Transcription of The Stock Network Interview with Far East Gold (ASX:FEG), Managing Director & CEO Shane Menere
Lel Smits: Far East Gold has issued a further response as the takeover battle with Xingye Gold Gold intensifies, urging shareholders to carefully consider all available information before making a decision. The company continues to rely on the findings of the independent expert, while addressing Xingye’s latest claims regarding valuation, shareholder support, the company’s financial position and future strategy. I’m joined today by Far East Gold Managing Director and CEO Shane Menoray to discuss why the board believes this decision is so critical, to respond to Xingye’s latest assertions and outline the board’s position.
Shane, welcome back to the Stock Network.
Shane Menere: Thanks, Lel, it’s really great to be here.
Lel Smits: Now, great to have you on, but this takeover is becoming increasingly intense. Xingye is telling shareholders to ignore the independent board committee and accept immediately. You have responded strongly. What do you want shareholders to really understand above everything else?
Shane Menere: Well, I want to speak directly to our shareholders today. So many of them have been with us for years and they’ve supported us when FUG was still being built, when the projects were earlier stage, when the risks were higher and when that value was still largely beneath the surface, I guess. Now, they’ve provided the capital and the confidence that allowed us to explore, drill, increase resources, get us off the ground with secure permits and project interests and carry out all that technical work to bring these projects forward. And now, after shareholders have funded that difficult journey, that risky journey, Xingye is seeking to acquire their shares for $0.13 or potentially at $0.15 if it reaches its accepted threshold.
Now, the independent expert has assessed FUG shares at $0.32.5 to $0.44.5 roughly cents per share and concluded that the offer is neither fair nor reasonable. So that is why we’re fighting. We’re not fighting because we enjoy the process.
We’re not fighting to preserve management positions. This is certainly very hard work for us, but we want to fight for our shareholders. So we’re fighting because the people who funded the risk deserve to receive a fair share of the reward.
And right now, the price being offered does not come close to reflecting that value. So, Xingye, why do you think the decision now facing shareholders is absolutely critical? Because accepting is not something shareholders can simply reverse later. So the offer is unconditional.
Once a shareholder accepts, they can’t withdraw that acceptance merely because circumstances improve or a new transaction develops or the value of the company becomes clearer. So if Xingye does not exceed that 50% by the relevant deadline and does not otherwise improve the offer, accepting shareholders may have sold at $0.13 and they would lose their ability to participate in any improved offer, an alternate transaction, maybe a higher market price, any project level transaction or any future value created from the portfolio. So this is not simply a choice between accepting today or accepting tomorrow.
It’s a choice between selling now at a higher price, according to the independent expert, that he says is inadequate, or retaining the opportunity to participate in the value that the company is actively working to unlock. So this is why shareholders should not make the decision out of fatigue, fear or pressure. Certainly at the wrong price is not value.
Lel Smits: And Shane, Xingye has made a great deal of the vendor’s acceptance. Does that mean that the offer has broad shareholder support?
Shane Menere: No, in fact, the numbers tell almost the opposite story. So as far as FEG is aware, Xingye’s current relevant interest comprises approximately 17.6% acquired before the offer at $0.20 a share.
That was Xingye’s original deal. Of course, they’ve diluted a bit since. But they remain at 17.5.6%. And roughly 16 or 16.5 thereabouts accepted by the vendor associated with Woiler and Idenberg.
And so here’s the key point. It’s only approximately 0.13% acquired from shareholders under the offer. So that last figure is the one ordinary shareholders should focus on.
Outside of the vendor, acceptance from the broader shareholder base has been extraordinarily limited. So despite repeated bidder statements, persistent pressure, repeated requests to accept, immediately approximately only 0.13% has been accepted by other shareholders. So this is an extremely poor response to the offer.
And it tells me that shareholders understand what’s happening. They understand that 0.13 or even conditional at 0.15 does not adequately reflect what they own. So the most important number is not the vendor’s 16, 16 and a half odd percent.
It’s approximately 0.13% accepted by everyone else.
Lel Smits: Yes, and Shane, some shareholders, however, may look at the vendor’s acceptance and say, if they accept it, perhaps the price must be reasonable. Why do you think that may not be the right conclusion?
Shane Menere: Hmm, because the vendor’s economic position is materially different from the position of an ordinary FEG shareholder.
So the vendor accepted the offer in respect of her own FEG shares, but she continues to retain minority project level interest in both Woyler and Idenburg projects. So that means she still has exposure to the future value and upside of those projects. An ordinary FEG shareholder accepts the offer, does not retain that same exposure.
They receive the offer consideration and exit. So the vendor can accept the cash for FEG shares while still retaining that separate pathway to increase in future project level upside. So the ordinary shareholder cannot.
