Michelago Limited ACN 057 816 609, in the matter of Michelago Limited; ACN 057 816 609

[2006] FCA 1490

FEDERAL COURT OF AUSTRALIA

Michelago Limited ACN 057 816 609, in the matter of Michelago Limited
ACN 057 816 609 [2006] FCA 1490

MICHELAGO LIMITED ACN 057 816 609, IN THE MATTER OF MICHELAGO LIMITED ACN 057 816 609

NSD2091 OF 2006

EMMETT J

27 OCTOBER 2006

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD2091 SD 2006

IN THE MATTER OF MICHELAGO LIMITED ACN 057 816 609

MICHELAGO LIMITED ACN 057 816 609 Plaintiff
JUDGE:	EMMETT J
DATE OF ORDER:	27 OCTOBER 2006
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.There be convened by the plaintiff a meeting of its shareholders to be held at 11.00am on 6 December 2006, for the purposes of considering and, if thought fit, agreeing (with or without modification) to the Scheme of Arrangement proposed to be made between the plaintiff and its shareholders (‘Share Scheme’) in the form set out in Appendix 2 to the draft Explanatory Memorandum, being Exhibit 3A (‘Schemes Booklet’).

2.There be convened by the plaintiff a meeting of persons holding options, each to subscribe for one share in the capital of the plaintiff, exerciseable at a price of $0.15, which are listed on the Australian Stock Exchange Limited, on or before 10 January 2007 (‘Michelago Optionholders’), to be held at 11.30am on, or soon as possible after the Share Scheme meeting shall have concluded or adjourned, on 6 December 2006, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the Scheme of Arrangement proposed to be made between the plaintiff and the Michelago Optionholders (‘Option Scheme’) in the form set out in Appendix 3 to the Schemes Booklet (together with the meeting in Order 1 above, ‘the Meetings’).

3.The Schemes Booklet, including the documents at Appendices 1 to 11 inclusive, be approved for distribution to the shareholders of the plaintiff and Michelago Optionholders.

4.The Meetings be held at the Menzies Hotel, 14 Carrington Street, Sydney, New South Wales.

5.The documents to be dispatched to shareholders and optionholders be in the form or to the effect of Exhibit 3A, except that only shareholders receive the shareholder proxy form and only optionholders receive the optionholder proxy form.

6.John Patrick Horan or, failing him, Alan Roberts be authorised to act as chairperson for the Meetings, and any adjournment of the Meetings.

7.The chairperson appointed to the Meetings has the power to adjourn each meeting in his absolute discretion.

8.Save for regulation 5.6.13 of the Corporations Regulations, Rule 2.15 of the Federal Court (Corporations) Rules shall not apply to the meetings referred to in Orders 1 and 2 above.

9.The plaintiff be granted liberty to apply.

10.This proceeding be stood over to 13 December 2006 at 9 am before Justice Emmett or as he directs for consideration of Orders approving the Share Scheme and the Option Scheme.

11.These Orders be entered forthwith.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD2091 OF 2006

IN THE MATTER OF MICHELAGO LIMITED ACN 057 816 609

MICHELAGO LIMITED ACN 057 816 609 Plaintiff
JUDGE:	EMMETT J
DATE:	27 OCTOBER 2006
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. The plaintiff, Michelago Limited (‘Michelago’) is an Australian company whose shares and options are listed on Australian Stock Exchange Limited (‘ASX’).  Michelago has a 99.5 per cent interest in a gold concentrate treatment plant in Shandong Province, north-eastern China.  The gold concentrate treatment plant purchases gold concentrates produced at mines owned by other parties.  It produce gold bullion, which is then sold on the Shanghai Gold Exchange.  Michelago also has a 23.8 per cent interest in Australian Solomons Gold Limited (‘ASG’).  ASG is completing a definitive feasibility study for the recommencement of mining operations in the Gold Ridge gold mine in the Solomon Islands. 

2. Golden China Resources Corporation (‘Golden China’) is a Canadian company.  Its key project assets are two gold exploration projects in China. The most advanced of those is Nibao in Guizhou Province in southern China.  Michelago and Golden China have entered into a Business Combination Agreement designed to merge the undertakings of the two companies.  The merger will be effected by two schemes of arrangement.  One is a scheme between Michelago and its shareholders; the other is a scheme between Michelago and optionholders, on the basis that they are creditors of Michelago. 

3. The general effect of the two schemes is that the shareholders of Michelago will transfer their shares to a subsidiary of Golden China in exchange for the allotment of shares in Golden China and the options will be cancelled in consideration of the issue of options in Golden China.  The shares and options to be allotted and issued to the shareholders and optionholders of Michelago will be at the rate of 37.5:1, that is, for every 37.5 shares in Michelago, shareholders will receive one consolidated share in Golden China.  The new options will be on the same basis. 

