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[2026] NSWSC 107
Supreme Court of NSW
2026-02-24
McGrath J
Original judgment source is linked above.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Les & Zelda Investments Pty Ltd (as trustee for Les & Zelda Family Trust) v Whitehaven Coal Limited (No 4) [2026] NSWSC 107
Hearing dates: 3 – 20 September 2024
Date of orders: 24 February 2026
Decision date: 24 February 2026
Jurisdiction: Equity - Commercial List
Before: McGrath J
Decision: Plaintiff’s claims dismissed with costs
Catchwords: CONTRACTS — express terms — construction and interpretation — general rule of construction
CONTRACTS — implied terms — construction and interpretation — terms implied in law — general rule of construction — implied duty to cooperate — HELD — no breach of the implied duty to cooperate
CONTRACTS — implied terms — construction and interpretation — terms implied in law or in fact — general rule of construction — implied duty of good faith — HELD — not necessary to imply a duty of good faith in particular contracts in law or in fact
CONTRACTS — implied terms — construction and interpretation — terms implied in law or in fact — general rule of construction — implied duty to use reasonable endeavours — HELD — not necessary to imply a duty to use reasonable endeavours to give business efficacy to particular contracts — not so obvious that it goes without saying — inconsistent with the express terms of particular contracts — implied term would impose an obligation on defendant to exercise a power it did not have
ESTOPPEL — promissory estoppel — statement of principles — whether a positive obligation can be enforced through a promissory estoppel — HELD — promissory estoppel cannot create a positive right capable of enforcement by giving contractual force to a pre-contractual representation of intention
ESTOPPEL — promissory estoppel — nature of the representation — detrimental reliance — departure from the assumption and unconscionability — HELD — no occasion for either detriment or unconscionability to attract the intervention of equity
ESTOPPEL — conventional estoppel — statement of principles — whether a conventional estoppel may be founded on pre-contractual conduct — HELD — evidence of pre-contractual conduct cannot be relied upon to prove a claim of conventional estoppel
ESTOPPEL — conventional estoppel — nature of the representation — detrimental reliance — unjust departure from the assumption — HELD — failure to establish any assumption so as to affect legal relations, no actual nor reasonable reliance, no detriment suffered and no unjust departure from the assumption
CORPORATIONS — Oppression — statement of principles — meaning of “legitimate expectation” — HELD — denial of “legitimate expectation”, of itself, does not attract the statutory jurisdiction in s 232 of the Corporations Act
CORPORATIONS — Oppression — whether the defendant engaged in oppressive conduct — HELD — no commercial unfairness in the manner in which the defendant conducted itself by adherence to the terms of two complex contracts
CONTRACTS — remedies — damages — remedies for breach of an implied term — statement of principles — whether the doctrine of “deemed fulfilment” in Mackay v Dick applied — HELD — unnecessary to resolve whether the doctrine of “deemed fulfilment” was applicable in the absence of submissions on the issue
CONTRACTS — remedies — damages — remedies for breach of an implied term — loss of opportunity — plaintiff proved that it already had a valuable opportunity — facilitation principle does not apply — whether the plaintiff proved the prospects of the valuable opportunity being realised — HELD — the plaintiff failed to prove the prospects that the valuable opportunity might be realised had the defendant not breached the implied term
EQUITY — promissory estoppel — equitable remedies — equitable compensation — statement of principles — whether the plaintiff could prove its loss — HELD — the plaintiff failed to prove the loss for which equitable compensation would be awarded
ESTOPPEL — conventional estoppel — whether the plaintiff could prove its loss — HELD — the plaintiff failed to prove the loss for which equitable compensation would be awarded
CORPORATIONS — Members’ rights and remedies — Oppression — s 233 Corporations Act 2001 (Cth) — whether the defendant had an obligation or had created a legitimate expectation that funds would be expended in a particular manner — HELD — the plaintiff failed to prove the likelihood that it would have suffered loss had the defendant met that obligation or legitimate expectation
EVIDENCE — witness evidence — credibility and reliability of witnesses — statement of principles —where witnesses recalling events over a decade prior — reliance on contemporaneous documents
EVIDENCE — Jones v Dunkel inferences — statement of principles — principle of plain common sense — unexplained failure to call witness
Legislation Cited: Civil Procedure Act 2005 (NSW) , Pt 10
Evidence Act 1995 (NSW), s 136
Mineral Resources Act 1989 (Qld), Pt 3, Ch 4, ss 136C, 136D, 136E, 136I, 136J, 136K, 136L, 179, 181, 183, 186, 232, 233, 234, 245, 250, 252, 252A, 252B, 260, 265, 268, 269, 271, 271A, 318DQ, 318DT, 318EA, 318EF
Mining Act 1992 (NSW), ss 51, 63, 65
Protection and Biodiversity Conservation Act 1999 (Cth), Pt 8, ss 67A, 130
Corporations Act 1989 (Cth), ss 53, 181, 232, 233, 254T, 256B, 260, 411, 674, 708A, Pts 5.1, 6D.2, Ch 2M
Environmental Planning and Assessment Act 1979 (NSW), ss 4.14, 4.15, 4.16, 4.17
Environmental Protection Act 1994 (Qld), Sch 2, ss 18, 37, 40, 41, 41A, 41B, 42, 43, 44, 45, 46, 47, 49, 51, 52, 53, 54, 55, 56, 56A, 57, 60, 107, 110, 121, 122, 123, 124, 125, 126B, 126C, 126D, 127, 128, 129, 136, 140, 144, 149, 150, 151, 152, 153, 154, 155, 156, 157, 158, 164, 175, 176, 426
Environmental Planning and Assessment Regulation 2021 (NSW), reg 30
Mining Regulation 2016 (NSW), reg 25
State Environmental Planning Policy (Resources and Energy) 2021 (NSW), cll 2.29, 2.30, 2.31
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Adler v Australian Securities and Investments Commission (2003) 179 FLR 1; [2003] NSWCA 131
Admiral International Pty Ltd v Insurance Australia Ltd [2022] NSWCA 277
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Androvitsaneas v Members First Broker Network Pty Ltd [2013] VSCA 212
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Antov v Bokan [2018] NSWSC 1474
Ashton v Pratt (2015) 88 NSWLR 281; [2015] NSWCA 12
Attorney-General (Hong Kong) v Humphreys Estate (Queen’s Gardens) Ltd [1987] AC 114
Australian Co-operative Foods Ltd v Norco Co-operative Ltd (1999) 46 NSWLR 267; [1999] NSWSC 274
Australian Crime Commission v Gray [2003] NSWCA 318
Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560; [2014] HCA 14
Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17
Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104
Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18
Bagot Well Pastoral Co Pty Ltd v Reid (1993) 61 SASR 165
BAM Property Group Pty Ltd v Imoda Group Holdings Pty Ltd [2019] FCA 1192
Beerens v Bluescope Distribution Pty Ltd (2012) 39 VR 1; [2012] VSCA 209
Bensons Property Group Pty Ltd v Key Infrastructure Australia Pty Ltd [2021] VSCA 69
Blucher (on behalf of the Gaangalu Nation People) v State of Queensland (No 3) [2023] FCA 600
Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44
Bournemouth and Boscombe Athletic Football Club v Manchester United Football Club Ltd [1980] CA Transcript 506 (unreported decision, Court of Appeal, 21 May 1980)
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
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Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187
Butt v M’Donald (1896) 7 QLJ 68
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Cessnock City Council v 123 259 932 Pty Ltd (2024) 281 CLR 39; [2024] HCA 17
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Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101
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Commercial & General Corporation Pty Ltd v Manassen Holdings Pty Ltd [2021] SASCFC 40
Commonwealth Bank of Australia v Barker (2014) 253 CLR 169; [2014] HCA 32
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54
Commonwealth v Verwayen (1990) 170 CLR 394; [1990] HCA 39
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226; [1986] HCA 14
Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184
Council of the City of Sydney v Goldspar Australia Pty Ltd (2006) 230 ALR 437; [2006] FCA 472
CPB Contractors Pty Ltd v Rizzani De Eccher Australia Pty Ltd [2017] NSWSC 1798
Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1
De Tocqueville Private Equity Pty Ltd v Linden & Conway Ltd (2006) 59 ACSR 587
Delaforce v Simpson-Cook (2010) 78 NSWLR 483; [2010] NSWCA 84
DHJPM Pty Ltd v Blackthorn Resources Ltd (formerly called AIM Resources Ltd) (2011) 83 NSWLR 728; [2011] NSWCA 348
Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18; [2005] HCA 78
E Co v Q [2018] NSWSC 442
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12
Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15
Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471; [2004] HCA 55
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2006] QCA 194
ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24
Evans v Evans [2011] NSWCA 92
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; [1998] NSWSC 413
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97
FJ & PN Curran Pty Ltd v Almond Investors Land Pty Ltd [2019] VSCA 236
Flack v Chairperson, National Crime Authority (1997) 80 FCR 137
Foran v Wight (1989) 168 CLR 385; [1989] HCA 51
Fox v Percy (2003) 214 CLR 118; [2003] HCA 22
Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407
Gaangalu Nation People v State of Queensland (No 4) [2024] FCA 425
Galaxidis v Galaxidis [2004] NSWCA 111
Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703; [1999] FCA 903
Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10
Global Network Services Pty Ltd v Legion Telekom Call Pty Ltd [2001] NSWCA 279
Goodrich Aerospace Pty Ltd v Arsic (2006) 66 NSWLR 186; [2006] NSWCA 187
Goozee v Graphic World Group Holdings Pty Ltd (2002) 170 FLR 451; [2002] NSWSC 640
Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286
Grocon Constructors (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190
Grundt v Great Boulder Proprietary Gold Mines Limited (1937) 59 CLR 641; [1937] HCA 58
Gulic v Boral Transport Ltd [2016] NSWCA 269
Harris v Harris [2021] VSCA 138
Hart v MacDonald (1910) 10 CLR 417; [1910] HCA 13
Heavy Plant Leasing Pty Ltd (In Liquidation) v McConnell Dowell Constructors (Aust) Pty Ltd (No 2) [2022] NSWSC 1775
Heimann v Commonwealth of Australia (1938) 38 SR (NSW) 691
HNA Irish Nominee v Kinghorn (No 2) (2012) 290 ALR 372; [2012] FCA 228
Hobhouse v Macarthur-Onslow (2022) 409 ALR 187; [2022] NSWCA 158
Horseshoe Pastoral Co Pty Ltd v Rixon [2018] NSWCA 121
Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64
Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133; [1919] HCA 64
Ian Allan Byrne v A J Byrne Pty Limited [2012] NSWSC 667
Jagatramka v Wollongong Coal Ltd [2021] NSWCA 61
Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190
Johnson v Perez (1988) 166 CLR 351; [1988] HCA 64
Joint v Stephens [2008] VSCA 210
Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
King Crude Carriers SA v Ridgebury November LLC [2025] 3 WLR 707; [2025] UKSC 39
Kramer v Stone (2023) 112 NSWLR 564; [2023] NSWCA 270
Kramer v Stone (2024) 281 CLR 484; [2024] HCA 48
Kronenberg v Macaulay [2025] NSWCA 195
Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11
Latimer Holdings Ltd v Sea Holdings New Zealand Ltd [2005] 2 NZLR 328; [2004] NZCA 226
Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd (2023) 276 CLR 500; [2023] HCA 6
Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11
Ling v Pang [2023] NSWCA 112
Low v Bouverie [1891] 3 Ch 82
Mackay v Dick (1881) 6 App Cas 251
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (2010) 383 ALR 577; [2010] NSWCA 268
Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20
Manly Council v Byrne [2004] NSWCA 123
Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (2015) 237 FCR 534; [2015] FCAFC 127
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Category: Principal judgment
Parties: Les & Zelda Investments Pty Ltd (as trustee for Les & Zelda Family Trust) (Plaintiff)
Whitehaven Coal Limited (Defendant)
Representation: Counsel:
T Bannon SC with A Macauley and M Davis (Plaintiff)
N Kidd SC with I Ahmed SC and D Morris (Defendant)
Solicitors:
SMB Law (Plaintiff)
Allens (Defendant)
File Number(s): 2019/00184678
Publication restriction: Nil
JUDGMENT
INTRODUCTION
Central transactions
Representative proceedings for the Group Members
Overall conclusion
RELEVANT PARTIES, PERSONS & PROJECTS
The plaintiff – Les & Zelda
Directors of Les & Zelda
The defendant – Whitehaven
Directors and executives of Whitehaven
Boardwalk, BRI, BR Trust, Cayenne Coal and the Boardwalk Projects
Directors and executives of Boardwalk, BRI, the Tinkler Group and Cayenne Coal
Aston
Directors and executives of Aston
SUMMARY OF CLAIMS AND DEFENCES
Principal claims
Implied Terms Claim
Promissory Estoppel Claim
Conventional Estoppel Claim
Oppression Claim
Use of Funds Representation
Defences
EVIDENCE
Witnesses
General observations and credibility of witnesses
Jones v Dunkel inferences
The rule in Jones v Dunkel
Submissions on Jones v Dunkel inferences
Mr Flynn
Mr Christensen
PROJECT TRIFECTA: INITIAL STAGES, MEETINGS, NEGOTIATIONS, KEY AGREEMENTS AND ASX ANNOUNCEMENTS
July – October 2011: Proposed IPO for Boardwalk
Proposed Whitehaven, Aston and Boardwalk transactions
27 – 28 October 2011: First Term Sheet and initial discussions
2 November 2011: Confidentiality agreements between Whitehaven, Aston and Boardwalk
9 November 2011: Draft Boardwalk Prospectus provided to Whitehaven
19 – 21 November 2011: Meetings between Whitehaven, Aston and Boardwalk representatives
21 November 2011: Meetings between Whitehaven, Aston and Tinkler Group/Boardwalk representatives
The UBS Meeting
The Café Meeting
The Later Meeting
Conclusions about the 21 November 2011 meetings
22 November 2011: Revisions to structure of the proposed transaction
23 November 2011: Structure B raised and Second Term Sheet
24 November 2011: Introduction of the Milestone Shares and the Third Term Sheet
25 November 2011: Final Term Sheet
25 November 2011: Aston board update
26 November 2011: Whitehaven board presentation
29 November 2011: Draft SPA
30 November 2011: Draft KPMG Due Diligence Report
1–2 December 2011: Request for power of attorney
3 December 2011: Goldman Sachs valuation of Boardwalk
3 December 2011: Draft ASX announcement
3 December 2011: Boardwalk resists “interconditionality”
5 December 2011: Further Draft KPMG Due Diligence Report
5 December 2011: Second Draft SPA and draft Restriction Deed
6 December 2011: Power of Attorney
6 December 2011: 6 December Draft ASX Announcement
7 December 2011: Outstanding commercial issues and Third Draft SPA
8 December 2011: KPMG Due Diligence Report
8 December 2011: Fourth Draft SPA
8 December 2011: Second Draft Restriction Deed
9 December 2011: 9 December Draft ASX Announcement
9 December 2011: 9 December Further Draft ASX Announcement
9 December 2011: Fifth Draft SPA
10 December 2011: Sixth Draft SPA and Third Draft Restriction Deed
10 December 2011: 10 December Draft ASX Announcement
11 December 2011: Execution of the SPA
11 December 2011: Execution of the WPA and the Minority Lenders SPA
12 December 2011: Execution of the SIA
12 December 2011: 12 December ASX Announcement
12 December 2011: 12 December Memorandum to all Whitehaven employees
12 December 2011 – March 2012: Investor meetings
13 December 2011: 13 December Draft Letter to Whitehaven shareholders
31 December 2011: December 2011 Quarterly Report
PROJECT TRIFECTA: DUE DILIGENCE, REPORTS AND ANALYSIS
12 December 2011: Draft MMC Report
19 December 2011: Analysis of timing of Trigger Events for Boardwalk Projects
January 2012: Due diligence and independent expert work commences
19 January 2012: Palaris Report
20 January 2012: AME Report
25 – 27 January 2012: Calculation of contingent consideration
31 January 2012: Whitehaven Audit and Risk Committee meeting
5 February 2012: Whitehaven accounting treatment of Milestone Shares
7 February 2012: Revised contingent consideration
7 February 2012: Inferences on contingent consideration calculations
6 – 13 February 2012: Issues concerning the SPA
29 February 2012: MMC Report
6 March 2012: PwC Independent Expert Report
PROJECT TRIFECTA: SCHEME BOOKLET, COURT APPROVAL AND EXECUTION
9 March 2012: Scheme meeting and court approval of Scheme Booklet
11 – 12 April 2011: Whitehaven EGM presentation
18 April 2012: Court approval of scheme of arrangement
30 April 2012: Payment Letter
1 May 2012: BRI subscription, Boardwalk’s receipt of balance of Subscription Amount and issue of Boardwalk shares to BRI
1 May 2012: Execution of the Restriction Deed
1 May 2012: Completion of the SPA and resignation of the Boardwalk directors
2 May 2012: ASX announcement of completion of the scheme of arrangement
POST MERGER ACQUISITIONS AND FURTHER REPORTS ON CONTINGENT CONSIDERATION
May – August 2012: Whitehaven’s acquisition of Coalworks
June – August 2012: Tinkler Group’s proposal to acquire Whitehaven
21 August 2012: Ernst & Young calculation of contingent consideration
30 August 2012: KPMG Valuation Report
14 September 2012: Whitehaven’s 2012 Annual Report
POST MERGER EXPENDITURE ON THE BOARDWALK PROJECTS
Coal prices from 2011 to 2023
June – November 2012: Whitehaven’s responses to declining coal prices
June 2012 Aston/Boardwalk Board Papers and 2013 Draft Budget
24 August 2012: Whitehaven FY2012 annual results
September 2012: Capital expenditure limit
September 2012: “The Good, the Bad and the Ugly”
September 2012: Projects Presentation
October 2012: Fugly Case Discussion Paper
1 November 2012: Whitehaven board meeting
16 November 2012: ASX Announcement
2012: Impairment consideration of the Boardwalk Projects
2012: Annual Report
December 2012: Impairment Discussion Paper
2013: Impairment consideration of the Boardwalk Projects
April 2013: Draft business development strategy
May 2013: Review Paper
2013: Annual Report
December 2013: Impairment Discussion Paper
2014 – 2015: Impairment consideration of the Boardwalk Projects
September 2014: Board Presentation
June 2015: Impairment Assessment
August 2015: Impairment Paper and Audit and Risk Committee meeting
2015 Annual Report
2016: Impairment consideration of the Boardwalk Projects
2017: Impairment consideration of the Boardwalk Projects
July 2017: Impairment Paper
August 2017: Impairment Paper and Audit and Risk Committee
2017 Annual Report
No reversal of impairments from FY2012, FY2015 and FY2017
Conclusions about impairments
DEVELOPMENT AND APPROVALS RELATING TO FERNDALE
Ferndale generally
Development of Ferndale
October 2011: Environmental Factors Report
December 2011: Draft MMC Report
January 2012: 2011 Geos Ferndale Annual Report
January 2012: Palaris Report
February–March 2012: MMC Report and Scheme Booklet
May 2012: Whitehaven’s budget and assessment of Ferndale post-merger
June – July 2012: Whitehaven’s budget and assessment of Ferndale
August 2012: Whitehaven’s budget and assessment of Ferndale
September – December 2012: Budgetary cuts
January – June 2013: Ferndale activities
July – December 2013: Ferndale activities
December 2014 – November 2023: renewal of EL 7430
2015 – 2017: Ferndale activities
January – March 2018: Resource Strategies’ Draft Environmental Approvals
April 2018: RPM Report
2013–2022: Whitehaven’s expenditure on Ferndale
Submissions in relation to development of Ferndale
Submissions of Les & Zelda
Submissions of Whitehaven
Findings in relation to development of Ferndale
Process for obtaining a mining lease in NSW
Stage 1: The Gateway Certificate process
Stage 2: Approval under the EPA NSW Act
Stage 3: Approval under the EPBC Act
Stage 4: Mining leases
Submissions in relation to approvals for Ferndale
Submissions of Les & Zelda
Submissions of Whitehaven
Findings in relation to approvals for Ferndale
Evidence of Mr O’Connor in relation to Ferndale
Mr O’Connor’s qualifications and experience
Summary of the O’Connor Report
Les & Zelda’s submissions on the O’Connor Report
The Upper Hunter Plan
Muswellbrook Planning Statement
Hunter Regional Plan
Whitehaven’s submissions on the O’Connor Report
Conclusions on the O’Connor Report
Evidence of Mr Yeates in relation to Ferndale
Mr Yeates’ qualifications and experience
Summary of the Yeates Report in relation to Ferndale
Les & Zelda’s submissions on the Yeates Report in relation to Ferndale
Whitehaven’s submissions on the Yeates Report in relation to Ferndale
Conclusions on the Yeates Report in relation to Ferndale
DEVELOPMENT AND APPROVALS RELATING TO DINGO
Dingo generally
Development of Dingo
January 2012: Palaris Report
February – March 2012: MMC Report and Scheme Booklet
May – August 2012: Whitehaven budget and assessment of Dingo
June – September 2012: Various reports in relation to Dingo
September – December 2012: Budgetary cuts
January 2013: January 2013 JB Mining Report
March 2013: Palaris Dingo Report
April 2013: Jingella Offer
June 2013 – December 2020: Minimal expenditure on Dingo
August 2020: Encompass Report
September 2022: Whitehaven internal assessment
December 2023: Expiration of MDL 512
2013 – 2023: Whitehaven’s expenditure on Dingo
Submissions in relation to the development of Dingo
Submissions of Les & Zelda
Submissions of Whitehaven
Findings in relation to development of Dingo
Process for obtaining a mining lease in QLD
Stage 1: Exploration permit under the Mineral Resources Act
Stage 2: Environmental Authority under the EPA Qld Act
Part 1: Environmental Impact Statement
Part 2: Environmental Authority
Stage 3: Approval under the EPBC Act
Stage 4: Mining leases
Submissions in relation to the approvals for Dingo
Submissions of Les & Zelda
Submissions of Whitehaven
Findings in relation to approvals for Dingo
Evidence of Mr Yeates in relation to Dingo
Summary of the Yeates Report in relation to Dingo
Les & Zelda’s submissions on the Yeates Report in relation to Dingo
Whitehaven’s submissions on the Yeates Report in relation to Dingo
Conclusions on the Yeates Report in relation to Dingo
PROBABILITY OF TRIGGER EVENTS OCCURRING
Submissions of Les & Zelda
Submissions of Whitehaven
Consideration
WHITEHAVEN’S DIVIDENDS AND CAPITAL RETURNS
Relevance to the Oppression Claim
Submissions of Les & Zelda
Submissions of Whitehaven
FY2012 – FY2016
FY2018 onwards
IMPLIED TERMS CLAIM
Legal principles: implied terms
Terms implied in fact to give business efficacy to a contract
Terms implied in law in particular classes of contract
Terms implied in law in all classes of contract – duty to cooperate
Implied duty of good faith
Implied duty to use reasonable endeavours
Legal principles: construction and interpretation of written contracts express terms
Legal principles: construing multiple contracts executed contemporaneously
Implied duty to cooperate
Submissions of Les & Zelda
Negative aspect of Whitehaven’s implied duty to cooperate
Positive aspect of Whitehaven’s implied duty to cooperate
Five decisions relied upon by Les & Zelda
Submissions of Whitehaven
Submissions of Les & Zelda in reply
Consideration
The pleaded case
The scope of the implied term
No breach of the implied duty to cooperate
Implied duty to act in good faith
Submissions of Les & Zelda
Submissions of Whitehaven
Consideration
The pleaded case
No implied duty to act in good faith
No breach of implied duty to act in good faith
Implied duty to use reasonable endeavours
Submissions of Les & Zelda
Submissions of Whitehaven
Consideration
The pleaded case
No implied duty to use reasonable endeavours
No breach of implied duty to use reasonable endeavours
PROMISSORY ESTOPPEL CLAIM
Legal principles: Promissory estoppel
Promissory estoppel generally
Future representations and pre-contractual conduct
Certainty of the representation
Detrimental reliance
Submissions of Les & Zelda
Submissions of Whitehaven
Consideration
Use of Funds Representation
Les & Zelda seeks to use promissory estoppel to enforce a positive obligation
The representation and the assumption
Reliance – actual and reasonable
Detriment
Departure from the assumption and unconscionability
CONVENTIONAL ESTOPPEL CLAIM
Legal principles: conventional estoppel
Conventional estoppel generally
No conventional estoppel for assumption about future matters
Pre-contractual conduct and conventional estoppel
Submissions of Les & Zelda
Submissions of Whitehaven
Consideration
OPPRESSION CLAIM
Legal principles: shareholder oppression
Sections 232 and 233 of the Corporations Act
The role of “legitimate expectations”
Re a Company
Re Saul D Harrison & Sons
O’Neill v Phillips
Submissions of Les & Zelda
Submissions of Whitehaven
Submissions of Les & Zelda in reply
Consideration
CAUSATION & RELIEF
Remedies for the Implied Terms Claim
Legal principles: deemed fulfilment or damages
Submissions of Les & Zelda
Submissions of Whitehaven
Submissions of Les & Zelda in reply
Consideration
Remedies for the Promissory Estoppel Claim
Legal principles
Submissions of Les & Zelda
Submissions of Whitehaven
Consideration
Remedies for the Conventional Estoppel Claim
Remedies for the Oppression Claim
Legal principles
Submissions of Les & Zelda
Submissions of Whitehaven
Consideration
ANSWERS TO COMMON QUESTIONS
ORDERS
These are representative proceedings under Part 10 of the Civil Procedure Act 2005 (NSW) brought by the lead plaintiff, Les & Zelda Investments Pty Ltd as trustee for the Les & Zelda Family Trust, against the defendant, Whitehaven Coal Ltd.
Les & Zelda is a family company associated with Nathan Tinkler, who is the principal figure for Les & Zelda as the plaintiff in these proceedings.
Whitehaven is a company listed on the Australian Stock Exchange (ASX) engaged in coal exploration and mining.
The claims by Les & Zelda relate to events which mainly took place over 14 years ago. The parties conducted the proceedings for close to six years before they were ready for hearing. The three weeks of hearing before me saw many thousands of pages of affidavits, expert reports and documents admitted into evidence. I received in excess of 500 pages of closely reasoned and densely referenced written submissions on every conceivable aspect of the multitudinous issues in dispute to assist me in determining them.
As a result, this judgment is extraordinarily lengthy to enable me to consider fully the sheer weight and detail of the material and arguments relevant to the issues I have been required to deal with and express my reasons for the determination of them.
The claims in the proceedings centre on two acquisitions by Whitehaven: the acquisition of Boardwalk Resources Ltd by and Aston Resources Ltd.
Boardwalk is an unlisted company that holds exploration rights and interests in four separate undeveloped coal tenements located in New South Wales (NSW) and Queensland (QLD), being the Ferndale**,** Dingo, Sienna and Monto tenements (together, the Boardwalk Projects). Boardwalk’s other significant asset is ownership of approximately 19.9% of the shares in another ASX listed company engaged in coal exploration and mining called Coalworks Ltd.
Aston was also an ASX listed company engaged in coal exploration and mining.
The acquisition of Boardwalk and Aston centre on the following linked transactions that were entered into by Whitehaven on 11 and 12 December 2011:
The Share Purchase Agreement dated 11 December 2011 between Whitehaven and 16 shareholders of Boardwalk (including Les & Zelda) (Boardwalk S****hareholders) under which Whitehaven agreed to buy all of their shares in Boardwalk (SPA).
The Warrant Purchase Agreement dated 11 December 2011 between Whitehaven and Farallon Capital Institutional Partner II, L.P., Noonday Special Situation Partner, L.P. and seven other corporations (together, Farallon/Noonday Lenders) to acquire warrants over unissued shares in Boardwalk (WPA).
The Share Purchase Agreement dated 11 December 2011 between Whitehaven, HPRY Holdings Ltd and Burlingham International Ltd (together, Minority L****enders) under which Whitehaven agreed to buy all of their shares in Boardwalk (Minority Lenders SPA).
The Scheme Implementation Agreement dated 12 December 2011 between Whitehaven and Aston for a scheme of arrangement under which Aston shareholders received shares in Whitehaven in exchange for their shares in Aston (SIA).
The acquisition of the Boardwalk shares and warrants by Whitehaven was conditional on the scheme of arrangement between Whitehaven and Aston being completed. The scheme of arrangement was ultimately approved and took effect from 2 May 2012.
Mr Tinkler, acting with his professional financial and legal advisers, negotiated the sale of the Boardwalk shares and warrants to Whitehaven and executed the SPA under power of attorney on behalf of the Boardwalk Shareholders who held over 85% of the shares and warrants issued by Boardwalk.
On 21 January 2011, Les & Zelda was incorporated. Les & Zelda is the trustee of the Les & Zelda Family Trust, established by a trust deed dated 21 January 2011.
Before 1 May 2012, Les & Zelda held two million ordinary shares in Boardwalk. On the acquisition of Boardwalk by Whitehaven, Les & Zelda exchanged the two million ordinary shares it held in Boardwalk for 1,075,554 ordinary shares in Whitehaven, holding 770,393 Unrestricted Shares and 305,161 Milestone Shares in Whitehaven. Les & Zelda still holds those Milestone Shares.
At the time of incorporation, the sole director and shareholder of Les & Zelda was Leslie Tinkler, the father of Nathan Tinkler. When I refer to Mr Tinkler, I am referring to Nathan Tinkler because Leslie Tinkler does not feature again in any of the relevant events I have dealt with below.
On 2 February 2024, Mr Tinkler was appointed as a director of Les & Zelda, with Leslie Tinkler remaining as the other director. Accordingly, Mr Tinkler was not a director of Les & Zelda at the time of the relevant events in 2011 and 2012.
On 15 March 2007, Whitehaven was incorporated. As stated above, Whitehaven is a company listed on the ASX which operates open-cut mines and an underground mine producing thermal and metallurgical coal in NSW and QLD.
Whitehaven has been listed on the ASX for about the past 16 years.
In 2011, prior to the acquisition of Aston and Boardwalk, the principal asset of Whitehaven was a 70% interest in an underground mine near Narrabri. Whitehaven operated four open-cut producing mines (Rocglen, Sunnyside, Tarrawonga and Werris Creek) and was progressing the development of another open-cut mine (Vickery Project, which Whitehaven purchased from Coal & Allied Industries Ltd in February 2010).
Between October 2008 and 25 March 2013, Anthony (Tony) Haggarty was the managing director and chief executive officer (CEO) of Whitehaven. From 25 March 2013 until 25 October 2018, Mr Haggarty remained as a non-executive director of Whitehaven.
Other relevant directors of Whitehaven include Mark Vaile (the chair), Paul Flynn (the CEO since 27 March 2013), Philip Christensen (from 3 May 2012 to 14 July 2014) and George Raymond Zage.
Since 13 December 2013, Kevin Ball has been the chief financial officer (CFO) of Whitehaven.
Since 29 July 2009, the company secretary of Whitehaven has been Timothy Burt.
On 2 April 2008, Boardwalk was incorporated.
Prior to its acquisition by Whitehaven in 2012, 69.2% of Boardwalk’s shares were owned by BRI as trustee of the Boardwalk Resources Trust (BR Trust). From 9 September 2010 to 9 February 2016, Rebecca Tinkler (the former wife of Mr Tinkler) was the sole shareholder of BRI.
Mr Tinkler is the appointor of the trustee of the BR Trust. On 17 June 2019, Mr Tinkler removed BRI as trustee of the BR Trust and replaced it with Cayenne Coal Pty Ltd, which remains the current trustee of the BR Trust. Mr Tinkler is the sole shareholder of Cayenne Coal.
The primary business of Boardwalk was to identify and acquire early exploration coal projects. Boardwalk was the ultimate holding company of separate entities that were incorporated to hold the interest of each early coal exploration project identified by Boardwalk. The separate entities were named after the particular project for which they were incorporated.
The details of each of the Boardwalk Projects and the subsidiaries of Boardwalk which held interests in the Boardwalk Projects are set out below:
Ferndale: The mining tenement known as Ferndale is located at Yarrawa, which is near Denman in the Hunter Valley in NSW. Ferndale is based on the Exploration Licence number 7430 dated 18 December 2009 (EL 7430) granted by the NSW Government to L****oyal C****oal Pty Ltd for a period of five years expiring on 18 December 2014, which was renewed on 22 November 2023, with the renewal period ending on 18 December 2026. On 8 December 2010, Ferndale became a joint venture between Boardwalk Ferndale Pty Ltd and Loyal Coal, which by then was a 92.5% subsidiary of Coalworks, an ASX listed company at that time. Under the joint venture with Loyal Coal, Boardwalk Ferndale had the right to obtain a 50% interest in Ferndale in exchange for the funding of certain works in relation to the tenement.
Dingo: The mining tenement known as Dingo is located between Dingo and Duaringa in the Bowen Basin in QLD. Dingo is based on three exploration permits and one mineral development licence, being:
(a) the Exploration Permit for Coal number 862 dated 4 May 2004 (EPC 862) granted by the QLD Government to Independent Coal Pty Ltd for a period of five years expiring on 3 May 2009 (later renewed to expire on 3 May 2026); (b) the Exploration Permit for Coal number 863 dated 12 November 2004 (EPC 863) granted by the QLD Government to Independent Coal for a period of five years expiring on 11 November 2009 (later renewed to expire on 11 November 2014); (c) the Exploration Permit for Coal number 1063 dated 18 September 2007 (EPC 1063) granted by the QLD Government to Independent Coal for a period of five years expiring on 17 September 2012; and (d) the Mineral Development Licence number MDL 512 (MDL 512) granted by the QLD Government on 11 December 2014 and due to expire on 31 December 2023.
Dingo was a joint venture between Aston Dingo Pty Ltd (later renamed Boardwalk Dingo Pty Ltd) and Independent Coal, a subsidiary of Cockatoo Coal Pty Ltd (later renamed Baralaba Coal Company Pty Ltd). Under the joint venture, Boardwalk Dingo had a 51% interest in Dingo which could be increased up to a 70% interest depending on the completion of its farm-in arrangements with Independent Coal.
(a) the Exploration Permit for Coal number 2089 (EPC 2089) granted by the QLD Government to Norton Goldmine Pty Ltd for a period of three years expiring on 30 May 2014; and (b) the Exploration Permit for Coal number 1033 (EPC 1033) granted by the QLD Government to Norton Goldmine on 20 March 2006, which was set to expire on 19 March 2023 but as at 6 April 2023 appears to be subject to a renewal application.
Boardwalk Sienna Pty Ltd later acquired the interest of Norton Goldmine in EPC 2089 and EPC 1033. As a result, EPC 2089 and EPC 1033 were wholly owned by Boardwalk Sienna.
Monto: The mining tenement known as Monto is located near Mulgildie in the Mulgildie Basin in QLD. Monto is based on the Exploration Permit for Coal number 1220 (EPC 1220) granted by the QLD Government to Aston Coal 1 Pty Ltd (later renamed Boardwalk Monto Pty Ltd) on 8 April 2009 and due to expire on 7 April 2026. EPC 1220 was wholly owned by Boardwalk Monto.
In addition to the Boardwalk Projects, Boardwalk had a 19.9% shareholding in Coalworks which it obtained by a placement on 1 February 2011. Through that investment, Boardwalk had an economic interest in the following projects of Coalworks:
Ferndale, through Loyal Coal (in addition to Boardwalk’s interest in Boardwalk Ferndale);
Vickery South, located in northern NSW near Gunnedah; and
Oaklands North, located near Urana in NSW, close to the Victorian border. Oaklands North is based on Exploration Licence number 6861 granted by the NSW Government on 28 August 2007.
Les & Zelda does not press any claim in relation to the opportunity of Sienna, Monto or Oaklands North to achieve Trigger Events, and has instead placed its reliance on the opportunity to achieve Trigger Events through Ferndale and Dingo in the manner set out in greater detail below.
From 2 April 2008 to 1 May 2012, Mr Tinkler was a director of Boardwalk.
From 9 September 2010 to 9 February 2016, Mr Tinkler was a director of BRI.
From 12 April 2012 to 9 February 2016 and since 9 March 2021, Mr Tinkler has been a director of Cayenne Coal.
From 30 March 2010 to 1 May 2012, Mr Christensen was a director of Boardwalk. Mr Christensen was also an employee of the Tinkler Group, acting as inhouse counsel to Mr Tinkler (T263–264).
From 17 June 2011 to 1 May 2012, Mr Flynn was a director of Boardwalk. Mr Flynn was also the CEO and managing director of the Tinkler Group at relevant times leading up to May 2012.
From 15 January 2011 to 1 May 2012, Ian Craig was a director of Boardwalk.
During the relevant period in 2011 and 2012, Peter Kane was the CEO of Boardwalk.
On 23 January 2008, Aston was incorporated. Before Aston was acquired by Whitehaven in 2012, it was the main trading entity within the Tinkler Group of companies, which were either directly or indirectly controlled by Mr Tinkler and predominantly operating within the resources sector.
Aston was listed on the ASX from 17 August 2010 until 1 May 2012 when it merged with Whitehaven under the scheme of arrangement and became wholly owned by Whitehaven.
In about November 2009, Aston purchased the Maules Creek coal mine project from Rio Tinto Ltd after a competitive tender. Whitehaven was the unsuccessful tender party.
From about late 2010 to mid-2011, Aston worked towards obtaining a mining lease and approval for the Maules Creek coal mine project and developing it as a working coal mine.
From 23 January 2008 to 6 August 2010 and from 17 November 2011 to 3 May 2012, Mr Tinkler was a director of Aston. In the latter period, Mr Tinkler was also the chair of Aston.
From 16 November 2009 to 3 May 2012, Mr Vaile was a director of Aston.
From 1 May 2010 to 3 May 2012, Mr Christensen was a director of Aston.
In 2011–2012, Mr Kane was the interim CEO of Aston.
By the Implied Terms Claim, in summary it is alleged that Whitehaven breached implied terms in each of the SPA, the WPA, the Minority Lenders SPA and the Restriction Deeds that (SFASOC [99(a)], [99(b)], [100], [102], [150]–[157], [164]–[181]):
each party would do all things necessary to enable the other party to have the benefit of the contract and not to hinder or prevent the purpose of the express promises made in the contract;
each party would in the performance of their obligations, and in the exercise of any discretion or power under the contract, act and exercise that discretion or power in good faith, with fidelity to the bargain embodied in the contract and with fair dealing having regard to the interests of the parties and to the provisions, aims and purposes of the contract; and
after the date of completion, Whitehaven would use its reasonable endeavours to achieve approval of two of the Milestone Projects.
Les & Zelda seek damages for breach of these implied terms, including for the value of the Milestone Shares which, it says, would have vested by now had Whitehaven complied with its contractual duties, or the loss of that valuable commercial opportunity (SFASOC [153], [157] and [182]).
In summary, the P****romissory E****stoppel Claim has the following principal elements (SFASOC [111]–[117]):
Whitehaven created or encouraged in Les & Zelda and the Group Members an expectation or assumption that Whitehaven would use the remaining amount of the $150 million Capital Injection to develop the Boardwalk Projects;
Whitehaven knew or intended that Les & Zelda and the Group Members would act on the basis of the expectation or assumption;
Les & Zelda and the Group Members relied on the expectation or assumption;
in breach of the expectation or assumption, Whitehaven did not use the remainder of the $150 million Capital Injection to develop the Boardwalk Projects;
it would be unconscionable for Whitehaven to resile from the expectation or assumption; and
Whitehaven is estopped from denying that it was bound to use the remainder of the $150 million Capital Injection in accordance with the assumption or expectation and/or enforcing or otherwise relying on the restrictions in the Restriction Deeds.
Les & Zelda alleges that it is entitled to equitable compensation or other relief for the Promissory Estoppel claim although it has not pleaded any such entitlement in the SFASOC.
In summary, the Conventional Estoppel Claim has the following principal elements (SFASOC [79]–[82], [103]–[110]):
Mr Tinkler (as agent for Les & Zelda and the Group Members) adopted an assumption that Whitehaven was obliged to use the remainder of the $150 million Capital Injection to develop the Milestone Projects with a view to obtaining at least two approvals for the Milestone Projects;
Whitehaven knew or intended that Les & Zelda and the Group Members would act on the basis of the assumption;
Les & Zelda and the Group Members relied on the assumption;
Whitehaven departed from the assumption;
Les & Zelda and the Group Members have suffered detriment by reason of Whitehaven’s unjust and/or unfair departure from the assumption; and
Whitehaven is estopped from denying that it was bound to use the remainder of the $150 million Capital Injection in accordance with the assumption and/or enforcing or otherwise relying on the restrictions in the Restriction Deeds.
Les & Zelda alleges that it is entitled to damages as relief for the Conventional Estoppel Claim although it has not pleaded any such entitlement in the SFASOC.
The O****ppression C****laim is that Whitehaven’s decisions to:
pay dividends;
make capital reductions;
not take adequate steps to ensure that any Trigger Events in respect of the Milestone Projects occurred;
cease taking steps to ensure that any Trigger Events in respect of Milestone Projects occurred;
limit work on the Milestone Projects; and
not pursue a sale process in respect of the Milestone Projects,
were oppressive to, unfairly prejudicial to and unfairly discriminatory against Les & Zelda, thereby constituting oppressive conduct by Whitehaven within the meaning of s 232 of the Corporations Act 2001 (Cth) (SFASOC [232]–[233]).
In around November and December 2011, prior to the entry into the Agreements … Whitehaven represented to Mr Tinkler, as agent for Boardwalk and each of the Group Members, that:
(a) if Whitehaven was to acquire all of the shares in Boardwalk, Mr Tinkler, and/or entities associated with him, would need to inject, by way of equity, $150m into Boardwalk and
(b) after Whitehaven had acquired all of the shares in Boardwalk, the $150m injected into Boardwalk by Mr Tinkler, and/or entities associated with him, would be used as follows:
(i) to repay existing indebtedness of Boardwalk to certain creditors of approximately US$50m; and
(ii) the balance to develop the Boardwalk Projects and meet existing and ongoing costs associated with those projects so that the proposed restricted shares to be issued as part of the acquisition would become unrestricted,
(Use of Funds Representation).
The particulars provided in respect of the Use of Funds Representation are that it was express, it was made orally by Mr Haggarty to Mr Tinkler in meetings in the Sydney CBD in around November 2011, it was also made in writing in a draft announcement to the ASX on 9 December 2011 (defined below as the 9 December Draft ASX Announcement), and it was also made and/or confirmed:
on 12 December 2011, by Whitehaven in an ASX announcement of the merger between Whitehaven and Aston (defined below as the 12 December ASX A****nnouncement);
on 12 December 2011, by Whitehaven in a presentation on the merger between Whitehaven and Aston (defined below as the December 2011 Investor Presentation);
on 12 December 2011, in answer to potential investor questions (defined below as the Q&A D****ocument);
on 12 December 2011, in a memorandum from Mr Haggarty to all Whitehaven employees referring to the ASX announcement made that day (defined below as the 12 December M****emorandum);
on 13 December 2011, in a draft letter to Whitehaven shareholders (defined below as the 13 December D****raft L****etter);
in the Whitehaven quarterly report for the period ended 31 December 2011 (defined below as the December 2011 Q****uarterly R****eport);
on 6 March 2012, in the independent expert’s report prepared by PricewaterhouseCoopers (PwC) (defined below as the PwC Report); and
in March 2012, by Whitehaven in an ASX announcement (defined below as the March 2012 ASX A****nnouncement).
It is further pleaded that Mr Haggarty was authorised to make the Use of Funds Representation (SFASOC [80]) and that by reason of Mr Tinkler being appointed agent and attorney of each of the Group Members, the Use of Funds Representation was made to each of the Group Members (SFASOC [81]).
