Adam Myers and Sherif Andrawes of BDO Corporate
Finance (WA) Pty Ltd. They have significant experience in the
preparation of independent expert reports, valuations and mergers
and acquisitions advice across a wide range of industries in
Australia and were supported by other BDO staff.
Adam Myers is a member of the Australian Institute of Chartered
Accountants. Adam's career spans 15 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.
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 200 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.
17. Disclaimers and consents
This report has been prepared at the request of Leyshon for
inclusion in the Explanatory Memorandum which will be sent to all
Leyshon Shareholders. Leyshon engaged BDO Corporate Finance (WA)
Pty Ltd to prepare an independent expert's report to consider the
proposal to demerge PAPL.
BDO Corporate Finance (WA) Pty Ltd hereby consents to this
report accompanying the above Explanatory Memorandum. 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 Explanatory Memorandum other than this
report.
BDO Corporate Finance (WA) Pty Ltd has not independently
verified the information and explanations supplied to us, nor has
it conducted anything in the nature of an audit or review of
Leyshon in accordance with standards issued by the Auditing and
Assurance Standards Board. However, we have no reason to believe
that any of the information or explanations so supplied 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. 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.
24
With respect to taxation implications it is recommended that
individual Shareholders obtain their own taxation advice, in
respect of the Proposal, tailored to their own particular
circumstances. Furthermore, the advice provided in this report does
not constitute legal or taxation advice to the Shareholders of
Leyshon, or any other party.
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
Adam Myers Sherif Andrawes
Director Director
25
APPENDIX 1 - GLOSSARY OF TERMS
Reference Definition
The Act The Corporations Act
AIM Alternative Investment Market
ASIC Australian Securities and Investments
Commission
ASX Australian Securities Exchange
BDO BDO Corporate Finance (WA) Pty Ltd
BVI British Virgin Islands
The Company Leyshon Resources Limited
FSG Financial Services Guide
FOS Financial Ombudsman Service
PAPL Pacific Asia Petroleum Limited
The Proposal The proposal to demerge PAPL from Leyshon
Our Report This Independent Expert's Report prepared
by BDO
RG111 Content of expert reports (March 2011)
RG112 Independence of experts (March 2011)
Shareholders The non-associated shareholders of Leyshon
Resources Limited
Leyshon Leyshon Resources Limited
Leyshon Energy Leyshon Energy Limited
Newmont Newmont Australia Limited
PCCBM PetroChina Coal Bed Methane Company
Limited
PSC Production Sharing Contract
SCF Standard cubic feet
VWAP Volume Weighted Average Price
26
Schedule 4 - Independent Technical Expert's Report
(Please refer to separate pdf attachment for Independent
Technical Expert's Report from RISC Operation Pty Ltd).
Schedule 5 - Amended Investing Policy
1. Pending the investment of the Company's available cash
pursuant to the policy described below, the Company may embark on
an on-market share buyback programme on AIM and ASX if the
Company's shares trade at a discount to net tangible assets.
2. In the view of the Directors and the Company's advisers this
will provide the liquidity necessary to enable those Shareholders
who otherwise may not be able to do so, to sell their Shares at or
around cash backing per share.
3. The Company is of the view that the urbanisation of 400
million people over the next decade will drive China's growing
demand for minerals and that, increasingly, Chinese companies will
wish to acquire and develop resource projects in their own right to
meet this demand.
4. The Company proposes to draw on its ten years' experience in
China and focus on acquiring and developing mineral projects in
those commodities and located in those countries which it believes
will be of interest to Chinese mining and other groups for either
off-take, partnership or sale.
5. As the Company has disposed of its energy and gas assets to
its wholly-owned subsidiary Leyshon Energy Limited and then
distributed the entire issued share capital of Leyshon Energy
Limited in-specie to Shareholders, the Company has determined to
exclude acquisition and investment opportunities in the oil and gas
sector regardless of the location from its investment policy.
6. In the Company's view, based on its experience dealing with
private and state owned resource groups, China's rapid growth in
metal and mineral production has to a large extent been based on
known discoveries. The Directors believe that the challenge is
going to be to fill the demand pipeline with new projects, which
does not appear to be taking place now that state funding has been
redirected away from the provincial Bureau of Geology and Minerals
Resources. As a result Chinese companies are seeking to acquire and
develop known resources elsewhere in the world.
7. The Company's primary strategy is to pursue acquisition and
investment opportunities in the minerals sector in general,
including those related to its Mt Leyshon asset and drawing on its
China relationships.
8. The initial focus will be those countries and regions which
rank highly for Chinese minerals investment such as Africa, South
America, Australia, Canada, China and those countries close to or
bordering China.
9. The commodities and types of projects will be those which in
the Company's view will be of strong interest to Chinese groups
over the expected investment horizon and are typically expected to
be high value minerals with good development potential.
10. A key part of the strategy will be to bring the Chinese
group(s) into the project at the financing and development stage.
