TITLE
30 October 2015
No. of Pages: 12
ASX CODE: ORS
Market Cap.: $3.72m ($0.015 p/s) Shares on issue: 248,331,672
Cash: $0.05 m (30 September 2015)
Debt: $1.1 m (30 September 2015)
ASX Investments 169,672,726 AYC shares
56,557,576 AYCO options
DIRECTORS
Ian Gandel, Chairman
Anthony Gray, Managing Director Bob Tolliday, Director
MAJOR SHAREHOLDERS
Abbotsleigh - 41.1% Alliance Resources - 8.9%
PRINCIPAL OFFICE
Octagonal Resources Limited ABN 38 147 300 418
Suite 3, 51 - 55 City Road
Southbank VIC 3006
T +61 3 9697 9088
F +61 3 9697 9089
E [email protected]
W www.octagonalresources.com.au
QUARTERLY REPORT - FOR THE PERIOD ENDED 30 SEPTEMBER 2015
DETAILS OF ANNOUNCEMENT
For and on behalf of the Board.
Bob Tolliday Company Secretary
OCTAGONAL RESOURCES LIMITED
Additional information relating to Octagonal and its various mining and exploration projects can be found on the Company's website: www.octagonalresources.com.au
www.octagonalresources.com.au
Quarterly Report
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30 October 2015
No. of Pages: 6
ASX CODE: ORS
Market Cap.: $3.72m ($0.015 p/s) Shares on issue: 248,331,672
Cash: $0.05 m (30 September 2015)
Debt: $1.1 m (30 September 2015)
ASX Investments 169,672,726 AYC shares
56,557,576 AYCO options
DIRECTORS
Ian Gandel, Chairman
Anthony Gray, Managing Director Bob Tolliday, Director
MAJOR SHAREHOLDERS
Abbotsleigh - 41.1% Alliance Resources - 8.9%
PRINCIPAL OFFICE
Octagonal Resources Limited ABN 38 147 300 418
Suite 3, 51 - 55 City Road
Southbank VIC 3006
T +61 3 9697 9088
F +61 3 9697 9089
E [email protected]
W www.octagonalresources.com.au
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Quarterly Report for the period ended 30 September 2015
Corporate
At 30 September 2015 Octagonal Resources Limited ('Octagonal' or 'Company') had cash reserves of $0.05 million (unaudited), and $1.1 million debt drawn down from a $1.3 million standby credit facility.
The Company issued its 2015 Annual Report on 30 September 2015.
Work during the quarter focussed on investigating means to realise the maximum value of Octagonal's assets for its shareholders.
Background
On 24 December 2014 Octagonal entered into a Sale Agreement with A1 Consolidated Gold Limited ('A1 Gold') (ASX Ticker Code: AYC), whereby it agreed to sell its Maldon Gold Operation in Central Victoria to A1 Gold for 169,672,726 A1 Gold shares and 56,557,575 A1 Gold options exercisable at
3.0 cents before 30 November 2019.
At this time the deemed value of the transaction was $5.09 million and Octagonal reasonably assumed that it would be able place shortfall shares from a rights issue that closed on 13 November 2014 to raise an addition
$1.18 million before 13 February 2015 (refer to ASX Announcement dated 24 November 2014) as the sale price of the Maldon Gold Operation was at a 15% premium to the fully diluted market capitalisation of the Company post the placement of shortfall shares (excluding cash, value of A1 Gold options, and the value of the Company's Western Australian exploration assets).
Despite Octagonal and the Underwriters best efforts the shortfall shares were unable to be placed and subsequently the Company entered into a short term loan agreement with Gandel Metals Pty Ltd ('Gandel Metals'), a company related with Octagonal's Chairman Mr Ian Gandel, to fund the settlement of the Sale Agreement and future operating requirements.
The $1.0 million loan was secured, following shareholder approval, by a mortgage over A1 Gold shares held by Octagonal and is repayable by 1 December 2015.
The sale of the Maldon Gold Operation was completed on 25 June 2015.
In the three months since completion Octagonal's share price has traded at on average a 126% discount to the market value of A1 Gold shares that it owns (Table 1). This substantial difference in market values has restricted Octagonal's ability to raise equity capital without significantly diluting existing shareholders who do not participate in the equity raising.
