Determination of the 5% of Havieron

[RationalAssessor]

Have been doing some digging on how the 5% will be decided. This is not a post on how the 5% might be calculated but a history on how it might be decided between the NCM preference and the GGP preference.

In the original Havieron JV (12/3/19), there was no reference to how the 5% would be determined but it was just described as being available at Fair Market Value as long as NCM initiated the process within 12 months of the completion of stage 4 which was the production of a feasibility study for a project.

In the RNS which introduced the Juri JV and the NCM funding (30/11/21), some changes were made to the Hav JV. The PFS was pushed to stage 4, the methodology for price determination was described as follows:

"Newcrest retains its option to acquire an additional 5% interest at fair market value (cumulative interests 75% Newcrest; 25% Greatland). Fair market value will be determined by negotiation between the parties, or, if the parties are unable to agree, then by an independent valuer."

It's not completely evident what happened to NCM's obligation to deliver a Feasibility Study as a result of this RNS, however, susbesquently, NCM has now claimed the 70% which was available at completion of stage 4.
My understanding following this RNS was that there could be three valuations, GGP, NCM and if negotiation was not successful, a further valuation by an "Independent valuer"

Then on 9 December 21, completion of stage 4 was declared with NCM being entitled to 70% of the Hav JV.

FInally, on 21 December 21 the RNS issued declared that NCM had served notice on GGP that they wished to initiate the 5% process. Within the RNS, the process was described as follows:

Newcrest has issued a notice to Greatland informing it that Newcrest would like to begin the process under the joint venture agreement to seek to agree the option exercise price in the period to mid-February 2022.

Under the joint venture agreement, if the option exercise price cannot be agreed by this date, each party is thereafter required to notify the other of its assessment of fair market value. If both parties' assessments are within 10% of each other, the option exercise price will be the average of those assessments. If both parties' assessments are not within 10% of each other, the parties will proceed to independent expert determination, with the expert being required to determine which of the values nominated by the parties is to be the fair market value.

This appeared to change the process from that previously described in that an "independent expert" would be used and he/she would simply choose whether the NCM or GGP valuation would be the FMV. The independent expert would not necessarily have to produce a third valuation.

As a result of this change, Dip contacted the company at the end of December with the following question

Hi,
could you please clarify my understanding of the process?

1) Newcrest want to agree the option exercise price by mid feb 2022,
2) If Newcrest/GGP do not mutually agree on a Fair Market Value by this date then both parties put forward their own valuations
3) If both valuations are within 10% of each other, then the average will be considered the valuation for Newcrest to exercise their 5% option.
4) If there is a greater than 10% disparity, an independent expert is brought in to choose which one of the estimates is fair market value, so I assume that is the price that needs to be paid by Newcrest.
5) Newcrest then has 30 business days to exercise its option to acquire the additional 5%.
6) Should they choose to go ahead, then proceeds from the exercise will be used to repay the outstanding balance of the existing loan we have from Newcrest.

The response from GGP was as follows:

Hi Dip,

Thank you for your email.

Your summary of the 5% option exercise, fair market valuation process and timeline is accurate. It’s worth noting that these parameters are subject to change based on mutual agreement between the parties.

Please let us know if you have any further questions.

Thank you for your support of Greatland Gold.

Subsequently a further PI has contacted GGP and been advised:

"that an independent valuer has been appointed to review each parties submissions before making any price determination."

From all the evidence above, my view is that the process to be followed is that the independent expert/valuer will be charged with selecting either one or the other valuations presented by NCM and GGP.

That is of course, if NCM and GGP have not resolved the valuation at the eleventh hour before the expert/valuer makes his/her decision.

Happy to be challenged or hear other views.

ATB RA

[DipSard]

Following on from RA's post I have sent the following email (extract below) last Friday to GGP's investor relations to gain clarity on what is going on in regards to the option exercise, I've attached jpeg's of both emails mentioned by myself and RA.

Dear GGP team,

Could I please clarify my understanding of the current position in regards to the Newcrest option exercise:

- An independent valuer has been jointly appointed to review each party's submission before making any price determination as per comms shared by another shareholder that your team have communicated with.
- Is the above 'price determination' an exercise whereby the valuer will determine which of the two submitted valuations is closer to FMV?
- And will the valuation determined as closest to FMV become a final and binding price that will then become the price Newcrest has 30 days to consider for purchase of an additional 5% of the Havieron mining lease/asset?
- And will Newcrest or indeed GGP be able to appeal against the price determined in which event we could potentially enter a period of arbitration?

And I will update as soon as I get any response

[Bottle Rocket - Liam]

And that boys and girls is why we are here, and NOT on that other site.

