Gindalbie Metals : Scheme of Arrangement and Demerger

GINDALBIE TO DEMERGE CODA MINERALS AND BE ACQUIRED BY ANSTEEL

IN A RECOMMENDED TRANSACTION

Highlights

•  Gindalbie proposes to demerge its wholly owned subsidiary, Coda Minerals, to Gindalbie shareholders, and Ansteel has agreed to acquire Gindalbie for cash consideration.

•  If both transactions are implemented, they will deliver Gindalbie shareholders:

  • ‒ $0.026 cash for each of their shares in Gindalbie, representing an 90% premium to Gindalbie's 30-day VWAP; and

  • ‒ a pro-rata distribution of Coda shares at a ratio to be confirmed.

  Coda will hold the Mt Gunson Assets and $10.64 million in cash (less any incurred expenditure on Mt Gunson since 14 June 2018).

•  Gindalbie's Directors (excluding Ansteel's representatives1) ("Independent Directors"):

  • ‒ unanimously recommend that shareholders vote in favour of each of the transactions; and

  • ‒ intend to vote any Gindalbie shares in which they have a relevant interest in favour of the resolutions to approve the transactions,

  in the absence of a superior proposal and subject to the Independent Expert concluding that the relevant transaction is in the best interests of Gindalbie shareholders.

•  This offer represents a highly attractive cash premium to Gindalbie's current share price while allowing Gindalbie shareholders to retain exposure to value-creation opportunities through Coda (further details of which are set out below).

•  Coda's leadership team is proposed to include Gindalbie's Non-Executive Chairman Keith Jones (Non-Executive Chairman-designate of Coda) and Gindalbie's CEO Chris Stevens (Managing Director-designate of Coda). Gindalbie's Independent Non-Executive Directors Paul Hallam and Robin Marshall are also proposed to join the Coda Board. Ansteel also intends to nominate a director to the Coda Board.

•  Gindalbie shareholders do not need to take any action at this time.

1 Mr Shao An Lin and Mr Ge Li.

Gindalbie Metals Limited ("Gindalbie") (ASX: GBG) is pleased to announce that it has today entered into two transactions ("Transactions") that, if implemented, will lead to:

•  the demerger of Gindalbie's wholly owned subsidiary, Coda Minerals Ltd ("Coda"), which holds the rights to a significant and strategic portfolio of tenements in South Australia ("Demerger"); and

•  the acquisition of Gindalbie by Angang Group Hong Kong (Holdings) Limited ("Ansteel"), Gindalbie's largest shareholder, for cash consideration of $0.026 per share ("Acquisition").

The Transactions will be implemented by way of two inter-conditional schemes of arrangement (the "Demerger Scheme" and the "Acquisition Scheme"), and a capital reduction to effect the Demerger. The Acquisition Scheme and the Demerger Scheme are each subject to the approval of Gindalbie shareholders and other customary conditions.

Details of the Transactions

Gindalbie and Ansteel have executed a Scheme Implementation Agreement ("SIA"), under which Ansteel has agreed to acquire all the ordinary shares in Gindalbie that it does not currently own for cash consideration of $0.026 per share. Ansteel currently has a relevant interest in 535,492,521 ordinary shares, which represents 35.71% of Gindalbie's issued capital.

Gindalbie and Coda have executed a Demerger Implementation Agreement ("DIA"), under which Gindalbie has agreed to propose the Demerger Scheme and demerge Coda via a capital reduction. If implemented, Gindalbie shareholders will receive a pro-rata distribution of Coda shares for every Gindalbie share they hold on the record date for the Demerger Scheme at a ratio to be confirmed.

The capital reduction to effect the Demerger, and the Demerger Scheme itself, will require Gindalbie shareholder approval.

The Demerger Scheme, the Acquisition Scheme and the capital reduction will effectively be conditional on each other.

Rationale for the Transactions

Gindalbie is proposing the Demerger in order to enable Coda to further exploit exploration opportunities led by the Mt Gunson Copper-Cobalt Project ("Mt Gunson") in a manner that removes Coda from any exposure to the significant contingent liabilities remaining with Gindalbie. Those contingent liabilities arose as a result of Gindalbie's stake in Karara Mining Limited ("KML"), the company that operates the Karara Iron Ore Project ("Karara").

As at 31 December 2018, Gindalbie had contingent liabilities totalling $231 million in relation to bank guarantees provided to suppliers of KML. In 2014, Gindalbie made the decision, in conjunction with its auditors, to write down the carrying value of its interest in KML to nil ($0) in recognition that it was, and in the Independent Directors' opinion remains, unlikely that Karara will generate sufficient profits to return dividends to Gindalbie.

Having regard to the operating performance of Karara, the level of debt within KML, the potential for future dilution due to cash calls and the ongoing requirement for financial support from Ansteel, which owns 52.16% of KML, the Independent Directors consider it is in the best interests of Gindalbie shareholders to separate Coda and Gindalbie.

The Independent Directors believe that the Demerger will enable Gindalbie shareholders to retain exposure to the exploration and development of the Mt Gunson assets, via their shareholding in Coda, without the legacy issues of Gindalbie. The Independent Directors believe the structure of the Demerger is the best and most value-creating way to achieve this objective.

Ansteel has indicated that its primary focus is on consolidating ownership of KML, and that it therefore supports the Demerger.

The Acquisition Scheme also allows Gindalbie Shareholders to receive a significant premium for their Gindalbie shares relative to the prevailing share price, which the Independent Directors believe to be an attractive opportunity relative to the uncertainty created by Gindalbie's $231 million worth of contingent liabilities.