The Company will not be looking invest in the construction and
operation of projects itself and, accordingly, the Company expects
the return to Shareholders to be generated by the capital growth in
its projects.
11. The Company will be looking to make one or two project
investments at any one time with an expected investment horizon of
2 to 3 years.
12. The Company does not anticipate that it will require any
significant debt funding as part of the proposed investment
strategy.
13. The Directors are experienced in evaluating acquisition and
investment opportunities and realizing value in the countries,
commodities and types of projects targeted and are able to call on
an extensive network of contacts and consultants with independent
expertise in the sector.
14. The Company will be seeking corporate opportunities to merge
or otherwise combine with other mineral companies.
15. As the Company has disposed of its main undertaking it will
consider the application of ASX Listing Rule 11.1.2 (shareholder
approval for a significant change to the nature and scale of its
activities) and ASX Listing Rule 11.1.3 (application of chapter 1
and 2 of the ASX Listing Rules) at the time of any future
acquisition. Depending on the size and the nature of any
acquisition these Listing Rules may apply to the transaction.
16. The Company will be mindful at all times of minimising
expenditure and preserving the Company's cash balance and
evaluating investment opportunities against the alternative of
returning cash to Shareholders.
17. Any major investment will be put to Shareholders for approval.
Schedule 6 - Current Investing Policy
1. Pending the investment of the Company's available cash
pursuant to the policy described below, the Company may embark on
an on-market share buyback programme on AIM and ASX if the
Company's shares trade at a discount to net tangible assets.
2. In the view of the Directors and the Company's advisers this
will provide the liquidity necessary to enable those Shareholders
who otherwise may not be able to do so, to sell their Shares at or
around cash backing per share.
3. The Company is of the view that the urbanisation of 400
million people over the next decade will drive China's growing
demand for minerals and energy and that, increasingly, Chinese
companies will wish to acquire and develop resource projects in
their own right to meet this demand.
4. The Company proposes to draw on its ten years' experience in
China and focus on acquiring and developing mineral and energy
projects in those commodities and located in those countries which
it believes will be of interest to Chinese mining and other groups
for either off-take, partnership or sale.
5. In the Company's view, based on its experience dealing with
private and state owned resource groups, China's rapid growth in
metal and mineral production has to a large extent been based on
known discoveries. The Directors believe that the challenge is
going to be to fill the demand pipeline with new projects, which
does not appear to be taking place now that state funding has been
redirected away from the provincial Bureau of Geology and Minerals
Resources. As a result Chinese companies are seeking to acquire and
develop known resources elsewhere in the world.
6. The Company's primary strategy is to continue to operate from
Beijing, taking advantage of the strong technical base it has
established with the local design institutes, and apply its
technical, financial and development skills to invest in early to
late stage projects that can be advanced through a combination of
Australian and Chinese technical expertise to a point where, based
on the Company's experience, the project meets the investment
criteria for Chinese groups.
7. The initial focus will be those countries and regions which
rank highly for Chinese minerals and energy investment such as
Africa, South America, Australia, Canada, China and those countries
close to or bordering China.
8. The commodities and types of projects will be those which in
the Company's view will be of strong interest to Chinese groups
over the expected investment horizon and are typically expected to
be high value minerals and energy with good development
potential.
9. A key part of the strategy will be to bring the Chinese
group(s) into the project at the financing and development stage.
The Company will not be looking invest in the construction and
operation of projects itself and, accordingly, the Company expects
the return to Shareholders to be generated by the capital growth in
its projects.
10. The Company will be looking to make one or two project
investments at any one time with an expected investment horizon of
2 to 3 years.
11. The Company does not anticipate that it will require any
significant debt funding as part of the proposed investment
strategy.
12. The Directors are experienced in evaluating acquisition and
investment opportunities and realizing value in the countries,
commodities and types of projects targeted and are able to call on
an extensive network of contacts and consultants with independent
expertise in the sector.
13. As the Company has disposed of its main undertaking it will
consider the application of ASX Listing Rule 11.1.2 (shareholder
approval for a significant change to the nature and scale of its
activities) and ASX Listing Rule 11.1.3 (application of chapter 1
and 2 of the ASX Listing Rules) at the time of any future
acquisition. Depending on the size and the nature of any
acquisition these Listing Rules may apply to the transaction.
14. The Company will be mindful at all times of minimising
expenditure and preserving the Company's cash balance and
evaluating investment opportunities against the alternative of
returning cash to Shareholders.
15. Any major investment will be put to Shareholders for approval.
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LEYSHON RESOURCES LIMITED
ACN 010 482 274
P R O X Y F O R M
The Company Secretary
Leyshon Resources Limited
By delivery: By post: By facsimile:
Suite 3, Level 3
1292 Hay Street GPO Box 2870 +61 8 9322 4073
WEST PERTH WA 6005 WEST PERTH WA 6872
Name of Shareholder:
Address of Shareholder:
Number of Shares
entitled to
vote:
Please mark ýto indicate your directions. Further instructions
are provided overleaf.