[lebugue-addick]

Well it might appear that the independent valuer will choose either the Newcrest or the GGP valuation from the evidence, but I note the small sentence that implies that both parties can come to their own agreement if they so decide.

Why I think this is important stems from the dozens of possible variables and assumptions in play that might affect the 5% valuation. I put some of these on LSE a few days ago when discussing the PFS and 5%, but they are fairly obvious:

1. POG used by NCM
2. POG used by Greatland
3. POG at today's value which has moved on since PFS in October 2021
4. AISC life of mine used by NCM
5. AISC life of mine used by GGP
6. AISC currently being negotiated
7. Copper price used by NCM
8. Copper price used by GGP
9. Today's copper price
10. Total operating cost life of mine used by NCM
11. Total operating cost used by GGP
12. Current negotiating total operating cost
13. Capital project assumption NCM
14. Capital project assumptions GGP
15. Current capital costs being negotiated
16. Exchange rate used by NCM
17. Exchange rate used by GGP
18. Current exchange rate being negotiated
19. Discount factor to be applied
20. Discussions on ore to be milled - 2mtpa, 3 mtpa or some other figure
21. life of mine discussions - still 9 years or some other figure? Potential effect on NPV
22. Average gold grade NCM
23. Average gold grade GGP
24. Current average grades being negotiated
25. Ditto for copper
26. Gold produced over life of mine - as per NCM
27. Gold produced over life of mine - as per GGP
28. Extent to which PFS calculations are used
29. Extent to which GGP's updated MRE is to be used
30. Any other MRE being prepared for NCM's 30 June accounts - ready for August release.
31. What an independent valuer might conclude if used.
32. How much is Inferred and how much is Indicated. How much is Probable
etc etc etc

It will be a tough gig for the independent valuer to come down on one company's valuation rather than the other with all these factors so I would not be surprised to see some compromise.

[LoggyLogbot]

I also wrote to Greatland on friday for clarification on the progress of the 5%.
I posted the message I'd sent on LSE at the time, which was as follows:

Good morning,
I am a Greatland Gold private shareholder based in the UK.
I am enquiring about the progress of Newcrest acquiring an additional 5% interest in the Havieron Joint Venture and would be extremely grateful if you could advise what stage this process is at?
For clarity, has this procedure now gone to an independent expert to determine which of the values nominated by the parties is to be the fair market value?
I look forward to hearing from you,

Regards,
Loggy


I'm not sure how long it has taken people to get any replies - I'll post any response ( if I receive one ) on this thread.

[GoGreen1]

When I emailed them a few weeks ago I got a reply within about 36 hours.

[DipSard]

For emails I have sent, usually had replies within 3-4 days Loggy and for some ...... no reply at all!

But for those, there probably wasn't a way to reply without sharing inside information - but never hurts to ask I think!

[JungleBabbler]

Hi Guys,

I might have missed it but this conservation seems to have overlooked the switch to a 20% as detailed in the Interim Results RNS of 21st March; namely and I quote

"Subsequent to the period end, on 2 March 2022 both parties agreed to some minor modifications to the option process which included increasing the valuation range noted above from 10% to 20%. "

Surely this seems to be in NCM's interest as they could low-ball the Valuation? In other words I'm struggling to see by SD would have agreed to it. It might have made sense if an average Valuation was to be agreed on.

In some ways it is academic now if they have flipped to a winner takes all Valuation i.e. some 3rd party aribiter chooses the Valuation he likes best.
You could argue that logically the Valuations MUST be > 20% apart if they haven't agreed and we are in the hands of the arbiter.

Confused I certainly am.
JB

[DipSard]

Hi Guys,

I might have missed it but this conservation seems to have overlooked the switch to a 20% as detailed in the Interim Results RNS of 21st March; namely and I quote

"Subsequent to the period end, on 2 March 2022 both parties agreed to some minor modifications to the option process which included increasing the valuation range noted above from 10% to 20%. "

Surely this seems to be in NCM's interest as they could low-ball the Valuation? In other words I'm struggling to see by SD would have agreed to it. It might have made sense if an average Valuation was to be agreed on.

In some ways it is academic now if they have flipped to a winner takes all Valuation i.e. some 3rd party aribiter chooses the Valuation he likes best.
You could argue that logically the Valuations MUST be > 20% apart if they haven't agreed and we are in the hands of the arbiter.

Confused I certainly am.
JB

The original query I took up with GGP Investor Relations was on 21st December 2021 prior to the 20% gap being offered by Sandeep in 2022, this is why that email has 10% mentioned in place of 20%.

