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    Just in case you didnt get the 'West Australian' last week-------------

    US buyer tips long haul for Gwalia turnaround

    29th June 2007, 7:30 WST

    US private equity group Resource Capital Funds yesterday emerged triumphant from the battle for Sons of Gwalia’s industrial metals mines with a warning it could take several years and lots of investment before the operations were again put up for public ownership.

    RCF’s Australian chief, James McClements, said his group would work on consolidating Sons of Gwalia’s position as the world’s major supplier of tantalum while looking at other potential investment opportunities for the business, which has a provisional name of Lita in recognition of its lithium and tantalum operations.

    RCF secured control of the assets after a meeting in Perth of Sons of Gwalia creditors.

    The meeting was called to vote on a $200 million restructuring proposal that sees creditors relinquish the mining assets while retaining control of legal actions with a headline figure of more than $600 million.

    Administrators from Ferrier Hodgson have sued Sons of Gwalia’s auditors Ernst & Young and some former directors over events leading to the collapse of the gold and industrial metals miner three years ago.

    The Denver-based minerals investor fended off a concerted “vote no” campaign from a group of vulture funds, owed around $350 million, which were mooting an alternative restructuring proposal through US law firm Bracewell & Giuliani.

    Co-administrator Garry Trevor used his casting vote in favour of RCF’s proposal after a hung vote among creditors, whose votes were counted in dollar value and number.

    Creditors owed $595 million voted against the RCF proposal and $315 million in debts were voted in favour. But 1757 creditors were in favour and only 227 voted no.

    Mr Trevor had recommended in favour of the RCF proposal in a report to creditors that was released a fortnight ago after months of negotiations with potential buyers.

    The RCF proposal involves creditors being paid about 12¢-in-thedollar and retaining ownership of the litigation in a creditor pool.

    Bracewell countered with an offer that would have seen creditors offered a minority stake in a new company holding the industrial metals assets and retaining rights to the litigation. In a bid to secure the necessary numbers to roll the RCF proposal, small creditors were also given the alternative of a 15¢ cash payout.

    That offer was eventually increased to 20¢, prompting RCF to counter with a similar option for small creditors.

    The voting has been complicated by about 5300 of the company’s 6700 creditors also being shareholders, who were deemed to be creditors thanks to a successful legal campaign being run by litigation funder IMF (Australia) on behalf of shareholders peeved about the failed company’s market disclosure.

    IMF director Hugh McLernon said he had voted about 500 proxies in favour of the proposal, while rival litigation funder Bruce Dennis said most of his 600 proxies were in favour.

    Mr McLernon said creditors had faced the choice between a firm proposal from RCF and a mooted offer from Bracewell & Giuliani.

    “It is a bird in the hand or two banging around in the bush,” Mr McLernon said.

    After the meeting, Ferrier Hodgson partner Darren Weaver said Mr Trevor had taken account of the relative certainty of the RCF offer and the overwhelming creditor support by numbers when casting his vote in favour of the restructure.

    Mr Weaver said he was looking at a range of options for funding the litigation, including external funding and asking creditors if they wanted to keep some of the RCF sale proceeds in a pool to bankroll the legal claims.

    Mr McClements said RCF was willing to invest in building Lita and backing its Perth-based management.

    He said Lita was effectively a single commodity business with its focus on tantalum, and it was selling to a small number of customers, giving it little chance of a lucky price bounce as enjoyed by commodity producers.

    “It is more akin to turning a super tanker around,” he said.


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