The Use of Funds Representation is alleged to have been repeated to Mr Tinkler, Les & Zelda and the Group Members on 12 December 2011 in two announcements made by Whitehaven to the ASX and on 3 March 2012 in an announcement made by Whitehaven to the ASX (SFASOC [82]).
As is apparent from the manner in which the Use of Funds Representation is pleaded, it is not limited to just having been made orally by Mr Haggarty to Mr Tinkler. To the extent that the Use of Funds Representation is alleged to have been made orally by Mr Haggarty to Mr Tinkler, it is not limited to having been made on a particular day but in two meetings “in or around November 2011”. As a result, the pleaded case has some breadth in relation to when it is alleged that the Use of Funds Representation was made orally.
Whitehaven’s case in response is outlined in the Defence to the SFASOC filed 4 September 2024.
The general essence of the challenges to the claims made in the SFASOC, which are outlined in the Defence, is that Whitehaven:
denies that the Use of Funds Representation was made by Whitehaven to Mr Tinkler as agent for Boardwalk and each of the Group Members (Defence [79]);
denies that Mr Haggarty was authorised by Whitehaven to make the Use of Funds Representation and that Mr Tinkler as agent for Boardwalk and each of the Group Members relied on and believed that Mr Haggarty was authorised to make the Use of Funds Representation (Defence [80]);
denies that by reason of Mr Tinkler being appointed agent and attorney of each of the Group Members, the Use of Funds Representation was made to each of the Group Members (Defence [81]);
denies that the Use of Funds Representation was repeated to Mr Tinkler, Les & Zelda and the Group Members on 12 December 2011 and 3 March 2012 (Defence [82]);
denies that any of the alleged implied terms are contained in the SPA, the WPA, the Minority Lenders SPA and the Restriction Deeds (Defence [99], [100] and [102]);
denies all of the matters on which the Conventional Estoppel Claim and the Promissory Estoppel Claim are alleged to be based (Defence [103]–[117]); and
denies all of the matters on which the Oppression Claim is alleged to be based (Defence [232]–[233]).
The only witness called by Les & Zelda at the trial was Mr Tinkler, who was extensively cross examined by Whitehaven.
Whitehaven called three lay witnesses at the trial, being:
Anthony (Tony) Haggarty, who was the managing director and CEO of Whitehaven between October 2008 and 25 March 2013;
Jason Nunn, who is the present executive general manager of marketing and logistics of Whitehaven; and
Kevin Ball, who has been the CFO of Whitehaven since 13 December 2013.
Whitehaven also relied on the expert report dated 30 November 2023 of Robert Yeates and an addendum to it dated 31 August 2024 (together the Yeates Report, concerning the economic justification of Ferndale and Dingo) and the expert report dated 1 December 2023 of Stephen O’Connor (O’Connor Report, concerning NSW planning and mining approval processes and regulation and the likelihood of development consent and a mining lease being approved for Ferndale).
Expert accounting evidence was tendered in the form of a statement of agreed facts, which obviated the need to call the accounting experts or tender their respective reports.
There were two principal lay witnesses who gave evidence at the trial and were cross-examined: Mr Tinkler for Les & Zelda and Mr Haggarty for Whitehaven. The credibility of each of them came under attack during the trial.
In every instance, I have endeavoured to evaluate each witness’ evidence, not only in the light of their responses during cross-examination, but also in light of the contemporaneous documents, the objectively established facts, the apparent logic of events, the probabilities of human behaviour, the existence and nature of corroborative evidence, and the effect and impression given by the evidence as a whole.
This is in line with the appropriate approach to be taken by a trial judge in assessing the reliability of evidence given by witnesses in the course of trial proceedings. Among the salient principles that guide this undertaking are the following:
In circumstances where events have taken place long ago, the orthodox and sensible approach for a trial judge to take in assessing the credibility and reliability of the evidence of a witness about those events is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence: Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15, Gleeson CJ, Gaudron, Kirby and Hayne JJ at [15]–[16].
For most commercial disputes, a proper understanding of the chronology of events is critical and contemporaneous documents generally furnish the most reliable source of evidence as to what occurred or, at the very least, provide a generally reliable reference point from which to assess the reliability of witness testimony: ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24, Bell P (with whom Bathurst CJ and Leeming JA agreed) at [25].
Judicial notice has been taken of scientific research which casts doubt on the ability of a trial judge to tell truth from falsehood accurately based on the appearance of witnesses such that trial judges should limit their reliance on the appearances of witnesses and develop their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22, Gleeson CJ, Gummow and Kirby JJ at [30]–[31].
There are multiple problems with a trial judge making demeanour findings, ranging from systematic error or bias, memory malfunctions, the possibility that witnesses may be dishonest about only parts of their evidence, that a truthful witness may give accurate or inaccurate testimony and that a dishonest witness may appear to be truthful. A trial judge should keep in mind the guidance provided in (2006) 66 NSWLR 186; [2006] NSWCA 187 by Ipp JA (with whom Mason P and Tobias JA agreed) at [27]:
These problems and doubts about demeanour findings explain why trial judges are expected to weigh their impressions as to demeanour carefully against the probabilities and to examine whether the disputed evidence is consistent with the incontrovertible facts, facts that are not in dispute and other relevant evidence in the case. Of course, demeanour may trump the probabilities, but it should be apparent from the judge’s reasons that the probabilities and consistency with other relevant evidence have properly been taken into account.
… an ounce of intrinsic merit or demerit in the evidence, that is to say, the value of the comparison of evidence with known facts, is worth pounds of demeanour.
This passage was quoted with apparent approval by Gleeson CJ, Gummow and Kirby JJ in Fox v Percy, at [30].
… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
[27] Whilst the quality and accuracy of oral recollection of actual conversations should be treated with care and caution given the fallibility of human memory (of which there has been a growing appreciation within the judiciary in recent decades), oral testimony may still be of value and importance, as was recognised in the nuanced observations of Leggatt J (as his Lordship then was) in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC (Comm) 3560 at [22] (Gestmin):
“the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.” (emphasis added)
[28] Documents and events have to be understood in their context, and evidence of context will often be furnished by witnesses in their oral evidence. Documents, moreover, will not always present a complete picture of events. Indeed it would be rare that they do. Nor do contemporaneous documents necessarily or invariably convey or record the background or context in which events took place. That background or context will be familiar to the actors at the time of those events but may not always emerge from documents.
[29] Context is critical for at least two reasons. Documents and events take their meaning from their context. The context in which events occurred may not necessarily be apparent to a court many years later when hearing a case. A clear understanding of context, both commercial and cultural, is also important where, as in the present case, some or all of the events under consideration occurred overseas and in settings that may differ from those usually dealt with in domestic litigation.
Where necessary, I have made specific comments about the credibility and reliability of the evidence of particular witnesses in my findings about identified events and opinions below.
In terms of the credibility of each of Mr Tinkler and Mr Haggarty as witnesses, bearing in mind the foregoing principles, I am inclined to make the following general remarks:
Mr Tinkler: I have generally accepted the evidence of Mr Tinkler, except where I have stated otherwise. The principal problems Mr Tinkler encountered in giving evidence in his affidavits and in cross-examination were ones which arose from the natural fallibility of his memory of events due to the passage of time, with Mr Tinkler making his affidavits and being cross-examined more than 10 years after the relevant events. In those instances where I considered Mr Tinkler’s evidence to be unreliable because of the inaccuracy of his memory, I have placed more weight on the contents of contemporaneous documents and the inferences to be drawn from them to make findings about the likely chronology of events. In relation to the challenge to the credibility of Mr Tinkler’s evidence based on the contents of the statement of claim filed December 2018 (December 2018 SOC) when these proceedings were first commenced in the Supreme Court of QLD, I reject that attack for the reasons stated below.
Mr Haggarty: I have also generally accepted the evidence of Mr Haggarty, except where I have stated otherwise. As in the case of Mr Tinkler, the long passage of time of more than 10 years between the events in question, the making of his affidavit and the cross-examination conducted of him has affected Mr Haggarty’s memory. To his credit, Mr Haggarty often professed to have no memory of particular events. To that extent, it was natural that Mr Haggarty’s evidence was unreliable in certain respects. On those occasions, I also placed more weight on the contents of the contemporaneous documents and the inferences to be drawn from them to make findings about the likely passage of events. In relation to the attack on the credibility of Mr Haggarty’s evidence based on the suggestion that he failed to state particular matters in his affidavit and then was able to give evidence about them in cross-examination, I consider this is more likely to reflect on the limited extent of the matters he was asked to consider during the preparation of his affidavit rather than the credibility of Mr Haggarty as a witness.
The rule in Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8, being the principle articulated by Kitto J at 308, Menzies J at 312 and Windeyer J at 320–321, has been distilled, summarised, expanded and explained in a number of authorities in the High Court of Australia, the Federal Court of Australia and the Court of Appeal of this court, principally including (in chronological order): Payne v Parker [1976] 1 NSWLR 191, Glass JA at 201–202; Flack v Chairperson, National Crime Authority (1997) 80 FCR 137, Hill J at 148–149; Adler v Australian Securities and Investments Commission (2003) 179 FLR 1; [2003] NSWCA 131, Giles JA (with whom Mason P and Beazley JA agreed) at [649]; Manly Council v Byrne [2004] NSWCA 123, Campbell J (with whom Beazley JA and Pearlman AJA agreed) at [44]–[61]; Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11, Heydon, Crennan and Bell JJ at [63]–[64]; Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53, Besanko, Perram and Katzmann JJ at [79]; Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17, French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ at [167]–[169] and Heydon J at [259], [263]–[264]; Jagatramka v Wollongong Coal Ltd [2021] NSWCA 61, Bathurst CJ, Bell P and White JA at [49]; Ling v Pang [2023] NSWCA 112, Kirk JA (with whom Leeming and Mitchelmore JJA agreed) at [20]–[28]; SSABR Pty Ltd v AMA Group Ltd [2024] NSWCA 175 (SSABR appeal decision), Stern JA (with whom Ward P and Price AJA agreed) at [158]–[161]. These authorities support the following legal principles:
The rule in Jones v Dunkel is a principle of judicial reasoning which addresses the drawing of inferences of fact.
The rule in Jones v Dunkel is a principle of plain common sense.
The rule in Jones v Dunkel is that an unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party’s case.
The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party who failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn.
The drawing of a Jones v Dunkel inference requires the court to be satisfied that: first, it is expected or natural for the party in question to have called the person; second, the person’s evidence would have elucidated a particular matter that requires explanation, contradiction or an answer; and third, the absence of the person is unexplained.
Mr Flynn was a director of Boardwalk from 17 June 2011 until 1 May 2012. Since March 2013, Mr Flynn has been the CEO of Whitehaven. Les & Zelda says that given that Mr Flynn was on the Aston/Boardwalk side of the transaction in 2011 he would be in a position to explain, clarify or even deny critical features of this case, including the mutual understanding and expectation asserted by Les & Zelda. Les & Zelda says that Mr Flynn has chosen not to do so, which allows the court to draw more confidently the inferences that Les & Zelda contends arise from the documentary evidence and the evidence of Mr Tinkler and Mr Haggarty.
Les & Zelda also rely on Mr Flynn’s absence as bearing on the assessment of the character of Whitehaven’s conduct, being its departure from the expectation and understanding that it says was engendered under the helm of Mr Haggarty and Mr Flynn, who were personally acquainted with the facts and circumstances giving rise to it. Les & Zelda says that the failure of Whitehaven to spend any substantial money, in particular the balance of the $150 million Capital Injection, is not due to any concern as to the directors’ obligations or any extenuating circumstances, rather simply a refusal to do so despite the mutual understanding, the representation and the negative impact on the Group Members.
Whitehaven submits that Les & Zelda has failed to identify the evidence which it says should be accepted or rejected or the inferences it says should be made or not made as a result of Mr Flynn not giving evidence. Whitehaven submits that a generalised assertion that Mr Flynn could have “clarified” matters is precisely how a Jones v Dunkel inference cannot be used. Whitehaven argues that the failure of Les & Zelda to identify the relevant matter that Mr Flynn’s evidence is supposedly required to explain means that the court is unable to assess whether this condition has been fulfilled and therefore the inferences sought would have no utility.
Whitehaven also relies on the fact that Mr Flynn is not identified at all in the SFASOC and therefore it is readily understandable why Mr Flynn would not be called as a witness when there is no allegation made to which he would be expected to respond.
Les & Zelda accepts that Mr Flynn is not mentioned in the SFASOC and accepts that Mr Flynn is not “verballed” or said to be present at any conversation that Mr Tinkler says he can recall but relies on the rule in Jones v Dunkel arising from the “course of the evidence”.
Les & Zelda points to the following two specific matters supporting its argument that an inference pursuant to the rule in Jones v Dunkel should be drawn by reason of Whitehaven’s failure to call Mr Flynn as a witness:
Mr Flynn received the 9 December Further Draft ASX Announcement and the 10 December Draft ASX Announcement (each defined below) so that in the absence of any evidence from Mr Flynn, the court would be entitled to infer that as the CEO of the Tinkler Group and a director of Boardwalk he read these announcements and they cohered with his understanding that the $150 million Capital Injection would be used for the ongoing development of Boardwalk’s assets, repayment of debt and deferred payments relating to Sienna.
Each side seeks a Jones v Dunkel inference be drawn against the other in respect of the failure to call Mr Christensen as a witness.
As stated above, Mr Christensen was a director of Boardwalk from 30 March 2010 to 1 May 2012, as well as an employee of the Tinkler Group. Mr Christensen was then a director of Whitehaven from 3 May 2012 to 14 July 2014.
Les & Zelda argues that Mr Christensen was within Whitehaven’s “camp” and the Jones v Dunkel inference does not arise against Les & Zelda when the relationship with its “camp” has ceased and the relationship with Whitehaven has begun. Les & Zelda contends that after Mr Christensen’s departure from Whitehaven he was subject to confidentiality obligations which, through his solicitor, were used as a basis on which he has refused to speak to Les & Zelda.
As in the case of Mr Flynn, Whitehaven points to the fact that Les & Zelda has failed to identify the evidence which it says should be accepted or rejected or the inferences it says should be drawn or not drawn as a result of Mr Christensen not giving evidence, along with the failure of Les & Zelda to identify the relevant matter which Mr Christensen’s evidence is supposedly required to explain so that any inference would have no utility.
Whitehaven also says that Mr Christensen ceased to be involved with Whitehaven a decade ago, he is effectively a Group Member in these proceedings because his corporate vehicle holds Milestone Shares and so it could hardly be suggested he is in Whitehaven’s “camp”. Whitehaven contends that, if anything, Mr Christensen is in Les & Zelda’s “camp”.
I do not think that it is appropriate to draw any inference pursuant to the rule in Jones v Dunkel against either party in relation to a failure to call Mr Christensen. Mr Christensen was in Les & Zelda’s “camp” by reason of his positions at Boardwalk and the Tinkler Group and then moved into Whitehaven’s “camp” when he joined it as a director in May 2012. Now Mr Christensen has an association with a Group Member by reason of it holding Milestone Shares and yet has refused to speak to Les & Zelda because of the confidentiality obligations he says he owes to Whitehaven. Simply as a matter of common sense, I would not expect either Les & Zelda or Whitehaven to call Mr Christensen as a witness in their cause as a result of these competing considerations pulling in both directions.
The background events relevant to the two principal transactions which are the subject of Les & Zelda’s claims – the acquisitions of Boardwalk and Aston by Whitehaven on 11 and 12 December 2011 – have their genesis in mid-2011. It was during the negotiation of those acquisitions in November and December 2011 that the Use of Funds Representation is alleged to have been made orally to Mr Tinkler and then confirmed in documents.
The work undertaken on those acquisitions became known as “Project Trifecta”.
Set out below is a detailed chronology of those events.
In about July 2011, Mr Tinkler decided that Boardwalk should take steps to raise about $150 million in capital by way of a proposed initial public offering (P****roposed IPO) of shares and the listing of those shares on the ASX.
On 21 July 2011, Mr Tinkler sent an email to his fellow directors of Boardwalk, Mr Flynn and Mr Christensen, setting out his views about the Proposed IPO, his future plans for Boardwalk and its valuation. In the email, Mr Tinkler said that Macarthur Coal will be taken over, Whitehaven is for sale and Aston is “going nowhere” because of its management. He also expressed a desire to build Boardwalk as a mining company that is “aggressive and growth orientated” to appeal to the Asian market. Mr Tinkler saw Boardwalk as having a $750 million valuation and by raising $250 million it would increase to $1 billion on listing. He said that by adding further assets it would have a $1.5 billion asset valuation and on raising $500 million it would be increased to $2 billion on listing. Mr Tinkler expressed this as part of a plan for him to join the board of Aston and for Boardwalk to lodge a bid for Aston.
To work on the Proposed IPO, Boardwalk engaged Queen Street Capital (beneficially owned by Mr Tinkler via a trust) as its corporate and financial adviser, Morgan Stanley to act as lead manager and broker for the sale of the shares, Ernst & Young to undertake the due diligence review of the financial information of Boardwalk for inclusion in the anticipated prospectus and Gilbert + Tobin to act as its solicitors.
On 18 August 2011, in the context of the Proposed IPO, Julian Peck of Morgan Stanley sent an email to Mr Christensen and Mr Kane (amongst others) saying that there had been a series of key developments over the previous 24 to 48 hours that they needed to discuss which were “negatives on executing the [proposed] IPO for value in the short term”, amongst which were:
likely objections from ASIC to Boardwalk giving forecasts in its prospectus;
it was unlikely that Ferndale would have a JORC resource (defined below) by the time of the Proposed IPO;
there were material flaws in the Sienna JORC resource statement;
a discounted cash flow valuation was inappropriate for any asset that was not at an inferred resource stage; and
the recently announced QLD Government policy on banning mining exploration within 2km of townships of more than a thousand people would affect Sienna for at least part of the exploration area.
The reference to a “JORC resource” was to the Australasian Code for Reporting of Mineral Resources and Ore Reserves (December 2004) published by the Joint Ore Reserves Committee (JORC) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the Minerals Council of Australia (). In short, the JORC Code provides the mining industry recognised means by which mineral resources and ore reserves are measured, classified and reported.
The world markets are too unstable at present and, we expect, will likely remain so through to the end of this year.
Mr Christensen said that the good news was that the delay would allow them to do further things, including to complete the expenditure at Dingo, acquire an underground JORC at Ferndale, acquire an open-cut JORC at Ferndale and commence drilling at Monto.
There is no evidence that the draft memorandum was ever finalised and sent.
Also on 23 August 2011, in an email to Mr Christensen (amongst others), Mr Tinkler expressed his clear and forceful disagreement to the idea of any delay to the Proposed IPO. Mr Tinkler said:
… The work needs to be done and that is not going to change. If this thing is going to be pulled it will be at the last minute, not now, we need all the kinks ironed out of this thing, we are learning the pressure points as we go and we will not have it fit for market until we get through this process. At that time we can consider our options which are considerably more than an ASX listing but we are not pulling the plug on this process.
… let’s not takes [sic] our foot off the gas.
In September 2011, a management presentation for Boardwalk was prepared. The presentation included detail on the assets of Boardwalk, which were listed as Sienna, Dingo, Monto, Ferndale, Vickery South, Oaklands North, QLD Port and Rail infrastructure and NSW Port and Rail infrastructure. In addition, the presentation referred to “raising $150 million from both Cornerstone & other investors” to be utilised for exploration, repayment of debt and completion of Sienna. The uses included “Exploration & Development Expenditure” of $44.6 million and around $56 million for the repayment of debt.
On 14 October 2011, Gary Lawler of Gilbert + Tobin sent an email to Mr Kane and Mr Christensen (amongst others) setting out what appears to be the form of an email to be sent by Mr Kane to advise that the Proposed IPO had been delayed for a short period until early 2012. The email stated:
This email is to advise that Boardwalk’s IPO has been delayed due to the volatility and uncertainty of the financial markets. The IPO will be revisited once the markets return to some level of normality which we hope will be early in the new year.
We have made significant progress towards becoming a listed entity and will utilise the work conducted to date so that we can ramp-up very quickly once a decision is made to recommence the IPO process.
…
The evidence does not reveal to whom the proposed email from Mr Kane was to be sent and nor does it indicate whether it ever was sent to anyone. In the circumstances of the Proposed IPO being delayed at or about this time, I infer that the delay was due to the volatility and uncertainty in the financial markets, not something specific to what was proposed to be offered by Boardwalk.
Although the Proposed IPO appears to have been halted at around mid-October 2011, the lead manager of the Proposed IPO, Morgan Stanley, did prepare a draft prospectus for the Proposed IPO as at 31 October 2011 (D****raft Boardwalk P****rospectus). The Draft Boardwalk Prospectus was described as a “PROSPECTUS FOR THE ISSUE OF 100 MILLION FULLY PAID ORDINARY SHARES AT AN ISSUE PRICE OF $1.50 PER SHARE TO RAISE $150 MILLION”. The draft chairman’s letter in the Draft Boardwalk Prospectus was intended to be signed by Mr Tinkler. It refers to Boardwalk’s interests in four coal exploration projects (being Ferndale, Dingo, Sienna and Monto) and Boardwalk’s 19.9% interest in Coalworks. The draft letter states:
…
Boardwalk’s objective is to develop each Project through to production, if feasible. …
Boardwalk is seeking to raise a total of $150 million (with the potential to raise up to $160 million), pursuant to the Offer detailed in this Prospectus. After meeting offer expenses, the proceeds will primarily be used to:
- Fund Boardwalk’s exploration, and corporate expenditure to the end of FY13;
- Repay existing debt within Boardwalk of approximately $55.8 million; and
- Pay the final deferred consideration due on the Sienna Project of $15 million.
| Use of Funds | | | Exploration Expenditure to the end of FY13 | $47.9 million | | Outstanding deferred consideration for the Sienna Project | $15.0 million | | Repay existing debt | $55.8 million | | Transaction costs | $7.0 million | | General corporate uses | $24.3 million | | Total uses of funds | $150.0 million |
| $000s | Ferndale | Dingo | Sienna | Monto | TOTAL | | Project Management | 2,800 | 1,100 | 850 | 250 | 5,000 | | Drilling | 13,000 | 8,100 | 8,500 | 4,200 | 33,800 | | Geological Modeling [sic] | 100 | 100 | 100 | 20 | 320 | | Concept / F****easibility | 1,600 | 1,400 | 700 | 20 | 3,720 | | Environmental studies & approvals | 1,600 | 1,200 | 1,000 | 10 | 3,810 | | Other | 250 | 300 | 300 | 350 | 1,200 | | Total | 19,350 | 12,200 | 11,450 | 4,850 | 47,850 |
The Draft Boardwalk Prospectus also contained various statements regarding the uncertainties involved in whether the Boardwalk Projects would or would not proceed and the risks associated with them. The relevant sections of the Draft Boardwalk Prospectus included the following statements:
Section 1.3: “Exploration and Evaluation Risk”:
Boardwalk has an interest in a number of coal exploration licenses and permits which are at various stages of exploration and potential investors should understand that coal exploration and evaluation are high risk undertakings. No assurance can be given that Boardwalk’s Exploration Targets will be converted to Resources or Reserves or that the Drilling Objectives cited as part of its drilling plans will be achieved. Even if Boardwalk discovers or recovers potentially commercial quantities of coal from its exploration activities, there is no guarantee that Boardwalk will be able to successfully exploit these resources to achieve a commercial return.
Boardwalk’s Projects are at a pre-development stage. If Boardwalk decides to proceed to production at any of its Projects, the process of developing the Projects will be subject to many uncertainties, including the availability of financing, the timing of construction, construction cost overruns, any increase in the operating costs, the availability and cost of labour and infrastructure and the receipt of required governmental permits. Each Project carries its own unique development risks. There is a risk that unexpected challenges or delays will arise, or that coal quality and quantity results will differ from targeted estimates.
Boardwalk intends to earn revenue from the sale of coal and a decline in prices or lower demand for coal than expected by Boardwalk may adversely impact the feasibility of Boardwalk’s development plans, and any economic viability of its Projects.
There are a number of factors which may affect the coal market, all of which are beyond the control of Boardwalk, including changes in general economic activity, the supply of and demand for coal, competition, transport and infrastructure costs, demand for steel, coal quality requirements and government regulation. A slowing in India and/or China’s economic growth could also result in lower coal demand and prices.
In order to commence mining operations at any of the Projects, it will be necessary for Boardwalk to purchase material areas of land subject of the relevant tenement, or otherwise enter into arrangements with the owners of the land in relation to the access, development and use of that land for mining operations. No assurance can be given that current or future exploration activities by Boardwalk will lead to mining operations.
Boardwalk must fund a significant amount of capital expenditure in order to commence production at the Projects. Boardwalk will use the proceeds of the Offer to fund further drilling programs to identify and defined JORC resources. However, funds raised under the Offer will not be sufficient for expenditure expected to be required for any development of the Projects beyond the immediate funding requirements as identified in Table 7.
All of these risks and uncertainties were inherent in the nature of the Boardwalk Projects as early stage coal exploration projects and would have been understood by all of those at Boardwalk, including Mr Tinkler. There was nothing in the Draft Boardwalk Prospectus to indicate that the expenditure of the amounts in the table of “Projected Project Exploration Expenditure” on each of the Boardwalk Projects would result in the obtaining of a mining lease on any of them. To the contrary, as stated in the “Additional Funding Requirements” above, there was a specific indication that those amounts would not be sufficient to develop them beyond their immediate funding requirements.
The Draft Boardwalk Prospectus also specified the expected dates for obtaining statutory approvals for each of the Boardwalk Projects, setting them out in indicative timelines as follows: Ferndale (third quarter of FY2014 – section 4.2.5), Dingo (first quarter of FY2015 – section 4.3.5), Sienna (first quarter of FY2015 – section 4.4.5) and Monto (second quarter of FY2018 – section 4.5.5). There was, however, no reasoning contained in the Draft Boardwalk Prospectus to indicate how each of those dates had been determined.
In late October 2011, Mr Tinkler (through advisers acting on behalf of Aston and Boardwalk) approached Whitehaven in relation to a proposed three-way merger/acquisition involving Whitehaven, Aston and Boardwalk which became known as “Project Trifecta”.
The suite of advisers involved in the transaction were as follows:
Whitehaven: Grant Samuel and Goldman Sachs (financial advisers), Corrs Chambers Westgarth and McCullough Robertson (legal advisers);
Aston: UBS Investment Bank and Credit Suisse (Australia) Ltd (financial advisers), Freehills (legal adviser) and Greenwoods (accounting/taxation adviser); and
Boardwalk: Queen Street Capital and Morgan Stanley (financial advisers), Gilbert + Tobin and Ashurst (legal advisers).
The two principal advisers involved in the ensuing events were David Di Pilla from UBS for Aston and Doug Bartlett from Grant Samuel for Whitehaven. Despite their central involvement, neither Mr Di Pilla nor Mr Bartlett gave evidence at the trial.
For Whitehaven, Grant Samuel representatives tended to be with Mr Haggarty in face-to-face meetings and Goldman Sachs were involved in internal meetings and also assisting in doing calculations and valuations (T355).
I will refer to the Tinkler Group and its advisers as the Tinkler representatives or the Tinkler interests. I will refer to Aston and its advisers as the Aston representatives. Where there is no relevant delineation between the Aston representatives and the Tinkler representatives, I will refer to them as the Aston/Tinkler representatives or the Aston/Tinkler interests.
In about mid to late 2011, Mr Tinkler developed the concept of Aston merging with Whitehaven. He did so as one way to resolve the development problems that had been faced by Aston in working towards obtaining a mining lease and approval for the Maules Creek coal mine project and developing it into a working coal mine. Aston encountered difficulties in obtaining approval for the Maules Creek coal mine because all of the space to transport and ship the coal extracted from the Maules Creek coal mine had already been allocated by railway companies (Pacific National and Aurizon) and coal terminal providers (Newcastle Coal Infrastructure Group and Port Waratah Coal Services) to other mining companies. Aston found itself in a situation where the railway companies and coal terminal providers would not negotiate with Aston unless it had a mining lease in respect of the Maules Creek coal mine and the NSW Government would not grant a mining lease or approval for the Maules Creek coal mine unless Aston had transport arrangements in place with the railway companies and coal terminal providers. In cross-examination, Mr Tinkler said that this had been a continuing problem for several years by mid-2011 (T232–233).
On 27 October 2011, UBS prepared a document titled “Project Trifecta – Indicative Term Sheet” dated 28 October 2011 (First Term Sheet). The First Term Sheet was expressed as containing “Indicative terms for proposed merger of Aston, Whitehaven and Boardwalk” and emphasised that the terms were “indicative only and not binding on either party”.
The First Term Sheet was based on instructions that Mr Tinkler, on behalf of the Aston board, gave to Mr Di Pilla (T234).
The First Term Sheet was divided between an “Aston / Whitehaven transaction” and an “Aston / Boardwalk transaction”.
The salient parts of the First Term Sheet in relation to the Aston/Whitehaven transaction included the following:
Structure: Aston to acquire Whitehaven by way of scheme of arrangement with a simultaneous announcement of Aston’s acquisition of Boardwalk.
Consideration: Whitehaven shareholders can elect to receive 0.56 Aston shares for every Whitehaven share held or $7.25 per share in cash, to be confirmed after the completion of due diligence. This made the fixed cash component $1.8 billion and the fixed scrip component 137.88 million Aston shares. The consideration was to be adjusted pro-rata to include partial cash consideration if the total scrip elections by Whitehaven shareholders exceeded the available shares or partial share consideration if the total cash elections by Whitehaven shareholders exceeded the available cash.
Offer conditions: The conditions included Whitehaven shareholder approval, regulatory approvals/waivers, court approval of the scheme of arrangement and no material adverse change in Whitehaven. The Whitehaven and Boardwalk acquisitions were not to be inter-conditional.
Board composition: After completion, Aston is to have nine directors, three of whom are directors from the Tinkler Group, two executive directors from Whitehaven and four independent directors, including an independent chairman.
Mr Haggarty gave evidence in cross-examination that the fixed cash component of $1.8 billion required significant borrowing to be undertaken to enable it to be paid (T395).
The salient parts of the First Term Sheet in relation to the Aston/Boardwalk transaction included the following:
Structure: Acquisition of Boardwalk by Aston requiring an Aston shareholder vote at a 50% approval threshold with Boardwalk Shareholders unable to vote.
Consideration: Upfront issuance of 30.6 million Aston shares to Boardwalk Shareholders with a value of about $340 million at the current market price of about $11.06 per share. In addition, milestone payments to Boardwalk Shareholders by way of additional Aston share issuance upon meeting certain development objectives, being:
(a) 9 million Aston shares to be issued upon delineation of 200 metric tonnes JORC measured resource across the Boardwalk portfolio; and (b) 9 million Aston shares to be issued upon receipt of mining approvals of any two of Dingo, Ferndale and Sienna (i.e. 4.5 million shares for each approval).
Timing: Acquisition to be announced simultaneously with the Whitehaven acquisition. The Aston shareholder vote to take place on or around the same day as the scheme of arrangement meeting.
Offer conditions: Aston shareholder approval with Boardwalk shareholders unable to vote (i.e. Tinkler Group and Noonday), procurement of any necessary regulatory approvals and milestone payments are contingent on achieving development objectives.
At this stage in the development of the proposals for the transactions, there was no mention in the First Term Sheet of the existing Boardwalk Shareholders contributing $150 million in capital to Boardwalk as a condition of the proposed acquisition of Boardwalk by Aston. The proposal in the First Term Sheet could not be seen as meeting any additional capital needs that Boardwalk might have had at that time, which Mr Tinkler had sought to address by the Proposed IPO.
At a price of $11.06 per share, the value of the 18 million Milestone Shares was therefore $199.08 million, in addition to the approximately $340 million in upfront Aston shares.
At about this time, UBS prepared a presentation titled “Project Trifecta – Preliminary valuation and transaction rationale” dated October 2011. The presentation used the Whitehaven share price of $7.25 per share, an exchange ratio of 0.56 Aston shares for every Whitehaven share, 50/50 cash/scrip consideration and 46.5 million Aston shares issued to Boardwalk Shareholders (including milestone payments) (slightly less than the 48.6 million in the First Term Sheet) to give the Tinkler Group a 25% post transaction shareholding in Whitehaven.
As suggested in the First Term Sheet, with the Tinkler Group and Whitehaven proposed to have five directors between them out of the nine directors on the Whitehaven board, they would have a majority of the directors in the post-transactions merged entity of Whitehaven. Each subsequent term sheet included this proposed board composition.
The First Term Sheet also included an indicative process and timeline, with four weeks of due diligence scheduled to begin in the week commencing 31 October 2011; the concurrent negotiation of key terms of the scheme implementation agreement; and a target to announce both the transactions in early December 2011 subject to Aston finalising satisfactory debt funding arrangements. The proposed timeline would lead to the scheme implementation occurring in mid-March 2012.
On around 27 October 2011, Matthew Keen of Queen Street Capital (financial advisers to Boardwalk) sent an email to Mr Haggarty, which attached the First Term Sheet. The email stated:
At this stage it should be considered a work in progress as the Aston board will be seeing the details at the same time as the Whitehaven board and hence it is subject to possible changes.
When Mr Haggarty received the First Term Sheet, he recognised that it involved Aston acquiring Whitehaven and, as mentioned above, that it involved a fixed cash component of $1.8 billion, which required a significant borrowing (T395).
On 27 October 2011, Mr Haggarty forwarded the email from Mr Keen with the attached First Term Sheet to Whitehaven personnel, referring to discussions which had occurred the previous day about the contents of the First Term Sheet.
On 28 October 2011 at 7:54pm, Mr Bartlett of Grant Samuel (financial advisers to Whitehaven) sent an email to Mr Haggarty and others, which refers to a conversation Mr Bartlett had with Mr Di Pilla, the relevant parts of which included the following:
- I told him that we were still waiting to hear [First Reserve’s] reaction to the proposal but guessed that they wouldn’t want all scrip. He didn’t see that as a problem. I told him that AMCI had a potential CGT tax issue which I described. They will think about this.
- They are proposing to fund the $1.8b cash component via a $1.3b senior debt bridge to a US bond offering and $0.5b issue of notes or preference shares to Itochu, convertible into equity at the asset level and offtake. The structure of this is still fluid. … The lack of ordinary equity in their funding structure for the cash component explains why [Mr Tinkler] gets to keep a stake close to 30%. (We will run the numbers on this.) On the $1.3b senior debt, i told him that we had eye balled a figure of around $1b. They are very keen to see the [Whitehaven] model, particularly the month to month cashflows for the first year or two to drill down on the debt capacity. The bridge will be taken out by a US bond offering asap post completion. Clearly, they have in mind a more leveraged structure than we had contemplated.
- He is going to send through some info on Boardwalk. [He] said that [Mr Tinkler] is very bullish on the assets. Morgan Stanley had been working on the IPO and were well advanced. He thought that the IPO value was expected to be higher than the $340m but wasn’t sure.
- [Mr Tinkler] believes there is significant upside in the [Aston] share price and the merged group’s share price through synergies, index inclusion, etc. He therefore wants to maximise the cash component and minimise the number of shares that get issued to [Whitehaven] shareholders.
- On board composition, the reference to 4 independent directors does not exclude current independents from either [Aston] or [Whitehaven]. In other words, John and Neil are not excluded.
…
- Phillipa Stone from Freehills is acting. She is drafting a CA which will include standstill and exclusivity provisions (in anticipation that we will agree a term sheet). I did not comment either way on either of these two provisions.
I didn’t raise with David the option of us buying them.
The reference to First Reserve and AMCI in the email were to major shareholders of Whitehaven (T122 and T396).
At the conclusion of the email, the concept of Whitehaven buying Aston (the reverse of the proposed transaction in the First Term Sheet) was raised. In cross-examination, Mr Haggarty accepted that this concept was already under consideration and being discussed at this stage by Whitehaven and its advisers (T397).
The conversation between Mr Bartlett and Mr Di Pilla was also reported in an email of 28 October 2011 at 8:13pm from Mr Di Pilla to Mr Tinkler, Mr Flynn, Mr Keen and Mr Christensen in the following terms:
Doug Bartlett from Grant Samuel called me tonight.
Key points agreed for follow up over weekend.
- Boardwalk - they don’t really know the assets well, based on public information were struggling to value them.
I agreed that we would send across the power-point overview of assets. I also offered a management presentation on the assets at some stage next week.
- Financing - based on [Grant Samuel] analysis they felt the merge-co. cash-flows could hold $1bn of debt. When I asked for details of their analysis of sizing metrics for their conclusion he said it was at this stage high level only. I asked him to provide a detailed cash-flow model of the [Whitehaven] assets asap (they are having a meeting to finalise model on Monday morning).
- Tax - he mentioned the issue around AMCI holding and potential loss of roll-over relief. I asked him to get more information and said we would do some thinking with [Ernst & Young] over the weekend.
- CA - agreed that Freehills would draft a CA over the weekend including a 60 day exclusivity period.
On 9 November 2011, Mr Keen sent an email to Mr Haggarty, Mr Bartlett and Ross King (the chairman of Goldman Sachs), which attached the latest version of the Draft Boardwalk Prospectus for the Proposed IPO. In cross-examination, Mr Haggarty agreed that he probably read the Draft Boardwalk Prospectus when he received it and that he would have understood at that time that Boardwalk had planned the Proposed IPO to raise $150 million to assist, in part, in developing the Boardwalk Projects (T369).
Mr Haggarty also agreed in cross-examination that part of the background information he had at that time was that he understood that Mr Tinkler had plans while he was still in control of Boardwalk to raise $150 million for the purpose of developing the Boardwalk Projects and Mr Tinkler was very keen on the Boardwalk Projects, a position Mr Haggarty respected (T369–370). Mr Haggarty said that he understood, although he could not recall when, that Mr Tinkler wanted to see the Boardwalk Projects developed but he did not recall discussing that with Mr Tinkler (T370).
In my view, in all likelihood it was the reference to the raising of $150 million from the Proposed IPO in the Draft Boardwalk Prospectus that was the genesis of the later proposal for Boardwalk to be capitalised with the $150 million Capital Injection to be used to develop its assets and repay debt.
I also infer that by reading the Draft Boardwalk Prospectus, Mr Haggarty would have understood the Boardwalk Projects to be early stage coal exploration projects and the $150 million proposed to be spent on the Boardwalk Projects as outlined in the Draft Boardwalk Prospectus would not be sufficient to develop them beyond their immediate funding requirements.
On 19 November 2011, Mr Di Pilla sent an email to Mr Tinkler, Mr Flynn, Mr Keen and Mr Christensen inviting them to confirm their attendance at a meeting at 8am on 21 November 2011 at the offices of UBS in Sydney.
On 20 November 2011 at 2:16pm Mr Bartlett sent an email to Mr Di Pilla in which he stated that representatives of Whitehaven (including Mr Haggarty) would be attending the meeting the following day.
On 20 November 2011 at 2:21pm, Mr Di Pilla sent an email to Mr Bartlett in which he proposed that the meeting be attended by more than 20 people comprising representatives of Aston (including Mr Tinkler and Mr Christensen), the Tinkler Group (including Mr Flynn) and their respective advisers, being UBS (including Mr Di Pilla), Ernst & Young, Freehills and Gilbert + Tobin.
On 20 November 2011 at 2:43pm, Mr Bartlett forwarded this list of proposed attendees to Mr Haggarty who responded sharply by email that day at 4:58pm to Mr Bartlett and others regarding the number of proposed attendees as “total overkill” in light of the purpose of the meeting being “high level stuff, not detailed [due diligence]”. Mr Haggarty suggested in his email that they needed to have Boardwalk execute a confidentiality agreement before Whitehaven made disclosures at the meeting and only those people nominated in the confidentiality agreement should attend the meeting. Mr Haggarty also proposed that they should “keep them out of the nitty gritty or we won’t make very good use of the time”. Mr Haggarty concluded the email by stating that “plan A [the concept of Aston acquiring both Whitehaven and Boardwalk] doesn’t look do-able for Hans”. “Hans” was a reference to Hans Mende of AMCI, a major shareholder of Whitehaven.
Mr Haggarty’s email elicited email responses from a number of the Whitehaven representatives, being:
Mr King (from Goldman Sachs) stated in an email on 20 November 2011 at 5:01pm:
I suspect that plan A will not be doable for them either unless they can resurrect their stock price.
At the current share price I don’t see how plan B is going to work either. He’s put himself into a weak tactical position and it’s clear that investors are dubious about delivery and leadership.
I think plan b can work although it will look a bit like a rescue mission at these prices. This should mean that it will be well supported by his shareholders. The key for them will be a balanced board and [Whitehaven’s] management expertise.
Sure, i have no problem with plan b working for us… the concern is how is it going to work for [Mr Tinkler]. If he finds himself forced into a position requiring a ‘rescue’, this could push him into enlarging the game to get a better outcome. Anyway, the next few days will be interesting.
It is clear from these communications that those within Whitehaven had an idea of pursuing either “Plan A” (by which Aston acquired both Boardwalk and Whitehaven) or “Plan B” (by which Whitehaven acquired Aston). That was the meaning of the reference in Mr Bartlett’s email on 28 October 2011 to not having raised with Mr Di Pilla the idea of Whitehaven buying Aston.
Mr Haggarty was extensively cross-examined on Plan B (T397–399), agreeing to the following propositions:
At this time, Plan B was actively being considered as a concept within Whitehaven.
At this time, a fair bit of work had occurred at Whitehaven, at least on a conceptual level, concerning the UBS proposal in the First Term Sheet, including sounding out some of its shareholders.
At that stage, internally at Whitehaven they were trying to figure out whether Plan B was a better option, part of which involved discussion about how Plan B might actually work in terms of both money and price.
The driver for Plan B as at 20 November 2011 was the tax issue which meant that the Whitehaven shareholders would not accept Plan A.
Whitehaven was looking for a workable solution, which involved a fair position for Whitehaven shareholders, and Plan B would have worked for the Whitehaven shareholders without the cash injection because Aston would end up with less shares in the merged entity.
As at 20 November 2011, the consideration that was under discussion was how they could get a deal on Plan B, at least at a conceptual level, which would satisfy the perceived interests of Mr Tinkler and the concerns about the Whitehaven shareholders.
The conclusion everyone reached eventually was that to satisfy any perceived requirement or desire on the Tinkler side to get a certain shareholding in the merged entity then some sort of cash injection was required.
On 21 November 2011, Whitehaven, Boardwalk and the Tinkler Group entered into a confidentiality agreement in relation to the disclosures that were to be made as part of the discussions that would take place between them regarding the proposed transactions.
It is accepted on the evidence of Mr Tinkler (as corrected in his second affidavit and conceded in his cross-examination (T255–256 and T258)) and Mr Haggarty that there were three meetings that occurred on 21 November 2011, being:
A meeting at the offices of UBS with at least Mr Tinkler, Mr Haggarty, Mr Di Pilla and Mr Bartlett in attendance (UBS M****eeting).
A subsequent meeting in a café on Bligh Street near the Sofitel Wentworth Hotel that was only attended by Mr Tinkler and Mr Haggarty (Café M****eeting).
A later meeting between Mr Di Pilla and Mr Haggarty, which Mr Tinkler joined part way through (Later M****eeting).
The findings that I have been able to make about the critical discussions at the UBS Meeting, the Café Meeting and the Later Meeting involve consideration of the evidence in chief about those events given by each of Mr Tinkler and Mr Haggarty, the cross-examination of each of them, events as recorded in the contemporaneous documents, the inferences that I have be able to draw from those documents and the likelihoods arising from those events. I have set out the evidence and those findings below.