And that is why a decision should not be treated as an independent endorsement to the offer for everyone else. Her economic position is very different. Her potential upside is very different.
Her motivation may therefore also be very different. Now, I’m not criticising her for acting in accordance with her own interests, but shareholders need to recognise that the interests are not identical to theirs. So for the ordinary shareholder, accepting means giving up the entire opportunity. For the vendor, it does not.
Lel Smits: And Shane, you have said earlier that shareholders funded the difficult part of the journey. Why do you think that’s so central in terms of your response?
Shane Menere: Well, because that’s exactly what’s happened.
Our shareholders supported FEG while we assembled the portfolio, acquired and consolidated projects. Interest undertook exploration and drilling, increased resources, progressed all the metallurgical work and technical studies, worked through the permitting and regulatory processes. We built an experienced team in Indonesia on the back of all of this to support all these huge milestones.
And they’re high risk milestones. So that work requires time and capital and patience. And I guess the value Shane is now seeking did not appear overnight.
That was built using shareholder funds and shareholder confidence. And we’re now approaching a really important period where a number of these investments may begin to be recognised through those technical catalysts, strategic transactions and future advancement of the project. So to sell now at steep discount would allow another party to acquire the benefit of that work without paying shareholders properly for it.
That, for me, is a central issue. So the shareholders carried the risk. They should not be denied the reward just as the value is beginning to emerge.
Lel Smits: So, Shane, why do you think that Xingye is pursuing control so aggressively at this particular point?
Shane Menere: I can’t speak for Xingye’s undisclosed internal objectives, and I won’t speculate beyond that point. But shareholders can see for themselves by some relatively straightforward Google searching on what they’re looking to do in different stock markets and value positionings elsewhere. So timing is obvious.
FEG has progressed significantly. We’ve moved the major ownership of Heidenberg, increased that resource, advancing all of the technical work. We now have received non-binding indicative proposal valuing Prangilek alone at approximately 40 million US dollars or approximately 57 million dollars, as stated in our target statement.
Excuse me. And what’s important to understand is that one asset that is coming in roughly at 57 million Australian dollars, which is also about as much as Xingye is offering us for the entire company. So that speaks volumes right there.
But that proposal relates only to that one project, yet it’s broadly, as I said, comparable to that value that they’ve offered. So shareholders really should ask themselves, why is Xingye fighting so hard to acquire control now? And they should also ask another question, actually. If the assets are really as problematic as Xingye is trying to portray, why does Xingye want them so badly? That contradiction is at the heart of this takeover.
Xingye is seeking control of the same portfolio and is attempting to diminish it in the eyes of the shareholder. So shareholders should look beyond the rhetoric and consider the commercial logic.
Lel Smits: Now, Shane, Xingye has raised concerns about FEG’s assets management, also financial position.
How do you characterize its approach?
Shane Menere: The pattern is pretty clear. Rather than keeping the conversation focused on price and value, Xingye is attempting to move the discussion towards fear, uncertainty and urgency. So the narrative, it appears to be advancing, is that the assets are highly problematic.
Management cannot resolve those issues. The company is under financial pressure and shareholders must accept immediately. This is not a complete or balanced portrayal of FEG at all.
FEG has a highly experienced Indonesian management team with strong legal and technical support. We understand the environment in which we operate very well. We’ve been managing these complex Indonesian mining projects for years.
So mining and exploration projects require ongoing legal, regulatory, government, technical work. The existence of matters requiring management does not mean the portfolio is broken or has no value. So complexity is not failure.
In fact, the work required to assemble and progress these assets is one of the reasons the portfolio is difficult to replicate and strategically valuable. So again, shareholders should ask if Xingye truly believes that the portfolio is so impaired, why is it fighting so aggressively to acquire it? Xingye has also referred to FEG’s pending insolvency. Is the company, Far East Gold, in a desperate financial position? No, FEG is solvent.
There is no pending insolvency. This is stated clearly in our third supplementary target statement released today. FEG is not in a desperate cash position that FEG is, I’m sorry, Xingye is attempting to portray.
Like every responsible exploration company, we actively manage our liquidity and funding requirements. The company’s financial position will become clear when we release the quarterly report later in the week. So shareholders will be able to assess the actual reported cash position rather than a bitter, creative narrative of this.
So to use the terms such as pending insolvency appears designed to create fear and force shareholders into believing that they must accept immediately. And that is precisely why shareholders should rely on formal financial information, the company’s disclosures and the independent expert, not on pressure based assertions from a bitter signal to acquire their shares cheaply. So FEG is solvent, operational and continues to progress its work, which is why I’m here telling the story as I am today.
