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Verdant Minerals Ltd: DEEP DIVE
OVERVIEW

Verdant Minerals advances proposed CD Capital majority takeover scheme

If shareholders agree, the natural resources fund may take over a lion’s share of VRM this quarter then delist the entity.
Diammonium phosphate fertiliser produced from Ammaroo ore
OVERVIEW: VRM The Big Picture
Diammonium phosphate fertiliser produced from Ammaroo ore
  • CD Capital is now a significant shareholder, holding a 33.43% stake through its CD Capital Natural Resources Fund III LP
  • Fellow shareholder Washington H Soul Pattinson and Co Ltd had 33.43% of the company on June 14, 2018, and plans to hold onto its stake
  • CD hopes to pick up all the remaining shares if its majority-takeover scheme is approved
  • The company’s board has recommended the value-accretive offer to its shareholders who are expected to vote on the scheme on June 5, 2019

What does Verdant Minerals do?

Verdant Minerals Ltd (ASX:VRM) (FRA: 3RU) specialises in fertiliser and industrial minerals projects in Australia. It is run by Christopher N Tziolis, a chemist and experienced mining industry executive with a strong background at the Rio Tinto plc (LON:RIO) (ASX:RIO) (NYSE:RIO) (OTCMKTS:RTNTF) group.

Tziolis served as chief development officer at Rio’s energy outfit Energy Resources of Australia Limited (ASX:ERA) (OTCMKTS:EGRAF) and was previously infrastructure and business development manager at Rio Tinto Coal Australia Pty Ltd.

What does Verdant Minerals own?

Verdant’s key asset is the large wholly-owned Ammaroo Phosphate Project in the Northern Territory.

The phosphate deposit is considered one of Australia’s largest phosphate resources with measured, indicated and inferred resources of 1.141 billion tonnes at 14% phosphate at a 10% cut-off grade.

At a 15% cut-off grade, the resource is 333 million tonnes at 18% phosphate.

Verdant’s May 2018 feasibility study gave Ammaroo project a net present value (NPV10) of a nominal ungeared after-tax $344 million (GB£261 million, US$245 million) when a 10% discount was taken into account.

The corresponding internal rate of return (IRR) was an ungeared 18.1% after tax .

An after-tax nominal-geared equity net present value (NPV15) for Ammaroo was $169 million, with a geared after-tax IRR of 24.9%.

Capital expenditure (capex), including stage I and II construction of $568 million, was predicted in a base case to give way to $8.625 billion of revenues.

The capital bill for the downstream project was more than $1 billion, to deliver significantly greater values.

Average earnings before interest, tax, depreciation and amortisation (EBITDA) in stage I — over the expected years of 1 to 5 — was $74 million a year, on the back of a $368 million installed capital cost.

Stage II EBITDA earnings flagged for years 5-10 were $166 million from a $200 million installed capital cost.

Verdant switched to commercialisation mode for the project in the December quarter of 2018.

The implementation and financing mode had four named project building blocks to execute as it sought finance.

These building blocks were: completion of Ammaroo native title agreements and grant of mineral leases; confirming and optimising the process flowsheet design; advancing final regulatory licences ie its mine management plan; and securing project financing arrangements with the Australian Government’s Northern Australia Infrastructure Fund, commercial debt providers and/or export credit agencies.

In early December 2018, the company then received a NAIF debt facility of up to $160 million for the project, which would bring in about $645 million of royalties to the Northern Territory Government.

The federal jurisdiction is self-governed but subject to a Commonwealth veto.

Verdant had already completed environmental approvals for the project in October 2018.

In January 2019 it revealed it was concluding native title agreements for Amaroo ahead of being granted mineral leases for the project.

The company had $893,000 cash and no debt at the end of 2018 and filed its half-year accounts for the December 2018 half-year two weeks ago.

Its upcoming quarterly reports are expected by the end of April 2019.

Verdant had expected to spend $700,000 in the March quarter of 2019, with $200,000 earmarked for exploration and evaluation.

What is CD Capital’s takeover plan for Verdant Minerals?

London-based natural resources fund manager CD Capital has outlined a proposed majority-interest takeover of Verdant.

Verdant shareholders are expected to vote on a board-endorsed scheme implementation agreement (SIA) that relates to the transaction on June 5, 2019.

The Australian junior company’s investors would then receive 3.2 cents per share held as at the scheme record date of June 17, 2019.

The offer represents a 113% premium to the 1.5-cent closing price on the last trading day before the proposed scheme was unveiled to the market.

Significant shareholder Washington H Soul Pattinson and Co Ltd (ASX:SOL) plans to stick onto its stake, which was 33.43% of the company on June 14, 2018.

CD Capital secured a 33.43% voting power in the company earlier this month through its CD Capital Natural Resources Fund III LP, counting SOL’s shares in its significant stake.

SOL would hold 33% of the entity after the partial takeover while CD would have a majority stake of 67%.

Regulatory approvals are a necessary part of the process which will involve an independent expert’s report, a scheme booklet lodgement with ASIC by about April 5, 2019, before a first court hearing on April 29, 2019.

The booklet would then be despatched to the company’s shareholders between April 30, 2019, and May 6, 2019, before a vote by shareholders about June 5, 2019, and a second court hearing the next day and lodgement with ASIC the following day of a court order authorising the scheme.

An implementation date of June 24, 2019, for the transaction has been proposed.

If CD’s buy-up is successful, Verdant may then be delisted from the Australian Securities Exchange.

Inflection points

  • Recommendation of independent expert and subsequent shareholder vote by about June 5, 2019
  • Court approval of an agreed scheme about June 6, 2019
  • Subsequent milestones for the project

Managing director Chris Tziolis supports CD Capital proposal

“The advancement of the Ammaroo Phosphate Project will require significant capital which, at the market capitalisation and share price prior to the offer, is highly unlikely to be raised from existing shareholders and without very significant dilution,” Verdant managing director Chris Tziolis said.

“Subject to an independent expert’s report and in the absence of a superior competing proposal, I have voted with my fellow independent directors to recommend CD Capital’s proposal to VRM’s shareholders.”

Verdant Minerals investors are expected to vote on CD Capital’s scheme implementation agreement on June 5, 2019.

 

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