Before doing so, it is important to state that the Use of Funds Representation as pleaded in the SFASOC is particularised in a manner that makes it clear that to the extent that it is alleged to have been made orally by Mr Haggarty to Mr Tinkler, it was at two meetings in the Sydney CBD “in or around November 2011” (SFASOC at [79], Particulars (ii)). The pleading does not restrict the Use of Funds Representation made orally to any particular date in November 2011, although the evidence in chief of Mr Tinkler does do so by stating that the two meetings were on 21 November 2011, in the manner that is set out below.
In Whitehaven’s closing submissions, it stated its understanding of the case of Les & Zelda to be that Mr Haggarty made an oral representation to Mr Tinkler at a meeting prior to 25 November 2011 (at [35(a)]) and it rejected the proposition that the oral representation was made by Mr Haggarty to Mr Tinkler at any of the meetings prior to 25 November 2011 (at [39]).
In light of the pleading of the Use of Funds Representation as orally made at meetings “in or around November 2011” and the response of Whitehaven which addresses that broad case, I have not limited my consideration to whether the Use of Funds Representation was orally made at meetings on 21 November 2011 alone but I have also considered whether it was made at any of the other meetings prior to 25 November 2011.
In particular, much of the cross-examination of Mr Haggarty concerning what took place at meetings with Mr Tinkler between 21 and 25 November 2011 was not tied to a particular meeting but was by reference to a discussion between them in that period. Some of that cross-examination was directed towards an event long after that period, inviting Mr Haggarty to agree on the matters which must have been discussed by Mr Tinkler and Mr Haggarty at meetings between 21 and 25 November 2011.
Bartlett: We are getting some pushback on the valuation of Boardwalk Resources to the transaction. Shareholders and investors are concerned that the development assets will be a drain on the future cashflows of Narrabri and Maules Creek.
Haggarty: I have done work with Grant Samuel to analyse the cost of mining leases on the assets and with the debt in boardwalk we believe an additional $150 million to support the development of these assets will allow all shareholders to support the transaction. It would also take you to just under 20% of the company.
Tinkler: Why does this have to come from me as opposed to raising money in the marketplace?
Haggarty: We think it would be a strong statement of your belief in the assets and the capital committed to them will give comfort to investors that the assets are going to be developed or bought [sic] to mining lease.
Di Pilla: If Nathan is doing that then he must receive some other benefit for the investment than just raising money in the market. He is already doing a lot to support this transaction and his record at identifying assets like these and making them successful is what the market follows, so surely that is enough, if he was to put more money he needs to receive some other material benefit.
Haggarty: I suggest that we let the bankers work together on something around that and the timing of the milestone shares or the like.
Bartlett: Yes me and David can do some analysis on that and come back to you.
Tinkler: Any milestone shares would need to be based on a mining lease approval as a development or first coal is too far off, I would need these shares to be triggered in a timely fashion and get the rewards for doing so if I am to stump up $150 million. As you say, from the budgets of the due diligence committee that should be more than enough to repay debt and get approval. A lot of work has already been done.
Bartlett: There is also the issue of directorships and Chairman which needs to be resolved I suggest you and Tony take that offline for a chat.
Tinkler: I’m happy to do that.
According to Mr Haggarty’s evidence in chief in response to the version provided by Mr Tinkler, he could not remember the exact words spoken at the UBS Meeting. Mr Haggarty gave the following responses to Mr Tinkler’s version of the UBS Meeting as follows:
The UBS Meeting involved a presentation regarding Maules Creek (not a matter mentioned in Mr Tinkler’s recollection in evidence in chief but Mr Tinkler agreed it was discussed in his evidence in reply, as stated below).
One of the key issues for Whitehaven at that time was the composition of the board of the merged entity, which Mr Haggarty agreed to discuss with Mr Tinkler separately (which accords with Mr Tinkler’s recollection in his evidence in chief and in reply, as stated below).
Mr Haggarty did not recall any discussion at the UBS Meeting about the payment of $150 million by Mr Tinkler or Milestone Shares.
Mr Tinkler said that he wanted a 20% shareholding in the merged entity (a matter recalled in Mr Tinkler’s evidence in chief as having been raised by Mr Haggarty).
Mr Haggarty denies saying anything about work done by Grant Samuel to analyse the cost of mining leases or the need for an additional $150 million to support the development of the assets or anything regarding taking Mr Tinkler to just under 20% of the company, supporting his recollection by reference to the email of 21 November 2011 at 8.52pm from Mr Bartlett to Mr Haggarty after the UBS Meeting (which is referred to below).
Mr Haggarty denies saying that a further investment by Mr Tinkler would be a strong statement of his belief in the assets and that the capital committed to them would give comfort to investors. Mr Haggarty said that Whitehaven did not consider the assets to be as valuable as Mr Tinkler considered them to be although Mr Haggarty did not doubt Mr Tinkler’s belief in them.
Mr Haggarty denies that he suggested they let the bankers work together on something around it and the timing of the Milestone Shares because at this stage of the negotiations Whitehaven had not yet proposed any contingent consideration based on the development of the Boardwalk assets.
Mr Haggarty did not recall whether or not Mr Di Pilla said the words attributed to him regarding the need for Mr Tinkler to get some other benefit from the transaction.
In Mr Tinkler’s evidence in reply to Mr Haggarty’s evidence about the UBS Meeting, Mr Tinkler:
agreed that the UBS Meeting involved a presentation regarding Maules Creek; and
agreed that one of the key issues for Whitehaven at that time was the composition of the board of the merged entity, which Mr Tinkler and Mr Haggarty agreed to discuss separately; but
Meeting today between WHC and AZT. WHC presented on their business to AZT, Q&A then morphed into discussion on term sheet in the form provided by UBS a few weeks ago. They want to continue the structure ie AZT acquiring WHC, 50/50 cash/debt, cash raised through 1.3bn of debt and 0.5bn of equity raising (entitlement offer) – the Itochu selldown is now only a future “option”. Entitlement offer to be announced with transaction and conducted before 2nd court hearing. They also want a call option on 20% of WHC’s major shareholders’ shares, which WHC in principle is fine with although they want to see the details of this proposal which UBS has committed to send through.
Key points of disagreement between WHC and AZT:
– Consideration – WHC feels 1.3bn is much too high, thinks less could work, but this would have a flow on effect on the cash/equity split such that the weighted purchase price remains attractive. AZT still proposes 0.56 exchange ratio (i.e. unchanged from a few weeks ago)
– Transaction timetable / execution – AZT suggests announcing agreed term sheet next week conditional on financing and then working through SIA in next 2 weeks (vs announcing signed SIA on 12 December as per their latest timetable)
– Board / governance: Nathan Tinkler does not want independent chairman and wants to be chairman himself. He sees this as critical part of the deal so that he can control the business going forward (he referenced how he wasn’t able to do that at Aston and how that was to Aston’s detriment until he changed it recently). David di Pilla stated that “it is UBS’ belief that the market will accept Nathan as chairman”.
– Boardwalk: AZT wants WHC directors to praise Boardwalk assets and express a view on valuation at time of announcement (i.e. before any IER on these assets) to support the transaction
Fundamental issue appears to be that Nathan wants to control the new entity. WHC expressed concerns (privately after the meeting) that this is an “Aston 2”.
Next steps:
– Meeting between WHC and AZT (incl. advisors) tomorrow at 12pm at UBS offices to discuss the above points further. AZT management pres after that
– Models for AZT and BWK expected later today or tomorrow
In the cross-examination of Mr Tinkler about the UBS Meeting, he agreed that at the UBS Meeting (T236, T256–257, T259–260 and T289–291):
Goldman Sachs representatives attended.
There was discussion about the terms of the First Term Sheet, which was the key purpose of the UBS Meeting.
The Aston representatives indicated that they wanted to continue with the structure of Aston acquiring Whitehaven with 50/50 cash debt consideration, with the cash raised through $1.3 billion in debt as set out in the First Term Sheet.
The First Term Sheet did not include any suggestion that the Tinkler Group would invest an additional $150 million into Boardwalk.
The UBS representatives had informed the Whitehaven representatives that the $1.8 billion cash portion in the First Term Sheet was to be funded by $1.3 billion in debt and the remainder by equity.
The Whitehaven representatives had raised concerns about the level of gearing in the merged entity, which was a key point of disagreement discussed at the UBS Meeting.
The Whitehaven representatives said words the effect that if the debt was lower it would have a flow on effect on the cash equity split such that the weighted purchase price remains attractive.
Mr Tinkler indicated that he wanted to be chairman himself.
The UBS Meeting finished on the basis that UBS would run some numbers overnight to reduce the debt required by the proposal in the First Term Sheet.
Those matters all generally accord with the record of the UBS Meeting as set out in the email of 21 November 2011 at 4:57pm from Mr Pojezny.
There is no mention in Mr Pojezny’s record of the UBS Meeting of $150 million being required from Mr Tinkler for a share subscription in Boardwalk or of the concept of Milestone Shares. In cross-examination, Mr Tinkler refused to concede that there no discussion at all during the conversations on 21 November 2011 about the injection of $150 million into Boardwalk (T262–263).
When Mr Tinkler was confronted in cross-examination with the email of 21 November 2011 at 4:57pm from Mr Pojezny, it was put to him that there was no discussion at the UBS Meeting about Mr Tinkler investing an additional $150 million into Boardwalk (T291). As set out below, Mr Tinkler’s initial response in the exchange was telling in that he seemed to open up the possibility that the discussion may have occurred the following day (22 November 2011), but then again denied that it was not discussed at all on 21 November 2011 (T291):
Q. There was no discussion at the 21 November meeting about you investing an additional $150m into Boardwalk; do you agree?
A. I don’t agree. Maybe perhaps that was the next day. Off this summary, which is from Whitehaven’s advisor, it doesn’t appear to summarise that.
Q. So do you agree then that there was just no discussion at all about the 150m --
A. No, I do not agree that.
Mr Tinkler was directly challenged in cross-examination on whether he had an actual recollection of what was said at the UBS Meeting as recounted in his affidavit made in April 2023 (some 11.5 years after the UBS Meeting) and he maintained that he did (T258). It was put to Mr Tinkler that there was no discussion at all at the UBS Meeting of the Tinkler Group investing an additional $150 million, which Mr Tinkler refuted by saying that the meeting became about Whitehaven’s alternative proposal and discussions around that (T258–259). It was suggested to Mr Tinkler that this evidence was also untrue, which he again refuted (T259–260).
Mr Haggarty was also cross-examined about the UBS Meeting, from which his evidence about the UBS Meeting can be summarised as follows (T399–400):
The possibility of Plan B may have been suggested in the course of the discussions, but he did not recall.
There was discussion to the effect that Mr Tinkler had a desire in relation to a certain shareholding in the merged entity.
He did not recall any discussion that if that certain shareholding was not going to happen there needed to be some injection into Boardwalk, but the numbers did not add up without something happening, and the advisers were sent away to see if they could figure something else.
He was aware from the Draft Boardwalk Prospectus he read on around 9 November 2011 that Mr Tinkler had a desire to raise $150 million for Boardwalk, but he rejected the notion that he suggested the figure of $150 million as a means of balancing out interests, stating that he thought that discussion came later.
He did not recall that the figure of $150 million was raised as a means of achieving a conceptual Plan B as early as 21 November 2011 but it did not solve the problem of itself.
In my assessment, the best contemporaneous record of what occurred at the UBS Meeting is that contained in the email of 21 November 2011 at 4:57pm from Mr Pojezny. I consider that documentary record to be more reliable than the evidence of Mr Tinkler and Mr Haggarty about the UBS Meeting in light of the fact that they were each seeking to recollect matters from a meeting held about 11–12 years before they recorded their respective recollections of it in their affidavits (6 April 2023 and 5 April 2024 for Mr Tinkler and 23 November 2023 for Mr Haggarty) and nearly 13 years before they were cross-examined about it at the hearing (September 2024).
My findings in this regard does not reflect any adverse view on the credibility or honesty of Mr Tinkler or Mr Haggarty. I am not surprised that Mr Haggarty could not recall many matters about the UBS Meeting, but I am surprised that Mr Tinkler said that he could do so with such accuracy. I consider that each of them sought to give their evidence as honestly and as best as they could recollect. I just do not accept Mr Tinkler’s recounting of the UBS Meeting to be reliable and correct unless it is supported by the contents of Mr Pojezny’s email of 21 November 2011 at 4:57pm.
Tinkler: So what is the problem with me being Chairman? I’m currently the Chairman of Aston and Mark Vaile is a weak leader. He completely stuffed the Peabody Takeover and then fully paid out a management team milestones for screwing up what should have been a good transaction.
Haggarty: I think the market will have an issue with you being Chairman given you recently took over from Mark and my major shareholder, Hans Mende and AMCI, are supportive of Mark being Chairman.
Tinkler: AMCI are already on the board and Mark has little to no idea about coal. He is more concerned with raising political donations and lunching than going to site. You know I believe in a hands-on management style and being on the ground. I’ve been critical of you and Alan with this also and the performance of Narrabri. This is the change Narrabri and Whitehaven needs, more focus on managing the operations than the market and Vaile won’t bring that change, I will.
Haggarty: We would like you to be on the board Nathan, we think it sends a good signal to the market.
Tinkler: I’ll be represented on the Whitehaven board, with two directors, I think that will make sure I have a say.
Haggarty: Will you be able to fund the $150 million to support the Boardwalk transaction?
Tinkler: I am not sure. That will be dependent on Farallon, and we will have to see what the final deal looks like. I’ll need to be incentivised. I had not imagined borrowing more money to do this transaction, no one else is putting money in but I do want to see the Boardwalk assets developed to support the high-quality coal at Maules Creek. Whitehaven has taken 50 cents a share off the table and they are not funding these projects, Boardwalk is. Ferndale and Dingo are ready to go near term developments that we have put a lot of money into. I’m proud they have come up as good projects.
Haggarty: So you will speak to Ray about this?
Tinkler: Yes I’ll have a chat with him and get Paul and Phillip to follow up, but I expect he will be like me, if that money is going in it will need to be spent on the Boardwalk assets or otherwise just get it out of the market.
Mr Haggarty’s evidence in chief about Mr Tinkler’s version of the Café Meeting is as follows:
Mr Haggarty could not recollect the exact words that were said in the Café Meeting.
Mr Haggarty remembered that the purpose of the Café Meeting was to discuss the composition of the board of the merged entity. Mr Haggarty held the view that the market and the Whitehaven board would not accept Mr Tinkler as chairman of the merged entity.
Mr Haggarty said to Mr Tinkler words the effect that while he could serve as a director, the market and other members of the board would not accept him as chairman, and that Mr Tinkler said that he did not want to just be a director.
Mr Haggarty did not recall any discussion about the payment by Mr Tinkler of a further $150 million.
Based on this evidence, the discussion at the Café Meeting about Mr Tinkler being the chair of the merged entity appears to be relevantly agreed on the evidence of Mr Tinkler and Mr Haggarty. That issue was then resolved in the Later Meeting, as outlined below. The real point of difference between their respective recollections is whether there was any discussion at the Café Meeting about Mr Tinkler injecting $150 million into Boardwalk and that the money would need to be spent on the Boardwalk assets, with Mr Tinkler asserting that there was and Mr Haggarty not recalling any such discussion.
Mr Tinkler was cross-examined about the Café Meeting. It was put to Mr Tinkler that:
there was no discussion at the Café Meeting about Mr Tinkler funding $150 million to support the Boardwalk transaction (T261);
there was no discussion at the Café Meeting about a 50 cents per share special dividend (being the amount Mr Tinkler said Whitehaven had “taken off the table”) (T261);
the $150 million and the special dividend were both first raised on the afternoon of 23 November 2011 (T262); and
Mr Tinkler’s answers refuting the foregoing propositions were untrue (T261).
Despite these direct challenges, Mr Tinkler stood by his evidence (T261–262).
In further cross-examination, Mr Tinkler agreed that at the Café Meeting he indicated that he would consider not being chairman of the merged entity (T290–291).
In the cross-examination of Mr Haggarty about the Café Meeting, Whitehaven’s questions did not challenge Mr Haggarty’ evidence in chief that he could not recall any discussion of the payment of $150 million and the Milestone Shares at the Café Meeting. Mr Haggarty’s cross-examination proceeded as follows (T387–388):
Q. And then you say at [33] you recall a UBS meeting and cafe meeting?
A. Correct.
Q. At paragraph [34(c)] you say:
I do not recall any discussion in this meeting about: the payment of $150 million by Mr Tinkler; or the milestone shares.
Q. Do you see that?
A. Yes.
Q. You weren’t saying you don’t recall any discussion at all about Mr Tinkler about the 150m or the milestone shares, were you?
A. In those words, I wasn’t, but I don’t recall any discussion.
Q. I want to suggest, if you look at [34(g)], you say:
I did not say “I suggest that we let the bankers work together on something around that and the timing of the milestone shares or the like.” At this stage of the negotiations, Whitehaven had not yet proposed any contingent consideration ... be based upon the development of Boardwalk assets.
Q. Do you see that?
A. That’s correct, yeah.
Q. And you weren’t saying that there wasn’t any discussion about milestone shares, you were just simply saying it couldn’t have happened on this date; isn’t that what you were saying?
A. No, I was saying it hadn’t happened at that stage.
Q. What I want to suggest to you, Mr Haggarty, that when you read Mr Tinkler’s affidavit you did remember that you’d had a discussion with him, with your adviser present and his adviser present, about the contribution of $150m before the term sheet was signed; do you agree?
A. When was the term sheet signed?
Q. 25 November?
A. Yes. Well, we would have, yes.
Q. And although you referred that you chose not to report that in your affidavit; that’s right?
A. I - I suppose so. I don’t - didn’t consciously choose to.
Q. And when you prepared your affidavit you, I suggest to you, you also recalled a discussion with Mr Tinkler and his advisers and your adviser there, about the provision of milestone payment shares, again, before 25 November?
A. I don’t recall that meeting.
Q. And what I suggest, that you also recall the discussion with Mr Tinkler and his adviser and your adviser before the 25th about the proposed use of 150m?
A. I don’t recall that either.
Q. What I want to suggest is, you’ve carefully crafted your affidavit to respond to Mr Tinkler’s evidence which put the meeting or meetings on 21 November; do you agree with that?
A. No.
Q. And you haven’t been frank with the court to tell the court that you actually do remember a discussion but in your view Mr Tinkler’s just got the dates wrong; do you agree with that?
A. No, I don’t agree with that.
Q. I want to suggest to you, that’s exactly what you’ve done?
A. No, I disagree. It’s not right.
Q. Well, when you were preparing the affidavit did you tell anybody that you remembered a discussion with him before 25 November about the 150m in negotiations?
A. I don’t recall whether I spoke to - told anybody or not, but clearly there were discussions before the 25th.
Q. About the contribution of the 150m?
A. Because it was part of the term sheet.
Q. And discussions in which you were involved?
A. Yes.
Q. And you remembered it?
A. I remembered it?
Q. Yeah, at the time you prepared your affidavit?
A. I didn’t, but I remember - I assume it must be the case because of the dates in the timeline that we’ve been talking about.
Q. But you were talking to somebody in relation to preparing your affidavit, I take it?
A. Yes.
Q. In relation to a lawyer or something?
A. Yes.
Q. Well did you tell the lawyer that you did remember a conversation about the 150m but you don’t think it was on the 21st?
A. I don’t recall telling him that, no.
Q. Any reason why you wouldn’t have told him that?
A. No, I can’t recall any particular reason. It was over a year ago.
Q. Were you trying to make Mr Tinkler look a bit stupid because he got the date wrong by not including any reference to the 150m conversation?
A. My - no. My statement’s about my recollection of what happened.
Q. Was it your view during the course of these meetings without being specific as to any precise times, that is, I’m talking about meetings or discussions between 21 November and 25 November? I think we can probably rule out the 25th, because it looks like you were on a plane on the night of the 24th, so I’ll say the 21st to the 24th.
A. Yes.
Given that the premise behind these questions was that the discussion which Mr Tinkler asserted had occurred on 21 November 2011 about the $150 million may have taken place on another day prior to 25 November 2011, I will return to this passage of cross-examination and what continued after it below.
In my view, there was no discussion at the Café Meeting of the $150 million Capital Injection into Boardwalk and how it would be spent, and there was no discussion at the Café Meeting about the special dividend to be paid by Whitehaven. I accept Mr Haggarty’s evidence that any discussion of those matters had not happened at that stage. As outlined below, on the contemporaneous documentary records, those matters did not arise until 23 November 2011.
As a result, I reject the evidence of Mr Tinkler that those matters were raised at the Café Meeting. I also reject the attack on Mr Haggarty’s credit. I consider that Mr Haggarty was doing the best he could in the preparation of his affidavit and also in his cross-examination to recall honestly conversations from over a decade ago and that it was reliable for him to say that he did not recall those conversations in circumstances where he genuinely did not.
As in the case of the UBS Meeting, my rejection of Mr Tinkler’s recollection that there was discussion at the Café Meeting of the $150 million Capital Injection into Boardwalk and how it would be spent, as well as the special dividend to be paid by Whitehaven, does not mean that those matters were not said at some other time. I have considered whether that was the case below.
The Later Meeting is recorded in an exchange of emails on 21 November 2011 between Mr Bartlett and Mr Haggarty.
The first email, at 8:52pm, was from Mr Bartlett to Mr Haggarty and others, which refers to a further meeting between Mr Haggarty and Mr Tinkler in the following terms:
Just spoke to David di pilla. Tony, he said that you and [Mr Tinkler] had a further meeting this afternoon where [Mr Tinkler] softened his position. He said
- [Mr Tinkler] will not push for chairman role provided he is happy with the identity of the chairman and the other directors
- A key purpose of the gearing is to maximise [Mr Tinkler’s] shareholding
- [Mr Tinkler’s] target holding is 20% minimum.
- They understand that the merged company probably can not afford to borrow $1b to pay to our shareholders given the business’s capex and w/c requirements and the need for a buffer. They are running some numbers overnight. We still do not have their model.
We will run some scenarios at various debt levels, pricing/consideration mixes and boardwalk values to determine what is required to produce a 20% [Mr Tinkler] shareholding.
I think this represents a better position than where we were at 4pm.
In Mr Tinkler’s evidence in reply, he said that his presence at the Later Meeting came about after he decided to go to see Mr Di Pilla to tell him that the deal with Whitehaven would not have to live or die on him being chairman of the merged entity. Mr Tinkler said that when he arrived at the UBS office, Mr Haggarty and Mr Di Pilla were already in a meeting with others in attendance, including Mr Bartlett. Mr Tinkler said that he could not recall what was said by each of those who attended the Later Meeting. In any event, the issue of Mr Tinkler becoming the chair of the merged entity, which had been raised at the Café Meeting, was clearly resolved at the Later Meeting by Mr Tinkler no longer insisting that he would be the chair.
In the cross-examination of Mr Tinkler, he said that the key purpose of the proposed $1.3 billion of debt contained in the First Term Sheet was to maximise the Tinkler Group’s shareholding in the merged entity because the more Whitehaven shareholders who could be paid in cash rather than shares, the greater the Tinkler Group’s shareholding in the merged entity would be (T237). Mr Tinkler agreed that, as at 21 November 2011, his position was that he was targeting a minimum 20% shareholding in the merged entity and that was something that he told Mr Di Pilla either on or prior to 21 November 2011 (T237). Mr Tinkler also confirmed in cross-examination that he would not accept anything less than a 20% shareholding in the merged entity and it was an important matter he had discussed with Mr Di Pilla (T237–238). Mr Tinkler accepted that Mr Di Pilla spoke to Mr Bartlett and reported that Mr Tinkler’s target holding was a 20% minimum (T243).
In further cross-examination in relation to the Later Meeting, Mr Tinkler accepted that the Later Meeting ended on the basis that the numbers were going to be re-run to see what debt level the merged entity could comfortably hold (T238 and T291). As the cross-examination continued, Mr Tinkler initially refused to concede that the 20% shareholding was a consideration in that (T238–239), but later agreed that the discussions at the Later Meeting ended on the basis that UBS would run some numbers to reduce the debt while maintaining a Tinkler Group minimum interest of 20% in the merged entity (T239). Mr Tinkler understood that trying to maintain the Tinkler Group shareholding of 20% in the merged entity was what was sought to be achieved by the revised structures for which purpose UBS would run the numbers (T239).
The second email, at 9:33pm, was from Mr Haggarty to Mr Bartlett, amongst others, which states:
As per Dougs [sic] email, had a call from Da Pilla as I left my other meeting at Governor Phillip. Took the opportunity to tell him bluntly how concerned we were about nt’s attitude to Board and debt issues etc. he wanted to discuss further so I went back up to UBS and went through it, essentially told him we weren’t going to get there if nt insisted on being chairman, plus deeper concerns about how nt wanted to behave within Mergeco and how market would perceive it. I think da Pilla sees the issues and is trying to influence nt in the right direction (as he would, to make the deal). Nt came in to the meeting half way thru and we went over it all again. I think he will move quite a bit to make the deal happen, but it remains to be seen how far and whether we can get comfortable with him on the board. I said that the issues needed airing to a wider audience than just me. I suggested we have a smaller group discussion tomorrow with Andy, Allan, me and Doug with him and da Pilla. Let’s see where we get to tomorrow.
These emails are the best contemporaneous record of what took place at the Later Meeting. In neither of these emails on 21 November 2011 at 8:52pm or 9:33pm is there any mention of either $150 million being required from Mr Tinkler for a share subscription in Boardwalk nor is there any mention of Milestone Shares.
Mr Haggarty was not specifically cross-examined about his recollection of the Later Meeting. As mentioned above, Mr Haggarty had no recollection of there being any discussion of $150 million being put into the Boardwalk business by Mr Tinkler via a share issue as a means of achieving a possible conceptual Plan B as early as 21 November 2011 (T399–400), which would encompass the Later Meeting.
I do not accept that there was any mention of the $150 million Capital Injection into Boardwalk at the Later Meeting.
Mr Tinkler also said in his evidence in chief that after each of the conversations at the UBS Meeting, the Café Meeting and the Later Meeting, he believed that if he injected $150 million into Boardwalk by way of equity after the merger was complete, then Whitehaven would use the $150 million to repay creditors of Boardwalk the amount of about $50 million and use the balance to develop the Boardwalk Projects to a point where Milestone Shares would be issued by Whitehaven to the Boardwalk shareholders. In the cross-examination of Mr Tinkler, the truthfulness of this evidence was directly attacked and Mr Tinkler stood by his evidence (T262).
I do not accept this evidence from Mr Tinkler. For the reasons I have set out above, I am not satisfied that there was any mention of the $150 million being injected into Boardwalk at any of the UBS Meeting, the Café Meeting or the Later Meeting. As a result, nothing that occurred at any of those meetings could have resulted in the belief that Mr Tinkler expresses in his affidavit.
In saying this, I am not concluding that Mr Tinkler’s evidence was dishonest. My finding is that Mr Tinkler’s evidence of what took place at the meetings on 21 November 2011 concerning an alleged mention of $150 million being injected into Boardwalk is unreliable and incorrect and I do not accept it.
But my findings about the UBS Meeting, the Café Meeting and the Later Meeting do not mean that there were no other occasions in the days after 21 November 2011 which give rise to the inference that such statements were made by Mr Haggarty to Mr Tinkler. The way in which Les & Zelda has pleaded the Use of Funds Representation in the 2FASOC is that it was made orally by Mr Haggarty to Mr Tinkler in meetings in the Sydney CBD in “around November 2011”, it was also made in writing in the 9 December Draft ASX Announcement (defined below), and it was also made and/or confirmed in and by various documents in December 2011 and March 2012.
As I have mentioned above and have considered in more detail below, Mr Haggarty was also cross-examined on the basis that the conversations between Mr Tinkler and Mr Haggarty, which are pleaded as underpinning the Use of Funds Representation, took place sometime between 21 and 24 November 2011.
I will now turn to the relevant events running from 22 November 2011 onwards.
As discussed with David, please see attached:
- the original Trifecta term sheet
- the revised structure tabled today based on a 0.56x exchange ratio
- the revised structure tabled today based on a 0.525x exchange ratio
- the funding overview slides discussed this afternoon assuming A$1.0bn high yield issue and a A$300m AZT rights issue
Although the time stamp of the email might indicate that it was sent in the morning at “8:28”, the fact that it refers to documents “tabled today” and discussions “this afternoon” leads me to infer that the email was sent in the evening at “8:28”. In my view it was most probably sent at 8:28pm.
The “original Trifecta term sheet” refers to the First Term Sheet.
The “revised structure tabled today based on a 0.56x exchange ratio” (the same ratio used in the First Term Sheet) and the “revised structure tabled today based on 0.525x exchange ratio” (a more favourable ratio to Aston shareholders, including Mr Tinkler, than the ratio used in the First Term Sheet) are both documents headed “Boardwalk acquired at A$250m, WHC cash price of A$7.25 per share”. The revised structure in each document still involves Aston acquiring Whitehaven. They both contain a cash component of $800 million (reduced from $1.8 billion in the First Term Sheet) to purchase Whitehaven shares at $7.25 per share, the valuation of Boardwalk is reduced to $250 million with the Boardwalk shareholders to receive 25 million shares in Aston (reduced from 30.6 million in the First Term Sheet), Aston would carry out a $300 million rights issue for Aston shareholders prior to the transaction and the number of Milestone Shares to be issued to Boardwalk shareholders had been input at “0”.
The documents respectively record a 19.3% shareholding for the Tinkler Group and a 19.8% shareholding for the Tinkler Group, which remains the same “pre-milestone payments” and “post-milestone payments” in light of the fact that there were no Milestone Shares in both of the scenarios outlined.
The exchange ratio document with “0.56x” records that of the 19.3% shareholding, 15.6% of the Tinkler Group shareholding is attributable to its stake in Aston and 3.6% is attributable to its stake in Boardwalk. In the transactions recorded in the documents, the Whitehaven shareholders were to end up with 45.3% of the merged entity and Aston and Boardwalk shareholders were to end up with 54.7% of the merged entity.
The exchange ratio document with “0.525x” (the document actually states “0.53x”) records that of the 19.8% shareholding, 16.1% of the Tinkler Group shareholding is attributable to its stake in Aston and 3.8% is attributable to its stake in Boardwalk. Whitehaven shareholders were to end up with 43.7% of the merged entity and Aston and Boardwalk shareholders were to end up with 56.3% of the merged entity.
Since the Tinkler Group had about a 32% shareholding in Aston, the $300 million rights issue by Aston stated in each document would have involved the Tinkler Group subscribing about $100 million.
In cross-examination, Mr Tinkler agreed that what he was being told by UBS on 22 November 2011 was that he had to put in $100 million in cash as a necessary element under the revised structure of Aston acquiring Whitehaven for the Tinkler Group to end up with an approximately 20% shareholding in the merged entity to make the revised structure work (T240–241).
- AZT has come back with a revised version of their proposed structure (A acquiring W, “Structure A”). See attached scan of pages received - in essence, raising 1bn HY bond, 300m equity, pay out 800m cash to W shareholders + 2.8bn in A shares at exchange rate of 0.56 (ie 22% cash / 78% scrip; down from previously suggested 50% cash / 50% scrip). Leverage ratios obviously look much better and helped to alleviate some of the concerns our client had regarding leveraged of the combined entity
- However, in the meantime, Hans Mende said he will not support this deal if he doesn’t get rollover relief (as he likely wouldn’t under Structure A). UBS wants to explore this further, we said we had McCollough Robertson look at it plus GrS and GS and didn’t come up with any straightforward solutions (other than W acquiring A, “Structure B”). We are testing with Hans if he wants us/UBS to explore further together with his tax advisors so may be another call with Joe
- Assuming for the moment that there is no easy solution to the tax issue, W now wants to suggest Structure B to other side. Key rationale is that Structure B can deliver the key outcome sought after by Tinkler (which is to own at least 20% in MergeCo) while not leading to negative tax consequences for Hans. We are working through certain mechanisms to increase Tinkler’s stake if it comes out below 20% (e.g. Tinkler contributing cash into Boardwalk; WHC paying a special dividend prior to merger)
- Note UBS has an incentive to not support Structure B as it means $30-50m less financing fees for them, so there is a risk that UBS advice to Tinkler not being unbiased
- UBS mentioned there is some flexibility on their side regarding the exchange ratio
- W told A that a transaction announcement based solely on an agreed term sheet (prior to SIA signing) is not acceptable
- On board/governance, there are some conflicting messages (Tinkler still appears to be wanting some role on the board, unclear whether chairman or “just” director); UBS thinks this will not be a deal breaker in the end
- No further discussions on Boardwalk today
- Objective for next 48 hours is, if possible, to arrive at an agreed term sheet before Tony leaves Thursday evening (back 10 days later); and then get lawyers to turn this into an SIA which can be signed (and transaction announce) probably 2nd week of December
Next steps: Tony/Andy meeting Noonday tomorrow (who are in town and will get a briefing on this deal from Nathan); then further principal to principal incl advisors meeting in the afternoon where W will probably suggest to A Structure B
This email is consistent with the two scenarios setting out the “revised structure” that are attached to the email of 22 November 2011 at 8:28pm, which both involved Aston acquiring Whitehaven with $800 million in cash to be paid and a $300 million Aston rights issue. Clearly, that revised structure was the subject of discussion between the respective sides and their advisers during the course of 22 November 2011 and Whitehaven was given documents relating to it in the form of “attached scan of pages received”. Those pages comprise the “funding overview slides”, which were attached to the email of 22 November 2011 at 8:28pm. I will come to those slides shortly.
The significant reduction in the amount of debt in the revised structure is consistent with the addressing of Whitehaven’s concerns about the size of the debt expressed in the email of 21 November 2011 at 4:57pm from Mr Pojezny.
That email also describes Plan A/Structure A (Aston acquiring Whitehaven) as having capital gains tax problems for large Whitehaven shareholders, this time referring to Hans Mende as the shareholder not in support of it without rollover relief. As reflected in the email, the result mentioned in the email is Whitehaven’s desire to raise Plan B/Structure B (Whitehaven acquiring Aston) to the Aston representatives anticipated to be in “further principal to principal incl advisors meeting in the afternoon where W will probably suggest to A Structure B”.
In cross-examination, although Mr Haggarty punctuated his evidence by saying said that he could not recall whether he was involved in meetings on 22 November 2011, he said that he could have been and he agreed that it was probably the case that, at least at the 22 November 2011 meetings between Mr Haggarty, Mr Tinkler and their respective advisers, the possibility of Plan B was discussed at a conceptual level (T400–403).
Based on this evidence, I have concluded that while the respective parties were still in the midst of discussing the revised Plan A/Structure A of Aston acquiring Whitehaven, the Whitehaven representatives planned to and did mention the possibility of Plan B/Structure B to the Aston/Tinkler representatives in conceptual terms in meetings before the end of 22 November 2011. This is because the analysis attached to the email of 22 November 2011 at 8:28pm from Ms Hardie concentrates on Plan A/Structure A and the contents of the email of 22 November 2011 at 10:11pm from Mr Pojezny refers to Plan A/Structure A and that Plan B/Structure B would probably be raised that afternoon.
This finding undercuts Mr Tinkler’s insistence in cross-examination that the UBS Meeting on 21 November 2011 became about Whitehaven’s alternative proposal and discussions around that (T258–259). I am satisfied that his evidence to that effect is not reliable and should not be accepted.
For the reasons set out below, however, I do not have any basis on which to find that there was any discussion of the detail of Plan B/Structure B during the meetings on 22 November 2011.
- A$800m cash payment to WHC shareholders (at $7.25/share), remainder of consideration funded by AZT scrip
- 30.6 AZT shares issued to Boardwalk shareholders as consideration for the Boardwalk transaction
- A$300m rights issue, with all AZT shareholders assumed to take up their proportional entitlement
On 23 November 2011 at 1:02am, Bo Jing of Grant Samuel sent an email to Mr Barlett, which was copied to Mr Pojezny and others from Grant Samuel and Goldman Sachs, which attached a document described in the email as “draft pages on pro-forma shareholdings under the alternative ‘Plan B’ transaction structure”.
The attached document is headed “Share exchange ratio and ownership analysis” and dated November 2011.
The first page of the attachment contains an “Executive summary” in the following form:
- This paper discusses certain aspects of the two transaction structures currently under discussion with AZT and its advisers:
- Structure A: AZT acquires WHC for cash and scrip. This is the original structure proposed by AZT
- Structure B: WHC acquires AZT for scrip (i.e. all scrip merger). Other elements can be added (see below) to enable Tinkler to achieve his desired holding level post transaction
- Factors influencing the choice of transaction structure:
- Tinkler’s desire to have a minimum shareholding of 20% in the combined entity
- The tax consequences for certain WHC shareholders
- Desire by certain WHC shareholders to receive an element of cash consideration
- The need to maintain reasonable gearing in the post merged entity (‘MergeCo’)
- Structure A has the benefit of achieving the required Tinkler stake and getting some cash to WHC shareholders, however leads to undesired tax consequences for some WHC shareholders and will result in high gearing (depending on the cash component)
- Structure B can be designed so as to also meet Tinkler’s 20% stake objective and return some cash to WHC shareholders and does not cause undesired tax consequences for WHC’s shareholders
- Tinkler’s stake in MergeCo, based on a nil premium merger and without any additional structuring elements, would be approx. 15.9%
- Tinkler’s stake in MergeCo can be increased in at least two different ways: 1) by Tinkler contributing cash into Boardwalk prior to the acquisition of Boardwalk by Aston, thereby increasing the number of shares Tinkler receives as consideration; and 2) by distributing cash to WHC shareholders prior to the acquisition of AZT (eg. through a special dividend), thereby decreasing the equity value of WHC and increasing Tinkler’ stake in MergeCo
- Including a Boardwalk cash injection of $150m and a fully franked special dividend of $250m by WHC would increase Tinkler’s stake in MergeCo to approx. 20%
- This structure would also have significantly lower transaction costs as the need for upfront debt funding is significantly reduced (saving of $30-50m in transaction costs) and would result in lower gearing than Structure A
- Any mechanism to increase Tinkler’s stake needs to ensure that Tinkler’s ability to vote in the scheme is not impacted. This excludes certain other mechanisms e.g. acquisition by Tinkler of a block of WHC shares from certain WHC shareholders, which would risk Tinkler’s ability to vote in the scheme. Also, Tinkler would be prevented from acquiring WHC shares on the market due to insider trading rules
While the document is only shared between Whitehaven and its advisers, the introductory part of this summary refers to “the two transactions currently under discussion with AZT and its advisers”, which is a statement being made just after 1:00am on 23 November 2011. This supports the proposition that both Structure A and Structure B were under discussion with the Tinkler interests and their advisers at some time during the late hours of 22 November 2011 or the early hours of 23 November 2011. The statement is, however, inconsistent with the matters contained in the two emails of 22 November 2011 at 10:11pm and 10:37pm (referred to above), both of which were focused on the revised Structure A and made no mention of Structure B.
The summary is replete with matters which were familiar by this stage of the discussions. Amongst those matters were the expressed desire of Mr Tinkler to maintain a minimum of 20% in the merged entity (which is mentioned multiple times in the summary, is referred to as one of the “factors influencing” the choice of structure and which the cross-examination of Mr Tinkler referred to above revealed to be an important matter to him), the tax problem of Structure A for particular Whitehaven shareholders and the undesirability of the high gearing created by Structure A.
New to the analysis though is the mention of a cash injection of $150 million by Mr Tinkler into Boardwalk prior to Aston acquiring it, which is explicitly explained as the means by which Mr Tinkler is able to achieve the desired shareholding in the merged entity, together with the payment of a $0.50 per share special dividend by Whitehaven prior to the merger with Aston, which was aimed at having the effect of decreasing the value of Whitehaven by reducing its share price and thereby increasing the shares in the merged entity obtained by Mr Tinkler.
The second page of the attachment is headed “Share exchange ratio (SER): number of Aston shares per 1 Whitehaven share Since Aston IPO”. This document plots the share exchange ratio for exchanging Aston shares to one Whitehaven share and Whitehaven shares to one Aston share in the period from August 2010 to 21 November 2011.
The third page of the attachment is headed “Alternative ‘Plan B’ Pro-forma shareholdings in MergeCo under the alternative transaction structure”. It lists a series of four steps with accompanying events for each step set out as follows:
| Step 1 | Step 2 | Step 3 | Step 4 | | • Tinkler subscribes for additional Boardwalk shares ($150m cash injection) | • AZT acquires Boardwalk for scrip (46.9m AZT shares – excludes future contingent payments) | • Immediately prior to merger with AZT, WHC distributes $250m cash to its shareholders via a fully-franked special dividend | • WHC acquires AZT for scrip (10% premium to AZT share price) | | • Boardwalk valued at $281m pre cash injection and $431m post cash injection | • AZT scrip issued at current share price of $9.19 | • Equivalent to $0.50 per WHC share and reduces acquisition price for WHC accordingly | • Scrip exchange ratio of 1.81 based on AZT share price of $10.11 and WHC share price of $5.08 ($5.58 less special dividend of $0.50) | | • Tinkler’s Boardwalk shareholding increases from 69.2% to 79.9% | • Boardwalk valued at $431m | | |
Beneath the description of these four steps is a list of the top shareholdings in Aston and Whitehaven before the transaction, a list of the top shareholdings in Aston and Whitehaven after Step 2 is completed, and a list of the top shareholdings in MergeCo after Step 4 is completed. In these lists:
The “Shareholding pre-transaction” for Aston lists Mr Tinkler at 31.3%.
The “Shareholding post step 2” for Aston lists Mr Tinkler at 40.3%.
The “Shareholding post step 4” for MergeCo lists Mr Tinkler at 20.2%.
These steps and the accompanying shareholdings demonstrate the proposition stated on the summary page of the document that the means by which Mr Tinkler was to achieve his desired 20% shareholding in the merged entity was by way of the $150 million Capital Injection into Boardwalk, together with the special dividend issued by Whitehaven. No other explanation for the $150 million Capital Injection appears in the document.
The principal feature of the two structures described in the document are that they are a reversal of each other: Structure A involves Aston acquiring Whitehaven and Structure B involves Whitehaven acquiring Aston, after Aston has acquired Boardwalk. In the document, the $150 million Capital Injection and the special dividend are so explicitly linked to Structure B as a means by which Mr Tinkler can achieve his desired shareholding in the merged entity that I do not consider them to be raised or discussed without necessarily pursuing a reversal of Structure A as submitted by Les & Zelda. I agree with Whitehaven that those elements as described in the document are firmly grounded as reasons for the pursuit of Structure B.
“Step 2” also indicates that Aston is to acquire Boardwalk not only for 46.9m Aston shares but that this amount “excludes future contingent payments”. There is no evidence about what that contingent consideration was intended to be at that stage of the discussions.
On 23 November 2011 at 1:27pm, Ms Hardie of UBS sent an email to a number of the Aston advisers at Freehills and Ernst & Young, copied to Mr Di Pilla. The email referred to a call in the morning that day (the email below it suggests it was at 11:00am) and stated that it attached “an outline of the contemplated transaction structure”. The email went on to say:
Goldman Sachs has also proposed an alternative structure, whereby WHC would acquire AZT at the current market exchange ratio, adjusted for a $0.50/share dividend to WHC shareholders. BWK would also be seeded with ~$100m cash (equivalent to the amount Tinkler Group would have been required to contribute via the rights issue), hence increasing the number of AZT shares issued in consideration for the Boardwalk transaction. Based on our calculations, this structure does not get Tinkler Group to the required 20% shareholding - this would require a substantial adjustment to the merger ratio, or additional cash to be injected into Boardwalk.