And you mentioned the independent experts report. How much weight do you think investors really should be giving to that experts, independent experts valuation? A great deal. The independent expert assessed FEG shares at between 32 and a half and 44 and a half per share.
So Xingye is offering 13 or potentially 15 if the relevant threshold is achieved. So even the higher price remains approximately 60 odd percent below the independent experts valuation range. So this is not management putting forward an aspirational value.
This is an independent professional assessment. And the independent expert concluded the offer is neither fair nor reasonable. So shareholders should keep returning to the fact whenever they hear attempts to create urgency or diminish the portfolio, consider that.
So the biggest task is to acquire the company as cheaply as possible. And the independent board committee’s task is to protect shareholder value. So the independent experts task is to provide shareholders with an independent assessment.
And those roles are all very different.
Lel Smits: Now, some shareholders might be concerned that weighting simply creates more uncertainty. Shane, are there examples perhaps where shareholders holding firm produced better outcomes?
Shane Menere: Yeah, absolutely.
There really are. No past transaction guarantees the outcome for FEG. And I want to make that really clear to our shareholders.
But mining takeover history demonstrates that shareholders should not automatically assume the first or early price is the best price that can be achieved. So in the case of Cardinal Resources, just going to my notes here, the initial approach was approximately 45 cents per share. And after that competitive tension developed, the ultimate price reached over $1, $1.05 in fact.
So that’s approximately 129% above the initial proposal. And another note that I’ve got as a comparison, in the case of Norent Resources, the original approach was approximately Canadian, about 31 cents per share. And following a very competitive process, the ultimate price reached $1.10 per share, more than three times the original proposal.
And, you know, if you draw a direct comparison with FEG’s, Lonergan Edwards’ independent valuation, you know, those are the sorts of ratios that FEG could potentially enjoy. So those examples don’t mean FEG shareholders are guaranteed the same result, but they demonstrate a very important principle. When strategic mining assets are involved, shareholders should not assume that an early inadequate proposal represents the maximum value available.
Competitive tension often requires time. Alternative transactions require time. Due diligence requires time.
A bidder’s urgency generally serves the bidder. And shareholders’ patience can preserve value and optionality. And this is why accepting too early can be such a consequential decision for shareholders.
And then Xingye has dismissed the Trengelec proposal because it’s non-binding and conditional. Why do you think shareholders still consider it important? Because we’ve always been open about its status. It’s non-binding, incomplete, conditional and indicative.
We’ve never represented it as a completed transaction. But that doesn’t mean it lacks commercial significance. It’s just the first offer that we’ve received.
There’s still a number of companies in the data room and looking around closely at us. This particular non-binding indicative offer, the objective evidence confirms a third party sees enough value in one of the FEG projects to put a proposal for approximately $40 million US dollars on our table. So that’s important because the proposal concerns that one asset, while Chen Xingye is trying to acquire the remaining FEG shares and therefore exposure to the whole portfolio for broadly a comparable amount.
So we’re now working to advance that proposal responsibly and swiftly. That means progressing DD, transaction structures, certain conditions and reviewing funding. So we’re seeking to move the process towards greater certainty now.
I can’t guarantee that it will become binding, but looking promising. But we have a duty to test an opportunity that may deliver substantially greater value than the current offer. And that’s what shareholders should expect from us, actually.
Lel Smits: Now, Xingye says it intends to vote against a Tringle Lake transaction. Does that mean that it can actually stop FEG from proceeding?
Shane Menere: No, not unilaterally. It has not yet been determined whether shareholder approval would be required.
That depends on final transaction structure and the application of the ASX listing rules. ASX may determine that shareholder approval is not even required. If approval is required, the independent board committee is not aware of any basis on which a special resolution acquiring 75% would be necessary, which precludes any blocking capability by Xingye.
So any required approval would instead be expected to be an ordinary resolution requiring 50% or greater of the votes cast. So Xingye’s current voting power is therefore not by itself sufficient to determine the outcome. So when Xingye suggests it can simply prevent a transaction, that overstates its position.
FEG remains able to progress strategic alternatives in the interest of shareholders, subjects to its legal duties, the ASX listing rules and any other approvals ultimately required. Now, Xingye says the likelihood of a competing control proposal emerging is virtually nil. What’s your response, Shane? Xingye cannot know that.
It has no visibility into FEG’s confidential discussions, due diligence processes or strategic engagement with third parties. There are a number of parties conducting due diligence on FEG assets as we speak, and the Trengellic proposal has already emerged from that process. So we cannot promise that a competing corporate offer or another transaction will occur, but Xingye equally cannot credibly tell shareholders that the likelihood is virtually nil, when it doesn’t know the status of the contents of those discussions.
So that is speculation being presented as certainty. And our responsibility is to continue those discussions, preserve optionality and work quickly to turn interest into tangible value.