Benefits to Gindalbie shareholders

The Independent Directors believe the Transactions will result in a number of benefits to Gindalbie shareholders, which include the following:

•  The Acquisition Scheme consideration of $0.026 per ordinary share represents a significant premium of 89.78% to Gindalbie's 30-day VWAP; 69.93% to Gindalbie's 60-day VWAP; 65.61% to Gindalbie's 90-day VWAP; and 61.49% to Gindalbie's 120-day VWAP of $0.0137, $0.0153 $0.0157 and $0.0161, respectively.

•  Gindalbie shares have not traded at or above the Acquisition Scheme consideration of $0.026 per ordinary share in more than 12 months.

The Transactions deliver Gindalbie shareholders:

•  100% cash consideration under the Acquisition Scheme, providing Gindalbie shareholders with certainty of value and the opportunity to realise their investment in Gindalbie for cash; and

•  full exposure to the value and upside of Mt Gunson through the ownership of a new and focused company, Coda, as a result of the pro-rata distribution of Coda shares to Gindalbie shareholders under the Demerger Scheme.

Board recommendation

The Independent Directors unanimously recommend that Gindalbie Shareholders vote in favour of the resolution to approve the Acquisition Scheme, in the absence of a superior proposal and subject to the Independent Expert concluding that the Acquisition Scheme is in the best interests of Gindalbie shareholders.

The Independent Directors unanimously recommend that Gindalbie Shareholders vote in favour of the resolution to approve the Demerger Scheme, in the absence of a superior proposal and subject to the Independent Expert concluding that the Demerger Scheme is in the best interests of Gindalbie shareholders.

Subject to those same qualifications, each Independent Director intends to vote all the Gindalbie shares in which he has a relevant interest in favour of the resolutions to approve the Acquisition Scheme and the Demerger Scheme.

Ansteel's voting intentions

Ansteel intends to vote all Gindalbie shares in which it has a relevant interest in favour of the Demerger Scheme and the capital reduction if the resolutions required for the Acquisition Scheme are passed. As at the date of this announcement, Ansteel has a relevant interest in 535,492,521 Gindalbie shares (35.71%).

Ansteel does not intend to vote on the Acquisition Scheme.

Information about Coda

Coda is currently a wholly owned subsidiary of Gindalbie. Post implementation of the Demerger, it is intended that Coda will be an exploration company with a clear focus on progressing Mt Gunson and delivering value for shareholders. Coda intends to apply for listing on the ASX, with listing subject to all necessary regulatory approvals.

Coda currently holds the rights and interests under the Mt Gunson Farm-in Agreement to a significant and strategic portfolio of tenements in South Australia. Gindalbie announced its entry into the Mt Gunson Farm-in Agreement to the ASX on 12 March 2017, and the Agreement was subsequently novated to Coda on 21 May 2018.

The tenements the subject of the Mt Gunson Farm-in Agreement include the highly prospective Mt Gunson project, which is 100km south of BHP's world-class Olympic Dam copper-gold-uranium mine and within 50km of OZ Minerals' Carrapateena copper project.

Coda will be demerged with $10.64 million in cash assets, less any incurred expenditure on Mt Gunson since 14 June 2018.

Further details about Coda will be contained in the Demerger Scheme Booklet.

Non-Executive Chairman comments

Keith Jones, Non-Executive Chairman of Gindalbie and Non-Executive Chairman-designate of Coda, commented:

"I am delighted to present the Acquisition and the Demerger proposals to our shareholders, which are the culmination of productive discussions with Ansteel and which I believe deliver a deal that is mutually beneficial for all parties.

"The Acquisition and the Demerger allow Gindalbie shareholders to receive a cash price significantly higher than the current market price for their Gindalbie shares as well as to emerge with an ownership stake in an exciting new company that is focused on the Mt Gunson Copper-Cobalt Project. Coda intends to apply for listing on the ASX, with listing subject to all necessary regulatory approvals, and carry out fundraising in the short to medium term to strengthen its balance sheet.

"Gindalbie is proud of the role it played in developing Karara, a significant magnetite iron ore project in the Mid West, and the long-term jobs and benefits it has created for Western Australia.

"Karara was conceptualised during a different and unprecedented time in the global iron ore cycle. In today's more subdued iron ore price environment, a small company like Gindalbie is ill-suited to retain a significant minority investment in a capital-intensive project like Karara. The broader investment community has made that abundantly clear to Gindalbie's Board and management, and I consider it is reflected in Gindalbie's share price.

"With the strong support of our Karara joint venture partner, Ansteel, we have been able to structure a deal that delivers significantly more value for all Gindalbie shareholders than the market currently ascribes to your shares.

"The Independent Directors unanimously recommend that shareholders vote in favour of each of the Transactions, in the absence of a superior proposal and subject to the Independent Expert concluding that the relevant Transaction is in the best interests of Gindalbie shareholders."

CEO comments

Chris Stevens, CEO of Gindalbie and Managing Director-designate of Coda, commented:

"As a new and fresh company, Coda will be well positioned to extract maximum value from the highly prospective Mt Gunson Copper-Cobalt Project and other mineral exploration opportunities.

"The Acquisition and the Demerger will allow Gindalbie shareholders to secure a significant premium in cash for their Gindalbie shares as well as part-ownership of Coda, a minerals exploration company with a clear and unrestricted focus and the ability, in my opinion, to attract broad investor interest.

"I am excited at the prospect of leading the Coda team and delivering value for our shareholders."