This indicates that sometime between 22 November 2011 at 10:37pm (when Ms Hardie’s email at that time makes no mention of an alternative structure of Whitehaven acquiring Aston) and 23 November 2011 at 1:27pm (when Ms Hardie’s email at that time does refer to that alternative structure), Structure B, and a cash injection into Boardwalk with a dividend to Whitehaven shareholders as two key features of it, had been raised in a detailed way in discussions with the Aston/Tinkler interests and their advisers.
A proposed $100 million cash injection into Boardwalk is raised in the email as an alternative to the $100 million that would be required from the Tinkler Group in the $300 million Aston rights issue under the revised Structure A, and as an explicitly linked means by which the Tinkler Group could achieve a greater shareholding in Aston before it is acquired by Whitehaven under Structure B.
In cross-examination, Mr Tinkler did not recall any discussions around UBS having indicated on the afternoon of 23 November 2011 that under an alternative structure proposed by Whitehaven approximately $100 million in a cash injection by the Tinkler Group would not be sufficient to achieve the required 20% shareholding in the merged entity (T252–254).
On 23 November 2011 at 1:48pm, Mr Haggarty sent an email to the members of the board of Whitehaven (together with the in-house counsel of Whitehaven, Mr Burt (T372)), which attached a new proposed term sheet with document identifier “Plan B Term Sheet (draft 23 Nov 2011)” which is headed “Project Trifecta – Indicative Term Sheet” (Second Term Sheet) along with a document identifier “Plan B shareholding analysis (22Nov11) – final single page.doc”. The email said:
We have made significant progress with this in the last 24 hours. We had a constructive discussion with NT re Board and management yesterday after which we had a presentation by them to us of Maules Creek. There is no doubt that the asset looks excellent and the strategic, commercial, operating and marketing synergies are substantial. We then had a revised term sheet from them in response to our concerns about debt levels, which presented a much more reasonable funding structure and more balanced outcome for the respective shareholders, albeit not ideal.
It became apparent during the day that NT was focussed on a final shareholding of approx. 20% in mergeco, as compared to the initial proposal which would have given him a much higher share. We were led to believe that as long as he could achieve c.20%, most other things were flexible.
Knowing this and with their revised proposal in hand, we put to them that we should consider alternatives for achieving the same outcome (I.e. C.20% NT shareholding) which would be better from a funding perspective and would deal with the CGT issues which our major shareholders had I.e. We should consider reversing the transaction.
UBS pushed back on this initially, no doubt being keen on protecting the very large transaction fees which would arise from a highly leveraged acquisition of WHC by AZT, however NT and co. were open minded about this and, in subsequent discussions, see merit in this option as it gives a better tax asset write up, avoids the related party issue with Boardwalk, solves the WHC shareholder tax issue and, overall, look simpler and more conventional.
We have therefore worked up an alternative term sheet attached which will be discussed with them this afternoon. Assuming we can reach agreement in principle on this, there remains the specifics of Board and management to deal with, although I feel we can probably get an acceptable outcome with this.
I have tried to call you all, but have only managed to speak to Hans as yet. The plan from here is to discuss the term sheet this afternoon with the other side. If positive, we will pursue the discussions regarding board and management. If we are getting to the right position, we would aim to have a phone hook up tomorrow afternoon to approve the term sheet, after which we would set lawyers and DD people loose with the aim of settling an SIA and announcing a deal and 2-3 weeks time.
Please call when convenient to discuss.
This email appears to be a contemporaneous record of what happened, in general terms, during the course of 22 and 23 November 2011 given that it refers to the “significant progress with this in the last 24 hours”. The document identifier of the attached document suggests it was created on 22 November 2011, with the Second Term Sheet document identifier indicating that it was created on 23 November 2011. The principal events recorded in the email include:
A discussion involving Mr Haggarty and Mr Tinkler concerning the board and management of the merged entity.
The Aston/Tinkler representatives made a presentation about Maules Creek.
The Aston/Tinkler representatives provided the Whitehaven representatives with a “revised term sheet from them”. I cannot be sure exactly what that document was. In my assessment, the document might have been one of the “revised structure tabled today” documents attached to the email of 22 November 2011 at 8:28pm from Ms Hardie or the single page headed “Trifecta indicative shareholding outcomes” attached to the email of 22 November 2022 at 10:37pm from Ms Hardie, although neither of those documents could be correctly described as a “revised term sheet”. Each of those documents record the changes made to the structure contained in the First Term Sheet to achieve “a much more reasonable funding structure and more balanced outcome for the respective shareholders” and to have been “in response to [Whitehaven’s] concerns about debt levels” through the reduction of the cash component from $1.8 billion to $800 million and the Aston $300 million rights issue.
Mr Tinkler expressed a desire to have a final shareholding in the merged entity of about 20%, which is consistent with the evidence given by Mr Tinkler during cross-examination (T237–238), as well as the contents of other documents such as the email of 22 November 2011 at 10:11pm from Mr Pojezny, the email of 23 November 2011 at 1:02am from Mr Jing and its attachments and the email of 23 November 2011 at 1:27pm from Ms Hardie.
Having received the revised Structure A in the form of the “revised term sheet from them” on either 22 or 23 November 2011, the Whitehaven representatives put to the Aston/Tinkler representatives that they all consider alternatives “for achieving the same outcome”, which is expressly stated to be the 20% shareholding for Mr Tinkler which would involve “reversing the transaction”. This refers to Structure B of Whitehaven acquiring Aston. This makes it clear that Structure B had been raised in discussions with the Aston/Tinkler representatives. In my view, the most likely time at which it was raised in a detailed way was during the morning of 23 November 2011 to take account of there being no reference to any such discussions in the email of 22 November 2022 at 10:37pm from Ms Hardie and the alternative structure being mentioned in the email of 23 November 2011 at 1:27pm from Ms Hardie.
(a) Structure: Whitehaven acquisition of Aston by way of scheme of arrangement, a simultaneous announcement of Whitehaven’s acquisition of Boardwalk upon signing the SIA and Whitehaven to pay a special dividend of $[0.50] per share immediately prior to and conditional on completion. (b) Consideration: Whitehaven scrip based on an exchange ratio of [1.81] Whitehaven shares for every Aston share equivalent to nil premium after adjusting for $[0.50] special dividend. (c) Offer conditions: included Aston shareholder, regulatory and court approval. (d) Board composition: Whitehaven to have nine board members post completion, being three directors from the Tinkler Group, three directors from Whitehaven and three independent directors, including an independent chairman. (e) Management: The initial chief executive officer to be Mr Haggarty.
(a) Structure: Tinkler Group to inject $[150] million of cash into Boardwalk by equity placement, the acquisition of Boardwalk by Whitehaven to be completed simultaneously with Aston/Whitehaven merger scheme and after Whitehaven special dividend. (b) Consideration: [84.9] million Whitehaven shares issued to Boardwalk shareholders, equivalent to the value of [30.6] million Aston shares at current Whitehaven share price less $[0.50]. (c) Timing: Acquisition to be announced simultaneously with the announcement of the Aston/Whitehaven merger. (d) Offer conditions: Completion of the Aston/Whitehaven merger scheme and regulatory approval.
The Second Term Sheet concluded with a section concerning the process and timetable, referencing the due diligence period, concurrent negotiation of the key terms of the scheme implementation agreement and the Boardwalk share purchase agreement, then the signing of the scheme implementation agreement and the Boardwalk share purchase agreement together with the announcement of the transactions scheduled for 12 December 2011.
The Second Term Sheet does not refer to any Milestone Shares as part of the consideration or as being linked in any way to the proposal for the Tinkler Group to inject $150 million into Boardwalk. There is no mention of the development of the Milestone Projects using any part of the $150 million.
The Second Term Sheet is consistent with the matters contained in the email, which is the form of Structure B of Whitehaven acquiring Aston, requiring no new debt funding and the $150 million Capital Injection to Boardwalk together with the special dividend of $0.50 per shares to be paid by Whitehaven were the means by which the Tinkler Group could achieve the minimum 20% shareholding in the merged entity. As explained by Mr Tinkler in cross-examination, he understood the reference to the “shareholding objectives achieved” as a benefit of the proposal contained in the Second Term Sheet to be to the Tinkler Group’s minimum 20% shareholding, the avoidance of the potential capital gains tax issues for the Whitehaven shareholders (which had been the subject of comment in the emails relating to the revised Structure A) and the overall ratio of shares to split between the companies (T244).
In cross-examination, Mr Haggarty accepted that it may well have been the case that he and his advisers went to a meeting with Mr Tinkler and his advisers where they discussed the Second Term Sheet (T380–381).
On 23 November 2011 at 3:02pm, Atagun Bensan of Grant Samuel sent an email to Mr Di Pilla, copied to Ms Hardie, Mr Pojezny, Mr Bartlett and Mr Jing amongst others, which stated:
Per your previous discussions with Doug and Nick, attached is the proposed term sheet based on the revised structure (WHC acquires AZT and Boardwalk) and the indicative shareholding breakdown based on this structure.
Mr Tinkler agreed in cross-examination that Mr Di Pilla would have forwarded this email and its attachments to Mr Tinkler at about 3pm that day (T241 and T244). Mr Tinkler also agreed in cross-examination that this was when Whitehaven formally proposed an alternative structure which included for the first time the proposal that there be the $150 million Capital Injection (T257). Mr Tinkler maintained that they had discussed it beforehand and was directly challenged on the truthfulness of this evidence (T257–258).
In further cross-examination, Mr Tinkler rejected the suggestion that, to his understanding, the purpose of the special dividend proposed in the Second Term Sheet on the afternoon of 23 November 2011 was to assist the Tinkler Group in achieving its 20% shareholding objective, maintaining that it was raised on 21 November 2011 because it affected the merger ratio and the valuation in the transaction then being discussed (T262). As I have stated above, I reject Mr Tinkler’s evidence that the special dividend was discussed on 21 November 2011. I also reject his evidence denying that his understanding of the purpose of the special dividend was to assist the Tinkler Group achieving its 20% shareholding objective when the Second Term Sheet makes it very clear that this was one of the benefits of the proposal that included the special dividend and mathematically it would have that effect.
Attached to Mr Bensan’s email of 23 November 2011 at 3:02pm was a term sheet in near identical form to the Second Term Sheet other than relatively minor changes, including the post transaction board composition of Whitehaven to be three directors from the Tinkler Group rather than from Aston, and the insertion of the Whitehaven acquisition of Boardwalk as part of the structure of the Aston/Whitehaven transaction.
As explained by Mr Tinkler in cross-examination, he understood the reference to the “shareholding objectives achieved” as a benefit of the proposal contained in this revision of the Second Term Sheet to be the Tinkler Group’s minimum 20% shareholding, the avoidance of the potential capital gains tax issues for two major Whitehaven shareholders (which had been the subject of discussion in the meetings on 21 and 22 November 2011 and comment in the emails relating to the revised Structure A) and the overall ratio of shares to split between the companies (T244).
Also attached to Mr Bensan’s email of 23 November 2011 at 3:02pm was a further document titled “MergeCo ownership under revised proposal” dated November 2011. This document took the form of an iteration of the document headed “Alternative ‘Plan B’ Pro-forma shareholdings in MergeCo under the alternative transaction structure”, which was the third page attached to the email of 23 November 2011 at 1:02am from Mr Jing.
The second page of this further document is headed “Revised Proposal Whitehaven Acquisition of Aston and Boardwalk Resources - Pro-forma MergeCo Ownership” and contains the following significantly revised four steps:
| Step 1 | Step 2 | Step 3 | Step 4 | | • Tinkler subscribes for additional Boardwalk shares ($150m cash injection) | • WHC distributes $250m cash to its shareholders via a fully-franked special dividend | • WHC acquires Boardwalk for scrip ([84.9]m WHC shares) | • WHC acquires AZT for scrip (nil premium to AZT share price) | | • Boardwalk valued at $[281]m pre cash injection and $[431]m post cash injection | • Equivalent to $0.50 per WHC share and reduces merger price for WHC in Steps 3 and 4 | • WHC scrip issued at $5.08 ($5.58 less special dividend of $0.50) | • Scrip exchange ratio of 1.81 based on AZT share price of $9.19 and WHC share price of $5.08 ($5.58 less special dividend of $0.50) | | • Tinkler’s Boardwalk shareholding increases from 69.2% to 79.9% | | • Step 3 will occur simultaneously with Step 4 | |
Beneath the description of these four steps is a list of the top shareholdings in Aston and Whitehaven before the transaction, a list of the top shareholdings in Aston and Whitehaven after Step 3 is completed, and a list of the top shareholdings in MergeCo after Step 4 is completed. In these lists:
The “Shareholding pre-transaction” for Aston lists Mr Tinkler at 31.3%.
The “Shareholding post step 3” for Aston lists Mr Tinkler at 31.3% and for Whitehaven lists Mr Tinkler at 11.6%.
The “Shareholding post step 4” for MergeCo lists Mr Tinkler at 19.3%.
It was clear from the terms of the email that the circulation of the term sheet and the indicative shareholding breakdown were natural progressions from the discussions that had already taken place between the Whitehaven and Aston/Tinkler interests in relation to the proposed Structure B.
In cross-examination, Mr Tinkler agreed that it was his understanding that the effect of the $150 million Capital Injection was to increase the value of Boardwalk by $150 million, which would have the effect of increasing Mr Tinkler’s Boardwalk shareholding from 69.2% to 79.9%, which would in turn increase the number of Whitehaven shares that the Tinkler Group would receive when Whitehaven acquired Boardwalk (T245–246). Mr Tinkler’s understanding of the document was that the transaction structure proposed would give effect to his objective of holding approximately 20% of the shareholding in the merged entity and there was no longer a requirement for the Tinkler Group to inject $100 million into Aston pursuant to the $300 million rights issued proposed by UBS on 22 November 2011 (T245).
Taking all of these matters into account, with particular weight given to the contemporaneous documents, while the $150 million Capital Injection into Boardwalk was clearly mentioned in discussions on 23 November 2011, there is no basis on which I could find that there was any discussion involving Milestone Shares on 23 November 2011 between Mr Tinkler and Mr Haggarty.
… a slide we prepared for Aston setting out our thoughts on the potential market value of Boardwalk as well as the near term value potential once JORC resources are defined.
Indicative Boardwalk market valuation of ~A$250m based on the project’s current development status–assessed valuation re-rate to >A$440M on the conversion of exploration targets to JORC resource and the achievement of key development milestones
The table contained in the document sets out a valuation of each of Sienna, Dingo, Monto, Ferndale, Vickery South and Oaklands North. For each of the projects, the table states the JORC resource, the resource target, the valuation approach, a current project value, a current net value and a potential net value. The current net value is stated as $318 million and the potential net value is stated as $508 million.
On 24 November 2011 at 8:09am, Mr Pojezny sent an email to Mr Haggarty and others, which forwarded the email of that day at 1:41am from Ms Hardie with its attachment. Mr Pojezny’s email summarised how the Boardwalk valuation amounts had been arrived at, saying that they will go through the numbers in detail to see if there was anything with which they materially disagreed and to continue to push for getting the “Boardwalk model”.
On 24 November 2011 at 2:30pm, Mr Keen sent an email to Mr Haggarty and Mr Bartlett, copied to Mr Tinkler, Mr Flynn, Mr Christensen, Mr Di Pilla and Ms Hardie, which attached the Boardwalk model for the Dingo, Sienna and Ferndale assets. This model had been mentioned in the email of 21 November 2011 at 4:57pm from Mr Pojezny as expected to be received on 21 or 22 November 2011 and in the email of 21 November 2011 at 8:52pm from Mr Bartlett who complained “[w]e still do not have their model”.
On 24 November 2011 at 2:34pm, Mr Bartlett sent an email to Mr Gerber which forwarded the Boardwalk model for the Dingo, Sienna and Ferndale assets.
On 24 November 2011 at 8:04pm, Dan Gerber of Grant Samuel sent an email to Mr Di Pilla, copied to Ms Hardie, Mr Pojezny, Mr Bartlett, Mr Jing and Mr Bensan amongst others, which stated:
As discussed with [Mr Bartlett], please see attached proposed final term sheet. Please confirm whether you are happy with this.
The proposed final term sheet that is referred to in this email is not in evidence.
On 24 November 2011 at 9:40pm, Mr Di Pilla responded to Mr Gerber’s email stating:
Confirmed agreement to term sheet, subject to below changes and Aston independent director sign off tomorrow.
*Whitehaven / Boardwalk transaction
Milestone payments of 17.01 million WHC shares upon receipt of mining and environmental approval at any of Dingo, Ferndale, Sienna, Monto, Vickery South and Oaklands North (subject to a maximum of 2 approvals - 34.02 million shares).
This appears to be the introduction of what became the Milestone Shares as part of the proposed transaction for Structure B of Whitehaven acquiring Aston and Boardwalk, which had not featured in the Second Term Sheet (circulated within Whitehaven in the email of 23 November 2011 at 1:48pm by Mr Haggarty) or the revision of the Second Term Sheet (sent with the email of 23 November 2011 at 3:02pm by Mr Bensan to Mr Di Pilla).
On 24 November 2011 at 9:51pm, Mr King of Goldman Sachs sent an email to Mr Gerber, which was copied to Mr Pojezny, Mr Bartlett, Mr Jing and Mr Bensan amongst others, responding to the proposed final term sheet with the introduction of the Milestone Shares. His email stated as follows:
So the rubber has finally hit the road, keeping the best till last.
Surely we need to first understand where each of these projects are from a permitting standpoint as we don’t want to be paying up again in the next 18 months.
In addition to the price being overly steep how can we make this determination without our review of the BW valuation first.
I would say from a tactical standpoint we are happy to pay but it needs to be a lesser number and come of [sic] the upfront number.
Finally what does this do to NT’s s/h in the combined entity.
Mr King’s email suggested that Whitehaven exercise some caution about issuing Milestone Shares. His note of caution was too late though.
On 24 November 2011 at 9:58pm (7 minutes after Mr King’s email), Mr Bartlett sent an email to Mr King and Mr Gerber, copied to Mr Pojezny, Mr Jing and Mr Bensan, in which he stated that the introduction of Milestone Shares was agreed. He stated:
The clause is already agreed for dingo siena and Ferndale. They are trying to add 3 more which we will resist. We saw the cash flow models today. Tony and Andy are comfortable with the value being paid including milestone payments.
…
PS the cashflow models show $1.3b!
It is clear from this exchange that Mr Bartlett was aware that Mr Haggarty and Mr Plummer had agreed to Milestone Shares forming part of the transaction.
On 24 November 2011 at 10:03pm, Mr King sent an email to Mr Bartlett and Mr Gerber, copied to Mr Pojezny, Mr Jing and Mr Bensan amongst others, in which he queried what had been agreed, saying:
Have the $ been agreed, this could end up being a big number if the re rating occurs as we think it will ?
I presume we have a vague feel for when we might have to pay this ?
The two emails of 24 November 2011 from Mr King indicate that he was not directly involved in any of the discussions that must have taken place to lead to the agreement of Mr Haggarty and Mr Plummer on the introduction of the Milestone Shares as an aspect of the proposed transaction.
On 24 November 2011 at 10:08pm, in response to the email at 9:40pm from Mr Di Pilla, Mr Bartlett sent an email to Mr Di Pilla, which was also copied to Mr Gerber, Ms Hardie, Mr King, Mr Pojezny, Mr Jing, Mr Bensan, Mr Keen and Mr Christensen amongst others, saying that he was unable to contact Mr Haggarty or Mr Plummer that night to discuss the email, noting that it was a departure from what was agreed and he would respond the next morning.
On 24 November 2011 at 10:43pm, Mr Bartlett sent a further email to Mr Di Pilla, copied to Mr Gerber, Ms Hardie, Mr King, Mr Pojezny, Mr Jing, Mr Bensan, Mr Keen and Mr Christensen amongst others, in which he said that he had spoken to Mr Plummer and that they would need to extract Vickery South from the list but would add Monto and Oaklands North. Mr Bartlett asked that Mr Di Pilla confirm that this was okay and that they were now agreed.
On 24 November 2011 at 10:45pm, Mr Pojezny sent an email to Mr King, Mr Bartlett and Mr Gerber, copied to Mr Jing and Mr Bensan amongst others, in which he provided an analysis of the proposed terms for the Milestone Shares and how they compared to those which had originally appeared in the First Term Sheet. Mr Pojezny mentioned the early timing of the payment if Vickery South was included as an eligible project. The email stated (italics in original):
It’s the number of shares which is fixed and the function of the SER so there is no fixed $ amount so you’re right the $ value increases with the share price. In terms of impact on NT’s stake – pre-milestone payments it is 19.5%, including them leads to 21.2% (assuming no other shares issued or cancelled by the time payment is made).
In terms of triggers, NT’s initial proposal was
Milestone payments to Boardwalk shareholders by way of additional Aston share issuance upon meeting certain development objectives
– 9**m Aston shares to be issued upon delineation of 200**Mt JORC measured resource across the Boardwalk portfolio
– 9**m Aston shares to be issued upon receipt of mining approvals at any two of Dingo, Ferndale and Sie**nna (i.e. 4.5m shares for each approval*)*
whereas now it is all linked to receipt of mining and environmental approvals – so they have agreed to milestones that are harder to hit and the assets are more de-risked by the time when the approvals are received (vs. “only” a JORC resource), offset of course as mentioned by the inclusion of other assets, plus the fact that the share price will (hopefully) be higher then so total $ amount increases. In terms of timing of these payments – based on prospectus and CWK investor presentations expected times for receipt of all approvals are
Vickery South – end 2012
Ferndale – mid 2014
Dingo – beginning 2015
Sienna – beginning 2015
Oaklands – 2015
Monto – mid 2018
So looks like 1st payment would be and 2012 and next one 2014, if all assets are included. So it is really inclusion of Vickery South which leads to early payment.
It is clear that what had been agreed in relation to the Milestone Shares was a different regime than that which was provided in the First Term Sheet. That difference is implicit in having “milestones that are harder to hit and the assets more de-risked by the time the approvals are received” than under the First Term Sheet. As expressly stated in the email, the dates for the expected times of the approvals for the Boardwalk Projects (Ferndale, Dingo, Sienna and Monto) were taken from the indicative timetables contained in the Draft Boardwalk Prospectus, which were referred to above. As stated above, no reasoning underpinning those “expected times for receipt of all approvals” appears in the Draft Boardwalk Prospectus and nor did it appear in this email from Mr Pojezny.
It is also implicit in having the milestones triggered by the approvals that significant funds would need to be expended to achieve them.
On 24 November 2011 at 11:07pm, Mr Bartlett sent an email to Mr Haggarty and Mr Plummer amongst others, copied to Mr King, Mr Pojezny and Mr Bensan and others, which attached a document titled “Project Trifecta – Term Sheet” (Third Term Sheet) and a further document titled “Term Sheet - Pro-forma MergeCo Ownership Excluding milestone payments for Boardwalk Resources”.
As revealed in the further email on 24 November 2011 at 11:30pm from Mr Bartlett to the same recipients, Mr Bartlett was asked by Mr Haggarty to send the email at 11:07pm on Mr Haggarty’s behalf as Mr Haggarty was on a plane.
The email at 11:07pm stated:
Late today, agreement was reached on a term sheet between Whitehaven, Aston and Boardwalk, subject to board approvals of each party and subject to one requested amendment which came through following our meeting (discussed below). The revised term sheet is similar to the previous version which was circulated. The revised term sheet together with resulting shareholdings is attached. It is intended that this term sheet will be signed tomorrow, although it will not be legally binding or subject to ASX announcement.
In order to reach agreement, a small compromise was made to the share exchange ratio that you saw in the previous term sheet. This has resulted in a small reduction in the shareholdings attributable to Whitehaven shareholders. I have attached as a separate document the shareholdings under the previous term sheet so that you can see the effect of the change.
Other material changes are that:
- Mark Vaile is to be Chairman with John as Deputy Chairman, and Nathan Tinkler will not be a director.
- The Boardwalk transaction will no longer be conditional on completion of the Aston transaction, to avoid the possibility of compromising Tinkler Group’s and Noonday’s ability to vote in the same class as other Aston shareholders at the Aston scheme meeting. It is theoretically possible that Whitehaven could end up buying Boardwalk and not Aston. However, we intend to get supportive voting intention statements from the 4 largest shareholders in Aston which will deliver just over 50% of the votes. We believe that the transaction will be well supported by all Aston shareholders and will provide further comments on this in the coming days.
- There will be milestone payments to Boardwalk shareholders in the event that mining approvals are granted for at least one or two of their projects. Late tonight, they have sought an amendment to our verbal agreement to increase the number of eligible projects for which the milestone payments could apply. This increase is the only point in the term sheet that is not agreed but should be resolvable quickly.
- The timetable has been shortened so that announcement is now scheduled for Tuesday 6 December. The parties are keen to reach binding agreement quickly because any significant movements in relative share prices may create a problem for one party in terms of the share exchange ratio that has been agreed.
The next steps will be completion of due diligence by all parties, negotiation of a scheme implementation for the Aston transaction, negotiation of a share purchase agreement for the Boardwalk transaction and final board approvals prior to announcement.
The Third Term Sheet included the following content:
It was not binding on either party.
The Aston/Whitehaven transaction is divided into different sections including:
(a) Structure: Whitehaven acquisition of Aston by way of scheme of arrangement, Whitehaven acquisition of Boardwalk and Whitehaven to pay a special dividend of $0.50 per share immediately prior to and conditional on completion. (b) Consideration: Whitehaven scrip based on an exchange ratio of 1.89 Whitehaven shares for every Aston share after adjusting for the $0.50 special dividend (the 1.89 ratio was [1.81] Whitehaven shares in the Second Term Sheet). (c) Offer conditions: included Aston shareholder, regulatory and court approval, and Aston and Whitehaven entering into a scheme implementation agreement prior to announcement. (d) Board composition: Whitehaven to have nine board members post completion, being three directors from Aston (including Mr Christensen and Mr Flynn), three directors from Whitehaven (including Mr Haggarty) and three independent directors, including an independent chairman, Mark Vaile. (e) Management: The initial managing director to be Mr Haggarty. (f) Shareholder’s intentions: would require unanimous support of the Aston board and key shareholders, and the key shareholders (Tinkler Group and Noonday) to publicly state their intention to vote in favour of the Whitehaven proposal. (g) Scheme booklet: Aston to draft the scheme booklet with input from Whitehaven as required, and the scheme booklet to include an independent expert’s report. The expert will need to opine on the value of Whitehaven, Aston and Boardwalk and any potential synergies arising out of the transaction.
(a) Structure: Tinkler Group to inject $150 million into Boardwalk (equity placement), the acquisition of Boardwalk by Whitehaven to be completed simultaneously with the Aston/Whitehaven merger scheme and after Whitehaven special dividend record date. (b) Consideration: Issuance of 85.88 million Whitehaven shares to Boardwalk shareholders (equivalent to the value of 30.6 million Aston shares adjusted for the merger exchange ratio, Tinkler Group $150 million cash injection and $7.5 million in liabilities; the 85.88 million Whitehaven shares were [84.9] million Whitehaven shares in the Second Term Sheet). Milestone payments to be issued to Boardwalk shareholders by way of additional 34.02 million Whitehaven shares upon receipt of mining and environmental approvals at any two of Dingo, Ferndale and Sienna (i.e. 50% of the shares for each approval). (c) Timing: Acquisition to be announced simultaneously with the announcement of the Aston/Whitehaven merger. (d) Offer conditions: Any necessary regulatory approvals and other conditions may emerge following due diligence.
The Third Term Sheet included a section concerning the process and timetable, referencing the due diligence period, concurrent negotiation of the key terms of the scheme implementation agreement and the Boardwalk share purchase agreement. The Third Term Sheet concluded by stating that the signing of the scheme implementation agreement and the Boardwalk share purchase agreement, together with the announcement of the transactions, was scheduled for 6 December 2011.
The further document attached to the email of 24 November 2011 at 11:07pm titled “Term Sheet - Pro-forma MergeCo Ownership excluding milestone payments for Boardwalk Resources” contained the following four steps:
| Step 1 | Step 2 | Step 3 | Step 4 | | • Tinkler subscribes for additional Boardwalk shares ($150m cash injection) | • WHC distributes $250m cash to its shareholders via a fully-franked special dividend | • WHC acquires Boardwalk for scrip (85.88m WHC shares) | • WHC acquires AZT for scrip | | • Boardwalk valued at $286m pre cash injection and $436m post cash injection | • Equivalent to $0.50 per WHC share and reduces merger price for WHC in Steps 3 and 4 | • WHC scrip issued at $5.08 ($5.58 less special dividend of $0.50) | • Scrip exchange ratio of 1.89 WHC shares for every AZT share after adjusting for 50c special dividend | | • Tinkler’s Boardwalk shareholding increases from 69.2% to 79.8% | | • Step 3 will occur simultaneously with Step 4 | |
Beneath the description of these four steps is a list of the top shareholdings in Aston and Whitehaven before the transaction, a list of the top shareholdings in Aston and Whitehaven after Step 3 is completed, and a list of the top shareholdings in MergeCo after Step 4 is completed. In these lists:
The “Shareholding pre-transaction” for Aston lists Mr Tinkler at 31.3%. This figure was same as in the document that accompanied the Second Term Sheet.
The “Shareholding post step 3” for Aston lists Mr Tinkler at 31.3% and for Whitehaven lists Mr Tinkler at 11.7%. The first figure was the same as in the document which accompanied the Second Term Sheet, but the second figure was 11.6% in the document which accompanied the Second Term Sheet.
The “Shareholding post step 4” for MergeCo lists Mr Tinkler at 19.5%. This figure was 19.3% in the document which accompanied the Second Term Sheet.
It is important to understand the manner in which the pre-cash injection valuation of Boardwalk at $286 million and the post-cash injection valuation of Boardwalk at $436 million were calculated, which is as follows:
The pre-cash injection valuation of Boardwalk at $286 million was calculated by:
(a) multiplying the number of unrestricted shares in Aston offered for Boardwalk in the First Term Sheet (30.6 million) by the agreed Aston – Whitehaven share exchange ratio (1.89) to obtain 57.834 million Whitehaven shares; (b) multiplying the 57.834 million Whitehaven shares by Whitehaven’s share price ($5.58) less the special dividend of $0.50 per share (equals $5.08) to obtain a value of $293.8 million (rounded); and (c) subtracting from $293.8 million the further amount of $7.5 million for liabilities to obtain a value of $286.3 million, which is rounded to $286 million.
The post-cash injection valuation of Boardwalk at $436 million was calculated by taking the pre-cash injection valuation of $286 million and adding $150 million.
The number of Unrestricted Shares in Whitehaven to be issued to the Boardwalk shareholders (85.88 million) is calculated by dividing the post-cash injection valuation of $436 million by Whitehaven’s share price ($5.58) less the special dividend of $0.50 per share (equals $5.08).
These calculations show how the $150 million Capital Injection directly related to the number of the Unrestricted Shares which the Boardwalk Shareholders would receive from Whitehaven before any consideration of the milestone payments came into reckoning. In mathematical terms, the $150 million Capital Injection amount was therefore part of the calculation in ensuring that the Tinkler interests ended up close to Mr Tinkler’s desired minimum 20% shareholding in the merged entity. As the further document indicates, the “Shareholding post step 4” for MergeCo lists Mr Tinkler at 19.5%.
The $150 million Capital Injection had no mathematical relationship to the number of Whitehaven shares to be issued as part of the milestone payments, being 34.02 million shares in two tranches of 17.01 million shares. Those amounts were based on the total number of Aston shares to be issued as milestone payments in the First Term Sheet (18 million in two tranches of 9 million) multiplied by the agreed share exchange ratio between Aston and Whitehaven shares of 1.89.
It is abundantly clear that the changes between the Second Term Sheet and the Third Term Sheet were the product of negotiations between the Aston/Tinkler interests and the Whitehaven interests held on 23 and 24 November 2011. When Mr Haggarty sent the Second Term Sheet by email on 23 November 2011 at 1:48pm, he referred to the Second Term Sheet as a document to be “discussed with them this afternoon”. From early 24 November 2011, the focus of the communications from the Aston/Tinkler interests and between the Whitehaven interests became the valuation of Boardwalk and the Boardwalk Projects. Further revisions to the Second Term Sheet were then made and were the subject of comment in communications by the Whitehaven interests during the evening of 24 November 2011. When Mr Bartlett sent the Third Term Sheet by email on 24 November 2011 at 11:07pm, he referred to “[l]ate today, agreement was reached”. Self-evidently, the parties were negotiating throughout 24 November 2011.
The Second Term Sheet saw the emergence of the $150 million Capital Injection into Boardwalk from the Tinkler Group before it was to be acquired by Whitehaven. The Third Term Sheet saw the Milestone Shares in Whitehaven added to form part of the consideration to be paid by Whitehaven to the Boardwalk Shareholders for their Boardwalk shares.
The email of 24 November 2011 at 11:07pm from Mr Bartlett on Mr Haggarty’s behalf and the Third Term Sheet gave rise to several very important passages of cross-examination of Mr Haggarty about the negotiations in which he participated immediately before 25 November 2011. The cross-examination often also occurred by reference to other documents which post-dated those negotiations.
Q. Would you agree that the topic of not so much the later attempt to increase the numbers, the topic of Milestone Shares was discussed with you and Mr Tinkler in the context of the discussion about putting in 150? In other words, you went to the meeting with him and the advisers and said, “I think we should put in 150” --
A. Yes.
Q. -- you get - and that term sheet suggested no Milestone Shares. 24-hours later there’s apparently a verbal agreement about, the 150’s in there but Milestone Shares, what I’m just saying --
A. Well, this is in an email to me --
Q. I understand.
A. -- at 11 o’clock. I assume from this that the advisers were working on this during that - that day.
Q. Sure.
A. So whether or not I was made aware of it, I don’t know, until I saw this obviously.
Q. See what I’m suggesting to you is that this sequence of events: you raised with Mr Tinkler the proposed Plan B which includes 150m in a discussion, and then --
A. My side did.
Q. Your side, yes?
A. Yes.
Q. And then Mr Tinkler or somebody this side says, “Well, we’d like more than just ordinary shares, we’d like Milestone Shares” does that sound consistent?
A. Yes. No, that’s my expectation of how it went.
Q. And then there was some detail as to how precisely those Milestone Shares were to be identified and that was left to advisers?
A. Well, the - yes, the detail certainly left to the advisers. The Milestone Shares, I’m not sure who raised that - well, I assume that was obviously Aston.
Q. Somebody, Tinkler or his advisers?
A. Or his advisers, yes.
Q. Would you agree that in that same discussion there was - discussion was along these lines from the Tinkler side, “Well, I’m putting in 150, I’d like to see some of that money go to the - to be used for these tenements, for the Boardwalk tenements”?
A. I’m sure, and that’s why it found its way into the agreement.
Q. And that was the source of it, from those conversations; do you agree?
A. Yes.
In my assessment, these answers from Mr Haggarty are similar to the essence of the evidence in chief given by Mr Tinkler as to what took place across the UBS Meeting and the Café Meeting on 21 November 2011, which is that the $150 million Capital Injection was raised by Whitehaven as part of Plan B, either Mr Tinkler or his advisers said that if they were going to pay $150 million then they wanted Milestone Shares, the detail of the Milestone Shares was left to the advisers to work out and Mr Tinkler said that if he was going to put in $150 million he wanted some of that money to be spent on the Boardwalk Projects. I emphasise that I have focused on the essence of Mr Tinkler’s evidence about these matters because I do not consider that I can rely on Mr Tinkler’s evidence on the detail.
As I indicated above when dealing with the cross-examination of Mr Haggarty in relation to the Café Meeting on 21 November 2011, the premise of the questions put to Mr Haggarty was that what Mr Tinkler said had occurred on 21 November 2011 in relation to the $150 million may have taken place on another day prior to 25 November 2011. Mr Haggarty’s answers to those questions were to the effect that he could not recall any such discussion (T388–390). The cross-examination of Mr Haggarty then continued with Mr Haggarty giving the following evidence (T390–394):
There was concern amongst the shareholders of Whitehaven about the value of the Boardwalk assets, possibly that they would be a drain on cashflows of the merged entity, which Mr Haggarty may have discussed with Mr Bartlett.
Mr Haggarty could not recall Mr Bartlett or him saying anything to that effect to Mr Tinkler at any of the discussions between 21 and 24 November 2011.
Over the course of the meetings from 21 to 24 November 2011, Mr Haggarty was trying to reach agreement with Mr Tinkler to ensure that if the transaction was going to go ahead it was going to satisfy the appropriate concerns of Whitehaven’s shareholders.
Throughout the negotiations with Mr Tinkler, Mr Haggarty had some attraction to a merger of some sort provided it was fair and reasonable from the shareholders’ point of view. For Mr Haggarty it was a case of laying out the issues that the Whitehaven shareholders had and why the structure originally proposed would not work and would not be supported by Whitehaven’s shareholders.
Mr Haggarty said to Mr Bartlett’s advisers and probably to Mr Bartlett himself that his proposed transaction had problems because it would not satisfy Whitehaven’s shareholders.
At one stage during the period of the meetings, Mr Haggarty was aware that Grant Samuel had done some work and determined that an additional $150 million from Mr Tinkler’s interests in conjunction with the special dividend would allow Whitehaven’s shareholders to support the transaction, and it was obviously discussed, although he could not recall by whom.
On 25 November 2011 at 4:17pm, Mr Di Pilla sent an email to Mr Bartlett and Mr Gerber, copied to Ms Hardie, Mr King, Mr Pojezny, Mr Keen and Mr Christensen amongst others, which referred to a conversation between them and stated that they agreed to remove Vickery South from the milestone payments.
On 25 November 2011 at 4:31pm, Mr Gerber sent an email to Mr Di Pilla, copied to Ms Hardie, Mr King, Mr Pojezny, Mr Bartlett and Mr Bensan, to which he attached “the final term sheet reflecting the agreed amendment for signing by Aston and Boardwalk”.
On 25 November 2011 at 3:58pm (although time stamped earlier than the email at 4:31pm, it is in reply to it), Mr Di Pilla sent an email to Mr Christensen, copied to Mr Tinkler, Mr Flynn, Mr Keen, Ms Hardie and Anthony Sweetman of UBS, asking that Mr Christensen arrange execution of the term sheet.
On 25 November 2011, the final version of the “Project Trifecta – Term Sheet” (Final Term Sheet) was signed by Mr Tinkler on behalf of Aston, Mr Christensen on behalf of Boardwalk and Mr Plummer on behalf of Whitehaven.
Underneath the title of the Final Term Sheet it stated:
Terms for proposed merger of Aston, Whitehaven and Boardwalk
This term sheet is not binding on either party. The parties agree to progress due diligence and negotiate a scheme implementation agreement and share purchase agreement.
The Final Term Sheet was largely the same as the Third Term Sheet but it was not identical. The issue which had been identified in the email of 24 November 2011 at 11:07pm from Mr Bartlett (the Tinkler Group interests requested amendment to increase the number of eligible projects for which the milestone payments could apply) had been resolved before the execution of the Final Term Sheet.
The key provisions concerning the Aston/Whitehaven transaction in the Final Term Sheet were as follows:
Structure: Whitehaven acquisition of Aston by way of a scheme of arrangement, Whitehaven acquisition of Boardwalk and Whitehaven to pay a special dividend of $0.50 per share immediately prior to and conditional on completion.
Consideration: Whitehaven scrip based on an exchange ratio of 1.89 Whitehaven shares for every Aston share after adjusting for a $0.50 special dividend.
Offer conditions: including Aston shareholder, regulatory and court approval, and Aston and Whitehaven entering into a scheme implementation agreement prior to announcement.
Board composition: Whitehaven to have nine board members post completion, being three directors from Aston (including Mr Christensen and Mr Flynn), three directors from Whitehaven (including Mr Haggarty) and three independent directors, including an independent chairman, Mark Vaile, and deputy chairman, John Conde.
Management: The initial managing director to be Mr Haggarty and Peter Kane was to form part of the senior management team.
Shareholder’s intentions: would require unanimous support of the Aston board and key shareholders, and the key shareholders (Tinkler Group and Noonday) to publicly state their intention to vote in favour of the Whitehaven proposal.
Scheme booklet: Aston to draft a scheme booklet that included an independent expert’s report, with input from Whitehaven as required. The expert will need to opine on the value of Whitehaven, Aston and Boardwalk and any potential synergies arising out of the transaction.
The key provisions concerning the Whitehaven/Boardwalk transaction in the Final Term Sheet were as follows:
Structure: the Tinkler Group to inject $150 million of cash into Boardwalk (equity placement), the acquisition of Boardwalk by Whitehaven to be completed simultaneously with the Aston/Whitehaven merger scheme and after the Whitehaven special dividend record date.
Consideration: Issuance of 85.88 million Whitehaven shares to Boardwalk shareholders (equivalent to the value of 30.6 million Aston shares adjusted for the merger exchange ratio, Tinkler Group $150 million cash injection and $7.5 million in liabilities). Milestone payments of 17.01 million Whitehaven shares upon receipt of mining and environmental approvals at any of Dingo, Ferndale, Sienna, Monto and Oaklands North (subject to a maximum of 2 approvals – 34.02 million shares).
Q. And once the $150m was in and the transaction had gone ahead, the persons in control of the use of that money would be the board of the merged entity?
A. Correct.
Q. And in particular you as managing director?
A. Yes.
Q. And the only person who could say to anybody reading this document that that was what was going to be done with the 150m is you as the managing - proposed managing director of the merged entity on behalf of the board?
A. Yes. Suppose so.
Q. And you understood as this statement - you’ve agreed that the statement that as part of the proposed Boardwalk transaction, investors will contribute 150m which will be used for the ongoing development of its assets, you agree that was your understanding based on discussions, negotiations you’d had as at up to the date of the signing of the term sheet?
A. It was the intent at the time to continue to spend money on those assets.
Q. You’ve already agreed that that was - you had that understanding as at the time of the signing of the term sheet?
A. Yes.
Q. You’ve already agreed that that was based on negotiations you participated in up to the time of the term sheet?
A. Yes.
Q. And you understood that Mr Tinkler believed that the 150m would be used for the ongoing development of the Boardwalk assets?
A. I don’t know what he believed.
Q. Well, you understood that he’d signed off on this document as well?
A. Correct. Everybody did.
Q. So you must have assumed that he thought that the 150m would be used as described in that sentence, post merger?
A. I can only be sure of what I - what’s in this paragraph --
Q. Well, you didn’t think --
A. I can’t speak for Mr Tinkler.
Q. Well, you didn’t think this would be coming as some news to Mr Tinkler if he read this?
A. No. Of course not, no.
Q. And you didn’t think this would be coming as news to him because you thought that’s what he thought as well; correct?
A. I don’t know that that’s the case, but I assume so. I can’t speak for him.
Q. You assumed so, didn’t you?
A. Yes.
Q. And you assumed that because that was the subject of discussion you had with him before the signing of the term sheet, wasn’t it?
A. I’m not sure that’s the case. It was the subject of discussion between the parties before the signing of the term sheet.
Q. Which included you?
A. It may have.
Q. And your advisers?
A. Yes. Definitely my advisers, yes.
Q. And Mr Tinkler and his advisers?
A. Yes.
In my view, all of the unequivocal statements made in the Q&A document for investor meetings that took place from December 2011 to March 2012, the 12 December ASX Announcement and the Scheme Booklet regarding the use of the $150 million (which are outlined in detail below) arose from discussions between Mr Haggarty, Mr Tinkler and their respective advisers during the negotiations leading up to the Final Term Sheet. That finding arises as much from the objective factual surrounding material when the chronology of the relevant events is closely analysed against the inherent commercial probabilities as it does from the evidence given by Mr Haggarty as outlined above. In my opinion, there is no other plausible explanation for how those statements came to be made.
