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ISR Capital says no to SGX request for shareholder nod for mining asset purchase

ISR Capital resisted a Singapore Exchange request that it seek shareholder approval for the waiver of a condition precedent to its purchase of a stake in a mining asset in Madagascar, just as the long-drawn out S$3 million acquisition was supposed to have drawn to a close.

The company had announced this week that the purchase of a 60 per cent stake in Tantalum Holding (Mauritius) (THM) would be completed on or around Dec 31, following a decision to waive a conditition precedent relating to "the cash flow budget and liquidity plan having been agreed on by the buyer with the seller and/or the target company". The long-stop date was also extended to Jan 3.

THM fully owns Tantalum Rare Earth Malagasy SARLU (TREM), which in turn holds an exploration licence for a rare-earth mining concession in Madagascar.

On Jan 2, SGX asked the company by email to seek shareholders’ approval for the waiver before paying for the acquisition, saying the condition precedent was material and will have an adverse impact on the company and the potential development and/or operation of the commercial production of the target company and the mining asset.

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"Shareholders had approved on the basis that the company will not waive such material conditions," the SGX said.

A disclosure in a circular dated Oct 15 had said that the “company will not waive any conditions precedent if such waivers will be prejudicial to the interest of the shareholders, and the board will be accountable to the shareholders of the company."

ISR responded on the night of Jan 2 to say that shareholder approval is not required. The waiver is not prejudicial to the interest of the shareholders and will not have an adverse impact on the company and the potential development and/ or operation of the commercial production of the target company and the mining asset, it said.

ISR said that a technical report prepared by Behre Dolbear from September had valued the project at a preferred value of US$44.5 million, rather than the cash flow budget or a liquidity plan.

It also said that it estimates expenses required for the project is likely to be US$10 million to US$15 million, based on discussions with THM and TREM and this amount was reflected in the circular. 

ISR also pointed out that the circular stated that the company intends to acquire and control the target company first before conducting a feasibility study of the project.

The board believes that the cash flow budget and liquidity plan will be more reliable if these are prepared concurrently with or using the results of the studies which will be conducted after the sale is completed, ISR said.

The company also thinks that they should prepare the budget and plan based on their own plans post completion of sale, "rather than relying on the vendor to prepare the reports".

"It is not practical for the company to conduct a feasibility study first as this would require considerable time and additional funding which will lengthen the acquisition process. Further, the consideration for the proposed acquisition may increase significantly if the feasibility study is conducted first," the Oct 15 circular had said.

ISR Capital requested a lift in its trading halt on Jan 3 before market open. It had called for a trading halt pending an announcement on Wednesday morning.