Lel Smits: So Shane, what do you say to shareholders who are really simply tired of the battle and perhaps want it to be over?
Shane Menere: I understand them. I mean, it’s hard work and I’ve got to dig deep as well. But we understand, we hear, and this has been disruptive and exhausting. Management wants it resolved.
The board wants it resolved. Shareholders want certainty. But that solution cannot be to give away value merely because the process is difficult.
The most expensive decisions are often made when people are tired and under pressure, and that’s exactly when shareholders should return to the facts. And the facts are $0.13 or a conditional $0.15 against the independent expert valuation of $32.5 to $44.5. So approximately $0.13 to $0.15 accepted by shareholders other than the vendor, active third party due diligence, a $40 million indicative proposal for one asset. So things are looking quite good for FEG’s position.
And the decision is not between certainty and uncertainty. It’s really between accepting a price the independent expert considers inadequate and retaining exposure while the company continues working to unlock that proper value. And I know waiting is not always easy, but giving away years of shareholder investment at the wrong price would be far harder to reverse.
Lel Smits: Yes, and Shane, to be clear, are you promising shareholders that a better offer or binding transaction will emerge?
Shane Menere: No, of course not. I wish I could, but that wouldn’t be responsible. In fact, it’d be irresponsible of me to make that promise.
We can’t guarantee a competing takeover bid, although things are looking very positive. What we can say is the current offer has been assessed as neither fair nor reasonable. It’s certainly well below the independent expert’s valuation range.
We’re in the process of discussing closely with a number of parties. We’ve received substantial interest and that indicative proposal. So we’re not asking shareholders to rely on blind optimism, but we are asking them to not surrender value optionality at a price that does not properly reflect the independent valuation and the portfolio’s strategic potential.
Lel Smits: And Shane, on a personal note, you founded Far East Gold and have invested substantially in the company. What does this moment really mean to you personally?
Shane Menere: Yeah, well, it means a great deal. I started Far East Gold from an idea and put some blood, sweat and tears into it.
And I genuinely believe that we could build a substantial company and create meaningful value for shareholders. Which was the original motivation. So I’ve invested heavily in the company myself personally, not only financially, but years of my life.
But this is not just my story. It belongs to every shareholder who believed in us and trusted us and jumped on the journey with us. And it belongs to the people who invested when the projects were early stage and the outcome was less certain.
It belongs to our team in Indonesia, our technical teams, our advisors, contractors, everyone who’s worked to bring the company to this point. The journey has not always been easy, but there’ve been challenges and delays and difficult decisions. But that’s how genuine value is built in mining, in exploration companies in particular.
It’s built through that persistence, technical work, relationships, patience and capital. And we’re now close to a number of potential catalysts and strategic outcomes. And to give up at this point, to take all of the benefit of that shareholder trust, investment and patience without paying shareholders properly for it.
So I cannot guarantee the final outcome, but I can guarantee that I’ll fight hard, act professionally, and work urgently to pursue the value that those shareholders deserve.
Lel Smits: And Shane, what’s your final message to Far East Gold shareholders?
Shane Menere: My message is personal and simple. You’ve helped build the company, you’ve funded the exploration, you supported the drilling, you’re still behind us while we consolidate the ownership and progress those technical work aspects, navigated all those complexities within the Indonesian portfolio.
And now as we approach those important potential catalysts, Shane is asking you to surrender that opportunity for a lot less than the value really should be. That independent assessed your shares at an average price of 38 and a half cents, way above, I should say, where the current offer is at. So outside the vendor who retains separate minority interest in Woyler and Idenburg, only approximately 0.13% has been accepted by shareholders.
And that tells us shareholders understand that value gap. FEG is solvent. Third parties are undertaking due diligence.
We’ve received that non-binding indicative offer for US 40 million on the one project. Chenier cannot unilaterally prevent us from progressing strategic alternatives and shareholders should ask themselves, if this portfolio is really as problematic as Chenier says, then why is Chenier finding so hard to acquire it? So the vendor retains continuing project level upside and Chenier seeking control of the full portfolio. But ordinary shareholders, we accept, simply give away the shares and walk away from the future upside.
And this is why your decision is so important. You funded the risk. You carried the company through the difficult years.
You deserve the opportunity to receive a fair share of the reward. Don’t let urgency, fatigue or fear cause you to surrender what you helped build. Look at the numbers, read the independent expert, opinion, give your company the opportunity to complete the work now underway.
So you reject that offer, do nothing and take no action.
Lel Smits: Shane, thank you for the update from Far East Gold.
Shane Menere: Thank you, Lel.
Shane Menere: Thanks for the opportunity and thank you for all the shareholders for the continued support and belief in FEG.
Ends