Considering all of the evidence, in my opinion during these discussions as part of the negotiations leading to the Final Term Sheet, Mr Haggarty said words to the effect that the balance of the $150 million Capital Injection was intended be used by Whitehaven to support the development of the Boardwalk assets. Given the unreliable recollections of both Mr Haggarty and Mr Tinkler about the detail of their discussions due to the passage of time since they occurred, the most reliable record of the effect of what was said lies in the subsequent contemporaneous documents. The consequence of this statement of intention must also be considered together with the manner in which it was subsequently recorded in the contemporaneous documents, how the statement was asserted to be understood by Mr Tinkler and whether any reasonable reliance could be placed on the statement in the circumstances.
- Over the past several weeks, discussions have continued with Whitehaven Coal regarding a potential combination of Whitehaven and Aston Resources
- Management presentations have been given by Whitehaven, Aston and Boardwalk, and a site visit was completed on the weekend 19-20 November
- Financial models were exchanged earlier this week and it is anticipated that datarooms will be opened during the course of today to allow a focussed due diligence process with the assistance of Freehills and E&Y
The initial Aston proposal
- Aston initially proposed a transaction whereby Aston would acquire Whitehaven for 50% cash and 50% scrip, with the cash portion to be paid based on Whitehaven share price of $7.25/share and the scrip portion on an exchange ratio of 0.56 Aston shares for every 1 Whitehaven share
- The cash portion was to be funded by ~$1.3bn debt and the remainder via equity
- Whitehaven management and key shareholders were concerned with the level of gearing in the combined entity, given the large planned capex spend during FY13 and FY14 at Vickery and Maules Creek
- There was also an unresolved tax issue relating to the shares held by major shareholder AMCI which may have prevented key decision maker Hans Mende from voting in favour of the transaction as structured, as it was likely to give rise to a CGT event for his full shareholding
- Under this proposal, Boardwalk was to be acquired by Aston as a separate transaction, with the Whitehaven and Boardwalk transactions not interconditional
The current transaction structure
- Whitehaven has reverted with a proposal whereby Whitehaven would acquire Aston for scrip, after paying a dividend of $0.50/share ($250m), at an exchange ratio of 1.89 Whitehaven shares per Aston share – essentially a nil premium merger of equals (equivalent to an inverted exchange ratio of 0.58)
- Whitehaven would also acquire Boardwalk in a separate transaction, with that transaction not conditional on the Aston acquisition proceeding
- This transaction would require Aston shareholder approval at a scheme meeting (likely timing for the meeting would be March 2012)
- The benefits of this structure include increased simplicity, requirement for only 1 independent expert report and explanatory memorandum to be sent to shareholders (vs 2 in the original proposal), no requirement for new debt funding and hence reduced gearing in the merged entity
- as Whitehaven is acquiring Boardwalk, Aston shareholders would not vote on this transaction
- This structure also allows Aston to consider any alternative proposals should they emerge post announcement (albeit Aston will be bound by no shop, no talk, no due diligence provisions under the Scheme Implementation Agreement (SIA) – with fiduciary carve outs)
The above section of the November 2011 Board Update contains a summary of the essential features of the transaction proposed in the First Term Sheet (based on Plan A/Structure A of Aston acquiring Whitehaven) and the transaction proposed in the Final Term Sheet (based on Plan B/Structure B of Whitehaven acquiring Boardwalk and Aston).
The November 2011 Board Update also sets out a summary of the Final Term Sheet, the transaction steps and shareholding outcomes, the strategic rationale for it, the indicative synergies and transaction benefits, valuations of Aston and Whitehaven, the proposed board structure of the merged entity and the transaction workplan and timetable.
The November 2011 Update does not contain any reference to Milestone Shares or the $150 million Capital Injection, which I infer was because it was a description of the proposed transaction from the perspective of Aston, and it was Whitehaven who was acquiring Boardwalk.
On 26 November 2011, Mr Pojezny sent an email to Mr Haggarty, Mr Plummer, Mr Conde and others on the board of Whitehaven, copied to Mr Bartlett, Mr King, Mr Gerber, Mr Bensan and another, to which he attached a slide presentation as a basis for discussion at the Whitehaven board meeting that day.
The slide presentation is titled “Project Guernsey – Preliminary Valuation Considerations” and dated November 2011. Included in the slide presentation is a slide setting out the valuation of Boardwalk based on Sienna, Dingo, Monto, Ferndale, Vickery South and Oaklands, which indicated:
the current valuation based on the total assets is $318.1 million and the current valuation based on the net assets is $252.1 million;
the potential valuation based on the total assets is $507.6 million and the potential valuation based on the net assets is $441.6 million; and
the discounted cash flow valuation of total assets is $1,241.9 million and the discounted cash flow valuation of net assets is $1,175.9 million, which is noted to be based on the Boardwalk model provided by UBS as adjusted for Whitehaven’s pricing.
The parties moved swiftly to finalise the terms of the SPA, which was ultimately executed on 11 December 2011. There is no evidence about the detail of the discussions which occurred during the negotiations over the SPA except for emails passing between the respective lawyers involved in the drafting of the SPA. Mr Tinkler was not personally involved in the negotiations between Boardwalk and Whitehaven as he was the chairman of Aston working on the Aston part of the merger with Whitehaven and there was a “Chinese wall” put in place, which prevented him from being involved in anything to do with the acquisition of Boardwalk by Whitehaven (T263).
Mr Christensen, who at that time was a director and the employed inhouse counsel of the Tinkler Group and a director of Boardwalk, together with other directors of Boardwalk and with the assistance of Gilbert + Tobin, was the person who negotiated the SPA on behalf of the Boardwalk shareholders (T263–264).
On 29 November 2011, Corrs sent an email to various Whitehaven representatives providing a D****raft SPA, which had just been received from Gilbert + Tobin acting for Boardwalk.
This was the first draft of the SPA. In the Draft SPA, the consideration payable to each Vendor was divided into “Initial Consideration” and the “Milestone Shares” (cl 2.2). The Milestone Shares were not to be issued and allotted on completion of the SPA but were only to be issued and allotted on the satisfaction of the grant of a “Mining Lease” in respect of the Milestone Projects (cl 2.4). It was also proposed to be an obligation of BRI, as the major shareholder in Boardwalk, to subscribe or to procure the other Vendors to subscribe $150 million for 77,140,000 shares in Boardwalk (cl 4.9(a)), which was to be a condition precedent to completion (cl 3.2(i)). Further, the Draft SPA was not expressed to be conditional on the completion of the merger of Aston and Whitehaven.
There was no provision in the Draft SPA that restricted the use of the $150 million subscription funds by Whitehaven after completion. The Draft SPA contained best endeavours obligations to achieve a number of the conditions precedent to completion (cl 3.3). However, there was no such obligation in the Draft SPA in relation to the satisfaction of the granting of a “Mining Lease” for the Milestone Projects that would trigger the issuing and allotment of the Milestone Shares.
Based on the 30 June 2011 cash position, we expect that Boardwalk is currently cash constrained
However the Term Sheet for the proposed merger provides for a $150 million cash injection by the Tinkler Group, which appears sufficient to cover short to medium term funding requirements (as disclosed in the prospectus)
A proposed IPO process to be undertaken in October 2011 aimed to raise $150 million to address Boardwalk’s funding shortfall, however we understand from reading the term sheet this amount will now be secured by way of a cash injection by the Tinkler Group as a condition precedent to the merger.
Immediately beneath this statement was a further table headed “Indicative analysis on future funding requirements”. This table stated that when taking into account the $150 million Capital Injection, Boardwalk would have a net cash balance of $89.9 million and that there were identified capex requirements in FY2012 and FY2013 for “exploration costs (per prospectus)” of $47.9 million and “[p]lanned land purchase” of $7.2 million.
The Draft KPMG Due Diligence Report also gave a breakdown of the “forecast exploration costs for FY12 and FY13” totalling $47.9 million as between Ferndale, Dingo, Sienna and Monto for drilling, project management, concept/feasibility, cost type, environmental studies and approvals and geological modelling. These amounts were all expressly stated to be sourced from the Draft Boardwalk Prospectus dated 31 October 2011.
On 1 December 2011, Aimee Hyde, the corporate counsel for the Tinkler Group, sent an email to Mr Lawler requesting that Gilbert + Tobin prepare powers of attorney for “Nathan–related” shareholders of Boardwalk appointing any of Mr Tinkler, Mr Christensen, Mr Flynn or Ms Hyde as attorneys.
On 2 December 2011, Amy Knox of Gilbert + Tobin sent an email to Ms Hyde attaching a draft power of attorney in the form requested.
On 3 December 2011, Mr Pojezny sent an email to Mr Haggarty, Mr Plummer and others, copied to Mr Bartlett, Mr King, Mr Gerber, Mr Bensan and Mr Jing amongst others, to which he attached a “high-level valuation of Boardwalk”.
In the email, Mr Pojezny stated that their analysis had indicated a very wide potential valuation range for the assets, that the assets are difficult to value given their early-stage nature, the multiple-based valuation was between $198 million and $372 million (compared to the UBS valuation of $252 million to $442 million) and a 50% discounted cash flow valuation of $601 million.
Mr Pojezny also stated in the email:
… the total indicative valuation range appears to be
$200-600m. The purchase price contemplated for BWK ($286m excl. milestone payments, ~459m including milestone payments assuming that the milestone shares are issued at the same share price) falls well within this range.
Overall this analysis confirms our thinking that any valuation of these assets (e.g. one conducted by an independent expert) is likely to result in wide valuation range.
On 3 December 2011 at 12:57pm, Mr Bartlett sent an email to Whitehaven representatives which indicated that Boardwalk was “not prepared to give interconditionality”, being the notion that the acquisition of Boardwalk by Whitehaven would only proceed if the merger of Aston and Whitehaven was to proceed.
On 3 December 2011 at 5:48pm, Mr Bartlett sent an email to Mr Di Pilla in which he stated that Whitehaven would concede on “interconditionality” to provide the certainty that they were seeking for the Boardwalk transaction on the basis that if the scheme of arrangement failed, the $150 million would not go into Boardwalk and Whitehaven would have the right to elect to pay a fixed sum of cash, in lieu of scrip, based on the values used to determine the share exchange ratio.
This demonstrated that a purpose of the $150 million Capital Injection was to increase the shareholding of the Tinkler interests in the merged entity because if the merger was not going to proceed, Whitehaven would only be required to acquire Boardwalk if there was no $150 million Capital Injection.
On 5 December 2011, KPMG prepared a further draft due diligence report (Further Draft KPMG Due Diligence Report) for Whitehaven in relation to Aston and Boardwalk.
As part of the Further Draft KPMG Due Diligence Report, in the section headed “Boardwalk executive summary Key findings – financial due diligence”, KPMG analysed the assets of Boardwalk and identified as an issue of high importance that “Boardwalk is currently cash constrained ($1.5 million at 30 November 2011) and will need capital to fund committed cash flows”. The “summary observations” next to that issue are:
A proposed IPO process to be undertaken in October 2011 aimed to raise $150 million to address Boardwalk’s funding shortfall.
We understand that WHC is currently in negotiations with the Tinkler Group to determine the amount, if any, of cash that will be injected by Tinkler Group to re-capitalise Boardwalk prior to the transaction.
To assist in these discussions, and to help assess merged entity cash flows and headroom, we have set out below Boardwalk’s key cash funding requirements. …
| Indicative analysis on future funding requirements | | Committed cash flows ($m) | | Repayment of Farallon loan | 50.0 | | Interest on Farallon loan (to 31 December 2011) | 6.0 | | Deferred payments on Sienna purchase | 15.0 | | Exploration permit commitments (to Apr 2016) | 3.6 | | Trade creditor and accruals (ex. IPO costs) | 3.1 | | IPO payables | 1.7 | | Bank guarantee for Brisbane property lease | 0.7 | | Indicative funding requirements | 80.0 | | Other non-committed cash out flows | | Nov 11- Jun 13 exploration costs (less committed) | 44.1 | | Planned land purchase | 7.2 | | Corporate costs Nov 11- June 13 (based on run rate) | 7.4 | | Infrastructure costs | 9.9 | | Funding requirements inc. non committed | 148.7 |
Overview
Boardwalk’s current portfolio consists of four coal projects in Queensland and NSW, as well as 19.9% interest in Coalworks Ltd. All Boardwalk projects are currently in exploration phase, and do not have any defined JORC reserves.
Hence, Boardwalk has no operating revenues, with reported accumulated losses and net liabilities at 30 June 2011 being $5.8 million and $5.5 million respectively. The expected development decision dates for project are shown below:
| Expected development decision dates | | Project | Expected date | | Ferndale | mid 2013 | | Dingo | late 2013 | | Sienna | early 2014 | | Monto | early 2018 |
…
Overview
The Boardwalk FY11 financial statements outline commitments of $3.6 million are in relation to exploration permit commitments for the period up to November 2014. This likely represents the minimum spend required to maintain the tenements in good standing.
We have summarised budgeted exploration costs for FY12 and FY13 in the table below, based on information in the draft prospectus at 31 October 2011 and the detailed budgets for each project provided by management.
| Budgeted exploration costs from Nov 11 – Jun 13 | | $m | Ferndale | Dingo | Sienna | Monto | Total | | Per the draft prospectus | | | | | | | Drilling | 13.0 | 8.1 | 8.5 | 4.2 | 33.8 | | Project Management | 2.8 | 1.1 | 0.9 | 0.3 | 5.0 | | Concept/feasibility | 1.6 | 1.2 | 1.0 | 0.0 | 3.8 | | Cost type | 1.6 | 1.4 | 0.7 | 0.0 | 3.7 | | Environmental studies and approvals | 0.3 | 0.3 | 0.3 | 0.4 | 1.2 | | Geological modelling | 0.1 | 0.1 | 0.1 | 0.0 | 0.3 | | Total per prospectus | 19.4 | 12.2 | 11.5 | 4.9 | 47.9 | | Per project budget | 19.3 | 12.1 | 11.3 | 4.9 | 47.6 | | Variance | 0.1 | 0.1 | 0.2 | - | 0.3 |
All provisions relating to the Milestone Shares have accordingly been removed from the SPA and relocated to the Restriction Deed for ease of reference.
On 6 December 2011, the Boardwalk Shareholders, including Les & Zelda, each executed the Power of Attorney in favour of Mr Christensen, Mr Flynn, Mr Tinkler and Aimee Hyde, appointing each of them to be its attorney jointly and individually on and from that date (cl 1).
Amongst other things, the Power of Attorney empowered any two attorneys acting jointly to execute and deliver the SPA as well as all documents ancillary or related to or referred to in the SPA (cl 2(a) and Schedule 3).
Accordingly, Mr Tinkler was not empowered by the Power of Attorney to act by himself alone.
On 6 December 2011, a “preliminary draft” of a joint ASX announcement of the merger of Aston and Whitehaven was prepared (6 December Draft ASX Announcement). The 6 December Draft ASX Announcement is headed “Creation of a Leading Independent Australian Coal Company” and appears to be in skeleton form, with headings including “Highlights”, “Aston/Whitehaven Merger”, “Merged Entity Board and Management”, “Transaction Rationale”, “Merger Implementation”, “Boardwalk Resources Acquisition” and “Timetable and Next Steps”.
The section of the 6 December Draft ASX Announcement headed “Boardwalk Resources Acquisition” refers to the “cash of A$150 million” but does not refer to any proposed use of those funds.
On 7 December 2011 at 6:35pm, Mr Di Pilla sent an email to Mr Bartlett, copied to others, which attached “a summary of the points agreed between Nathan & Tony this evening”. The attached document is titled “Project Trifecta Key outstanding commercial issues”. One scenario dealt with in this document is the “Aston scheme [failing] to reach implementation”. The response of Aston indicates that it was prepared to have interconditionality between the scheme of arrangement and the acquisition of Boardwalk by Whitehaven.
On 7 December 2011 at 7:36pm, Corrs sent an email to Gilbert + Tobin, which attached a further draft of the SPA (Third Draft SPA). A principal change of note in the Third Draft SPA was the introduction of a condition precedent to completion of the SPA that the Whitehaven and Aston scheme of arrangement be approved by the court (cl 3.2(c)). This reflected the agreement to allow interconditionality between them.
The Third Draft SPA also introduced a change to allow Boardwalk to incur debt of $5 million a month between the date of the SPA and completion under it (cl 4.9) and to enable BRI to fund the subscription amount by capitalising loans (cl 4.10).
On 8 December 2011, KPMG provided the final version of their due diligence report to Whitehaven in relation to Aston and Boardwalk (KPMG Due Diligence Report).
The KPMG Due Diligence Report contains exactly the same content regarding Boardwalk as the equivalent sections of the Further Draft KPMG Report on 5 December 2011, which are set out in detail above.
On 8 December 2011 at 7:07pm, Gilbert + Tobin sent an email to Corrs, copied to others, which attached their comments on the Third Draft SPA from the previous day (Fourth Draft SPA).
A substantive amendment in the Fourth Draft SPA was that Whitehaven consented to Boardwalk borrowing funds from BRI to fund the operations of Boardwalk in the period from the date of the SPA until 31 March 2012 to the maximum amount of $5 million a month (cl 4.9), and that BRI must subscribe for Boardwalk shares for the $150 million Capital Injection, which “shall include the capitalisation of loans” that it made in that period (cl 4.10).
On 9 December 2011 at 3:48pm, Alexandra Taylor (from Goldman Sachs (T354)) sent an email to Mr Haggarty, Mr Bartlett and other Whitehaven representatives. The email attached a “revised version of the investor presentation” together with a draft ASX announcement (9 December D****raft ASX A****nnouncement). Notably, this was a communication amongst Whitehaven representatives alone.
The 9 December Draft ASX Announcement contains the logo of each of Aston and Whitehaven at the top of the first page, is marked “Preliminary draft” and is headed “Creating a Leading Independent Australian Coal Company”.
The salient parts of the 9 December Draft ASX Announcement which describe the merger of Aston and Whitehaven and the acquisition of Boardwalk are in the following terms (emphasis added in underline):
Aston / Whitehaven Merger
Aston Resources Limited (ASX:AZT) and Whitehaven Coal Limited (ASX:WHC) today announced they have entered into a Scheme Implementation Agreement (“SIA”) under which they have agreed to merge via a scheme of arrangement.
The transaction brings together two highly complementary and growth focus groups, creating a leading independent Australian coal company.
Aston shareholders will receive 1.89 Whitehaven shares for each Aston share they hold.
Whitehaven will pay a fully franked special dividend of $0.50 per share to its shareholders immediately prior to implementation of the merger (“Whitehaven Special Dividend”). Aston and Boardwalk shareholders will not be eligible to receive the Whitehaven Special Dividend.
The proposed merger has the unanimous support of both the Aston and Whitehaven Boards. The Aston Directors recommend Aston shareholders vote in favour of the transaction in the absence of a superior proposal and subject to the Independent Expert concluding that the transaction is in the best interest of Aston shareholders.
Aston shareholders representing approximately [54%] of Aston’s total issued shares, have each stated their intention to vote in favour of the merger in the absence of a superior proposal.
Boardwalk Resources A****cquisition
Whitehaven has entered into a separate agreement to acquire all of the shares in unlisted coal explorer Boardwalk Resources (“Boardwalk Transaction”).
Boardwalk shareholders, including Tinkler Group and Farallon, will be issued 84.84 million Whitehaven shares as consideration for the acquisition. These shares will not be entitled to the Whitehaven Special Dividend.
Boardwalk shareholders will be entitled to an additional 34.02 million Whitehaven shares upon receipt of mining and environmental approval at any two of Dingo, Ferndale, Sienna, Monto and Oaklands North (being 17.01 million shares for each approval).
The Boardwalk Transaction is conditional upon the Whitehaven – Aston merger completing, and other customary conditions including various regulatory approvals in relation to the transfer of ownership of exploration assets.
Boardwalk’s assets currently include a 100% interest in the Sienna Project, a 51% interest in the Dingo Project (earning up to 70%), a 100% interest in the Monto Project, a right to earn in to a 50% interest in the Ferndale Project and 19.9% interest in listed coal company Coalworks Limited.
As part of the transaction, existing Boardwalk shareholders will contribute $150 million in cash to Boardwalk which will be used for the ongoing development of its assets, the repayment of existing debt of US$50 million and deferred payments of A$15 million relating to the acquisition of the Sienna Project.
The 9 December Draft ASX Announcement concludes with the heading “Forward Looking Statements” but there is no content under that heading other than an indication that the legal advisers were to provide it.
In cross-examination, Mr Haggarty agreed that the words underlined in the above extract of the 9 December Draft ASX Announcement were the same words as appeared in the 12 December ASX Announcement (defined and dealt with below), which was the final version (T354). The available inference is that the form of the 9 December Draft ASX Announcement reflected the intention of Whitehaven stated during the discussions and negotiations leading to the Final Term Sheet in relation to the use that would be made of the $150 million Capital Injection following the acquisition of Boardwalk by Whitehaven (part of which “will be used for the ongoing development of [Boardwalk’s] assets”).
In my view, the reference to the “ongoing development of its assets” in the 9 December Draft ASX Announcement (and all subsequent drafts as well as the final version in the form of the 12 December ASX Announcement (defined and described below)) only then “currently” included the development of “Boardwalk’s assets” referred to in the paragraph immediately above, which were the tenements described – Sienna, Dingo, Monto and Ferndale – being the Boardwalk Projects. Those were the only “currently include[d]” assets of Boardwalk on which money could be expended for their “ongoing development” by the use of the $150 million Capital Injection. I also consider that the “ongoing development of [Boardwalk’s] assets” did not include Boardwalk acquiring further assets such as a greater shareholding interest in Coalworks. Further, the Vickery South project held by Coalworks is not mentioned amongst the “currently include[d]” assets of Boardwalk in the 9 December Draft ASX Announcement so it could not be considered to be amongst the assets of Boardwalk which would be the subject of “ongoing development”.
I agree with Les & Zelda that the 9 December Draft ASX Announcement is a contemporaneous documentary record of an intention by Whitehaven that the $150 million Capital Injection would be used for the “ongoing development of [Boardwalk’s] assets” and the repayment of existing debt. My finding is that this intention had been stated during the discussions between Mr Haggarty and Mr Tinkler in November 2011 leading up to the signing of the Final Term Sheet in which it was agreed that $150 million would be injected into Boardwalk. In my assessment, the statement of intention about the use of the $150 million Capital Injection in the 9 December Draft ASX Announcement could only have been made during those discussions as part of the negotiations in which the parties agreed that $150 million would be injected into Boardwalk as part of the transaction recorded in the Final Term Sheet.
On 9 December 2011 at 3:48pm, Ms Taylor also sent an email to Mr Di Pilla and Ms Hardie, copied to Mr Bartlett, Mr Bensan, Mr Gerber, Mr Jing, Mr King, Mr Pojezny and others, which attached the 9 December Draft ASX Announcement along with a draft of the December 2011 Investor Presentation (defined and dealt with below). This is significant because it demonstrates that what had been circulated to the Whitehaven representatives was simultaneously being circulated to the advisers to the Aston/Tinkler interests for their review. In my view, this supports the inference that within Whitehaven it was considered that the Aston/Tinkler interests had the same understanding as Whitehaven did about the intention that had been discussed during the negotiations leading up to the Final Term Sheet regarding the use of the $150 million Capital Injection as expressed in the 9 December Draft ASX Announcement.
The 9 December Draft ASX Announcement was then the subject of comment in separate emails from Melissa Swain (the general counsel and company secretary of Aston) and Ms Hardie of UBS before an amended version of it (9 December Further Draft ASX Announcement) was sent by email on 9 December 2011 at 7:27pm from Philippa Stone of Freehills to the Aston/Tinkler representatives, including Mr Tinkler, Mr Christensen, Mr Flynn, Mr Di Pilla and Ms Hardie.
There are marked changes made in the 9 December Further Draft ASX Announcement. A single marked change appears in the section of the 9 December Further Draft ASX Announcement dealing with the acquisition of Boardwalk as set out below (underline indicating marked change):
Boardwalk Resources Acquisition
Whitehaven has entered into a separate agreement to acquire all of the shares in unlisted coal explorer Boardwalk Resources (“Boardwalk Transaction”).
Boardwalk shareholders, including Tinkler Group and Farallon, will be issued 84.84 million Whitehaven shares as consideration for the acquisition. These shares will not be entitled to the Whitehaven Special Dividend.
Boardwalk shareholders will be entitled to an additional 34.02 million Whitehaven shares upon receipt of mining and environmental approval at any two of the following Boardwalk projects: Dingo, Ferndale, Sienna, Monto and Oaklands North (being 17.01 million shares for each approval).
The Boardwalk Transaction is conditional upon the Whitehaven – Aston merger completing, and other customary conditions including various regulatory approvals in relation to the transfer of ownership of exploration assets.
Boardwalk’s assets currently include a 100% interest in the Sienna Project, a 51% interest in the Dingo Project (earning up to 70%), a 100% interest in the Monto Project, a right to earn in to a 50% interest in the Ferndale Project and 19.9% interest in listed coal company Coalworks Limited.
As part of the transaction, existing Boardwalk shareholders will contribute $150 million in cash to Boardwalk which will be used for the ongoing development of its assets, the repayment of existing debt of US$50 million and deferred payments of A$15 million relating to the acquisition of the Sienna Project.
As is apparent, the relevant marked change from the 9 December Draft ASX Announcement to the 9 December Further Draft ASX Announcement was relatively minor.
For the reasons I have stated above in relation to the 9 December Draft ASX Announcement, I regard the reference in the 9 December Further Draft ASX Announcement to the “development of its assets” as the Boardwalk assets listed as “currently including” the tenements described – Sienna, Dingo, Monto and Ferndale – and not including Boardwalk acquiring further assets such as a greater shareholding interest in Coalworks.
The 9 December Further Draft ASX Announcement also contains the following section under the heading “Forward Looking Statements”, which was not previously included in the 9 December Draft ASX Announcement:
Forward Looking Statements
This release contains forward-looking statements which are identified by words such as ‘may’**, ‘could’**, ‘believes’**, ‘estimates’**, ‘targets’**, ‘expects’**, or ‘intends’ and other similar words that involve risks and uncertainties. These statements are based on an assessment of present economic and operating conditions, and on a number of assumptions regarding future events and actions that, as at the date of this release, are expected to take place. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, assumptions and other important factors, many of which are beyond the control of Aston, Whitehaven, Boardwalk and the Directors and management of each company. The Companies cannot and do not give any assurance that the results, performance or achievements expressed or implied by the forward-looking statements contained in this release will actually occur and investors are cautioned not to place undue reliance on these forward-looking statements. The Companies have no intention to update or revise forward-looking statements, or to publish prospective financial information in the future, regardless of whether new information, future events or any other factors affect the information contained in this press release, except where required by law. These forward-looking statements are subject to various risk factors that could cause actual results to differ materially from the results expressed or anticipated in these statements.
Whitehaven argues that this disclaimer (and similar ones contained in the 10 December Draft ASX Announcement, the 12 December ASX Announcement, the December 2011 Investor Presentation and the Scheme Booklet, which are all defined and described below) serves to make clear that while the parties might have had an intention to act in a particular way in the future, that intention was not unchangeable, and whether that intention was in fact acted on would depend on a great variety of factors, including the state of the relevant projects at any particular point in time. Whitehaven also says that all these matters are consistent with the fact that none of the contractual documents imposed any obligation on a party to use the $150 million Capital Injection in a particular way or to develop the Milestone Projects.
Les & Zelda says that this disclaimer had no work to do in respect of statements by Whitehaven of its present intention and commitment (the word “will” being used) to expend the $150 million being injected into Boardwalk for “the ongoing development of its assets”. It points to the word “will” as being conspicuously missing from those listed, or within the genus listed, as comprising a “forward-looking statement”.
In the context in which it is used, I consider that the word “will” is a statement of the type described in the disclaimer. While I agree with Les & Zelda that it is a statement of intention, it is not one of commitment, particularly as it appears in a draft ASX announcement which would not be regarded as a document having contractual force and did not appear in the Final Term Sheet, which itself was expressly stated not to be “binding on either party”. While the word “will” might ordinarily be regarded as one denoting some form of commitment, in the context of these sophisticated and experienced parties deeply involved in the drafting of complex contractual documents for a large scale transaction with the assistance of financial and legal experts, I do not consider that the use of the word “will” in draft ASX announcements could reasonably be regarded as the expression of unwavering commitment by Whitehaven.
I note that the word “intends” appears in the list of examples as part of the genus which is covered by the disclaimer. Given that I consider the statement that the $150 million Capital Injection “will be used for the ongoing development of [Boardwalk’s] assets” is a statement of intention by Whitehaven, I regard it to be one which falls within the terms of the disclaimer. For that reason, in my opinion that statement of intention is one which is subject to “risks and uncertainties”, is not a guarantee of future performance and was “subject to various risk factors”. It follows that any reasonable person reading each of the 9 December Further Draft ASX Announcement, the 10 December Draft ASX Announcement, the 12 December ASX Announcement, the December 2011 Investor Presentation and the Scheme Booklet (each defined below) must be taken to have read the disclaimer as part of each of them.
On 10 December 2011 at 5:47pm, Gilbert + Tobin sent an email to Corrs, copied to others, which included attached revisions to the Fifth Draft SPA (Sixth Draft SPA) and the Second Restriction Deed (Third Draft Restriction Deed).
On 10 December 2011 at 6:59pm, Gilbert + Tobin sent an email to Corrs with attached changes to the Sixth Draft SPA and the Third Draft Restriction Deed, asking that the versions sent earlier at 5:47pm be disregarded.
Again, none of the proposed changes in the Sixth Draft SPA and Third Draft Restriction Deed have relevance to the issues in these proceedings.
On 10 December 2011 at 11:29pm, Ms Hardie sent an email to Mr Tinkler, Mr Vaile, Mr Christensen and others, copied to Mr Flynn, Mr Keen, Mr Di Pilla and other Aston/Tinkler representatives, which attached proposed final draft versions of the ASX announcement (10 December Draft ASX Announcement) and the proposed final Draft Investor Presentation, which had been received by email that day from Albert Bielinko of Goldman Sachs. In other words, what was being circulated amongst the Aston/Tinkler interests were documents that had emanated from Whitehaven’s advisor as proposed final versions.
The section of the 10 December Draft ASX Announcement concerning the acquisition of Boardwalk by Whitehaven was in similar form to that contained in the 9 December Further Draft ASX Announcement. That section of the 10 December Draft ASX Announcement reads as follows (emphasis added in underline):
Boardwalk Resources Acquisition
Whitehaven has entered into a separate agreement to acquire all of the shares in unlisted coal explorer Boardwalk Resources (“Boardwalk Transaction”).
Boardwalk Resources shareholders, including Tinkler Group and Farallon, will be issued 84.84 million Whitehaven shares as consideration for the acquisition. These shares will not be entitled to the Whitehaven Special Dividend.
Boardwalk Resources shareholders will be entitled to an additional 34.02 million Whitehaven shares upon receipt of mining leases and environmental approvals at any two of the following Boardwalk Resources projects: Dingo, Ferndale, Sienna, Monto and Oaklands North (being 17.01 million shares for each approval).
The Boardwalk Transaction is conditional upon the Whitehaven – Aston merger completing, and other customary conditions including various regulatory approvals in relation to the transfer of ownership of exploration assets.
Boardwalk Resources’ assets currently include a 100% interest in the Sienna Project, a 51% interest in the Dingo Project (with the right to acquire a further 19% interest to increase its total to 70% upon completion of its farm in arrangements), a 100% interest in the Monto Project, a right to acquire a 50% interest in the Ferndale Project upon completion of its farm in arrangements and 19.9% interest in listed coal company Coalworks Limited.
As part of the transaction, existing Boardwalk Resources shareholders will contribute $150 million in cash to Boardwalk Resources which will be used for the ongoing development of its assets, the repayment of existing debt of US$50 million and deferred payments of A$15 million relating to the acquisition of the Sienna Project.
For the reasons I have stated above in relation to the 9 December Draft ASX Announcement, I regard the reference in the 10 December Draft ASX Announcement to the “ongoing development of its assets” as only then “currently” including the development of “Boardwalk’s assets” referred to in the paragraph immediately above, which were the tenements described – Sienna, Dingo, Monto and Ferndale – being the Boardwalk Projects. Those were the only “currently include[d]” assets of Boardwalk on which money could be expended for their “ongoing development” by the use of the $150 million Capital Injection. I consider that the “ongoing development of Boardwalk’s assets” did not include Boardwalk acquiring further assets such as a greater shareholding interest in Coalworks.
The 10 December Draft ASX Announcement contains the same section headed “Forward Looking Statements” as was contained in the 9 December Further Draft ASX Announcement. For the same reasons as I have expressed above in relation to the 9 December Further Draft ASX Announcement, I consider that the statement “will be used for the ongoing development of its assets” in the 10 December Draft ASX Announcement is a statement of Whitehaven’s intention to which the disclaimer applies. I consider that it must also be read as subject to the disclaimer which makes it clear that the intention could change depending on a variety of factors. In particular, as I have stated above, I do not regard the statement as one of commitment.
I consider that the 10 December Draft ASX Announcement also stands as contemporaneous documentary evidence that there was an understanding amongst Whitehaven, the Aston/Tinkler interests (including Mr Tinkler) and their respective advisers about the intended use of the $150 million Capital Injection. In my view, that understanding could only have come from the discussions which took place as part of the negotiations in which it was agreed that the $150 million would be injected into Boardwalk as recorded in the Final Term Sheet.
The Draft Investor Presentation took the form of a series of slides each of which is marked with the respective logos of Aston and Whitehaven. The presenters are identified as Mr Vaile, Mr Conde, Mr Haggarty and Mr Kane.
One of the slides of the Draft Investor Presentation is headed “Transaction overview”, which includes the following section:
Whitehaven acquisition of Boardwalk Resources
- Acquisition of Boardwalk in exchange for 84.84m Whitehaven shares (not eligible for Whitehaven special dividend)
- 34.02m additional shares to be issued as consideration in the event of certain milestones being reached
- Boardwalk to include ~A$150m cash and US$50m debt
- Majority vote by Whitehaven shareholders to approve the issuance of shares to Boardwalk shareholders
- Acquisition is unanimously recommended by the Whitehaven Board
- Acquisition of Boardwalk is conditional on Aston Scheme approval (not vice versa)
The merger of Whitehaven and Aston has the unanimous support of the Whitehaven and Aston Boards. The acquisition of Boardwalk Resources has the unanimous support of the Whitehaven Board
Mr Tinkler says in his affidavit evidence that he read the email of 10 December 2011 at 11:29pm and its attachments. In cross-examination, Mr Tinkler was challenged on this statement, again on the basis that he had no memory of when he first read them and that they were not mentioned in the December 2018 SOC (T268).
I again accept that Mr Tinkler read the email together with the attached 10 December Draft ASX Announcement and the Draft Investor Presentation for the same reasons as I have expressed above for accepting his evidence that he read the 9 December Further Draft ASX Announcement. I also reject the attack on his evidence based on the lack of any mention of these documents in the December 2018 SOC for the same reasons as I have expressed above in relation to the lack of any mention of the 9 December Further Draft ASX Announcement in the December 2018 SOC. In accepting that Mr Tinkler read the 10 December Draft ASX Announcement and the Draft Investor Presentation, he must also be taken to have read any disclaimer contained in them.
On 11 December 2011, Mr Haggarty and Mr Conde executed the SPA on behalf of Whitehaven and Mr Tinkler and Mr Christensen executed the SPA as attorneys pursuant to the Power of Attorney on behalf of the Boardwalk Shareholders.
The relevant provisions of the SPA are as follows:
Each Vendor (being the Boardwalk Shareholders listed in the first column of Part 1 of Schedule 2) agreed to sell to Whitehaven, and Whitehaven agreed to buy from the Boardwalk Shareholders, the Sale Shares (all of the ordinary shares in Boardwalk on issue at Completion except for the New Lender Shares) for the Consideration (the Initial Shares (being 73,361,477 fully paid shares in Whitehaven) and the Milestone Shares (being 29,059,232 fully paid shares in Whitehaven to be issued at Completion)): cl 2.1(a).
The Consideration is to be issued and allotted on Completion: cl 2.3.
Completion must occur before implementation of the Whitehaven/Aston scheme of arrangement and must occur the Business Day after the date on which the Whitehaven/Aston scheme of arrangement comes into effect: cl 5.1.
Upon their issue, the Milestone Shares will be subject to the Restriction Deed (Annexure A to the SPA): cl 2.4. The Restriction Deed was ultimately signed on 1 May 2012. I have dealt with the provisions of the Restriction Deed as at 1 May 2012 below.
One of the conditions precedent to Completion was court approval of the Whitehaven/Aston scheme of arrangement: cl 3.2(c).
Another of the conditions precedent to Completion was completion of the Subscription in accordance with cl 4.9 (the reference to cl 4.8 is an error): cl 3.2(h). In accordance with cl 4.9, BRI or its nominee must subscribe or procure that one or more of the Boardwalk Shareholders (or other specified persons) subscribe for the Subscription Shares (75,786,713 fully paid ordinary shares in Boardwalk) for the Subscription Amount ($150 million), payment of which included the capitalisation of loans totalling $25 million made by BRI or its nominee in December 2011 to March 2012 pursuant to cl 4.8.
The monthly maximum loan amounts permitted to be borrowed by Boardwalk from BRI in December 2011 to March 2012 pursuant to cl 4.8(a) were:
(a) $5 million in December 2011; (b) $5 million in January 2012; (c) $10 million in February 2012; and (d) $5 million in March 2012.
These monthly maximums could be exceeded as long as the total for the period to the end of March 2012 did not exceed $25 million in aggregate: cl 4.8(b).
15.6 Entire agreement
(a) This agreement supersedes all previous agreements about its subject matter and embodies the entire agreement between the parties.
(b) The Purchaser acknowledges that no representations or warranties in connection with the Sale have been made by the Vendors or anyone on behalf of the Vendors other than the Warranties.
In short, cl 4.9 of the SPA gave effect to the $150 million Capital Injection into Boardwalk. Apart from the Subscription Amount of $150 million being, in effect, applied to repay loans made by BRI or its nominee, there was no restriction contained in the SPA on the use to which the $150 million Capital Injection could be put.
None of the best endeavours obligations in the SPA concerned the use of the $150 million Capital Injection by Boardwalk or Whitehaven.
There is no express term in the SPA obliging Whitehaven to expend the $150 million Capital Injection on developing Boardwalk’s assets. As a matter of express contractual obligation, Boardwalk was free to use the $150 million Capital Injection in any manner it saw fit (recognising that Boardwalk was not a party to the SPA in any event). Les & Zelda did not suggest otherwise because it did not mount a case which depended on any such express term.
I have dealt with the provisions of the SPA in more detail in my consideration of the Implied Terms Claim below.
Mr Tinkler gave affidavit evidence that by reading the Final Term Sheet, the 9 December Further Draft ASX Announcement and the email of 10 December 2011 at 11:29pm from Ms Hardie which attached the 10 December Draft ASX Announcement and the Draft Investor Presentation, he believed that if he injected or he arranged for $150 million to be injected into Boardwalk by way of equity, after the merger was implemented, Whitehaven would use the $150 million Capital Injection to:
repay creditors of the amount of about $50 million;
make deferred payments in the amount of about $15 million relating to the acquisition of Sienna; and
use the balance to develop the Boardwalk Projects to such a point that up to 34.02 million Milestone Shares in Whitehaven would be issued to the Boardwalk Shareholders.
In cross-examination, Mr Tinkler rejected the notion that he believed, based upon the documents he referred to, the $150 million Capital Injection would be spent on the five Milestone Projects, which included Oaklands North, as well as Vickery South (T271 and T294–295).
In Mr Tinkler’s affidavit evidence, he also said that he executed the SPA based on what he understood and believed from the conversations he had in November 2011, the Final Term Sheet, the 9 December Further Draft ASX Announcement and the email of 10 December 2011 at 11:29pm with the attached 10 December Draft ASX Announcement and Draft Investor Presentation.
Mr Tinkler rejected the suggestion in cross-examination that this evidence was entirely false (T265). As stated above, Mr Tinkler agreed that the Final Term Sheet does not contain any statement as to how the $150 million would be spent or that the Boardwalk Projects would be developed within any timeframe or at all (T266).
Q. The truth is that you did not rely upon the statements contained in draft ASX announcements when you executed the share purchase agreement on 11 December 2011?
A. That’s not true.
Q. I suggest to you that you knew when you executed the share purchase agreement that the purpose of the $150m equity injection was to increase the number of Whitehaven shares that the Tinkler Group would receive as consideration for their Boardwalk shares so that your objective of ending up with 20 per cent of the merged company was achieved; correct?
A. I disagree.
Q. You agree that achieving that objective was an important matter to you?
A. It was a consideration, yes.
Q. Well, it was an important matter to you, wasn’t it?
A. It was a consideration, yes.
Q. And a very important consideration, Mr Tinkler?
A. As the entire $7b merger was, yes.
Q. And you signed the share purchase agreement, I suggest, because you believed it would give effect to your objective that the Tinkler Group end up with approximately 20 per cent of the merged company; do you agree with that?
A. No.
I accept that Mr Tinkler had the understanding about how Whitehaven intended to use the $150 million Capital Injection into Boardwalk as he professed in his affidavit at the time he signed the SPA, subject to the concession he made that he knew that the draft ASX announcements were not documents intended to create binding legally binding rights and obligations between the Boardwalk Shareholders and Whitehaven. The natural meaning from his reading of the Final Term Sheet, the 9 December Further Draft ASX Announcement and the email of 10 December 2011 at 11:29pm with the attached 10 December Draft ASX Announcement and Draft Investor Presentation would have given rise to this understanding, including his concession.
I am also satisfied that Mr Tinkler’s understanding would have arisen from the discussions in November 2011 between Mr Haggarty, Mr Tinkler and their respective advisers during the negotiations leading up to the Final Term Sheet on 25 November 2011. Those discussions gave rise to the similar understanding on the part of Mr Haggarty as to how the $150 million Capital Injection was intended to be used, as I have found above. While it was not put to Mr Tinkler directly in cross-examination, I also find that Mr Tinkler as an experienced businessman must have understood that any oral representations made by Mr Haggarty during pre-contractual negotiations similarly do not create legally binding rights and obligations.
I am also satisfied that an important consideration for Mr Tinkler at the time that he signed the SPA was that the $150 million Capital Injection increased the number of shares which the Tinkler Group would receive towards Mr Tinkler’s objective of ending up with approximately 20% of the merged entity. So much was accepted by Mr Tinkler in the above extract of the cross-examination. But this acceptance does not in any way derogate from the importance of Mr Tinkler’s understanding as to how it would be used. In my finding, the two considerations existed simultaneously within Mr Tinkler’s state of mind, being matters of importance to him.
I accept the submission made by Les & Zelda that each of the 9 December Further Draft ASX Announcement, the 10 December Draft ASX Announcement and the Draft Investor Presentation serve the purpose of being contemporaneous documentary evidence of the parties’ mutual understanding regarding how the $150 million Capital Injection into Boardwalk was intended to be used. But importantly, as accepted by Mr Tinkler in cross-examination, that understanding was not one which had contractual force and nor was it a commitment that could not change depending on a variety of factors.
