The Takeovers Panel has ruled that Rio Tinto’s move to back Energy Resources of Australia (ERA)’s funding plan for rehabilitation of the Ranger uranium mine in the Northern Territory is unacceptable.
Rio Tinto’s plans to support ERA’s $476 million raising would dilute the stakes of minority shareholders, according to the Takeovers Panel.
The minority shareholders would be required to invest substantial capital to maintain their stake in ERA and avoid dilution.
It also stated ERA was limited in addressing its need for funds by Rio Tinto other than by the entitlement offer.
The Takeovers Panel found that ERA had taken insufficient measures to ensure an independent committee that negotiates or approves its funding support agreement with Rio Tinto.
“The Panel considers that Rio Tinto sought to consolidate control and acquire ERA,” it stated.
“It appears to the Panel that the entitlement offer is likely to result in Rio Tinto becoming entitled to proceed to compulsory acquisition (where it may acquire 100 per cent of ERA) without undertaking a takeover bid.
“The Panel has made orders that (in effect) Rio Tinto cannot compulsorily acquire shares in ERA as a consequence of the entitlement offer without shareholder approval.”
Rio Tinto could end up increasing its voting power in ERA from around 68.4 per cent to 95.6 per cent should no other shareholders take up the entitlements.
The Panel orders ERA to postpone the close of its entitlement offer and disclose Rio Tinto’s intentions in continuing the business of the uranium miner.
Any major changes to this and the future employment of ERA employees must also be disclosed to the Panel.
ERA’s second largest shareholder Zentree Investments submitted an application to the Takeovers Panel last month, stating that minority shareholders were not being given equal or reasonable opportunity to participate in the benefits flowing to Rio Tinto.
The mining major will consider the Panel’s judgment ahead of decisions on its next steps.
“Rio Tinto agreed to fully subscribe to and underwrite an entitlement offer in the absence of any other commercially viable solution being available to ERA for the rehabilitation of the Ranger project area,” Rio Tinto group executive Energy and Minerals Bold Baatar said.
“We will now consider our options in light of the Panel’s orders so that ERA can fulfil its important rehabilitation obligations and commitments to the communities in which it operates and relevant authorities.”
Under the terms of its mining approvals, ERA is required to end mining and processing activities at Ranger by January 2021 and complete final rehabilitation by January 2026.
In February this year, ERA finalised its closure feasibility study for the Ranger rehabilitation, resulting in a material increase in anticipated rehabilitation costs.
Following this increase, ERA advised it needed extra funding to meet its rehabilitation obligations to the Commonwealth Government, Northern Territory Government and Traditional Owners.