the end of the bmg handrake

From my perspective, one of the things that has impacted the share price and overall performance of CAP over the last couple of years has been the litigation surrounding CAP’s old joint venture partner, BMG. Long term shareholders and followers will be well aware of these issues. However, the handbrake is now OFF and CAP is free to move full steam ahead.

With respect to the latest round of litigation, those wanting to read more in depth, head to the link below for the ComCourts portal where you can read the judgement for yourself.

https://www.comcourts.gov.au/file/Federal/P/NSD363/2013/actions#

For those who just want a brief summary, the previous BMG shareholder disputes and court action resulted in order for liquidators to be appointed to BMG and for BMG to be liquidated. In the process of selling BMG’s 40% interest in the Hawsons JV, the liquidators sought expressions of interests and eventually final offers. Hillam and related entities, put in a offer for the purchase of BMG’s interest in Hawsons. However, the liquidator ultimately preferred the offer of Pure Metals, a company associated with Ample Source International, the other major shareholder of BMG.

Hillam and related entities then commenced court proceedings against the liquidator because from Hillam’s perspective, his offer was superior to that of Pure Metals and from Hillams perspective, the liquidator should have accepted his offer. Hillam and related entities sought an interlocutory order – being a court order saying that the sale of BMG’s interest in Hawsons should be put on hold until the end of the proceedings against the liquidator.

The Court heard the interlocutory application on 18 April and ruled that the liquidators sale of BMG’s interest in Hawsons to Pure Metals could proceed. Hillam appealed that judgement. The Court heard the appeal on 19 April and once again dismissed the appeal.

That means that the liquidators sale of BMG’s interest in Hawsons to Pure Metal can proceed and as far as I’m aware, nothing can stop this from happening. Hillam may still be able to continue proceeding against the liquidator for any loss he can substantiate. However that will be between the liquidator and Hillam, and will not impact the sale of Hawsons.

From CAP’s perspective, there is a heads of agreement for a new JV agreement with Pure Metals/Ample Source International and if a heads of agreement cannot be turned into a new agreement, as per the announcement on 22 April 2013, “Importantly, under an amendment to the Terms Sheet, should this not occur then CAP will have the right to buy back the 40% BMG Joint Venture Interest from Pure Metals on the same terms as its pre-emptive right offer”.

Assuming the new JV agreement proceeds, it provides $5M of funding to progress Hawsons. Further, those associated with Pure Metals/Ample Source have expressed concerns over the time taken by the current board and management to secure a new major JV party and indicated that they could do this more effectively. Therefore, if the new JV goes ahead, then there is cash to progress the JV and the right people working together to advance the project.

Assuming the new JV does not proceed, CAP will buy back 100% of Hawsons. Whilst this will probably involve a capital raising, I would expect the dilution to be less than 40% and therefore current shareholders will retain a larger percentage of Hawsons.

Either way, the future seems bright for CAP and the issues associated with the former JV partner of BMG will no longer be the handbrake slowing CAP down.