As RA points out, we seem to have moved to a stage where an independent valuer will select either our or NCM's valuation as the 'price tag' for the 5%.
My new email sent Friday to GGP investor Relations is to confirm if indeed it is final and binding once the valuer picks which valuation is to be used.
I want to know if there will or won't be an option for an appeal by the 'losing' party and if we then enter arbitration.
Also being asked in my email is if it is definitely a case of Valuation A or B becoming the price tag - could it be that the independent valuer is reviewing both and might then make a suggestion for both parties to agree upon.

[GoGreen1]

I think the switch to 20% could have been in everybody’s interests - if it enabled them to agree a figure and not have to go to arbitration. However it looks like this hasnt happened and they have gone into this new price determination process. Hopefully we’ll see a response to Dips emails which clarifies how it will work re the 2 opposing valuations.

[lebugue-addick]

Hi Guys,

I might have missed it but this conservation seems to have overlooked the switch to a 20% as detailed in the Interim Results RNS of 21st March; namely and I quote

"
My new email sent Friday to GGP investor Relations is to confirm if indeed it is final and binding once the valuer picks which valuation is to be used.
I want to know if there will or won't be an option for an appeal by the 'losing' party and if we then enter arbitration.
Also being asked in my email is if it is definitely a case of Valuation A or B becoming the price tag - could it be that the independent valuer is reviewing both and might then make a suggestion for both parties to agree upon.

Hi Dip - your last sentence covers what I was really trying to get at in my earlier post. We know the independent valuer's determination is not legally binding, and if the determination comes in with a form of "suggested value" as well there could be scope for some middle ground to be struck such that neither party is left disappointed.

[TheDolloo]

Thanks for clarifying the situation.

[ongold]

Once the arbitrators have both the valuations isn't it stated that they will use the average of both.

[Maximus10]

I think we need to be careful with language we use describing this process. The independent expert is just that, not an “arbitrator”. Arbitration is an entirely different process, and not part of the determination of the value of the 5%.

[RationalAssessor]

Once the arbitrators have both the valuations isn't it stated that they will use the average of both.

Ongold. No
If it was simple as taking thte average, you wouldn't need an arbitrator and NCM would value it at zero to bring the average down.

Please read the whole thread along with the history of exchanges with GGP IR.
Current situation IMO us that the independent expert/valuer will assess both submissions and select one. Unless the parties happen to agree before the selection by the expert/valuer.

Dip has a question outstanding with GGP IR to try to clarify further - see his post of 2.20

[Oz_in_UK]

Really helpful discussion thanks guys!

[zoros]

https://www.proactiveinvestors.co.uk/co ... 72538.html

A reminder of the madness that percolates around the bazaars....
Z

[strudel]

The independent valuer should be able to go through each party's method for reaching their valuation. At each parameter they should be able to say "too high / too low" or "I would say the market is likely to use this figure". They can then see why they have ended up more than 10%, and now more than 20% apart, and compare how far away they are from what the market is likely to call Fair.

The elephant in that equation is if NC are starting their calculation with a MRE nearer 2 and GGP using our latest 6 figure. A factor of three has entered the equation!

Hopefully there's been enough acquisition activity in recent months for many of the other parameters to be benchmarked.

....and the debate will pivot back to what the meaning of "Fair" means in practice. How much drilling goes into the valuation?

[DipSard]

What is somewhat confusing and why I sent an email for clarification to GGP IR is that we understand the valuations are being reviewed - "..... before making any price determination.  No arbitrator is involved in this process."

So why I sent an email is to hopefully understand:

1/ Is the Valuer making the price determination themselves or just reviewing submissions prior to going into arbitration?
2/ If it is the Valuer who determines which valuation is closer to FMV, can the 'loser' appeal and we enter arbitration?
3/ Or is this more informal as Strudel's suggestion in prior post and both party's could then use the valuers recommendations (perhaps a benchmark range) to try and come to a negotiated agreement not requiring arbitration?

This was the email that was shared on Telegram:

The process around the 5% is ongoing with a price determination outcome as the next milestone.
 
An independent valuer has been jointly appointed to review each parties submissions before making any price determination.  No arbitrator is involved in this process.
 
We will announce the outcome of the price determination milestone when that is known.
 

[David E Maus]

I would like to suggest we don't use the word Arbitration. It hasn't as far as I recall been used in any RNS. It's normal use in commercial context I believe is as a mechanism for resolving commercial disputes without resorting to litigation. What we are dealing with here is an agreed valuation mechanism not a dispute in the normal sense. The above may help explain why the email from GGP said that no arbitrator is involved in the process.

See https://en.m.wikipedia.org/wiki/Arbitration.

I do however think that there is an ambiguity in the email as to whether the independent person has simply been appointed or the parties have also now submitted their figures to the independent, and if the latter whether for some sort of initial feedback or for final determination. I suspect it means appointment only or else they would have been clearer but we shall see. Good that Dip is seeking clarification.