On 11 December 2011, Whitehaven entered into the WPA with the Farallon/Noonday Lenders and other financiers to Boardwalk under which Whitehaven acquired their warrants over unissued shares in Boardwalk as part of an acquisition by Whitehaven of all the shares and other equity interests in Boardwalk.
Also on 11 December 2011, Whitehaven entered into the Minority Lenders SPA with the Minority Lenders whereby Whitehaven agreed to purchase all their shares in Boardwalk as part of an acquisition by Whitehaven of all the shares and other equity interests in Boardwalk.
On 12 December 2011, Whitehaven and Aston entered into the SIA regarding the proposed scheme of arrangement between them under Part 5.1 of the Corporations Act. Pursuant to the SIA, Aston agreed on the Announcement Date (12 December 2011) to release the Announcement (Annexure C to the SIA): cl 12.1(a).
The SIA set out the terms on which Whitehaven and Aston agreed to implement their scheme of arrangement. The conditions precedent to the scheme becoming effective included PwC issuing its independent expert report concluding that the scheme was in the best interests of the Aston shareholders before the date on which the scheme booklet is registered by ASIC, the approval of Aston shareholders to the scheme and court approval of the scheme under s 411(4)(b) of the Corporations Act: cll 3.1(l)–(n).
On 12 December 2011, Whitehaven and Aston released a joint announcement of the merger to the ASX (12 December ASX A****nnouncement). The 12 December ASX Announcement was in the form of the Announcement in Annexure C to the SIA.
In cross-examination, Mr Haggarty agreed that Aston and Boardwalk represented the Tinkler interests in the 12 December ASX Announcement (T344–345).
The 12 December ASX Announcement took a substantially similar form to the earlier drafts of it in the 9 December Draft ASX Announcement, the 9 December Further Draft ASX Announcement and the 10 December Draft ASX Announcement, although there are differences between them.
The 12 December ASX Announcement confirmed that Mr Vaile was to be the chairman of the merged entity, Mr Conde was to be the deputy chairman of the merged entity and Mr Haggarty was to be the managing director of the merged entity. Mr Haggarty was named as the point of contact for Whitehaven.
Relevantly, the section of the 12 December ASX Announcement dealing with the acquisition of Boardwalk by Whitehaven stated as follows (emphasis added in underline):
Boardwalk Resources Acquisition
Whitehaven has entered into separate agreements to acquire all of the shares and other issued securities in unlisted coal explorer Boardwalk Resources (“Boardwalk Transaction”).
Boardwalk Resources investors, including Tinkler Group and Farallon Funds, will be issued 85.88 million Whitehaven shares as consideration for the acquisition. These shares will not be entitled to the Whitehaven Special Dividend.
Boardwalk Resources shareholders will be entitled to an additional 34.02 million Whitehaven shares upon receipt of mining leases and environmental approvals at any two of the following projects: Dingo, Ferndale, Sienna, Monto and Oaklands North (being 17.01 million shares for each approval).
The Boardwalk Transaction is conditional upon the Aston/Whitehaven merger completing and other customary completion conditions.
As part of the transaction, existing Boardwalk Resources shareholders will contribute $150 million in cash to Boardwalk Resources which will be used for the ongoing development of its assets. Boardwalk also has existing debt of US$50 million.
In cross-examination, Mr Haggarty agreed that this underlined statement reflected his understanding as part of the proposed Boardwalk transaction which was originally negotiated and formalised in the Final Term Sheet (T346–347). Mr Haggarty also agreed that the understanding he had that the $150 million Capital Injection “will be used for the ongoing development of its assets” was an understanding he had as at the date of the Final Term Sheet (T347) and that it was “obviously part of the deal” (T350). Mr Haggarty said that he could not recall any meeting or discussion with Mr Tinkler between the signing of the SPA on 11 December 2011 and the date of the 12 December ASX Announcement concerning how the $150 million Capital Injection was to be used (T346). In other words, the circumstances existing as at 12 December 2011 as set out in the 12 December ASX Announcement were also prevailing as at 11 December 2011 when the SPA was signed.
As I have indicated above in relation to the findings I have made concerning the Final Term Sheet, in cross-examination Mr Haggarty repeatedly confirmed that the understanding he had at the date of the Final Term Sheet (25 November 2011) that the $150 million Capital Injection “will be used for the ongoing development of [Boardwalk’s] assets” was based on the discussions he had with Mr Tinkler and their respective advisers (see for example T320–323, T337, T346–347 and T349–351). I have found that those discussions were clearly the source of what was stated in the 12 December ASX Announcement about the intended use of the $150 million Capital Injection.
Mr Tinkler refused to agree that he had no memory of receiving or reading the 12 December ASX Announcement in 2011 or 2012 (T297). I accept his evidence.
The 12 December ASX Announcement is clearly a solemn document intended by those under whose approval it was issued to be relied upon by existing and prospective investors in the shares of Aston and Whitehaven. It must have been the subject of close scrutiny of both companies and their respective advisers. As a result, the statements made in it should be taken seriously in accordance with their terms.
One of the differences between the 12 December ASX Announcement and its drafts is that it does not refer to “Boardwalk’s assets” in the paragraph describing the tenements at Dingo, Ferndale, Sienna, Monto and Oaklands North, but instead uses the word “projects”. I consider this to be a distinction without a difference so far as the mutual understanding of the Aston/Tinkler interests and Whitehaven which had already been formed by this time. For the reasons I have stated above in relation to the 9 December Draft ASX Announcement, I regard the reference in the 12 December ASX Announcement to the “development of its assets” as only including the development of Boardwalk’s “projects”, being the tenements described – Sienna, Dingo, Monto and Ferndale – and not including Boardwalk acquiring further assets such as a greater shareholding interest in Coalworks.
On 12 December 2011, Mr Haggarty sent a memorandum to all employees of Whitehaven with a subject line “Employee update regarding proposed Whitehaven / Aston merger” (12 December M****emorandum), to which was attached a copy of the 12 December ASX Announcement.
The 12 December Memorandum relevantly stated (footnote omitted):
As you are aware, Whitehaven Coal Limited has been in discussions with Aston Resources Limited regarding a merger of the two companies.
Proposed M****erger of Equals
I am pleased to inform you that this morning the two companies have announced a merger that will see the creation of Australia’s leading independent coal company with a market capitalisation of more than $5 billion. I have attached for your information the announcement released to the ASX detailing all aspects of the merger.
The transaction is subject to shareholder and regulatory approvals, and is scheduled to be completed by April 2012.
…
In a separate transaction, Whitehaven is acquiring Boardwalk Resources Limited, which holds a range of coal exploration assets in New South Wales and Queensland. The merger has the unanimous support of the Aston and Whitehaven boards and the Boardwalk transaction has the unanimous support of the Whitehaven board.
…
I urge you to read the attached ASX announcement and to contact your Project Manager or supervisor should you have any questions about the transaction and its implications for our business.
…
Les & Zelda relies on the 12 December Memorandum as making and/or confirming the Use of Funds Representation. It draws attention to the fact that the 12 December Memorandum states that the 12 December ASX Announcement is a document “detailing all aspects of the merger”.
Although Mr Tinkler referred to the 12 December Memorandum in his affidavit evidence, he did not claim to have read it. In cross-examination, Mr Tinkler agreed that he was not an employee of Whitehaven in December 2011 (or at any other time) and he had no memory of when he first saw or read the 12 December Memorandum (T275).
In cross-examination, Mr Haggarty agreed that the view he held at the time of the 12 December Memorandum was that the 12 December ASX Announcement detailed all aspects of the merger (T342). I infer from this statement that one of the aspects of the merger detailed in the 12 December ASX Announcement was that the $150 million contributed to Boardwalk “will be used for the ongoing development of its assets”. This reinforces my view that the 12 December ASX Announcement recorded the mutual understanding that was held by Mr Tinkler for the Aston/Tinkler interests and Mr Haggarty for Whitehaven arising from the negotiations between them leading up to the Final Term Sheet that Whitehaven intended that the $150 million Capital Injection “will be used for the ongoing development of [Boardwalk’s] assets”, as well as for the repayment of US$50 million in debt and deferred payments of $15 million relating to Sienna.
On 12 December 2011, a document titled “Project Trifecta - Marketing Schedule” was prepared within Whitehaven. The Marketing Schedule listed a series of meetings at which presentations were to be made on the proposed Whitehaven/Aston merger to analysts, investors, institutions, stakeholders and the media to be held from 12 December 2011 until January 2012 in Sydney, Melbourne, Narrabri/Gunnedah, Brisbane, Singapore, Hong Kong, Tokyo and in the United States and Europe. In the Marketing Schedule, it was proposed that Whitehaven be principally represented by Mr Conde and Mr Haggarty and Aston be represented by Mr Vaile and Mr Kane.
Attached to the Marketing Schedule was a presentation document dated December 2011 (December 2011 Investor Presentation) with the respective logos of Aston and Whitehaven. The December 2011 Investor Presentation appears to be intended to be shown at the events set out in the Marketing Schedule. The December 2011 Investor Presentation is a further version of the Draft Investor Presentation that was sent to Mr Tinkler and others on 10 December 2011 at 11:29pm, as set out above.
One of the slides of the December 2011 Investor Presentation is headed “Transaction overview” (being an updated version of the “Transaction overview” slide in the Draft Investor Presentation), which includes the following section (emphasis added in underline):
Whitehaven acquisition of Boardwalk Resources
- Acquisition of Boardwalk in exchange for 85.88m Whitehaven shares (not eligible for Whitehaven special dividend)
- 34.02m additional shares to be issued as consideration in the event of certain milestones being reached
- Boardwalk Resources shareholders to contribute A$150m in cash to Boardwalk Resources which will be used for the ongoing development of its assets. Boardwalk Resources also has US$50m debt outstanding
- Majority vote by Whitehaven shareholders to approve the issuance of shares to Boardwalk shareholders
- Acquisition is unanimously recommended by the Whitehaven Board. Whitehaven shareholders (including the directors) representing 42.9% of total Whitehaven shares on issue have indicated they intend to vote in favour of the resolution at the general meeting
- Acquisition of Boardwalk is conditional on Aston Scheme approval (not vice versa)
In cross-examination, Mr Haggarty said that the December 2011 Investor Presentation was usually handed out and put up as slides in the meetings (T363–364). Mr Haggarty could not recall who spoke to the slide extracted above during each of the meetings (T364).
A further presentation document dated March 2012 (March 2012 Investor Presentation) contains a slide headed “Transaction overview” with the following section, which is very similar to that contained in the December 2011 Investor Presentation (emphasis added in underline):
Whitehaven acquisition of Boardwalk Resources
- Acquisition of Boardwalk in exchange for 85.89m Whitehaven shares (not eligible for Whitehaven special dividend)
- An additional 34.02m shares issued with restrictions subject to certain project development milestones being met (Milestone Shares)
- Boardwalk Resources shareholders or a nominee to contribute A$150m in cash to Boardwalk Resources which will be used for the ongoing development of its assets
- Majority vote by Whitehaven shareholders to approve the issuance of shares to Boardwalk Securityholders
- Acquisition is unanimously recommended by the Whitehaven Board. Whitehaven shareholders (including the directors) representing 42.9% of total Whitehaven shares on issue have indicated they intend to vote in favour of the resolution at the general meeting
- Acquisition of Boardwalk Resources is conditional on Aston Scheme approval (not vice versa)
In cross-examination, Mr Haggarty agreed that the same relevant text was contained in the March 2012 Investor Presentation and the December 2011 Investor Presentation, which is that the $150 million Capital Injection “will be used for the ongoing development of [Boardwalk’s] assets” (T365).
In my opinion, the December 2011 Investor Presentation and the March 2012 Investor Presentation contained further confirmation of the mutual understanding amongst Whitehaven, the Aston/Tinkler interests (including Mr Tinkler) and their respective advisers about the intended use of the $150 million Capital Injection for the ongoing development of Boardwalk’s assets after the repayment of debt and the deferred payments relating to Sienna.
I infer that for the purpose of answering potential questions that might arise during the meetings outlined in the Marketing Schedule, Credit Suisse, Goldman Sachs, Grant Samuel and UBS as financial advisers to Aston and Whitehaven, jointly prepared a document titled “Project Trifecta - potential investor questions” (Q&A D****ocument). The logo of each of those advisers is contained on each page of the Q&A Document.
Section 2 of the Q&A Document is headed “Boardwalk acquisition”. In answer to question 2.1 “Did Whitehaven want to buy Boardwalk or was it something that Nathan Tinkler wanted?” (which is tasked to Mr Haggarty and Mr Conde to answer), the suggested response is as follows:
- Whitehaven has evaluated Boardwalk separately from the Aston merger, however Whitehaven believes that the acquisition of Boardwalk is an important part of the overall merged entity picture. [Therefore, the acquisition of Boardwalk will only proceed if the Aston/Whitehaven merger proceeds]
- Whitehaven is paying a fair value for Boardwalk
- Very optimistic about the assets and potential within the Boardwalk portfolio
- Boardwalk provides an attractive portfolio which is complementary to the Merged Entity
- provides additional growth options, both within the Gunnedah region and other Australian coal producing regions.
- balanced pipeline production, development and exploration for the Merged Entity.
- The transaction as a whole is being put to shareholders and Aston Board considers this transaction is in the best interest of Aston’s shareholders
- Aston believes the exploration portfolio will enhance the growth outlook of the Merged Entity
- Whitehaven has negotiated the Boardwalk acquisition, not Aston
- The cash injection was agreed between Whitehaven and Tinkler Group as part of the negotiations to acquire Boardwalk
- The cash will be used to help fund the exploration and development of the Boardwalk assets
- Tinkler Group’s willingness to subscribe these funds and increase its investment in the Merged Entity evidences its belief in the growth prospects of the Boardwalk portfolio and the merger of Aston and Whitehaven
- Whitehaven has evaluated Boardwalk separately from the Aston merger and is very excited about the assets and potential within the Boardwalk portfolio.
- Boardwalk provides an attractive portfolio which is highly complementary to the Merged Entity
- The Boardwalk transaction is conditional on Whitehaven shareholder approval (i.e. 50% approval threshold)
Mr Tinkler said in his affidavit evidence that he was not involved in the preparation of the Q&A Document, he was not involved in the meetings at which the presentations were made and he refers to the Marketing Schedule. In cross-examination, Mr Tinkler agreed that he was not involved in the presentations and could not recall whether he received or read the Marketing Schedule (T276–277). In further cross-examination, Mr Tinkler agreed that he was not involved in the preparation of the Q&A Document and again confirmed that he was not involved in the marketing presentations to potential investors but maintained that he received and read the Q&A Document and discussed it with Mr Flynn and Mr Christensen (T273–274). Mr Tinkler was further challenged on having no memory of receiving or reading the Q&A Document in 2011 or 2012, but refuse to concede that matter (T297). I accept Mr Tinkler’s evidence on this point, particularly in light of the fact that the Q&A Document refers to the motivations of the Tinkler Group and Mr Tinkler in particular.
The fact that Mr Tinkler deposed in his affidavit that he was “not involved in the roadshows or presentations” became a particular topic at the outset of the cross-examination of him by reference to the December 2018 SOC and the letter dated 21 December 2018 to Whitehaven to which the December SOC was attached (T223–232). As stated above, these proceedings were first commenced in the Supreme Court of QLD with Mr Tinkler as the plaintiff. In cross-examination, Mr Tinkler agreed that he instructed AJ & Co Lawyers to act on his behalf in the proceedings and he gave them detailed instructions over several months before the proceedings were lodged (T223–224).
Paragraphs 21, 22 and 23 of the December 2018 SOC state (emphasis in original):
- Between approximately 12 December 2011 and March 2012, the Plaintiff (for Boardwalk and Aston), Aston (by its officers, Mark Vaile, Tony Haggarty and Philip Christensen) and the Defendant (by its officers, John Conde and Allan Davies) attended and appeared at a series of investor roadshows at which the Investor Presentation was provided to Aston shareholders and representatives for Aston shareholders (the Roadshows) and its terms and details were expanded.
- At the Roadshows:
(a) the Investor Presentation was distributed;
(b) the Aston and the Defendant (by their representatives as identified above) stated:
(i) the Boardwalk Projects would continue to be developed and environmental approvals and mining lease approvals would be obtained for at least 2 of the Boardwalk Projects within 1 to 2 years;
(ii) the Plaintiff would be providing US$150,000,000 to Boardwalk for the purpose of progressing the Boardwalk Projects and bringing them into operation;
(iii) the injection of funds (being the US$150,000,000) would allow the Boardwalk Projects to be pursued after the Merger without impacting on Whitehaven’s bottom line;
(iv) the injection of funds (being the US$150,000,000) would result in at least 2 of the Boardwalk Projects being developed within 1 or 2 years and the Milestone shares becoming ordinary paid up shares;
(c) the Plaintiff said in his personal capacity that he would not be paying such significant monies to Whitehaven if he was not confident that the Boardwalk Projects would be brought on line quickly.
- By virtue of the Investor Presentation and the statements made at the Roadshows (as identified immediately above), the Defendant represented to the Plaintiff and Group Members that:
(a) the Plaintiff would be paying Boardwalk AUD$150,000,000 and these funds would be applied to the development of the Boardwalk Projects including obtaining environmental approvals and mining lease approvals;
(b) those environmental approvals and mining lease approvals for at least 2 of the Boardwalk Projects were likely to be obtained in 1 to 2 years and this would result in the Milestone shares becoming unrestricted;
(the Boardwalk Projects Representation).
In a lengthy portion of the cross-examination of Mr Tinkler, it was repeatedly put to him that the true position was that he was not involved in the roadshows or presentations, which he readily accepted, and therefore the claims made in paragraphs 21, 22 and 23 of the December 2018 SOC were false (T224–230). Mr Tinkler repeatedly denied this assertion on the basis that he had attended the initial Sydney telephone conference in UBS’s office when they announced the deal but did not travel to attend the roadshows (T224–230). This concluded in an attack on Mr Tinkler’s credit on the basis that he is “a person willing to make untrue claims, including in documents filed in the Supreme Court of Queensland, if you believe those claims will assist in your case against Whitehaven” (T230).
I reject this attack on Mr Tinkler’s credit. As referred to above, the December 2018 SOC was not drafted by him – it was drafted by lawyers to state pleaded causes of action. Mr Tinkler did not sign, attest or otherwise adopt the December 2018 SOC and there is no evidence that he even reviewed it before it was filed. I do not consider that it demonstrates Mr Tinkler to be a person willing to make false claims.
In cross-examination, Mr Haggarty confirmed that he went on the “roadshow” to the places listed in the Marketing Schedule (T357). As part of the “roadshow”, Mr Haggarty was equipped with the Q&A Document, which was prepared with his assistance as well as the assistance of advisers (T357–358). During the cross-examination, Mr Haggarty confirmed in various forms that he held the views expressed in the statements made in answer to questions 2.1, 2.4, 3.12 and 5.12 of the Q&A Document, which he regarded as accurate (T358–361).
In regard to the answer to question 3.12 in the Q&A Document extracted above, the cross-examination of Mr Haggarty proceeded as follows (T360–361):
Q. Then at page 0060 you see there’s a question there, 3.12:
Why is the Tinkler Group injecting $150m of cash into Boardwalk as part of the transaction?
And it says:
The cash injection was agreed between Whitehaven and Tinkler Group as part of the negotiations to acquire Boardwalk.
And that was an accurate statement as far as you were concerned?
A. Yes.
Q. And:
The cash will be used to help fund the exploration and development of the Boardwalk assets.
Again, that’s something you thought was an accurate statement?
A. Yes.
Q. And
Tinkler Group’s willingness to subscribe these funds and increase its investment in the Merged Entity evidences its belief in the growth prospects of the Boardwalk portfolio and the merger of Aston and Whitehaven.
A view that you held, isn’t it?
A. Yes.
Q. Being that it’s a view that you held, you held that view for some time?
A. The timeline I’m not clear on, but certainly it was the view at the time of the deal being done.
Q. And with reference to the cash, that first bullet point “the cash injection was agreed 2013 Whitehaven and Tinkler Group as part of the negotiations”, you were part of those negotiations, weren’t you?
A. Yes.
Q. And then the negotiations, and I’ll come to this in a bit more detail, but you accept - I withdraw that. You accept there are conversations in which you participated before the date of the final signed term sheet; one or more of your advisers on one side and Mr Tinkler and one or more of his advisers on the other side?
A. Yes.
Q. I take it you don’t remember the precise conversations which were had?
A. No.
Q. Nor do you remember the precise date of the conversations?
A. No. Well, not all of them, no.
Q. I think there’s one conversation you refer to on 21 November where you perhaps have a more specific recollection?
A. Yes.
Q. But there are more conversations after that?
A. After that, yes.
Q. And I’m not suggesting you should, but you don’t suggest you can remember precisely how many conversations there were or what was precisely said in every conversation?
A. No.
Q. But you do recall being part of the - I withdraw that. This statement here reminds you, doesn’t it, that you were part of discussions in the form of negotiations in which the subject matter of the cash injection was agreed?
A. Yes.
Q. And it’s likely, is it not, only because of your practice and experience, likely is it not that for example Mr Bartlett was there as well?
A. Probably, yeah.
Q. And on the other side, Mr Tinkler and probably Mr Di Pilla?
A. Probably.
Q. And you see, the cash injection was agreed and then it goes:
The cash will be used to help fund the exploration and development...
Again that reminds you, doesn’t it, that that was - the statement that the cash will be used to help fund the development and - sorry. The statement that “The cash will be used to help fund the exploration and development of the Boardwalk access”, seeing that there reminds you, doesn’t it, that that too was part of the discussion when the topic of the $150m was negotiated?
A. Yeah, at some point it was.
Later in the cross-examination of Mr Haggarty, he was also asked about the answer to question 3.12 of the Q&A Document. Mr Haggarty agreed that he was part of discussions in the form of negotiations preceding the Final Term Sheet with advisers on both sides in which the subject matter of the cash injection was agreed (T378–379).
These answers collectively provide further confirmation of Mr Haggarty’s consistent evidence that the use of the $150 million Capital Injection was a matter which formed part of the discussions during the negotiations between Mr Haggarty, Mr Tinkler and their respective advisers before the Final Term Sheet. As I have found above, clearly those discussions were the source of the statements made in the Q&A Document regarding the use of the $150 million Capital Injection.
On 13 December 2011, a draft letter to Whitehaven shareholders was prepared to be signed by Mr Conde as chairman of Whitehaven (13 December Draft Letter). The 13 December Draft Letter referred to the announcement of the merger between Whitehaven and Aston and proposed to attach the 12 December ASX Announcement, which it described as “detailing important aspects of the merger”. The word “important” replaced (in track change) the word “all”.
Within the 13 December Draft Letter there is a section headed “Acquisition of Boardwalk Resources & Whitehaven Shareholder Approval”, part of which states:
As part of the transaction, existing Boardwalk Resources shareholders will contribute $150 million in cash to Boardwalk Resources which will be used for the ongoing development of its assets. Boardwalk also has existing debt of US$50 million.
In his affidavit evidence, Mr Tinkler referred to the 13 December Draft Letter but laid no claim to having received or read it. In cross-examination, it was suggested to Mr Tinkler that he did not have any memory of receiving or reading the 13 December Draft Letter in about 2011 or 2012 (T275–276). Mr Tinkler rejected that proposition, saying that as chairman of Aston “we shared things like this” and “this was certainly something that all parties signed off on” (T276). When pressed further on his memory, Mr Tinkler said he did not have precise timing on any actual memory of reading the 13 December Draft Letter in 2011 or 2012 (T276). Mr Tinkler refused to agree that he had no memory of receiving or reading this 13 December Draft Letter in 2011 or 2012 (T297).
I am not able to make any finding that Mr Tinkler received or read the 13 December Draft Letter, but in any event it is consistent with documents prior to 11 December 2011 (when the SPA was signed by Mr Tinkler) which are to the same effect in the description of the $150 million Capital Injection and which he plainly read, such as the 9 December Further Draft ASX Announcement and the 10 December Draft ASX Announcement.
Whitehaven has entered into separate agreements to acquire all of the shares and other issued securities in unlisted coal explorer Boardwalk Resources (‘Boardwalk’). Boardwalk investors will be issued 85.88 million Whitehaven shares as consideration for the acquisition and an additional 34.02 million Whitehaven shares which will vest if certain milestones in the development of the assets are met. The Boardwalk acquisition is conditional upon the Aston/Whitehaven merger completing and other customary conditions. As part of the transaction, Boardwalk shareholders will contribute $150 million in cash to Boardwalk which will be used for the ongoing development of its assets. Boardwalk also has existing debt of US$50 million. It is expected that the Boardwalk transaction will complete in April 2012.
On 12 December 2011, Minarco Mine-Consult (MMC) prepared a draft report titled “Ferndale Coal Deposit: Conceptual Mine Planning” (D****raft MMC Report). Pursuant to s 136 of the Evidence Act 1995 (NSW), the Draft MMC Report was admitted into evidence on a limited basis only, as evidence that a report in that form and content was prepared and provided to Whitehaven. As a result, it cannot be used to prove any opinion that Ferndale was or is objectively uneconomic to develop.
The Draft MMC Report states that it was prepared for Boardwalk to document conceptual mine planning undertaken for Ferndale in circumstances where no coal resources had yet been estimated for Ferndale.
The Draft MMC Report states that Boardwalk had conducted work on an exploration programme at Ferndale, noting at heading “1.1 Purpose of Report”:
The major objective of this work was to determine conceptually what coal, if any, could be economically mineable by either open cut or underground mining methods. In addition, strategic analysis was undertaken to develop conceptual mine plans on which further exploration, investigation and planning could be based.
On 19 December 2011, senior executives within Whitehaven (Paul Verner, Clive Berry and Allan Davies) communicated with each other by email as a result of communications with banks regarding a short term financing facility. In his email of 12:07pm, Mr Verner (the treasurer for Whitehaven) stated “the banks are questioning the timing of when Mr T’s milestone shares will become unrestricted”. This led to an analysis being prepared of when the Trigger Events in respect of the Milestone Projects (being Dingo, Ferndale, Sienna, Monto and Oaklands North) as stated in cl 3 of the Restriction Deed were likely to occur.
On 19 December 2011 at 6:15pm, Mr Berry sent an email to Mr Davies and Mr Verner, attaching a table containing “our best conservative estimate of timing of the trigger events for each of the Boardwalk assets”. Mr Berry said the timeframes were based on a review of the operations for due diligence and their understanding of the approval requirements and relevant timeframes.
In the attached table, all of the Milestone Projects were estimated to have Trigger Events in the form of mining leases and environmental approvals in either FY2015 (Sienna, Monto and Dingo) or FY2016 (Ferndale and Oaklands North).
On 19 January 2012, Palaris Mining Pty Ltd published a report titled “Boardwalk Resources Independent Technical Experts Report” (Palaris Report). It was provided to Mr Slesarewich on behalf of Boardwalk.
The Palaris Report states that Boardwalk initially requested that Palaris complete an independent technical review of its coal mining projects for the Proposed IPO in October 2011 and prepare an independent technical expert’s report to be included in the prospectus for the Proposed IPO. However, the Palaris Report now comprised the independent technical expert’s report and was finalised for the benefit of Boardwalk’s directors and due diligence committee in connection with the proposed sale of Boardwalk to Whitehaven. The Palaris Report states that it was prepared by Palaris at the request of Boardwalk in respect of the relevant geological, mining and infrastructure assets at Ferndale, Dingo, Sienna and Monto.
Critically, the Palaris Report contains no economic analysis and continually emphasised the preliminary nature of many of the assessments made.
I have dealt with the Palaris Report in more detail when considering Ferndale and Dingo respectively below.
On 20 January 2012, AME Consulting Pty Ltd issued a report to the directors of Aston on the coking and thermal coal markets to be included in PwC’s independent expert report in relation to the proposed merger of Aston and Whitehaven (AME Report).
The AME Report provides analysis of the global coking and thermal coal markets and discussion on forecast coal production from Aston, Whitehaven and Boardwalk.
The AME Report was subsequently attached as part of the Scheme Booklet and was relied on in PwC’s independent expert report, both of which are set out in further detail below.
Used percentages as discussed with Tony this morning regarding likelihood of ML being granted
“Tony” is likely to refer to Mr Haggarty and “ML” means mining licence.
In cross-examination, Mr Haggarty said that his involvement in the question of the likelihood of mining leases being granted would have been for the audit for that year (T406), with Whitehaven’s accountants (Mr Picton being the audit accountant for Whitehaven) looking for support for the auditors for the half-year accounts (T408–409).
In the attached document, under the headings “Assumptions” and “Projects Likelihood of Obtaining Mining Licence” the following table appears:
| Asset | ML | No ML | Timing | | Dingo | 50% | 50% | Jun-14 | | Ferndale | 50% | 50% | Dec-14 | | Sienna | 60% | 40% | Jun-14 | | Monto | 50% | 50% | Jun-17 | | Oaklands | 0% | 100% | |
These percentages were then translated into another part of the attached document with a further table that indicated that there was:
an 80% chance of one mining lease being issued by 30 June 2014;
a 95% chance of one mining lease being issued by 30 June 2017; and
a 73% chance of two or more mining leases being issued by 30 June 2017.
Using these probabilities, the spreadsheet stated that the fair value of the Milestone Shares was $115,275,929.
Mr Haggarty said in cross-examination that while he could not recall that he got involved in assisting on the likelihood of the relevant contingent asset mining lease falling in about January 2012, from reviewing Mr Picton’s email he obviously did get involved (T407–408).
Also in cross-examination, Mr Haggarty rejected that the analysis of the contingent consideration was being done for the purposes of material which would go into a presentation to speak to investors (T409). I accept this evidence.
On 25 January 2012 at 9:07pm, Mr Pojezny sent an email to Mr Picton, Mr Perrin and others in response in which he commented on Mr Picton’s email of 3:29pm that day by saying that it “looks good” and the “results appear intuitive”. Mr Pojezny made a number of specific suggestions on the calculations. Mr Pojezny also stated (emphasis in original):
Incidentally a good key message coming out of this for [Mr Haggarty] in his discussions with analysts and investors is: ***“Even though the individual probabilities are between 0%-***60% for each mine, there is a 95% probability at least one of the mines will come into production, and a ~73% chance at least two will; and if that happens, the value of the BWK assets will certainly be above what we paid for them incl. milestones. This reflects the benefits of having a portfolio of exploration assets compared to just one of the assets”
At that time, Mr Haggarty was conducting meetings with analysts and investors to make the presentations referred to in the Marketing Schedule, so the emboldened text was a suggestion for him to include in those presentations.
On 27 January 2012 at 9:21am, Mr Picton responded to the email of 25 January 2012 from Mr Pojezny, stating that he had incorporated the changes advised by Mr Pojezny and had also undertaken some sensitivity analysis, which he then attached in an updated document. The updated document contained a revised table under the headings “Assumptions” and “Projects Likelihood of Obtaining Mining Lease”:
| Asset | ML | No ML | Timing | | Dingo | 70% | 30% | Jun-14 | | Ferndale | 70% | 30% | Dec-14 | | Sienna | 80% | 20% | Jun-14 | | Monto | 70% | 30% | Jun-17 | | Oaklands | 0% | 100% | |
The updated document also contained a revised further table that indicated that:
there was an 94% chance of one mining lease being issued by 30 June 2014;
there was a 95% chance of one mining lease being issued by 30 June 2017; and
there was an 89% chance of two or more mining licences being issued by 30 June 2017.
Using these probabilities, the spreadsheet stated that the fair value of the Milestone Shares was $137,882,998.
ANALYSIS AND CONCLUSION – measurement of fair value of contingent consideration
The fair value of the contingent consideration at the time that control passes must take into account probabilities of different outcomes which will result in the restrictions on the Milestone Shares being released.
In the case of the Boardwalk contingent consideration the main factors to consider in arriving at a probability matrix are:
- The likelihood that a Trigger Event will occur for a Project; and
- The timing of any such Trigger Event occurring
These two factors have been assessed as follows:
| Asset | Probability of Trigger Event | Probability of No Trigger Event | Timing of Trigger Event | | Dingo | 50% | 50% | Jun-14 | | Ferndale | 50% | 50% | Dec-14 | | Sienna | 60% | 40% | Jun-14 | | Monto | 50% | 50% | Jun-17 | | Oaklands North | 0% | 100% | n/a |
The assessment above is based on both the view of Whitehaven management (particularly Tony Haggarty who has significant experience in relation to early stage coal projects) and information provided to Whitehaven by Boardwalk in a “Company Presentation” dated January 2012. As such, the assessments above represent management’s best estimates based on the information available at the time of preparation of this paper.
As is evident, these probabilities were taken from the table contained in the attached document accompanying the email of 25 January 2012 at 3:29pm from Mr Picton.
These same probabilities were then used in the Scheme Booklet to calculate the fair value of the Milestone Shares, a topic dealt with in more detail below.
In the document containing the adjustments, using the probabilities stated, the fair value of the Milestone Shares was said to be $118,821,669.
On 5 February 2012 at 11:14am, Ms Hardie sent an email to Mr Pojezny, Tim Slattery of Goldman Sachs and others from Grant Samuel and Goldman Sachs asking whether they were happy for her to send through the Whitehaven accounting treatment of the contingent payments to PwC so that they could see how Whitehaven was treating them. Attached to the email was an excel file with spreadsheets, one of which is titled “Contingent Consideration” calculating the value of the Milestone Shares by reference to the likelihood of mining leases being issued, which were:
a 95% chance of one or more mining leases being issued by 30 June 2017; and
a 73% chance of two mining leases being issued by 30 June 2017.
On 5 February 2012 at 1:01pm, Mr Slattery sent an email to Mr Perrin and Mr Picton, copied to Mr Pojezny, Mr Bensan, Mr Jing and others, in which he forwarded the email at 11:14am from Ms Hardie with the attached spreadsheet. Mr Slattery explained that PwC had asked to see the Whitehaven accounting treatment for the Milestone Shares/contingent consideration. Mr Slattery described the spreadsheet analysis as follows:
For Boardwalk it shows the aggregated probabilities for the contingent consideration ie the work done by Whitehaven with KPMG and our input (Contingent Consideration tab), but without showing the project-by-project probabilities.
On 7 February 2012 at 6:30pm, Mr Picton sent an email to Mr Perrin to which he attached “revised pro-forma workings”. Mr Picton also attached the “revised Boardwalk contingent consideration taking account of non-marketability of the shares issued”, noting that it reduces the consideration by approximately $20 million. Those calculations had been made by Ernst & Young in a spreadsheet which Mr Picton forwarded with his email.
The attached spreadsheet reflected the same analysis which had been in the spreadsheet attached to the email of 25 January 2012 at 3:29pm from Mr Picton, which was that there was:
an 80% chance of one mining lease being issued by 30 June 2014;
a 95% chance of one mining lease being issued by 30 June 2017; and
a 73% chance of two or more mining leases being issued by 30 June 2017.
These probabilities gave rise to a fair value of the Milestone Shares of $98,027,877 as expressed in the attached spreadsheet.
Subsequently, as stated in more detail below, the Scheme Booklet stated the fair value of the Milestone Shares as $98.028 million, confirming the probabilities on which it was based to have been accepted within Whitehaven.
Based on the emails of 25 January 2012 at 3:29pm, 25 January 2012 at 9:07pm, 27 January 2012 at 9:21am, 5 February 2012 at 1:01pm, 7 February 2012 at 6:30pm and the attachments to those emails as well as the papers for the Audit and Risk Committee meeting on 31 January 2012, I infer that as at 7 February 2012:
The views expressed by the senior executives of Whitehaven and their advisers about the likelihood of the Trigger Events occurring was based on the information available to them at that time.
Those views were positive about the prospects of the occurrence of the Trigger Events, part of which included the positive assessment of the characteristics and capabilities of the Boardwalk Projects.
The exercise of stating the likelihood of the Trigger Events occurring was for the purpose of expressing a valuation of the Milestone Shares in the accounts of Whitehaven.
There was an intention within Whitehaven to spend significant money on the development of the Boardwalk Projects but not Oaklands North to enable them to be the subject of a Trigger Event.
I also consider that the views expressed in these emails and their attachments provide contemporaneous documentary support of an intention within Whitehaven that the $150 million Capital Injection would be spent on developing Boardwalk’s assets of Ferndale, Dingo, Sienna and Monto, collectively being the Boardwalk Projects.
It is also abundantly clear that none of the reasoning for the views on the likelihood of the Trigger Events was exposed in the documents in which they are expressed.
To help advance matters I have looked at the SPA and set out below my interpretation of how the SPA works with these two issues.
l set out what I think is the position on these issues from a SPA perspective.
1 Repayment of Interest on Noonday USD50 Million Loan
SPA clause 4.9 obliges BRI (or nominee) to subscribe for the Subscription Amount (AUD150M). There is no express provision regulating how the funds may be used.
The subscription must be no later than the Business Day after the Scheme comes into effect (ie: before Completion under the SPA).
SPA 4.2 provides that BWK can make payments to satisfy obligations under contracts entered into before date of SPA. Noonday loan agreement is such a contract. Vendors must notify WHC before a payment is made.
SPA 5.4(d) provides that BWK will not have third party debt exceeding USD50M. This clause does not address payment of interest or utilization of the subscription money.
5.4(d) will be satisfied by BWK paying interest from the $150M.
4.2 and 5.4(d) work consistently.
2 Payment of 1% fee re $150M capital injection to Queen Street Capital
The QSC mandate letter sets out the fee and this was included in the BWK data room and was accessed in November by WHC advisors Grant Samuel.
The SPA does not provide for this fee to not be paid. It was incurred prior to signature of the SPA and disclosed. SPA 4.2 (refer above) applies.
3 Marketing Material
Reviewing the marketing material – the only reference I can see to this is in the Transaction Overview “Boardwalk Resources shareholders to contribute A$150m in cash to Boardwalk Resources which will be used for the ongoing development of its assets. Boardwalk Resources also has US$50m debt outstanding”.
This statement could mean many things and is not inconsistent with interest being paid from the $150m.
As stated above, Queen Street Capital was beneficially owned by Mr Tinkler via a trust.
As is apparent, Mr Christensen was asserting that cl 4.2 of the SPA entitled Boardwalk to make payments to satisfy obligations which had been entered into before the date of the SPA (11 December 2011) from the $150 million Capital Injection and that the obligations of Boardwalk to pay interest on the US$50 million loan from Noonday and to pay Queen Street Capital the 1% fee for the $150 million Capital Injection had both arisen before the SPA. As his third point, Mr Christensen repeated the statement that appeared in the slide of the December 2011 Investor Presentation and is headed “Transaction overview”, which I have found above records the understanding reached in discussions during the negotiations between Mr Haggarty, Mr Tinkler and their respective advisers before the Final Term Sheet.
Whitehaven argues that Mr Christensen’s “memo” is directly inconsistent with Les & Zelda’s case because it was an assertion by Mr Christensen that funds could be used otherwise than to develop the Milestone Projects or to pay debts, and as such it was an assertion which contradicts Les & Zelda’s case theory. Whitehaven also says that it is important to bear in mind that Mr Christensen was one of the attorneys who signed the SPA and is effectively a Group Member in these proceedings.
On 7 February 2012 at 8:28am, Mr Haggarty sent an email to Mr Christensen in response to his “memo” of the previous day. Mr Haggarty answered each of the points raised by Mr Christensen in the following way:
Thanks for your note. Here is our high level reply.
1. Repayment of Interest on Noonday Loan
We have difficulty with your interpretation around the application of the $150m. It was always intended that this be injected into the business only after shareholder approval for the Whitehaven/Aston scheme but that an amount of up to $25m would be injected into the business to meet the expected obligations of the business up to 31 March 2012 – with such obligations set out in the budget attached to the SPA.
In terms of your legal analysis, our legal advice is that SPA 4.2 doesn’t have application here given that that the obligation to make interest payments isn’t triggered until the end of the two year loan period. This interpretation is supported by the fact that the BWK budget attached to the SPA doesn’t contemplate interest payments in the period prior to 31 March.
2. Payment of 1% Fee on $150m Capital Injection.
I thought we closed this issue out last week. However if you wish to continue to press the issue, our view is that the $150m contribution isn’t equity in the traditional sense – it is a transaction structured to achieve an outcome requested by Nathan. By contrast, the circa $25m being contributed to the business by Nathan in the period to 31 March is funding required for the business – and on this basis we would be prepared to consider agreeing a fee for QSC in relation to that component.
3. Marketing Material
Throughout the marketing of the deal I and Aston representatives have presented the debt position of Boardwalk on acquisition to be USD50m. This, and the consequential net cash in Boardwalk of $100m has been picked up by a number of analysts in their reports addressing the issue of the valuation of Boardwalk.
Can we discuss these matters this morning so that I can get a clear view of what to put to the Whitehaven Board on these issues.
Clearly Mr Haggarty took issue with the way in which Mr Christensen was interpreting the provisions of the SPA as they operated in respect of the proposed payment of interest to Noonday in a number of ways. First, by saying that it was intended that the $150 million would only be injected into Boardwalk after the scheme was approved. Secondly, by saying that an amount of up to $25 million would be injected into Boardwalk to meet expected obligations up to 31 March 2012 in accordance with the Boardwalk Budget attached as Annexure B to the SPA. Thirdly, by saying that cl 4.2 of the SPA had no application as there was no obligation to make interest payments to Noonday until the end of the two year loan period, which was beyond March 2012.
In relation to the 1% fee to be paid the Queen Street Capital, Mr Haggarty’s response that the $150 million “isn’t equity in the traditional sense – it is a transaction structured to achieve an outcome requested by Nathan”. This is consistent with there being the mutual understanding amongst Whitehaven, the Aston/Tinkler interests (including Mr Tinkler) and their respective advisers about the intended use of the $150 million Capital Injection, which was that it would be used for the ongoing development of Boardwalk’s assets, as I have found above. An outcome requested by Mr Tinkler was not just that the $150 million Capital Injection achieve a nearly 20% shareholding in Whitehaven for the Tinkler interests but also that the $150 million Capital Injection would be used to develop the assets of Boardwalk.
In any event, Mr Haggarty indicated that Whitehaven would be prepared to consider agreeing that the 1% fee to Queen Street Capital could be paid from the $25 million that would be contributed in loans in the period to 31 March 2012 (which cll 4.2 and 4.8 of the SPA allowed).
The third point raised by Mr Haggarty was simply to indicate that in valuing Boardwalk, analysts had recognised that the payment of Boardwalk’s $50 million in debt would leave Boardwalk with net cash of $100 million. Presumably Mr Haggarty did not want Boardwalk to be in a position where it had less than $100 million in net cash after the $150 million Capital Injection was made and the debt repaid.
Whitehaven says that this response from Mr Haggarty is telling because it was not asserted that the funds could only be used to develop the Milestone Projects and repay debt, rather Mr Haggarty observed that the premise of the deal was that except for identified instances, Boardwalk’s costs would be met from its funds in the lead up to completion. Whitehaven says that Mr Haggarty also identified that there was to be left with Boardwalk a certain amount of cash at completion, which the proposal would cut across. Whitehaven argues:
The fact that nowhere in this exchange did either party refer to the assertion that the funds were to be used only for the purposes of the Milestone Projects (except to pay debt) is a powerful indication that the foundation of [Les & Zelda’s] case is hollow.