Proxy appointments will only be valid and accepted by the
Company if they are made and received no later than 48 hours before
the meeting.
Step 1 - Appoint a Proxy to Vote on Your Behalf
I/we being Shareholder/s of the Company hereby appoint:
The Chairman .. OR if you are NOT appointing
(mark box) the Chairman as your proxy,
please write the name of the
person or body corporate (excluding
the registered shareholder)
you are appointing as your
proxy
or failing the person/body corporate named, or if no person/body
corporate is named, the Chairman, as my/our proxy to act generally
at the Meeting on my/our behalf, including to vote in accordance
with the following directions (or, if no directions have been
given, and to the extent permitted by law, as the proxy sees fit),
at the Meeting to be held at 11:30am (WST time) on Monday 13
January 2014 at The Heritage Room, The Melbourne Hotel, 942 Hay
Street, Perth, Western Australia and at any adjournment or
postponement of that Meeting.
If 2 proxies are appointed, the proportion or number of votes
that this proxy is authorised to exercise is *
[ ]% of the Shareholder's votes*/ [ ] of the Shareholder's
votes. (An additional Proxy Form will be supplied by the Company,
on request).
Important - If the Chairman is your proxy or is appointed your
proxy by default
The Chairman intends to vote all available proxies in favour of
Resolutions 1, 2, 3 and 4. If the Chairman is your proxy or is
appointed your proxy by default, unless you indicate otherwise by
ticking either the 'for', 'against' or 'abstain' box in relation to
Resolutions 1, 2, 3 and 4, you will be authorising the Chairman to
vote in accordance with the Chairman's voting intentions on
Resolutions 1, 2, 3 and 4.
Step 2 - Instructions as to Voting on Resolutions
INSTRUCTIONS AS TO VOTING ON RESOLUTIONS
The proxy is to vote for or against the Resolutions referred to
in the Notice as follows:
Resolution Disposal of the Company's interest
1 in the Leyshon Energy Assets
----------- -------------------------------------
Resolution Reduction of capital and in-specie
2 distribution of Leyshon Energy
Shares
----------- -------------------------------------
Resolution Amendment to the Company's investing
3 policy
----------- -------------------------------------
Resolution Confirmation of approval of the
4 Company's current investing policy
----------- -------------------------------------
* If you mark the Abstain box for a particular Resolution, you
are directing your proxy not to vote on your behalf on a show of
hands or on a poll and your votes will not be counted in computing
the required majority on a poll.
Authorised signature/s This section must be signed in accordance
with the instructions below to enable your voting instructions to
be implemented.
The Chairman intends to vote all available proxies in favour of
each Resolution.
Individual or Shareholder Shareholder 2 Shareholder 3
1
-------------------------- -------------- -----------------
Sole Director and Sole Director Director/Company
Company Secretary Secretary
_______________________ _______________________ ___________________
Contact Name Contact Daytime Telephone Date
Proxy Notes:
A Shareholder entitled to attend and vote at the Meeting may
appoint a natural person as the Shareholder's proxy to attend and
vote for the Shareholder at that Meeting. If the Shareholder is
entitled to cast 2 or more votes at the Meeting the Shareholder may
appoint not more than 2 proxies. Where the Shareholder appoints
more than one proxy the Shareholder may specify the proportion or
number of votes each proxy is appointed to exercise. If such
proportion or number of votes is not specified each proxy may
exercise half of the Shareholder's votes. A proxy may, but need not
be, a Shareholder of the Company.
If a Shareholder appoints a body corporate as the Shareholder's
proxy to attend and vote for the Shareholder at that Meeting, the
representative of the body corporate to attend the Meeting must
produce the Certificate of Appointment of Representative prior to
admission. A form of the certificate may be obtained from the
Company's share registry.
You must sign this form as follows in the spaces provided:
Joint Holding: where the holding is in more than one name all of
the holders must sign.
Power of Attorney: if signed under a Power of Attorney, you must
have already lodged it with the registry, or alternatively, attach
a certified photocopy of the Power of Attorney to this Proxy Form
when you return it.
Companies: a Director can sign jointly with another Director or
a Company Secretary. A sole Director who is also a sole Company
Secretary can also sign. Please indicate the office held by signing
in the appropriate space.
If a representative of the corporation is to attend the Meeting
the appropriate "Certificate of Appointment of Representative"
should be produced prior to admission. A form of the certificate
may be obtained from the Company's Share Registry.
Proxy Forms (and the power of attorney or other authority, if
any, under which the Proxy Form is signed) or a copy or facsimile
which appears on its face to be an authentic copy of the Proxy Form
(and the power of attorney or other authority) must be deposited at
or received by facsimile transmission at the Perth office of the
Company (Suite 3, Level 3, 1292 Hay Street, West Perth, WA, or by
post to GPO Box 2870, West Perth, WA, 6872 or Facsimile (08) 9322
4073 if faxed from within Australia or +618 9322 4073 (if faxed
from outside Australia)) not less than 48 hours prior to the time
of commencement of the Meeting (WST).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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