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Recognising Octagonal's limited capacity to raise funds the Company prepared an 18 month budget for its annual audit based on $1.5 million in available funding. This budget revealed that despite the significant cuts to corporate costs implemented since the sale of the Maldon Gold Operation (including reduction in Managing Directors effective salary to $170,000 + super, 50% reduction in chairman and directors fees to
$37,500pa and $20,000pa respectively, 50% reduction in financial, company secretarial, and administrative service costs, and free office and shed storage in Kalgoorlie) less than 40% of the total budgeted expenditure was contributed to in-ground exploration costs (with the remainder being corporate costs).
This proportion of in-ground exploration expenditure was considered by the Board to be unacceptable for a public listed exploration company so, as announced on 4 August 2015, Octagonal commenced a process of investigating investment opportunities in the resources and non-resources sectors with the objective of realising the maximum value of its existing assets.
To enable the Company to investigate these opportunities Gandel Metals agreed to loan the Company
$300,000 in additional funds in excess of the already drawn down $1.0 million bank standby credit facility (refer to ASX Announcement dated 31 August 2015).
Corporate transactions considered by the Company have focussed outside of the resources sector, due to the difficult equity market conditions currently being by experienced junior exploration and mining companies, and have been structured with the objective of distributing A1 Gold shares in-specie to Octagonal shareholders following a capital raising to fund the acquisition.
Discussions with a number of companies have failed to result in the execution of a terms sheet and no acquisition by the Company is imminent.
On 20 October 2015 Octagonal received an offer from Gandel Metals, the Company's Chairman Ian Gandel, and associated parties (collectively 'Gandel Shareholders') to privatise the Company.
Gandel Shareholders hold 102,207,200 ordinary Octagonal shares (41.12% of total shares issued) and 70,276,000 unlisted options exercisable at 2.0 cents and expiring on 11 December 2015.
Key Terms of the Offer
In the proposal received from Gandel Metals the Gandel Shareholders state that they 'consider the current structure of Octagonal is unsustainable in the current circumstances. In particular, the costs of reporting and compliance required by Octagonal as a listed company will necessitate either the gradual sell off of liquid assets, being the shares held in A1 Gold, or increasing calls on shareholders to provide additional equity or loan capital. This ongoing burden far outweighs the advantages of Octagonal retaining its listing in the current capital markets. It is also exacerbated by the approaching deadline for the repayment of the large part of the loan made by Gandel Metals to Octagonal. The Gandel Shareholders believe this situation needs to be resolved urgently'.
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The Gandel Shareholders proposal is that the shareholders of Octagonal be asked to approve a Selective Capital Reduction whereby the shares in Octagonal held by non-Gandel Shareholders be cancelled in return for consideration comprising:
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A cash payment of $0.0055 per Octagonal share, together with
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Two (2) shares in A1 Gold for every five (5) Octagonal shares held.
The Gandel Shareholders are willing to enter into an agreement with Octagonal to provide funding for the cash component of the consideration.
The total consideration is the equivalent to 2.11 cents per share (based on an A1 Gold share price of 3.9 cents per share, being the closing price on the day prior to the offer being received).
The offer is at a 44% premium to the 5 day volume weighted average price ('VWAP') of Octagonal shares (1.47 cents) and at a 53% premium to the 30 day VWAP (1.38 cents).
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The proposed Selective Capital Reduction will require 75% shareholder approval at a General Meeting and relevant regulatory approvals.
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Gandel Metals agrees for Octagonal to repay $1.0 million in loaned funds on 1 December 2015 via the transfer of a number of A1 Gold shares equal to $1.0 million on the basis of the 5 day VWAP up to the trading day immediately prior to transfer (as allowed for in the original loan agreement).
Value AYC Shares
ORS Market Cap
ORS Trading Discount
Value (AUD)
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The remaining funds loaned by Gandel Metals to the Company of $0.3 million will remain secured against A1 Gold shares held by Octagonal, being the balance of the A1 Gold shares following the repayment of the Gandel Metals loan (item 3) and the Selective Capital Reduction.
Comparison between ORS Market Cap. and value of AYC shares owned
$10,000,000 225%
$9,000,000
200%
$8,000,000
175%
$7,000,000
150%
$6,000,000
125%
$5,000,000
75%
$3,000,000
$2,000,000
50%
$1,000,000
25%
$0
0%
100%
$4,000,000
Table 1. Comparison between the market capitalisation of Octagonal and the market value of A1 Gold shares that it owns in the period from settlement of the sale of the Maldon Gold Operation on 25 June 2015 to 19 October 2015 (based on closing price). (Left axis represents the value of Octagonal's market capitalisation [orange line] and the value of A1 Gold shares owned [grey line]. Right axis represents Octagonal's share price trading discount [red line] as a percentage).