On 7 February 2012 at 12:11pm, Mr Christensen sent an email to Mr Haggarty, copied to Mr Flynn, in which he replied to Mr Haggarty on each of the two issues, saying “[l]ooks like we have different views here - but we do need to resolve this”. In summary, the email contained the following remarks:
In relation to the first issue of interest, Mr Christensen replied that they always saw the interest being paid from the $150 million, he thought the SPA permitted that payment and to leave only $50 million of principal outstanding at completion required interest to be repaid. Therefore, cl 4.2 of the SPA does apply. Mr Christensen also observed that it would appear that the advances required between January and March 2012 would be $20 million and not $25 million as contemplated by cl 4.8. He accepted that interest was not contemplated in the cash flow in appendix B to the SPA but it was consistent with their thinking of how the interest would be repaid.
Mr Christensen said in respect of the second issue of the Queen Street Capital fee that they thought the 1% fee was clearly caught by the mandate letter that was reviewed by Whitehaven’s advisers, they had aired their positions at the meeting the previous week and that Mr Haggarty was to revert to him the previous day.
Mr Christensen suggested that they would consider waiving the $1.5 million fee on the basis that interest is paid in full from the $150 million, which he considered represented “a fair compromise on our part”.
On 7 February 2012 at 2:57pm, Mr Haggarty sent an email to Mr Christensen, copied to Mr Flynn, Mr Burt, Mr Perrin and Mr Bartlett, in which he observed that Whitehaven and their advisers had very different views on the issues, and said that Mr Christensen’s proposal was not acceptable to Whitehaven as it would result in a substantial reduction in the value of Boardwalk of around $5 million, which they believed was neither in the spirit nor the letter of the SPA. Mr Haggarty said that he did not know how to resolve the issue, he would be travelling to Perth that afternoon and Mr Christensen should liaise with Mr Burt and Mr Perrin if he wished to discuss it further that day.
On 9 February 2012 at 1:24pm, Mr Flynn sent an email to Mr Tinkler in which he raised with him the outstanding commercial issues concerning interest on the Noonday loan and the 1% fee for Queen Street Capital. Mr Flynn said that both of these items were in the data room “from day one” and they can prove that they had accessed them. Mr Flynn said that he had told Whitehaven that the items were their responsibilities to cover as part of their due diligence and “we should not be responsible for their poor dd”. Mr Flynn also said:
They are fine with the 3.5m qsc fee but think the 1% is cute because we are raising the money to improve our equity position post deal.
[Mr Haggarty] is most concerned about what he has told the market being that is a net 100m going into [Boardwalk] and now he is in aud terms only 95m. He says he can’t go back and say something different. rubbish also.
Yeah fuck him. We should be entitled to the 1% as well but will move on that if I have to.
I have taken enough hits here they can suck this up.
I will call tony when I get to LA.
Tink
Whitehaven relies on Mr Tinkler’s email as not demurring from Mr Flynn’s description of the purpose of the $150 million share subscription being to “improve our equity position post deal” and there was no mention of any understanding that the remainder of the $150 million Capital Injection was to be used in a particular way. Whitehaven also says that Mr Tinkler’s assertion that it was open to use the $150 million Capital Injection to pay for professional advice fees used in the process of generating a benefit for him and BRI is also inconsistent with an understanding that the remainder of the $150 million Capital Injection was to be used only for the purposes of obtaining approval for the Milestone Projects.
On 10 February 2012 at 10:37am, Mr Perrin of Whitehaven sent an email to Mr Christensen, copied to Mr Haggarty and Mr Burt, in which he referred to a conversation on the telephone the previous day and confirmed that Whitehaven was disputing the 1% fee for Queen Street Capital and the interest on the Noonday loan as a liability of the merged entity. After setting out Whitehaven’s view on the proper construction of the relevant provisions of the SPA, Mr Perrin set out a proposed compromise in which Whitehaven would allow 50% of the capitalised interest up to $1.5 million on the Noonday loan and no recognition of the 1% finance fee for Queen Street Capital.
On 13 February 2012 at 12:33pm, Mr Perrin sent an email to Mr Christensen which referred to a telephone conversation between them that day and stated that Mr Christensen was going to send him an email detailing his acceptance of the Noonday interest and Queen Street Capital finance fee arrangement that was put forward in the email of 10 February 2012, with minor amendments. Mr Perrin asked Mr Christensen as a matter of priority to forward the email to him at his earliest convenience so that he could “accelerate the scheme process”.
On 13 February 2012 at 12:57pm, Mr Christensen sent an email to Mr Perrin, copied to Mr Flynn and Mr Lawler (by then of Blake Dawson and no longer of Gilbert + Tobin), in which he referred to Mr Perrin’s email of 10 February 2012 and confirmed their agreement that $1.5 million of the interest on the Noonday loan would be funded by the merged entity and Boardwalk would fund the remaining interest of $1,534,000 by Queen Street Capital waiving its fee of 1% on the $150 million Capital Injection.
Les & Zelda says that, contrary to Whitehaven’s contentions, this correspondence about the payment of interest on the Noonday loan and the 1% fee to Queen Street Capital is not directly inconsistent with its case. Les & Zelda argues that Whitehaven’s characterisation is an erroneous reading of what was truly in issue, which was a fight over who got to control what was expended out of the $150 million being injected into Boardwalk. Les & Zelda says that Whitehaven (understandably) wanted as much net cash as possible post-merger, including because the net cash figure of $100 million had been picked up by a number of analysts in their reports addressing the issue of the valuation of Boardwalk. Les & Zelda submits:
That desire on behalf of Whitehaven is not inconsistent with the repeated affirmations, or the mutual understanding and expectation, that the $150m would be expended on developing Boardwalk’s assets. To the contrary, it was consistent with it. Whitehaven wanted as much money [as possible] at merger completion so as to undertake these efforts.
On 29 February 2012, MMC issued its report to the directors of Aston (MMC Report) to be included in PwC’s independent expert report in relation to the proposed merger of Aston and Whitehaven and the proposed acquisition of Boardwalk by Whitehaven.
The purpose of the MMC Report is stated to be:
confirm resource and reserve estimates and to assess the fairness of mine production budgets and forward estimates of Aston and Whitehaven to allow PwC to prepare an independent valuation of Aston and Whitehaven as stand-alone businesses as well as a valuation of the merged business; and
confirm the resource and reserve estimates, and estimate a value range for the assets of Boardwalk.
The MMC Report states that MMC conducted its technical review in recognition of the requirements of:
the JORC Code (detailed above); and
the Code and Guidelines for Assessment and Valuation of Mineral Assets and Mineral Securities for Independent Expert Reports as adopted by the Australasian Institute of Mining and Metallurgy (which is often referred to as the Valmin Code).
The MMC Report explicitly refers to “Boardwalk’s assets” as including the exploration tenements of Ferndale, Sienna, Dingo and Monto (with no mention of the Coalworks project at Oaklands North), concluding from its review of Boardwalk that:
- Boardwalk’s tenements are generally well located with respect to coal prospectivity and existing logistics infrastructure;
- With the exception of Ferndale, there is as yet insufficient geological certainty for the estimation of a JORC Resource in conformance with the JORC Code; and
- MMC estimates that the attributable value of the Boardwalk assets is between $50.2M and $144.4M
The map of the “Location of Boardwalk’s Exploration Assets” which is in figure 1.2 of the MMC Report only depicts the location of Ferndale, Sienna, Dingo and Monto, and also does not include the Coalworks project at Oaklands North.
Section 22 of the MMC Report is headed “Boardwalk Overview”. Part 22.1 headed “Introduction” makes it clear that the MMC Report only reviews the assets in which Boardwalk has or will have a direct holding and “therefore does not include the Oaklands and Vickery South assets”.
In cross-examination, Mr Haggarty agreed that the MMC Report identified work being done in relation to the Boardwalk assets, either historical or ongoing, which was limited to the four tenements of Ferndale, Sienna, Dingo and Monto (T326–331).
I have dealt with the MMC Report in more detail in my consideration of Ferndale and Dingo respectively below.
On 6 March 2012, PwC’s independent expert report on the proposed merger of Aston and Whitehaven (PwC Report) was completed and attached to a letter of that date addressed to the directors of Aston (PwC Letter).
Earlier drafts of the PwC Report were provided to ASIC for the purposes of regulatory approval.
Attached to the PwC Report as Appendix B was a list of the “major sources of information” to which PwC had access and relied upon for in preparing the PwC Report, which included:
the SIA and other related transaction documents;
the Scheme Booklet (including earlier drafts);
ASX announcements for Aston, Whitehaven and other listed companies;
discussions with management, and the advisers of Aston, Whitehaven and Boardwalk;
other information provided by management of Aston and Whitehaven including documents obtained from the virtual datarooms in relation to the scheme; and
information in relation to Boardwalk.
In cross-examination, Mr Haggarty said that he probably did provide information to PwC, and it would have been normal for him to do so (T317–318). He also agreed that he regarded the management of Boardwalk as including Mr Tinkler, the management of Aston as including Mr Tinkler and that the Scheme Booklet (which included the PwC Report) was approved by the advisers to all parties (T318).
In the PwC Letter, the following paragraph appears in section 1 headed “Introduction” (emphasis added in underline):
Simultaneous to entering into the SIA, Whitehaven entered into separate agreements to acquire all of the shares and other issued securities in unlisted coal exploration company, Boardwalk Resources Limited (Boardwalk) in exchange for 85.89 million Whitehaven shares (Initial Shares) and 34.02 million additional Whitehaven shares with rights restricted in accordance with the Restriction Deeds outlined below (Milestone Shares) (the Proposed Boardwalk Transaction). As part of the Proposed Boardwalk Transaction, existing Boardwalk investors will contribute $150 million of cash to Boardwalk which will be used for the ongoing development of its assets. Boardwalk also had $58.8 million of outstanding debt to entities related to certain Boardwalk investors as at 31 December 2011. Prior to implementation, Boardwalk’s debt will reduce by $5.3 million through the conversion of debt to equity.
In cross-examination, Mr Haggarty said that he regarded this paragraph as an accurate description of the proposed transaction and that he signed off on it, which I take to mean that he had the same view as set out in this paragraph (T319).
The “Proposed Boardwalk Transaction” which is referred to in this statement is one in which the $150 million Capital Injection was being made as part of the issuing of the Unrestricted Shares and Milestone Shares. In cross-examination, Mr Haggarty confirmed that this was his understanding of the transaction (T321).
Mr Haggarty was questioned about the statement quoted above and gave the following evidence (T320):
Q. … So the question I asked you:
As part of the Proposed Boardwalk Transaction, existing Boardwalk investors will contribute $150 million of cash to Boardwalk which will be used for the ongoing development of its assets.
You see that?
A. Yes.
Q. Then again, you regarded that at the time as an accurate description?
A. At the time, yes.
Q. And that was a description which you thought it was accurate based on the position which had been reached as at the time of the signed term sheet; agree?
A. Well, the situation was that that was the intent. The intent at the time was to develop those assets to invest further capital developing those assets.
Q. I’ll ask you my question again. You regarded that as an accurate description of the proposed Boardwalk transaction as at the time the term sheet was signed?
A. Yes. Well, obviously it’s in the scheme booklet.
Q. And based on the negotiations in which you participated prior to the signing of the term sheet; correct?
A. Yes.
Summarising this evidence, Mr Haggarty confirmed that the position which had been reached based on the negotiations in which he had participated prior to the signing of the Final Term Sheet was that the $150 million Capital Injection “will be used for the ongoing development of [Boardwalk’s] assets”. This is entirely consistent with the evidence given by Mr Haggarty at other points in the cross-examination in respect of the mutual understanding of the Aston/Tinkler interests (including Mr Tinkler), Whitehaven (including Mr Haggarty) and their respective advisers as to the intended use of the $150 million Capital Injection, which I have found to be sourced in the discussions as part of the negotiations leading up to the Final Term Sheet. That mutual understanding is also recorded in the 9 December Further Draft ASX Announcement, the 10 December Draft ASX Announcement, the 12 December ASX Announcement, the December 2011 Investor Presentation, the 2012 Investor Presentation, the March 2012 Investor Presentation, the Q&A Document and (as I have found below) the Scheme Booklet.
Mr Haggarty gave further confirmatory evidence of this understanding in the following exchange (T321):
Q. And as part of that transaction, I think you’ve already agreed as you understood it based on negotiations you participated in as at the time of the term sheet, existing Boardwalk investors will contribute $150m of cash which shall be used in the development of its ongoing assets; that’s correct?
A. Yes.
Section 3 of the PwC Letter is headed “Summary of our opinion and key conclusions”, which commences with the statement that PwC consider the scheme to be in the best interests of Aston shareholders. PwC state that in arriving at their valuation assessments they have relied on the MMC Report as a technical expert report and the AME Report for views on the near term outlook for coal prices, both of which were also attached to the Scheme Booklet. PwC state that the MMC Report and the AME Report in the Scheme Booklet should be read in conjunction with the full PwC Report.
In relation to the value of Boardwalk, PwC state the following in the PwC Letter:
MMC was appointed to provide a Technical Expert’s Report in relation to the four principal exploration projects of Boardwalk. PwC Securities estimated the value of Boardwalk to be in the range of approximately $200 million to $330 million having regard to the assessment prepared by MMC, the estimated value of other assets held by Boardwalk, including the 19.9% interest held in Coalworks, the net cash position of approximately $100 million as well as other considerations.
We recognise that the valuation of early stage mineral prospects is highly subjective and that individual purchases may place a strategic value on such assets.
Given the early stage, exploration nature of these assets, the ultimate value extracted is highly sensitive to exploration outcomes and emerging economic factors including coal prices and extraction costs. Accordingly, ultimate value achieved by the Merged Group may fall outside of the range shown.
Simultaneous to entering into the SIA, Whitehaven entered into separate agreements to acquire all of the shares and other issued securities in Boardwalk (the Proposed Boardwalk Transaction) in exchange for 85.89 million Whitehaven shares (Initial Shares) and 34.02 million additional Whitehaven shares (Milestone Shares).
The Milestone Shares will be issued immediately and have rights restricted in accordance with the terms of the restriction deeds as discussed in the Scheme Booklet. The restrictions attaching to the Milestone Shares will cease to apply upon the grant of mining leases and environmental approvals for any two of the following Boardwalk projects; Dingo, Sienna, Ferndale, Monto and Oaklands North, which is a Coalworks Limited (Coalworks) project (17.01 million Whitehaven Shares will be released from the restriction arrangements upon the grant of approvals for any one project).
As part of the Proposed Boardwalk Transaction, existing Boardwalk investors will contribute $150 million of cash to Boardwalk which will be used for the ongoing development of its assets. Boardwalk also had $58.8 million of outstanding debt as at 31 December 2011. Prior to implementation, Boardwalk’s debt will reduce by $5.3 million through the conversion of debt to equity.
On 9 March 2012, Jacobson J of the Federal Court of Australia delivered judgment in Re Aston Resources [2012] FCA 229 and ordered, amongst other things, that:
Aston is to convene a scheme meeting of the ordinary shareholders of Aston (other than Whitehaven and its associates) to consider and, if thought fit, approve the scheme of arrangement proposed to be made between Aston and those ordinary shareholders of Aston, which is to be held on 16 April 2012; and
the scheme booklet for the scheme of arrangement is approved for distribution and is to be sent to the ordinary shareholders of Aston.
On 9 March 2012, Whitehaven made an announcement to the ASX, which stated that the “Court approves distribution of scheme documentation” and referred to the S****cheme B****ooklet, which had been registered with ASIC that day and was available on Whitehaven’s website (March 2012 ASX A****nnouncement).
The Scheme Booklet included:
the PwC Report (as the independent expert’s report);
the MMC Report (as the technical expert’s report); and
the AME Report (as the independent industry expert’s report).
The Scheme Booklet was distributed to the Aston shareholders in accordance with the orders made on 9 March 2012.
The Scheme Booklet was reviewed by Mr Haggarty as a director of Whitehaven, together with the whole of the board of Whitehaven, and by Whitehaven’s advisers, including Mr Bartlett at Grant Samuel (T316–317). In cross-examination, Mr Haggarty agreed that the Scheme Booklet had been read thoroughly and been signed off by Whitehaven’s advisers (T339), and as indicated above, was approved by advisers to all parties (T318).
The Scheme Booklet contains a letter dated 9 March 2012 from Mr Tinkler (as chairman of Aston) to the Aston Shareholders, a letter dated 9 March 2012 from Mr Vaile, Rick Gazzard and David Ryan (as independent directors of Aston) to the Aston shareholders and a letter dated 9 March 2012 from Mr Conde (as chairman of Whitehaven) to the Aston shareholders, all expressing their unanimous support for the scheme of arrangement and their recommendation for a vote in favour of it. In the letter dated 9 March 2012 from Mr Tinkler to the Aston shareholders (which formed part of the Scheme Booklet), Mr Tinkler said that he, Mr Christensen, Farallon and their affiliates would not vote at the meeting of the Aston shareholders in relation to the scheme.
Section 5 of the Scheme Booklet is titled “Profile of Whitehaven”. The introductory paragraph states:
The information contained in this Section has been prepared by Whitehaven. The information concerning Whitehaven and the intentions, views and opinions contained in this Section are the responsibility of Whitehaven. Aston and Aston Directors and officers do not assume any responsibility for the accuracy or completeness of this information.
In cross-examination, Mr Haggarty confirmed the truth of this statement (T336).
Section 5.8 of the Scheme Booklet is titled “Boardwalk Transaction”. Section 5.8.1 is headed “Boardwalk Transaction summary” and states (emphasis added in underline, footnotes omitted):
On 11 December 2011, Whitehaven entered into separate agreements to acquire all of the shares and other issued securities in unlisted coal explorer Boardwalk.
As consideration for the acquisition of Boardwalk by Whitehaven, holders of Boardwalk securities (Boardwalk Securityholders), including BRI and Farallon Funds, will be issued 85.89 million Whitehaven Shares and a further 34.02 million Whitehaven Shares with rights restricted in accordance with the terms of the restriction deeds as described below (the 34.02 million Whitehaven Shares are referred to as the Milestone Shares).
The restrictions attaching to the Milestone Shares will cease to apply upon the occurrence of certain trigger events including the granting of mining leases and environmental approvals at any two of the Dingo Project, Ferndale Project, Sienna Project, Monto Project (the Boardwalk Projects) and Oaklands North which is a project of Coalworks (17.01 million of the 34.02 million Whitehaven Shares will be released from the restriction arrangements upon the grant of approvals for any one project).
During the period between execution of the Boardwalk Transaction Documents and 31 March 2012, BRI will make loans to Boardwalk to assist with funding of Boardwalk’s operations. Existing Boardwalk Securityholders will contribute A$150 million cash to Boardwalk if the Scheme becomes Effective, which will be used for the ongoing development of its assets including repayment of existing debt. This amount will include the amount of any loans made to Boardwalk by BRI after 11 December 2011 to assist in funding Boardwalk’s operations.
Section 15 of the Scheme Booklet contains the following relevant definitions:
“Boardwalk Transaction” means:
the proposed acquisition of Boardwalk by Whitehaven in consideration for the issue of 119,905,183 Whitehaven Shares (including 34,020,000 Milestone Shares) to Boardwalk Securityholders in accordance with the terms of the Boardwalk Transaction Documents
the agreements for the sale of all of the issued capital and warrants of Boardwalk to Whitehaven in consideration for the issue of Whitehaven Shares
“Boardwalk Transaction Documents” therefore includes the SPA, the WPA and the Minority Lenders SPA.
the 34.02 million Whitehaven Shares, to be issued to Boardwalk Securityholders under the Boardwalk Transaction, which will be subject to restrictions on voting and transfer, to be lifted following receipt of mining leases and environmental approvals at any two of the Boardwalk Projects and the Oaklands North Project (being 17.01 million Whitehaven Shares released from those restrictions for each approval)
… the information about Boardwalk and the Boardwalk Transaction set out in Section 5.8 of this Scheme Booklet, excluding Section 5.8.2 which is the sole responsibility of Whitehaven
- the information contained in:
- the paragraph commencing “Any forward-looking statements included in the Whitehaven Information” in the subsection headed “Disclaimer as to forward-looking statements” in the Important Notices;
- the letter from the Chairman of Whitehaven;
- the answer to the question, “Who is Whitehaven?” in Section 1;
- the third paragraph in the question, “What is the Boardwalk Transaction?” in Section 1;
- the second paragraph in the question, “What happens if the Boardwalk Transaction is approved?” in Section 1;
…
- Section 5;
…
In my opinion, it is clear that Whitehaven was responsible for the whole of the contents of section 5 of the Scheme Booklet. I consider that by reading together the definitions of “Whitehaven Information” and “Boardwalk Information” means that both Whitehaven and Boardwalk had together provided the content of section 5.8. However, the statement made about the use of the $150 million Capital Injection “if the Scheme becomes Effective” was clearly one which could only come from Whitehaven who would have complete control of Boardwalk in that eventuality.
In cross-examination, Mr Haggarty said that he considered section 5.8.1 of the Scheme Booklet to be an accurate statement of the Boardwalk transaction as he understood it (T336–337). He also that the final paragraph of section 5.8.1 as set out above reflected his understanding as at the date of the signing of the Final Term Sheet as to how the $150 million Capital Injection would be used (T337–338). Mr Haggarty presumed that Mr Tinkler held the same understanding (T338).
In further cross-examination, Mr Haggarty also said that everything in the Scheme Booklet was important (T339), including agreeing that it was important for readers of the Scheme Booklet as a potential shareholder of Whitehaven to know that (T338–339):
there were Milestone Shares which had restrictions that would be released on certain conditions;
the basis on which the $150 million was to be provided was that it would be applied to projects which might result in the release of the restrictions;
the restrictions related to the granting of mining leases which was only going to happen if certain development work advanced those projects to the position where they could be granted a mining lease;
the Milestone Shares restrictions could cease to apply on the grant of mining leases in relation to certain projects;
the effect of the release of the Milestone Share restrictions would be that the Milestone Shareholders would become full equity holders in the merger;
the $150 million had been contributed so that at least a portion of it was going to be available to the merged entity for performing the very work which might result in the lifting of the restrictions; and
not only that the money would be available for that purpose but will be used for that purpose.
Mr Haggarty said that what was contained in the description of the Boardwalk transaction in the Scheme Booklet was “where [they] landed” and the Scheme Booklet is “on the record, so it’s true” (T340).
In my view, this section of the Scheme Booklet records the mutual understanding which had been reached by the Aston/Tinkler interests (including Mr Tinkler), Whitehaven (including Mr Haggarty) and their respective advisers that the $150 million Capital Injection to Boardwalk “will be used for the ongoing development of its assets including repayment of existing debt”. In my opinion that understanding could only have come from the discussions between Mr Haggarty, Mr Tinkler and their respective advisers during the negotiations in which it was agreed that the $150 million would be injected into Boardwalk as recorded in the Final Term Sheet.
This Scheme Booklet contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements.
All forward-looking statements in this Scheme Booklet reflect views only as at the date of this Scheme Booklet, and generally may be identified by the use of forward-looking words such as “believe”, “aim”, “expect”, “anticipate”, “intending”, “foreseeing”, “likely”, “should”, “planned”, “may”, “estimate”, “potential”, or other similar words. Similarly, statements that describe Aston’s, Whitehaven’s or Boardwalk’s objectives, plans, goals or expectations are or may be forward-looking statements.
…
The forward-looking statements included in this Scheme Booklet are made only as of the date of this Scheme Booklet.
…
None of Aston, Whitehaven, Boardwalk Resources Ltd … , Aston’s officers, Whitehaven’s officers, Boardwalk’s officers, any persons named in this Scheme Booklet with their consent or any person involved in the preparation of this Scheme Booklet makes any representation or warranty (express or implied) as the likelihood of fulfilment of any forward-looking statement, or any events or results expressed or implied in any forward-looking statement, except to the extent required by law. You are cautioned not to place undue reliance on any forward-looking statement in this Scheme Booklet.
…
For the same reasons as I have expressed above in relation to the 9 December Further Draft ASX Announcement, I consider that the statement “will be used for the ongoing development of its assets” in the Scheme Booklet is a statement of Whitehaven’s intention which must be read with the disclaimer. As a result, the statement of intention has to be read as one which contained no representation of the likelihood of it occurring.
Section 5.8.2 of the Scheme Booklet is headed “Boardwalk Transaction benefits and risks”, part of which states:
The acquisition of Boardwalk provides Whitehaven with a portfolio of coal exploration assets within New South Wales and Queensland’s established mining regions and a strategic 19.9% interest in Coalworks Limited. Whitehaven believes that Boardwalk’s portfolio of assets will provide the expanded Whitehaven group with future development options and a platform for growth in the medium to longer term.
In addition, Whitehaven expects that there will be synergies and cost saving benefits over the longer term from incorporating the Boardwalk assets within the Whitehaven group including coal blending opportunities (e.g. from blending lower quality Ferndale thermal coal with the higher quality Gunnedah thermal coal) and operating and corporate cost savings.
The value of the consideration payable by Whitehaven for Boardwalk excluding the Milestone Shares is A$393 million and including the Milestone Shares is A$491 million. The value of the consideration payable exceeds the valuation of Boardwalk determined by the Independent Expert of between A$200 million and A$330 million (as stated in the Independent Expert’s Report set out in Section 8).
As stated in the Independent Expert’s Report set out in Section 8, the Independent Expert has adopted the valuations of the Boardwalk tenements prepared its technical expert, meant Minarco–MineConsult. The Whitehaven Board has taken a commercial view of the tenements and the likelihood of their successful development under the Merged Group’s ownership. The Whitehaven Directors believe that the consideration payable for Boardwalk represents fair value. In arriving at this decision, the Whitehaven Directors have received advice from Whitehaven’s financial advisers, as well as advice from Whitehaven’s tax, legal and accounting advisers. The Whitehaven Board has considered the Boardwalk assets, their quality, location, proximity to existing mines and infrastructure and the overall benefits to Whitehaven Shareholders of adding a portfolio of exploration assets to the expanded Merged Group. As part of its consideration, the Whitehaven Board has taken into account expected tax savings from the step up in the value of Boardwalk’s tenements which have a present value of approximately A$50 million (as noted in Section 6.2). The Whitehaven Board has also had regard to other potential acquisition opportunities and the relative advantages and disadvantages of these opportunities when compared with the Boardwalk portfolio.
The Boardwalk Transaction represents an important milestone in the continued growth of the Whitehaven group.
…
In cross-examination, Mr Haggarty said that the whole of this part of section 5.8.2 reflected his view (T341–342).
Section 5.8.2 of the Scheme Booklet then continued as follows:
This Section describes certain matters that are considered to be key risks relating to Boardwalk and its portfolio of coal exploration assets. Many of these risks are similar to the operating risks outlined in Section 7.1 in relation to the development of the existing projects of the Merged Group that are in the exploration phase. This Section does not contain an exhaustive list of risks associated with Boardwalk and the information set out here should be considered in conjunction with the other risks set out in Section 7.
Key risks include:
- there is no guarantee that future exploration on Boardwalk’s existing tenements will lead to economically viable resources being identified and developed;
- Boardwalk being unable to meet, or being delayed in meeting, its farm in obligations, including in relation to the Dingo and Ferndale projects;
- delays in obtaining, or the inability to obtain, relevant authorisations and permits (including mining leases) may adversely impact the viability of new projects or their cost and development timeframes;
- changes to laws, regulations and Government policy may adversely impact Boardwalk’s ability to conduct future exploration activities, for example, see Section 7.4 in relation to the impact of the proposed Queensland Urban Exploration Ban for the Sienna Project.
Les & Zelda say that what is not said to be a “key risk” in section 5.8.2 was Whitehaven not following through on its commitment to spend $150 million on the “ongoing development” of Boardwalk’s assets (as described in section 5.8.1), or that Whitehaven would not engage in any “future exploration on Boardwalk’s existing tenements” as opposed to those activities not leading to “economically viable resources being identified and developed” (as described in section 5.8.2). Given that the list of “key risks” is said to be non-exhaustive, I do not think that anything turns on this point, especially in light of the disclaimer.
Mr Tinkler gave affidavit evidence that he attended the meeting of Aston shareholders on 16 April 2012. In accordance with the letter dated 9 March 2012 from Mr Tinkler to Aston shareholders (which is contained in the Scheme Booklet), he did not vote at the meeting of Aston shareholders.
On 11 April 2012 at 10:56am, Mr Bienlinko of Goldman Sachs sent an email to Mr Burt and others, which attached a draft Whitehaven “EGM presentation”. On 11 April 2012 at 11:32pm, Mr Burt sent a reply email to Mr Bienlinko and others requesting that he email a copy of the pack that had been used by Mr Haggarty and Mr Vaile on the international roadshow because Mr Haggarty wanted to cross check against that pack for his EGM presentation.
On 12 April 2012 at 10:18am, Mr Bienlinko sent an email to Mr Burt attaching a copy of the “pack used for the roadshow”, which was a copy of the March 2012 Investor Presentation.
It is evident from this communication that Mr Haggarty was wanting to make sure that the “EGM presentation” was consistent with what had been said during the investor presentations in March 2012.
On 18 April 2012, Jacobson J of the Federal Court of Australia approved the scheme of arrangement: Re Aston Resources Ltd (No 2) [2012] FCA 401.
On 18 April 2012, Whitehaven made an ASX announcement that the Federal Court had approved the scheme, the last day of trading in Aston shares was 19 April 2012, the scheme consideration would be issued to the Aston shareholders on 2 May 2012 and the expected date for payment of the fully franked special dividend of $0.50 for each share to existing Whitehaven shareholders was 4 May 2012. The ASX announcement also confirmed that Aston and Boardwalk shareholders who received Whitehaven shares under the scheme and the acquisition of Boardwalk would not be eligible to receive the special dividend.
On 30 April 2012, Boardwalk, Whitehaven and others entered into a document titled “Boardwalk Transaction Payment Instruction Letter” (Payment Letter), which, despite its title, was actually executed as a deed. Mr Tinkler signed the Payment Letter on behalf of Boardwalk.
Clause 4 of the Payment Letter contains a set of acknowledgements, including that:
Boardwalk will be, on 1 May 2012, indebted to identified relevant lenders, being parties to the Payment Letter and including Farallon, in the principal sum of US$50 million plus interest of US$7,668,333;
BRI or its nominee must subscribe for or procure the subscription for the Subscription Shares (75,786,713 fully paid ordinary shares in Boardwalk) for the Subscription Amount ($150 million) in accordance with cl 4.9 of the SPA and that the Subscription Amount will include the capitalisation of loans totalling $25 million made by BRI or its nominee in December 2011 to March 2012 made pursuant to cl 4.8 of the SPA; and
Boardwalk had borrowed A$9.5 million from BRI as at 30 April 2012 and would not be borrowing any further funds from BRI between 30 April 2012 and the date of the completion of the SPA.
Clause 5(a)(ii) of the Payment Letter stated that notwithstanding cl 4.9 of the SPA, it was agreed that the Subscription Amount ($150 million) was to be paid the “Business Day after the date on which the WCL-Aston Scheme comes into effect” for the purposes of s 411(10) of the Corporations Act.
Clause 5(a)(iii) of the Payment Letter stated that the Subscription Amount ($150 million) was to be subscribed by:
the A$9.5 million already borrowed from BRI;
the discharge of US$50 million plus interest of US$7,668,333; and
the balance of A$84,990,968.33 to Boardwalk.
On 1 May 2012, BRI as trustee for the BR Trust completed an application addressed to the directors of Boardwalk for 75,786,713 ordinary shares in Boardwalk for the total application price of $150 million payable in full on application (Application) as follows:
by Boardwalk applying the amount of A$9.5 million owing by Boardwalk to BRI in partial satisfaction of the application price;
by BRI irrevocably authorising, instructing and directing the Farallon/Noonday Lenders to pay to Boardwalk the amount of A$55,509,301.67 in partial satisfaction of the application price; and
for the balance of the application price, by the transfer of $84,990,698.33 direct to Boardwalk’s account with ANZ Banking Group Limited.
Mr Tinkler signed the Application on behalf of BRI under power of attorney.
As part of the board papers for the meeting of the Whitehaven board on 26 June 2012, it is recorded that on 1 May 2012, the cash position of Boardwalk was increased by the receipt of approximately $85 million from its shareholders to recapitalise Boardwalk. This is consistent with the terms of the Payment Letter and the Application.
On 1 May 2012, the Application was tabled at a meeting of the board of directors of Boardwalk at which it was resolved that the Application be approved and the Subscription Shares be issued to BRI.
Clause 2.4 of the SPA provided that the Milestone Shares were to be subject to the Restriction Deed, the form of which was Annexure A to the SPA. Pursuant to cll 5.4(f) and 5.5(f) of the SPA, the Restriction Deed was to be entered into on Completion (which occurred on 1 May 2012).
On 1 May 2012, Andrew Lumsden executed the Restriction Deed as attorney on behalf of Whitehaven and Mr Tinkler and Ms Hyde executed the Restriction Deed as attorneys pursuant to the Power of Attorney on behalf of the Boardwalk Shareholders, including Les & Zelda.
The Vendor(s) are defined in the Restriction Deed to be the parties named in item 2 of Schedule 2, who are the Boardwalk Shareholders, including Les & Zelda. The Purchaser is defined in the Restriction Deed to be Whitehaven.
In short, the Restriction Deed imposes restrictions on the Milestone Shares so that there can be no disposal of them, no exercise of any voting rights attached to them, no dividends received on them and no participation in any rights issue in connection with them, unless one or more Trigger Events occur.
The relevant provisions of the Restriction Deed are as follows:
Acknowledgments: Each Vendor acknowledges that for the Restriction Period of a Restricted Share, the Restricted Share is subject to the Restrictions: cl 2.1. Relevantly:
(a) the Restriction Period in respect of a Restricted Share is the period from the date of issue of the Restricted Share until the Vesting of the Restricted Share: cl 3.1; (b) Restricted Share means the Milestone Shares and any further securities or other equity interests issued to the Vendors as a result of holding the Milestone Shares, including pursuant to any bonus issue: item 1 of Schedule 1; and (c) Vesting is the release of the Restrictions on the Restricted Share upon the occurrence of the Trigger Events as defined in cl 2.2 (outlined below): cl 3.3.
(a) dispose of, or agree or offer to dispose of, the Restricted Share, where ‘dispose’ includes the meaning given by the ASX Listing Rules and, in relation to the Restricted Shares, means to (item 1 Schedule 1):
(i) sell, assign, transfer, or otherwise dispose of any interest in the Restricted Shares; (ii) encumber or grant a security interest over the Restricted Shares; (iii) grant or exercise an option in respect of any Restricted Shares; (iv) do, or omit to do, any act if the act or omission would have the effect of transferring effective ownership or control of any of the Restricted Shares or any legal, beneficial, or economic interest in the Restricted Shares; or (v) agree to do any of those things;
(b) do or omit to do any act that would have the effect of transferring effective ownership or control of the Restricted Share or any legal, beneficial or economic interest in the Restricted Share; (c) exercise any voting rights related to the Restricted Share (except for a Permitted Vote, being a right to vote on a proposal to cancel the Milestone Share, that affects the rights attached to the Milestone Share or wind Whitehaven up (item 1 Schedule 1)); (d) accept, receive or take steps to enforce any rights to any dividends, return of capital, distribution upon a winding up of Whitehaven, reduction in capital of Whitehaven or other distribution attaching to the Restricted Share (other than a bonus issue); (e) participate in any rights issue in connection with the Restricted Share; or (f) participate in, accept, receive or take any steps to enforce any rights in relation to any division of any surplus assets or profits of Whitehaven in respect of that Restricted Share.
(a) in a bona fide takeover bid, the offer is for all the Shares in Whitehaven: (b) in a takeover bid, a majority of directors on the board of Whitehaven has recommended acceptance of the bid by shareholders; (c) in a merger by scheme of arrangement under Part 5.1 of the Corporations Act, the scheme of arrangement has come into effect pursuant to s 411(10) of the Corporations Act; and (d) the parties have agreed, each acting reasonably, to amend the Restriction Deed to replicate, as far as reasonably practicable, the application of any Restrictions to any consideration the Vendor will receive under the takeover bid or merger by scheme of arrangement under Part 5.1 of the Corporations Act.
(a) the grant of a Mining Lease in respect of a Project; (b) for a Project in NSW, the grant of planning approval under the Environmental Planning and Assessment Act 1979 (NSW) (EPA NSW Act); (c) for a Project in QLD, the grant of an environmental authority under the Environmental Protection Act 1994 (Qld) (EPA Qld Act); (d) if required, the grant of approval under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act); (e) with respect to any of the events set out above, the expiry of the applicable statutory time period for merit appeal or judicial review without such proceedings being commenced, or if proceedings have commenced, they are discontinued or dismissed; and (f) if no statutory time period is prescribed, the expiry of three months without such proceedings being commenced, or if commenced, they are discontinued or dismissed.
Quotation: Upon Vesting of any Restricted Shares, Whitehaven must apply for and use its best endeavours to obtain Official Quotation of the Vested Milestone Shares (being a Milestone Share that has Vested) by the ASX, including taking all steps necessary to satisfy any customary conditions imposed by the ASX for the Official Quotation of the Vested Milestone Shares on the ASX: cl 4.2.
I have dealt with the provisions of the Restriction Deed in more detail in my consideration of the Implied Terms Claim below.
Mr Tinkler gave affidavit evidence that he executed the Restriction Deed on behalf of the Boardwalk Shareholders under the Power of Attorney based on conversations he had in November 2011, including at the UBS Meeting and the Café Meeting, and various documents, including the Final Term Sheet, the 9 December Further Draft ASX Announcement, the Draft Investor Presentation, the 12 December ASX Announcement, the Q&A Document, the 12 December Memorandum, the 13 December Draft Letter, the Marketing Schedule and the Scheme Booklet.
In cross-examination, Mr Tinkler confirmed that he executed the Restriction Deed on behalf of the Boardwalk Shareholders (T297). Mr Tinkler refuted the propositions that the conversations at the UBS Meeting and the Café Meeting did not occur and that he has no memory of receiving or reading the documents listed above in 2011 or 2012 (T298). Mr Tinkler said that he knew that the Restriction Deed was required by the terms of the SPA to be signed and delivered on completion, and this was the basis on which Mr Tinkler executed the Restriction Deed (T298).
On 1 May 2012, Mr Tinkler and Ms Hyde, acting under the Power of Attorney, executed share transfer forms on behalf of each of the Boardwalk Shareholders for the transfer of shares in Boardwalk to Whitehaven with the consideration payable stated on each share transfer form to be the specified number of fully paid ordinary shares in Whitehaven, divided between Unrestricted Shares and Milestone Shares. The Milestone Shares were stated to be fully paid shares in Whitehaven subject to the terms of the Restriction Deed.
The number of shares each of the Boardwalk shareholders held in Boardwalk, which were comprised in the number of Unrestricted Shares and Milestone Shares they received (which are the same as those as set out in the SPA), are as follows:
| # | Shareholder | Boardwalk Shares | Unrestricted Shares | Milestone Shares | | 1 | BRI | 174,852,010 | 67,352,407 | 26,678,979 | | 2 | Neban Pty Ltd (ATF P. J. Christensen Family Trust) | 5,000,000 | 1,925,983 | 762,902 | | 3 | Ian & Angela Craig (ATF Craig Family Super Fund) | 2,000,000 | 770,393 | 305,161 | | 4 | Kahnay Group Pty Ltd (ATF Kane Family Trust) | 2,500,000 | 962,992 | 381,451 | | 5 | Sally Reynolds | 1,000,000 | 385,197 | 152,580 | | 6 | Heth Investments Pty Ltd (ATF Troy Palmer Family Trust) | 1,000,000 | 385,197 | 152,580 | | 7 | Donna Dennis Investments Pty Ltd (ATF Donna Dennis Family Trust) | 1,000,000 | 385,197 | 152,580 | | 8 | Les & Zelda | 2,000,000 | 770,393 | 305,161 | | 9 | Steven Van Barneveld | 250,000 | 96,299 | 38,145 | | 10 | Ross Brims | 250,000 | 96,299 | 38,145 | | 11 | Ben Lawrence | 100,000 | 38,520 | 15,258 | | 12 | John Thompson | 100,000 | 38,520 | 15,258 | | 13 | Matthew Keen (ATF Keen Investment Trust) | 100,000 | 38,520 | 15,258 | | 14 | Chris Summers | 100,000 | 38,520 | 15,258 | | 15 | Helen Blackney | 100,000 | 38,520 | 15,258 | | 16 | Peter Blackney | 100,000 | 38,520 | 15,258 | | Total | 190,452,010 | 73,361,477 | 29,059,232 |
| # | Financier | Boardwalk Shares/Warrants | Unrestricted WHC Shares | Milestone Shares | | 1 | Farallon/Noonday Lenders | 28,900,000 | 11,132,184 | 4,409,572 | | 2 | HPRY | 1,806,250 | 695,761 | 275,598 | | 3 | Burlingham | 1,806,250 | 695,761 | 275,598 | | Total | 32,512,500 | 12,523,706 | 4,960,768 |
Across the Boardwalk Shareholders, the Farallon/Noonday Lenders and the Minority Lenders, they received a total of 85,885,183 Unrestricted Shares and 34,020,000 Milestone Shares, comprising a percentage split of 71.6% in Unrestricted Shares and 28.4% in Milestone Shares.
On 1 May 2012, Mr Tinkler, Mr Flynn, Mr Christensen and Mr Craig each resigned as a director of Boardwalk and its subsidiaries: Boardwalk Sienna, Boardwalk Ferndale, Boardwalk Monto, Boardwalk Dingo, Boardwalk Coal Management Pty Limited and Boardwalk Coal Marketing Pty Limited.
On 1 May 2012, Whitehaven issued a notice under s 708A(5)(e) of the Corporations Act stating that in consideration for the purchase of Boardwalk, Whitehaven had issued 120,305,238 fully paid ordinary shares and 974,035 options. The notice stated that:
the shares had been issued without disclosure to investors under Part 6D.2 of the Corporations Act;
as at 1 May 2012, Whitehaven had complied with the provisions of Chapter 2M of the Corporations Act as they applied to Whitehaven and s 674 of the Corporations Act; and
as at 1 May 2012, there was no information that was “excluded information” required to be set out in the notice by virtue of ss 708A(7) and 708A(8) of the Corporations Act.
Whitehaven’s Offer represents highly attractive value for Coalworks shareholders and a substantial premium to recent trading prices of Coalworks shares as well as the April 2012 placement price of $0.78 at which Noble increased its stake in Coalworks to 9%.
The Offer also allows Coalworks shareholders to eliminate the significant time and risk associated with the development of Coalworks’ assets and funding uncertainties in exchange for an attractive cash payment now. The Vickery South and Ferndale projects are capital intensive and their development will require a substantial commitment of expertise, resources and capital, including for the development of infrastructure needed to deliver the coal to market.
Whitehaven believes that Coalworks’ assets can be developed more efficiently in combination with Whitehaven’s existing assets. Coalworks shareholders will profit from this improved development outlook immediately in the form of the cash premium they receive for their shares.
Whitehaven’s cash Offer has minimal conditions and therefore provides Coalworks shareholders with increased confidence that the acquisition of their Coalworks shares will occur should they accept the Offer. The Offer is not subject to any regulatory approval conditions.
Commenting on the transaction, Whitehaven Coal Managing Director Mr Tony Haggarty said:
“W**e believe our Offer provides a compelling value proposition for Coalworks shareholders compared to the option of continuing to hold an investment in the company. The acquisition of Coalworks represents a logical next step for Whitehaven which will allow Whitehaven to consolidate its development and exploration portfolio.
“Our offer reflects an attractive premium relative to the recent trading prices of Coalworks shares, particularly given the Coalworks share price already reflects takeover speculation.”
