Chairman's Address19 May 2003
Good morning ladies and gentlemen and welcome to this General Meeting of Gympie Gold Limited.
This meeting has been called to consider six resolutions relating to a package of share issues that raise a total of $15.2 million to restore the group's working capital. These equity raisings are being implemented in the following manner:
1. a $2.4 million placement of 7.3 million ordinary shares to several of the Company's Directors;
These shares are all to be issued at the same price of $0.335 per share. If all resolutions are approved today, these equity raisings will increase the total shares on issue from 160 million to 205 million.
Resolutions 1 to 4 today consider the placement of shares to several of the Company's Directors. The commitment to the equity raising by the Chairman and Managing Director was an essential pre-condition by Southern Cross Equities for the placement to professional/sophisticated investors and the underwriting of the Share Purchase Plan. Two independent Directors, who are not participating in the equity placement, have reviewed the participation of the other Directors and agree that it is in the best interests of all shareholders.
A $6.4 million placement to professional and sophisticated investors was made on 11 April 2003, at a price of $0.335 per share, a discount of 14% to the weighted average share price for the five business days preceding 27 March 2003, the date the price was set.
Resolution 5 today is to consider ratification of this placement to professional and sophisticated investors.
The $6.4 million Share Purchase Plan provided all eligible shareholders the opportunity to subscribe to shares at the same price of $0.335 per share. I am pleased to advise that the Share Purchase Plan closed oversubscribed. More than 1,900 shareholders or about a quarter of our shareholders subscribed to the Plan -very strong participation. Applications were received for approximately 14% more shares than the maximum number of shares to be issued under the Plan. In accordance with the terms of the Plan, the shares applied for in each application will be scaled back on a pro-rata basis.
Resolution 6 was included in the Notice of Meeting relating to the possible issue of shares to Southern Cross equities as underwriter to the Share Purchase Plan. As the Plan was oversubscribed, there is not a shortfall to be placed to the underwriter. Accordingly, the need for passing Resolution 6 has ceased and it is not being put to the members at this meeting.
Holders of Gympie Gold's convertible notes were not eligible to participate in the Share Purchase Plan. However, in order to reflect the dilutionary impact of the shares issued under the Share Purchase Plan, the Conversion Ratio of the convertible notes is now adjusted from 0.7407 to 0.7567.
Purpose of Capital Raisings
Private placements together with a Share Purchase Plan were considered the most appropriate way to raise the required funds, primarily because of the speed and surety that this route provided.
The Company considered raising the required equity via a rights issue. However, a rights issue would have been more expensive, taken much longer to complete and been very unlikely to be underwritten in the uncertain markets at the time. In the uncertain markets that prevailed at the time this was considered too great a risk.
Even though some shareholders were not able to participate in this equity raising, your Directors firmly believe that the form of equity raising that the Company has taken is in the best overall interests of all shareholders.
If shareholders approve of this course of action, this will fulfil the Company's intention, as stated in our December 2002 Half-Year Results announcement, to establish capital reserves of $15 million or more from equity issues and any retained net cash flow. This should enable the Company to apply surplus operating cash flow over the coming year to reducing borrowings and to adding value to our coal and gold assets.
Demand for Southland Coal's product range remains strong, particularly because of its low ash and high fluidity. The recent production levels have underpinned forecast sales to increase to more than 500,000 tonnes for the June quarter, compared to an average of 260,000 tonnes per quarter for the previous three quarters.
Strong production has also permitted the establishment of a washed coal stockpile of more than 200,000 tonnes. Southland intends to maintain this approximate stockpile level and to balance production with shipments. This stockpile should cover the production hiatus when the longwall unit is moved from longwall panel SL3 to SL4, which is expected to take around 6 weeks during September/October 2003.
Exploration of the Gympie Goldfield has been significantly advanced over the past year. First-pass drilling has intersected high-grade gold at several prospects - particularly the extensions to the major goldfield feeder structure to the north and to the south.
Part of the challenge of exploring the Gympie Goldfield is to allocate available funds between competing priorities. Within the group's range of activities, funds also need to be allocated between resource/reserve drilling near the current mine and grassroots exploration aimed at discovering million ounce plus orebodies. We have prospects capable of being accessed via extensions to established mine infrastructure with the potential to host major gold deposits.
The most recent encouraging drill-intercept to the North is about 1 kilometre from the Lewis Decline infrastructure and on-strike for significant near-surface mineralization detected with past drilling just under the alluvial cover near the river.
South Inglewood is a major exploration success of the past six months. This appears to be a multi-kilometre extension of the system that has produced approximately 2 million ounces in the area we are currently mining, but a major fault has brought this structure from about one kilometre depth to only a few metres below the surface. The South Inglewood area has not been mined or even explored previously. Even though economic widths and gold grades have not yet been intersected here, the same structures and rock types are present that hosted the ore in the areas already mined, and narrow high-grade gold has been intercepted.
As part of our ongoing program to provide the most effective exploration programs we have entered into an arrangement with new regional explorer D'Aguilar Gold Limited. D'Aguilar is currently an unlisted company that owns large exploration tenements in the Gympie region that are prospective for porphyry style gold-copper deposits Gympie Gold also owns tenements in the Gympie region that are prospective for porphyry style gold-copper deposits. This style of mineralisation is very different from the high-grade, quartz vein, gold mineralisation in the Gympie Goldfield.
As our current focus is very much centred on exploring the Gympie Goldfield, we have agreed to sell our porphyry gold-copper prospects to D'Aguilar in return for approximately a 25% interest in the company when it floats on the ASX. This arrangement will fast-track the exploration of these particular porphyry style prospects and also provides our shareholders with exposure to discoveries on the other prospects in D'Aguilar's portfolio. Gympie Gold shareholders will receive a priority entitlement to shares in this float. D'Aguilar hopes to issue a prospectus soon and shareholders will then be invited to participate.
Conclusion Looking to the future, the prospect of exploration success in the Gympie Goldfield along with the cash flows from the Southland Colliery is an attractive combination and an excellent platform on which to build growth.
Several prospects in the Gympie Goldfield have yielded very promising results and each prospect has the potential to host plus-one million ounce gold deposits. This potential upside is balanced by the new operating regime at Southland which is now settling down at good production rates.
It is for these reasons we are seeking your support for the new capital. I hope you will agree with the strategy and urge you to support it.
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