4. I have before me an application by Michelago to convene meetings of its shareholders and optionholders to approve the proposed schemes.  I have had regard to affidavits of John Patrick Horan, Gregory Barry Starr, Alan Roberts, Robert Harry Duffin and Gary Quedado.  Mr Horan agrees to act as chairman of the meetings that are proposed to be called.  Mr Roberts agrees to act in his stead if he is unable to chair the meetings.  Mr Duffin is a Chartered Professional in Management at the Australian Institute of Mining and Metallurgy, and is managing director of Resource Equity Consultants Pty Limited. 

5. He has had over 35 years’ experience in resource exploration and project assessment, including over 20 years’ experience in mining investment analysis, project valuations and assessments of fair value of securities.  He has also held senior positions with two of Australia’s largest mining companies.  He has written or contributed to over 100 independent reports on various securities transactions or mining projects which have been published pursuant to provisions of the Corporations Act 2001 (Cth) or the listing rules of ASX. Mr Duffin has prepared a report in the name of Resource Equity Consultants Pty Limited on the proposed merger.

6. He has expressed the opinion that, for the reasons stated in the report, the proposed schemes of arrangement are in the best interests of Michelago’s shareholders and optionholders, in the absence of an alternative and more attractive proposal.  In forming that opinion, regard was had to several matters.

7. First, he considered the relative share values, on three alternative bases, being stockmarket, fair market value and book value.  The stockmarket basis suggests that the proposed ratio for the merger represents a discount to the Michelago share price of 22 per cent as at November 2005, when the proposed merger was first announced.  As at 28 August 2006, when adjusted terms became effective, the ratio represents a premium of about 26 per cent to a Michelago shareholder. 

8. The fair market value basis suggests a premium of about 19 per cent to Michelago shareholders, whereas book value represents a premium of something like 58 per cent.  Resource Equity Consultants have expressed the view that of the three methods used to compare the value, the fair market value approach is favoured.  Resource Equity Consultants also considered other factors such as a working capital facility provided by Golden China to Michelago, the respective sizes of the companies, the effect of the merger being that Michelago shareholders will hold some 59 per cent of voting shares although the arrangement is that they will be entitled to nominate up to three directors in a board that would consist of up to nine persons.  Other factors have been considered in detail in forming the opinion in question.

9. Australian Securities & Investments Commission (‘ASIC’) has written to Michelago’s solicitors concerning the proposed schemes.  ASIC has considered the detailed material that has been put before the Court and has confirmed that it has had a reasonable opportunity to examine the terms of the schemes and the draft explanatory statement. ASIC does not wish to appear to make submissions or intervene to oppose the convening of the meetings. 

10. One aspect of the proposed merger, which it is necessary to bear in mind, is that the consideration for the transfer of shares in Michelago and the extinguishment of options will be the grant of securities by a Canadian company.  Those securities, of course, will be subject to Canadian law.  Provision is made in the proposed schemes for CHESS depository interests to be issued by CHESS Depository Nominees Pty Limited, representing units of beneficial ownership in Golden China shares or Golden China options.  Provision is also made in the schemes for shareholders and optionholders who wish to hold options or shares directly on the basis, however, that they will not be able to trade those securities on ASX.  CHESS depository interests, on the other hand, can be traded on ASX.

11. The parties, as I have said, have entered into a Business Combination Agreement, which was originally made on 14 December 2005.  It has been amended subsequently and contains detailed provisions for the parties to give effect to the proposed arrangements.  In addition, Golden China has executed a deed poll dated 9 October 2006, whereby it covenants in favour of shareholders and optionholders to comply with its obligations under the Business Combination Agreement and to do all things necessary and expedient on its part to perform the acts contemplated of it under the schemes.  By the deed, it acknowledges that the deed may be relied on and enforced by any scheme shareholder or scheme optionholder in accordance with its terms, notwithstanding that the shareholders and optionholders are not parties to the deed.  I am satisfied that the terms of the schemes are such that rational shareholders may well be able to vote in favour of them. 

12. I am satisfied that the proposed scheme booklet contains sufficient detailed material and information to enable them to make a balanced judgment as to those matters.  The final approval of the schemes, of course, is a matter for the Court on another occasion.  However, I consider it is appropriate to make orders for the convening of meetings of shareholders and optionholders of Michelago as proposed. 

I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:        10 November 2006

Counsel for the Plaintiff:	Mr M. Oakes SC
Solicitor for the Plaintiff:	Kemp Strang
Date of Hearing:	27 October 2006
Date of Judgment:	27 October 2006