Mr Haggarty gave affidavit evidence that Whitehaven started exploring an acquisition of all the shares in Coalworks (known internally as Project Cotton) prior to completion of the Boardwalk transaction, after which Whitehaven would acquire the 19.9% interest in Coalworks that was held by Boardwalk. Mr Tinkler gave affidavit evidence that prior to the Coalworks ASX Announcement he had no knowledge of the proposed acquisition of Coalworks by Whitehaven and was not aware of the proposed acquisition being mentioned in any of the material issued by Whitehaven as part of Project Trifecta.
On 25 May 2012, Whitehaven made an announcement to the ASX, attaching its bidder’s statement. The bidder’s statement disclosed that the maximum amount of cash that Whitehaven would be required to pay under the offer for the Coalworks shares if acceptances were received in respect of all of the Coalworks shares on issue (other than those Coalworks shares in which Whitehaven already had a relevant interest) would be approximately $142 million, with an additional $21.7 million of consideration if the holders of all options on issue at that time exercised them and accepted the Whitehaven offer.
On 4 July 2012, Whitehaven made an announcement to the ASX that it had obtained a relevant interest in more than 90% of the shares in Coalworks, it did not intend to extend the offer beyond the close at 7pm that day and it intended to seek compulsory acquisition of all the remaining ordinary shares of Coalworks it had not acquired under the offer.
On 19 July 2012, Whitehaven made an announcement to the ASX that it held 95.52% of all the ordinary shares in Coalworks and was entitled to proceed to compulsory acquisition of all of the other shares in Coalworks.
On 21 August 2012, Whitehaven completed the compulsory acquisition of all of the remaining shares in Coalworks, which it reported as a subsequent event in its financial statements as at 30 June 2012.
On 12 June 2012, the Tinkler Group made an indicative non-binding proposal to acquire all the shares in Whitehaven.
On 13 June 2012, Whitehaven made an ASX announcement stating that it had received the indicative non-binding proposal from the Tinkler Group regarding the privatisation of Whitehaven.
On 13 July 2012, Tinkler Group made a further indicative non-binding proposal to acquire all the shares in Whitehaven.
Also on 13 July 2012, Whitehaven made an ASX announcement regarding the receipt of the further proposal from the Tinkler Group in which it also stated that the Tinkler Group would conduct due diligence over a four-week period, concluding on 23 August 2012.
Between 21 July 2012 and 23 August 2012, the Tinkler Group conducted due diligence in relation to the proposed acquisition of Whitehaven.
On 23 August 2012, the Tinkler Group sent a letter to Whitehaven stating that it was not in a position to table a cash offer of $5.20 per share.
On 24 August 2012, Whitehaven made an ASX announcement that the due diligence period had expired and it had been advised by the Tinkler Group that a formal binding proposal of $5.20 per share would not be forthcoming.
In determining the fair value of the contingent consideration (milestone shares), it was necessary to perform an assessment of the probability of the trigger events being satisfied for each of the Boardwalk Projects. The probabilities assessed by management are as follows:
| Project | Probability | | Ferndale | 35% | | Sienna | 10% | | Dingo | 25% | | Monto | 10% | | Oaklands | 0% |
On 30 August 2012, KPMG provided a report to Whitehaven containing an assessment of the fair value of the assets acquired and liabilities assumed and an allocation of the purchase price in relation to its takeover of Boardwalk as at 1 May 2012 (KPMG Valuation Report).
In Part 3 of the KPMG Valuation Report titled “Purchase price allocation”, section 3.2 is headed “Consideration”, a portion of which contains the “Measurement of fair value of Milestone Shares (contingent consideration)”, which relevantly includes:
The fair value of the contingent consideration at the time that control passes must take into account probabilities of different outcomes which will result in the restrictions on the Milestone Shares being released.
In the case of the Boardwalk contingent consideration the main factors to consider in arriving at a probability matrix are:
- the likelihood that a Trigger Event will occur for a Project; and
- the timing of any such Trigger Event occurring.
These two factors have been assessed by Whitehaven Management as follows:
| Boardwalk - Projects likelihood of obtaining a mining lease | | Asset | Probability of achieving Trigger Event | Timing | | Ferndale | 35% | 31-Dec-14 | | Dingo | 25% | 31-Dec-14 | | Sienna | 10% | 30-Jun-15 | | Monto | 10% | 30-Jun-17 | | Oaklands | 0% | n/a |
The probability of a Trigger Event and timing of that event is based on both the view of Whitehaven Management (who has significant experience in relation to early stage coal projects) and information provided to Whitehaven by Boardwalk in a “Company Presentation” dated January 2012. As such, the assessments above represent management’s best estimates based on the information available at the transaction completion date. Based upon the assumptions presented in the above table, the implied probability of achieving one Trigger Event (obtaining a mining licence for one project) or achieving the Trigger Events (obtaining a mining licence for two or more projects) is estimated to be 61% and 17% respectively. We have adopted these assumptions in estimating the value of the Milestone Shares.
… the fair value of the contingent consideration is estimated to be $50.6 million.
Across the period from October 2011 (when the possibility of Project Trifecta arose) to July 2016 there was a general decline in thermal coal prices and hard coking coal prices in world markets quoted in US dollars as recorded in recognised databases. Those prices then rose before fluctuating between October 2016 to April 2021, when they commenced to rise significantly until around January 2022 (in the case of hard coking coal prices) and October 2022 (in the case of thermal coal prices). From that time until October 2023, the thermal coal prices and hard coking coal prices declined overall again.
Set out below is a graph prepared by Les & Zelda which depicts the movements in thermal coal prices and hard coking coal prices across the time period from October 2011 to October 2023.
On 22 June 2012 at 4:41pm, Mr Kane (as recounted by Mr Haggarty, from 1 May 2012 the chief operations officer of the Maules Creek and Boardwalk Projects) sent an email to a number of Whitehaven executives, including Mr Perrin and Mr Haggarty. The email attached board papers titled “Material from Aston Resources Limited and Boardwalk Resources Limited” for the Whitehaven board meeting proposed to be held on 26 June 2012 (June 2012 Aston/Boardwalk Board Papers).
Attachment B to the June 2012 Aston/Boardwalk Board Papers under the heading “3.1 Cash position” recorded the cash available as at 31 May 2012 totalled $73.7 million. This figure was comprised of cash held by Boardwalk of $1.9 million and cash held by Whitehaven of $71.8 million, noting that the “cash position was refreshed on 1 May 12 when $85m was received (net of debt repayments) from shareholders to recapitalise the company” and “[c]ash outflows during May 12 totalled $11.4m”.
The June 2012 Aston/Boardwalk Board Papers also included a draft budget paper titled “FY2013 Budget & FY 2014 & 2015 Forecast” (2013 Draft Budget). The 2013 Draft Budget recorded that “[c]oal prices have come under pressure in recent months” and that the ‘[r]evised pricing has seen a net reduction of $86.5M for all sales”.
The 2013 Draft Budget contained a total capital expenditure forecast for 2013 to 2015 on the Boardwalk Projects of $56.473 million, $41.093 million of which was forecast to be spent in FY2013 and $15.380 million of which was forecast to be spent in FY2014, with no amount forecast to be spent in FY2015.
The 2013 Draft Budget demonstrates that Whitehaven was still planning to expend capital on exploration and development activities on the Boardwalk Projects in FY2013 and FY2014.
On 24 August 2012, Whitehaven released its annual results for FY2012, making a presentation which included:
under the heading “Financial highlights - FY 2012”:
(a) net profit of $62.5 million; (b) final dividend of 3.0 cents per share; and (c) net assets of $3,411.1 million, including $513.6 million cash on hand and interest bearing liabilities of $489.4 million;
(a) completion of the merger with Aston and Boardwalk; and (b) granted the Tinkler Group access for due diligence to further develop an indicative and non-binding proposal to take Whitehaven private at $5.20 per share, which expired without any formal biding proposal being made;
(a) “[u]nderlying demand growth trend in key coal markets is very positive (China, India), but economic slowdown and supply increases have reduced prices over the last 6 months”; (b) “[m]etallurgical coal demand growth has weakened and prices have fallen significantly”; and (c) “[c]urrently no signs of significant recovery in metallurgical or thermal coal prices, although thermal price seems to have stabilised”;
(a) the core growth plans were proceeding for about $700 million in capex across the Maules Creek development, the Tarrawonga upgrade and the Werris Creek upgrade; (b) there was a “[r]eview of other capital projects in progress” with the “objective to achieve growth targets with least capex”; and (c) there was a “focussed review of operating costs to identify opportunities for reduction”, including “cost reduction opportunities” and the “[d]eferment/cancellation of non-productive expenditure”.
With the outlook for coal prices continuing to be depressed, we need to be vigilant in reducing our operating costs and ensure we spend our money on capital only where it is absolutely necessary.
We will be conducting an operating cost review throughout the organisation starting in the near future. Details will be advised when ready however the review will look at our existing operating costs including external contractors, employees, equipment costs, overhead expenses etc. engaged by the business at present.
Effective immediately, any request for capital expenditure greater than $20,000 requires approval by both the Managing Director and Chief Financial Officer.
…
We thank you for your understanding and trust we have everyone’s support to drive our business as efficiently and effectively as possible.
On 5 September 2012, Emma Larkworthy (an executive assistant at Whitehaven) sent the 5 September 2012 Capex Memo by email to a number of Whitehaven executives, including Mr Haggarty and Mr Kane, and copied to Mr Perrin. It generated email responses from these executives seeking clarification as to how the capital expenditure limit applied to the existing exploration projects, particularly the Boardwalk Projects.
On 12 September 2012 at 9:32am, Craig Boyd (Whitehaven’s General Manager Finance) sent an email to Mr Perrin and Mr Kane, amongst others, in which he referred to a discussion that morning with Mr Perrin and concluded:
… I can confirm that the $20,000 limit is intended to apply against all capital expenditure, including costs incurred in exploration operations.
To recap and clarify, [w]e had a meeting with Peter [Kane] last week regarding the [expenditure on] Boardwalk, Vickery and other development projects. It was agreed the minimum amount of work was required to either protect the tenement and put a project in care and maintenance or get it to JORC status. My notes from the meeting were as follows:
- Dingo – go slow on the project and do enough to protect the tenement with absolute minimal spend if any;
- Sienna – minimum work program. Work on getting the project out of the Urban zone with the state government.
- Electra – care and maintenance;
- Monto - care and maintenance;
- Ferndale - care and maintenance;
- Vickery – working towards a BFS with the plan to lodge our application in Nov. this year;
- Oaklands – not much apart from finding out about the project and assessing viability.
- Narrabri South - $700K for continued drilling to bring up to JORC status.
I am expecting a Forecast from Peter shortly which shows the revised capital expenditure program for the remainder of the year. Once that Forecast is completed then Tony and I can sign off on the program to spend and the timing thereof.
On 13 September 2012, Mr King sent an email to Mr Walker, Mr Kane and Alan Wigan (CFO of Boardwalk) in which he recorded a further discussion between them that day stating the “Good”, “Bad” and “Ugly” capital expenditure options in relation to each of the Boardwalk Projects.
On 16 September 2012 at 4:35pm, Mr Walker sent an email to Mr Kane, Mr Wigan and Mr King with the subject line “BWK Reforecasts – The Good: Part 1 of 3” stating that he had re-run the FY2013 budgets for three separate cost reduction options being:
- The Good (“High Case”) – reduced exploration and studies spend but maintaining sufficient work to progress projects to next phase of evaluation by Jun 2013, i.e. continue with stage 4 & 5 at Dingo so resource potential can be understood in 9 months’ time
- The Bad (“Mid Case”) – further reduced exploration and studies spend to achieve a partial understanding of most projects Jun 2013, i.e. continue with stage 4 at dingo so 2/3 of target resource is understood in 9 months’ time
- The Ugly (“Low Case”) – suspend exploration activities by end of Oct 2012, and only continue with selected study work, i.e. cease drilling at stage 4 by end of October (~55% complete) and only continue with Pearl Ck conceptual study
The balance of the email set out the different expenditure changes which would have to occur on each of the Boardwalk Projects by applying The Good (“High Case”) option.
On 16 September 2012 at 4:55pm, Mr Walker sent an email to Mr Kane, Mr Wigan and Mr King with the subject line “BWK Reforecasts – The Bad: Part 2 of 3” setting out the different expenditure changes that would have to occur on each of the Boardwalk Projects by applying The Bad (“Mid Case”) option.
On 16 September 2012 at 5:15pm, Mr Walker sent an email to Mr Kane, Mr Wigan and Mr King with the subject line “BWK Reforecasts – The Ugly: Part 3 of 3” setting out the different expenditure changes that would have to occur on each of the Boardwalk Projects by applying The Ugly (“Low Case”) option.
On 18 September 2012, Mr Kane made a presentation at the Whitehaven office in Brisbane, which was attended by Mr Haggarty. The presentation was titled “Whitehaven Coal Limited: Projects Presentation: Update on status, budget and forecasts” (September 2012 Projects Presentation). Mr Haggarty attended the presentation.
In the September 2012 Projects Presentation, overviews are provided for all of the Whitehaven exploration projects, including the Boardwalk Projects. These overviews included:
In the “Dingo Overview” slide, “Key Dates” for Dingo are listed to include proceeding to a feasibility study in January 2014 and first coal in December 2015.
In the “Ferndale Overview” slide, “Key Dates” for Ferndale are listed to include proceeding to a feasibility study in January 2013 and first coal in mid 2017.
In the September 2012 Projects Presentation, “The Good”, “The Bad” and “The Ugly” were also identified for each of the revised project options on these exploration projects, including the Boardwalk Projects. Each of those options involved delays in the continuation of development work on the Boardwalk Projects and a reduction in the expenditure on them.
On 19 September 2012, Mr Walker sent an email to Mr Wigan, Mr Kane and Mr King to which he attached “reforecast numbers for the options agreed yesterday with Tony” which reforecast all of the proposed expenditure on each of the Boardwalk Projects under the Good, the Bad and the Ugly scenarios and introduced a further “reduced case” scenario.
Further to the Business Development (BD) team’s presentation to Tony Haggarty on the 18th September and review of “The Good, the Bad and the Ugly” cost cutting cases for each project and relevant corporate cost reductions. A new circumstance titled “The Fugly” case is presented below …
Since July, the world economy has continued to decline on a macro level via European disintegration and the USA’s slow recovery from the GFC. Add to this scenario a slow down in China growth and tardy Indian growth resulting in adverse pressure being placed on steel consumption and therefore coking coal products and pricing. With the emerging and growing worldwide environmental push and conservation of energy initiatives, pressure has also been placed on thermal coal volumes and pricing. Therefore all coal types and products have experienced a sustained downturn. On current forecasts, the outlook for the coal markets is predicted to be flat at least for next year, with perhaps a slight lift the following year.
FY13 budgets were submitted and accepted by the board in June and July. Since then and recognising the history above, Whitehaven has embarked on a material cost cutting exercise via several management reviews of the operating sites and corporate offices. Closure of the Sunnyside mine is a reality. Project Vapour has also been recently instigated to delve deeper into potential cost savings.
It must also be noted that there have been clear demonstrations of severe cost cutting at all levels by our peer coal mining companies. These companies did not wait for further poor industry news and have responded quickly to the market conditions. Further, it has been a quicker response than that experienced during the GFC in the latter parts of 2008 and early 2009.
The Fugly Case involves a modified strategy within [Whitehaven] whereby cessation of the Business Development function as it currently stands is enacted.
This would lead to:
i) An identified saving of $8.0M that would be included in the $40M tally which is the stated objective of Project Vapour.
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iii) Boardwalk projects mothballed indefinitely. Continuance of Dingo (the preferred Boardwalk asset) to JORC status can be managed by the Technical Services area.
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On 1 November 2012, the Whitehaven board had a meeting for which Mr Kane had prepared a report titled “Business Development Monthly Report”, which stated that:
In relation to Dingo, stage 3 drilling had been completed, the JORC report was scheduled for mid-November 2012 and the project had been “reviewed internally in light of the current economic climate and the works program has been curtailed as a result”. The key changes included deleting the Stage 5 program, reducing the Stage 4 program and putting all environmental studies on hold.
In relation to Ferndale, the results for the raw and wash analysis had been received, the JORC report was expected in early November 2012, and all works other than the prefeasibility study were on hold pending the outcome of the studies.
In relation to Monto, a small drilling programme of 15 chip holes commenced on 7 September 2012 and was completed in September 2012, no significant targets were identified and no further work had been scheduled.
In relation to Sienna, drilling operations were planned to commence in October 2012 with two 700m deep core holes in the programme.
This decision has been taken in the context of our ongoing cost-reduction initiatives and adjustments across the business to ensure the broader business remains competitive.
Approximately ten roles will be made redundant as part of the change, including that of Executive General Manager, Business Development Peter Kane.
“I would like to extend a generous thank you to Peter and his team for their efforts since joining Whitehaven,” Whitehaven Managing Director Mr Tony Haggarty said.
“Whitehaven is not immune to the continued decline in global coal prices and like all coal companies we are having to make difficult decisions in order to ensure we have an appropriate cost-based,”… .
A very small number of technical services staff will remain in a relocated and smaller Brisbane office to ensure exploration projects are maintained and obligations to joint venture partners are met.
“While our current focus is very much on our existing mines as well as our Maules Creek and Vickery Projects, we remain confident of the long-term value of our development assets. As global coal prices improve we will continually revisit the status of our development plans,” Mr Haggarty said.
In the notes to the financial statements contained in Whitehaven’s 2012 Annual Report, note 7 records the impairment of goodwill from the acquisition of Boardwalk in the amount of $119.791 million. This amount reflected the difference between the consideration paid by Whitehaven for the Boardwalk shares and the fair value of the Boardwalk shares. The assets themselves were not impaired.
Note 7(6) in the 2012 Annual Report also contains the following statement:
Following the acquisition of Boardwalk Resources the company was required to undertake a fair value exercise of the assets and liabilities acquired. It was identified that the consideration paid by the Company was greater than the fair value of identifiable net assets acquired. The balance was initially booked as goodwill and subsequently impaired. Goodwill arose predominantly from the requirements that consideration be based on the share price of Whitehaven at the date control changed which was significantly higher than at the time of the offer. In addition, accounting standards also require contingent consideration to be recorded at acquisition assuming that such amounts will be paid, adjusted for probability.
During the latter part of the 2012 financial year and continuing through the current year, macro-economic factors have led to a general downturn in the coal industry. These factors include continued lower than expected coal prices and a sustained higher Australian dollar which has contributed to a general industry downturn compared to those experienced in recent years leading to a decline in equity values across the sector.
The Company responded to these conditions by initially writing down the value of the Boardwalk assets in the previous financial year and it has recently suspended operations indefinitely at the Sunnyside mine. In addition a company-wide cost reduction programme has been implemented and in December 2012 the Brisbane office was ostensibly closed.
The above factors are considered to be “indicators for impairment” and as such further assessment of the carrying value of the affected cash generating units of the business has been undertaken.
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Expenditure on the Boardwalk and Coalworks assets is forecast to decline in FY 13, coinciding with a strategic decision to significantly reduce the capital spend profile of the entire Whitehaven Group following a decline in global coal prices from mid-2012. As a result all non-essential capital expenditure has been pared back including pre development headcount which has resulted in the large majority of expenditure that was initially envisaged for Boardwalk and Coalworks being deferred.
Working through the impairment considerations in AASB 6, paragraph 20:
a) There have not been any material impact on the entity’s right to mine
b) Substantive expenditure on further expenditure has been deferred. Based on revised forecast the following expenditure is scheduled to continue through the first quarter of CY 2013
a. Exploration drilling expenditure at Dingo $0.9m
b. Additional studies at Ferndale $0.1m
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c) Exploration conducted to date has not significantly proved or disproved the potential resources
d) Data does not currently exist to indicate that if the assets were successfully development [sic] that the value of the mines would not exceed the current carrying value.
Based on the above analysis whilst expenditure has been pared back significantly, substantive expenditure is still scheduled to occur during the course of the coming months. In addition ongoing project management expenditure is expected to be incurred on maintaining all projects on foot.
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It is recognised that the reason for the decline in budgetary spend is attributed to a group-wide expenditure program which was initiated towards the end of 2012, designed to reduce capital expenditure across the group in reaction to reduced coal prices and potential impacts on debt funding facilities and gearing ratios. These budget reductions were not made in response to any material adverse exploration results or other outcomes.
It is recommended that following completion of the ongoing project development expenditure underway at Dingo, Vickery, Ferndale and Sienna that the carrying values be monitored to ensure any possible indicators for impairment are recognised.
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Whilst ongoing exploration expenditure has been reduced no decisions have been made to date regarding the commercial viability or otherwise of any of the Boardwalk investments and all expenditure required to maintain tenement values are expected to be maintained. As such given that the reduction on capital expenditure is a result of capital rationing across the broader Whitehaven Group rather than adverse exploration results the carrying value of the assets would not be expected to be materially different from that which was assessed at June 2012.
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On 14 April 2013, Jonathan Vandervoort (the executive general manager – infrastructure at Whitehaven) sent an email to Mr Flynn which attached a draft business development strategy he had developed for the annual budget process following a discussion between them the previous week.
The draft business development strategy attached stated (emphasis added in bold):
Background
- Whitehaven acquired Boardwalk in May 2012 when the coal industry was at its peak
- Boardwalk assets were mainly Qld exploration tenements (Dingo, Sienna and Monto)
- Boardwalk had an aggressive exploration program in line with its own corporate objectives
- There has been significant change in the markets and the exploration program has yielded mixed results
- Current information would suggest that they are sub-economic even at improved / longer term pricing assumptions
- There has been changes of legislation in Qld impacting tenements within 2kms of townships. These changes affect Sienna and in NSW the new strengthened “Gateway Legislation” affects another Whitehaven exploration tenement in the Hunter Valley, Ferndale
- For tenements in Qld, typically a 20% relinquishment of tenement is required each year
- Most exploration tenements have a 5 year life, but they can be renewed
- In the current coal market we must be more prudent in our cash spend, which is required for :-
- Operations currently producing coal
- Operations (Maules Creek) commencing construction to produce coal within two years
- More advanced projects such as Vickery which are currently in the approvals process
- Whitehaven is currently focussed in NSW, in the Gunnedah Basin, with exports through the Port of Newcastle.
- Most of these projects are either operating, under construction or in an approval process
- The Qld exploration portfolio is speculative and higher risk. In the current environment some of these projects are unlikely to come to fruition.
- The Qld portfolio requires significant ongoing expenditure to meet the minimum requirements
- The potential for a reasonable return on the sale of these tenements in the current market is limited
- The NSW exploration portfolio outside the Gunnedah Basin have significant JORC Resources (as distinct from the Qld tenements), however the coal quality is poor; and
- Ferndale is located in the Equine and Viticulture Critical Industry Cluster south west of Denman and will be subject to the new “Gateway Process”. This process is untested and will most likely lengthen the approvals process and result in extra consent conditions
- Oaklands is located near Wagga in southern NSW. Whilst it is not on prime agricultural land it is not close to any infrastructure to allow the coal to be exported and no apparent domestic markets exist
- However, NSW exploration tenements are not subject to the strict relinquishment regime in place in QLD, but they also must be renewed and usually have a 5 year term (in most cases)
There is no indication in the evidence that this draft strategy was ever finalised.
On 26 April 2013, Adam Pont (financial planning and analysis manager at Whitehaven) sent an email to Mr King, Mr Perrin, Mr Vandervoort, Mr Flynn and others at Whitehaven, which attached a presentation titled “Business Development Budget AFY14 – AFY16 including the “9+3” forecast for AFY13”. One of the slides of the presentation stated:
Budget and work program philosophy
- No construction or start-up costs at Vickery during the 3 year period
- Minimise exploration to keep spend as low as possible
- Maintain Tenements in good standing and satisfy our obligations
- A practical approach to exploration activities when they need to happen:
- When we go to a Site, the results must be meaningful
- Programs are therefore designed to provide some meaningful outputs, not simply just to “spend the money” – we are therefore budgeting on the smallest useful program
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In 2012 Whitehaven acquired the Boardwalk portfolio of assets on the basis that it would provide the Whitehaven group with future development options and a platform for growth in the medium to longer term. The strategic benefits and advantages of the acquisition of Boardwalk included:
- the diversity of location of Boardwalk’s assets; and
- the coal contained in Boardwalk’s Queensland assets, being predominantly metallurgical coal, of types not currently in the Whitehaven group’s portfolio.
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There were risks highlighted, including:
- there is no guarantee that future exploration on its Boardwalk’s existing tenements will lead to economically viable resources being identified and developed;
- there may be delays in obtaining, or Boardwalk may be unable to obtain, relevant authorisations and permits (including mining leases) impacting the viability of new projects or their cost and development timeframes;
- changes to laws and government policy may adversely impact Boardwalk’s ability to conduct future exploration activities. …
Since the acquisition of the Boardwalk assets:
- the outlook for growth in coal markets and pricing is significantly weaker than it was at the time of acquisition;
- more resource information is available, from recent drilling results, on the exploration tenements;
- The Queensland Urban Exploration Ban was enacted impacting the Sienna project; and
- With weak coal prices and high exchange rates, cash flow generated from operating mines is significantly reduced and will impact on the cash resources that would otherwise be available for exploration activities.
It is timely that a strategic review of Whitehaven’s exploration tenements be undertaken.
Whitehaven has interests in a number of other coal exploration projects, including Ferndale, Dingo, Sienna, Monto, Ashford and Oaklands North. The Company decided to restrict expenditure on these projects to the minimum required to keep them in good standing with the Government authorities. The strategy is likely to persist throughout FY2014.
In May and June 2012 the Group acquired interests in the Boardwalk Group of assets and the Coalworks assets. The Boardwalk assets included interests in exploration projects at Sienna, Dingo, Monto and Ferndale and an equity interest in Coalworks whilst the Coalworks assets include interests in projects at Ferndale and Vickery South (adjacent to the Whitehaven Vickery project).
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For exploration assets the original valuations have not been derived from NPV analysis since the projects are only at an exploration stage and not enough information exists to perform a valuation based on discounted cash flows. Valuations are instead included at historic cost (or value at acquisition).
In the case of exploration assets the accounting standards require the cost is maintained at historical cost unless, and a re-assessment of costs is only necessary if:
a) There has been a material impact on the entity’s right to mine
b) Substantive expenditure on further exploration has been deferred.
c) Exploration conducted to date has significantly proved or disproved the potential resources
d) Data exists to indicate that if the assets were successfully developed that the value of the mines would not exceed the current carrying value.
In the period from 30 June 2013 to 31 December 2013, whilst drilling and exploration programs have been commenced at Monto and Sienna, they are not currently at a stage to provide any additional information.
Given there has been no change in the information available in relation to the exploration assets the historical costs of these assets will be maintained. Results of the drilling programs are due in Q4 FY2014 and a full re-assessment in relation to those results will be considered at 30 June 2014.
On 10 September 2014, Mr Ball (CFO of Whitehaven) circulated to the Whitehaven board a presentation titled “Board Refinance Workshop” (September 2014 Board Presentation), which presented three different scenarios for Whitehaven’s financial position in FY2015, FY2016 and FY2017: a base case scenario; a scenario where coal prices remained at their current level but foreign exchange prices were as set out in Whitehaven’s budget; and a scenario where coal prices remained at their current level and foreign exchange prices remained at their current level.
In the September 2014 Board Presentation under the heading “EDITA Margin Analysis”, the base case scenario records negative free cash flow available to service debt of $36 million in FY2015 and positive free cash flow available to service debt of $192 million in FY2016 and $318 million in FY2017. It was therefore envisaged that there would be a significant improvement in the cashflow of Whitehaven in FY2016 and FY2017.
Management believe that market capitalisation is driven by a number of short term factors which do not necessarily fairly reflect long term value of the assets.
In particular, short term call price weakness (and general negative market sentiment to energy and commodity stocks) is negatively impacting the share price.
In addition current market capitalisation potentially assigns little to no value to exploration assets of $0.5b including Vickery (book value approx. $0.1bn) as well as discounting Maules Creek.
On 3 August 2015, a meeting of Whitehaven’s Audit and Risk Management Committee was held at which a discussion paper titled “Exploration Assets Impairment” was tabled (August 2015 Impairment Paper).
The August 2015 Impairment Paper provided “an explanation of the approach that was adopted to comply with Australian Accounting Standards in respect of exploration and evaluation expenditures in the financial statements of Whitehaven Coal Limited for the financial year ended 30 June 2015”.
The August 2015 Impairment Paper set out the accounting policy adopted by Whitehaven in the following form:
Exploration and evaluation assets are only recognised if the rights of the area of interest are current and either:
a. The expenditures are expected to be recouped through successful development and exploitation of the area of interest; or
b. Activities in the area of interest have not reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing.
Exploration and evaluation assets are assessed for impairment if:
a. Sufficient data exists to determine technical feasibility and commercial viability, and
b. facts and circumstances suggest that the carrying amount exceeds the recoverable amount. For the purposes of impairment testing, exploration and evaluation assets are not allocated to cash generating units.
Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified from intangible assets to mining property and development assets within property, plant and equipment.
| | 30 June 2013 | 30 June 2014 | 30 June 2015 | | Ferndale | $237.1m | $237.6m | $237.6m | | Dingo | $65.5m | $65.7m | $66.1m | | Sienna | $46.5m | $47.0m | $47.0m | | Monto | $53.4m | $53.6m | $53.7m | | TOTAL | $402.5m | $403.9m | $404.4m |
The difficult price environment for producing coal mines during FY2015 has meant that cash expenditures be heavily scrutinised. As a result the discretionary spend on exploration expenditure has been tightly managed. Actual spend has been limited to that necessary to maintain the tenements in good standing.
Further, the condition of the coal price and immediate demand environment means that the future development of exploration assets is more uncertain than it was in 2012 at the dates when the Coalworks, ICRA and Boardwalk acquisitions were undertaken. The prospects for development of the broader Vickery project were advanced considerably with the granting of an approval to mine in September 2014 by the NSW government and a clear runway for development is emerging as a result of in-house project development work that is being undertaken. Less advanced assets (such as Ferndale, and the Queensland Exploration Assets [Dingo, Sienna and Monto]) face lengthy delays before any development decision is likely to be contemplated. Given the change in the development environment, which has been felt in the market for exploration assets, management has undertaken an assessment of the carrying value of the exploration areas of interest and recommends that an impairment charge be taken on exploration assets of $305.0m.
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Despite the recommended impairment it is important to note that there has been no change in Management’s intention to continue to hold the assets and keep them in good standing with the potential for further exploration at the appropriate time.
As the result of these proposed impairments, the August 2015 Impairment Paper stated that the proposed carrying value as at 30 June 2015 in the financial statements of each of the Boardwalk Projects be revised to the following amounts:
Ferndale – from $237.6m to $74.8m
Dingo – from $66.1m to $10.0m
Sienna – from $47.0m to $10.0m
Monto – from $53.7m to $10.0m
The August 2015 Impairment Paper recommended the recording of an impairment charge of $305.0m in respect of the exploration assets on the balance sheet of Whitehaven at 30 June 2015.
The meeting of the Whitehaven Audit and Risk Committee on 3 August 2015 considered the recommended course in the August 2015 Impairment Paper and determined that “in aggregate terms, therefore, an impairment charge be taken for Ferndale, the QLD exploration assets and the residual exploration projects of approximately $335m before tax”.
On 10 August 2015, another meeting of Whitehaven’s Audit and Risk Management Committee was held. Consistent with the recommendations in the August 2015 Impairment Paper, the meeting on 10 August 2015, again determined that Whitehaven recognise an aggregate impairment of $355 million across all of its exploration projects, including the Boardwalk Projects. In the minutes of the meeting, it was noted that:
Management recommend and the Committee supports impairment of the Group’s exploration assets based on the change in the environment for early stage exploration assets between their date of acquisition in 2012 and the current coal markets – particularly in relation to assets which had higher ash and lower energy coal qualities.
The Committee’s view was supported by EY.
The board of Whitehaven accepted the recommendation of the Audit and Risk Committee to impair the exploration assets.
In Whitehaven’s 2015 Annual Report, it records an impairment charge of approximately $335 million in relation to the early stage exploration assets. The following explanations of the impairment charge were provided in various parts of the 2015 Annual Report:
“… The impairment charge [taken on the early stage exploration assets] reflects the recently changed coal market environment and prospects for early stage exploration assets, particularly assets that are higher in ash and lower in energy and that would have been targeted towards customers based in China”;
“… A decision was taken to record an impairment charge for these early stage projects in FY2015 because of the change in timeframe for their likely development, due to changes in market prospects for certain coal types”; and
“During the year ended 30 June 2015, an impairment charge of $355m was taken in respect of early stage exploration assets. The impairment charge reflects the recently changed coal market environment and prospects for early stage exploration assets and particularly assets that are higher in ash and lower in energy. This includes assets that would have been targeted towards customers in China. During the prior year the Group wrote off a number of small amounts of exploration and related expenditure”.
In the statement of agreed facts dated 20 August 2024, Les & Zelda and Whitehaven agreed that the impairment charge of approximately $355 million for Whitehaven’s early stage exploration assets resulted in the Boardwalk Projects being impaired by $349.6 million in Whitehaven’s financial statements for FY2015, divided between each of them as follows:
| Project | Carrying Value Before FY15 Boardwalk Impairment | Carrying Value After FY15 Boardwalk Impairment | Impairment | | Ferndale | $237.6m | $24.8m | $212.8m | | Dingo | $66.1m | $30.0m | $136.8m | | Sienna | $47.0m | | Monto | $53.7m | | TOTAL | $404.4m | $54.8m | $349.6m |
Since 30 June 2015 when the impairment charge of $355.0m was booked there has been a considerable improvement in the coal price environment and the broader coal price outlook. This improvement benefits the prospectivity of all exploration early stage exploration assets such as the projects noted above. While there have been some relinquishments at the Queensland tenements, all tenements remain in good standing and historical exploration work has confirmed the existence of coal deposits within the area covered by the existing exploration licenses. As such, and given the improved prospectivity for exploration assets more generally as a result of the strengthening coal price environment, Management propose that there be no change to the carrying values at 30 June 2017.
In August 2017, Whitehaven prepared a paper titled “Exploration Assets Impairment” (August 2017 Impairment Paper), which was tabled at the meeting of Whitehaven’s Audit and Risk Management Committee on 4 August 2017. The August 2017 Impairment Paper also considered whether there should be any change in the carrying values in Whitehaven’s balance sheet for its exploration assets, including the Boardwalk Projects.
The August 2017 Impairment Paper set out the accounting policy adopted by Whitehaven (which was in the same form as stated in the August 2015 Impairment Paper set out above) and then recorded the following as part of its “Findings” (emphasis added in bold):
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Less advanced assets (such as Ferndale, and the Queensland Exploration Assets) face lengthy delays before any development decision is likely to be contemplated. These assets rank behind other development prospects within Whitehaven including Vickery as noted above and also brownfield opportunities at both Maules Creek and Narrabri.
The Queensland assets are subject to a requirement to periodically relinquish sub-blocks of any Exploration Permit for Coal (“EPC”). Historically this requirement has been for a 20% relinquishment at each anniversary date after the second year of tenure together with annual expenditure obligations, and this continues for tenements renewed under the previous regime. For all future renewals under the new regime, a 40% relinquishment will be required after 3 years of tenure with a further 50% relinquishment on renewal.
Consistent with these requirements, in March 2017 there was a relinquishment of 10 sub-blocks from the Sienna tenement, leaving 16 sub-blocks remaining. There was also a relinquishment from the Monto tenement of 60 sub-blocks (from a total of 150 sub blocks) in April 2017. While there have been no relinquishments at Dingo in recent years very limited exploration work has been undertaken.
Ferndale is held under a NSW Exploration Licence (EL 7430) which was submitted for renewal in December 2014. The Department have been slow to process the renewal. A proposed programme of works was submitted at the time of lodgement of the renewal application. The vast majority of this work has not yet been carried out.
Based on management’s judgment an impairment of $55.0m is recommended to be applied to the carrying value of the exploration assets. This will result in the following carrying values being adopted in the financial statements of the group at 30 June 2017:
• Vickery retained at its carrying amount of $156.4m;
• The Queensland assets impaired to a carrying value of NIL;
• Ferndale be impaired to NIL.
Despite the recommended impairment it is important to note that there has been no change in Management’s intention to continue to hold the assets and keep them in good standing with the potential for further exploration at the appropriate time.
The August 2017 Impairment Paper recommended the recording of an impairment charge of $55.0m in respect of the exploration assets on the balance sheet of Whitehaven at 30 June 2017.
The meeting of the Whitehaven Audit and Risk Management Committee on 4 August 2017 considered the recommended course in the August 2017 Impairment Paper and “agreed to recommend to the Board that the Group impair the greenfield exploration assets”.
Whitehaven has several exploration and potential development projects in Queensland and New South Wales. These are early stage exploration projects. A decision was taken to record an impairment charge for these early stage projects in FY2017 because of the change in timeframe for their likely development.
In the current market environment the company is focused on maintaining the tenements in good standing but is limiting its spending on those projects.
During the year ended 30 June 2017, an impairment charge of $55m was recognised in respect of early stage exploration assets. The impairment charge reflects the Group’s current focus on Vickery and brownfield expansion opportunities. As a consequence, the development of early stage exploration projects, although prospective, is not imminent.
| Project | Carrying Value Before 2017 Boardwalk Impairment | Carrying Value After 2017 Boardwalk Impairment | Impairment | | Ferndale | $24.6m | Nil | $24.6m | | Dingo | $10.1m | Nil | $30.0m | | Sienna | $10.0m | | Monto | $9.9m | | TOTAL | $54.6m | $0 | $54.6m |
In the statement of agreed facts dated 20 August 2024, Les & Zelda and Whitehaven agreed that Whitehaven has not reversed any of the impairments recognised against the Boardwalk Projects in FY2012, FY2015 or FY2017.
Les & Zelda says that this is despite the precipitous growth in coal prices since 2017.
Despite the impairment of the Boardwalk Projects as assets on the balance sheet of Whitehaven, there has been a continued expression by Whitehaven that it continues to hold them as assets and “keep them in good standing with the potential for further exploration at the appropriate time”.
I agree with Whitehaven’s submission that the allegation by Les & Zelda that Whitehaven has abandoned any intention to develop the Boardwalk Projects was not put to any Whitehaven witness, including Mr Ball. This is significant because Mr Ball was not subject to any cross-examination and gave unchallenged evidence in chief in his affidavit as follows:
[56] From FY13 onwards, I am aware that there has been no material expenditure on the Boardwalk Projects and that expenditure has generally been limited to maintaining the projects in good standing. …
[57] The reason for limiting spending is that the Boardwalk Projects did not demonstrate sufficient merit to attract the capital necessary to advance them when compared to the other competing priorities for allocating capital.
It is important to understand that the impairment of the carrying value of an asset in the balance sheet of Whitehaven is an accounting exercise. The assets continue to be held by Whitehaven and may be the subject of future exploration and development work.
The fact that the Boardwalk Projects were described as being “mothballed indefinitely” as part of the October 2012 Fugly Case Discussion Paper, which was then enacted in the 16 November 2012 ASX Announcement, does not detract from the position that the Boardwalk Projects remain capable of being developed. The very nature of early stage coal exploration assets is that they may be held for a significant period of time before any amount is spent on their exploration, economic assessment and development. Whitehaven still retains the ability to decide to commence exploration, economic assessment and development work on any of the Boardwalk Projects at any time of its choosing.
I do not consider that the evidence indicates that the development of the Boardwalk Projects has been abandoned. I do not consider that I can make any finding that the Boardwalk Projects will never be developed.
As stated above, Ferndale is located at Yarrawa, which is near Denman in the Hunter Valley in NSW. Ferndale is based on EL 7430 for a period of five years from 18 December 2009 to 18 December 2014 granted by the NSW Government to Loyal Coal, in which Coalworks held a 92.5% shareholding.
On 8 December 2010, the same day that Boardwalk acquired its 19.9% interest in Coalworks, Boardwalk Ferndale entered into a Farm-In Agreement with Loyal Coal and Boardwalk and a Joint Venture Agreement with Loyal Coal. In summary, under these agreements, Boardwalk Ferndale was entitled to earn up to a 50% interest in Ferndale by funding specified exploratory works on EL 7430.
The “Farm-In” under the Farm-In Agreement operated in two stages:
under the Stage 1 Farm-In, Boardwalk Ferndale would obtain a 25% interest upon either expending at least $10 million or funding sufficient work for a JORC Competent Person to declare a minimum 50 million tonne Measured Coal Resource (cll 4.1.1 and 4.1.2); and
under the Stage 2 Farm-In, Boardwalk Ferndale would obtain a 50% interest upon either expending a further $15 million or funding sufficient additional work to enable a feasibility study for an open cut mine and a pre-feasibility study for an underground mine (cll 5.2.1 and 5.2.4).
At the time the SPA was entered into on 11 December 2011:
Neither the Stage 1 Farm-In or the Stage 2 Farm-In had been completed.
No JORC Resource had been declared for Ferndale. The Palaris Report dated 19 January 2012 stated:
No attempt has been made by Palaris to estimate a JORC-compliant resource for any portion of EL 7430 as part of the ITER. More exploration is needed to fully understand the nature of the deposit and to be able to provide resource assessment. It is uncertain if further exploration will result in the determination of a Mineral Resource.
As indicated above, EL 7430 was due to expire on 18 December 2014. Despite Whitehaven lodging an application for renewal on time, EL 7430 was not renewed until 22 November 2023, when it was extended to 18 December 2026 (discussed in detail below).
On 19 April 2012, Boardwalk Ferndale informed Loyal Coal that it had achieved the expenditure of at least $10 million to complete the Stage 1 Farm-In. Following a review of the expenditure by Loyal Coal, on 22 May 2012 it confirmed acceptance of the achievement of the Stage 1 Farm-In.
On 21 August 2012, Whitehaven’s acquisition of Coalworks had been completed such that it became a 100% owned subsidiary of Whitehaven and thereby had also acquired Coalworks’ 92.5% interest in Loyal Coal.
On 18 October 2011, geologist James Familiar of Geos Mining Minerals Consultants published a report commissioned by Loyal Coal titled “Review of Environmental Factors: Ferndale Coal Projection Exploration Drilling Proposal Stage 3” (Environmental Factors Report). The Environmental Factors Report identified potential impacts from mining activities, alongside mitigation strategies, but none were identified as having an adverse effect on the life cycle of any threatened flora or fauna.
The Environmental Factors Report concluded by stating:
By implementing the strategies outlined in this document:
- Dust generation will be limited to specific times of day and will not impact the visual or air quality unduly
- Water quality is not expected to be compromised by the drilling operations
- Rehabilitation of drill sites will effectively result in minimal evidence of the drilling having been completed
- The potential noise impacts will be short term but monitored in consultation with landowners
- Impact on flora and fauna will be minimal and the potential introduction of weeds will be mitigated by vehicle wash downs
- The adverse effects on land use and the local community will be short term and minimal whilst there may be a significant commercial gain for the broader community should the project proceed to development
- Impact on heritage values will be avoided where practicable
- There will be no significant cumulative environmental impacts.
As stated above, the Draft MMC Report dated 12 December 2011 was prepared before any coal resources had been estimated for Ferndale and admitted into evidence only to show that a document of that form was prepared and given to Whitehaven, not to prove that Ferndale was or is uneconomic. The Draft MMC Report stated that its “major objective” was to “determine conceptually what coal, if any, could be economically mineable by either open cut or underground mining methods” using “high level” analysis to guide further exploration and planning.
The Draft MMC Report stated:
For an open cut mine, MMC calculated a net present value (NPV) at variable discount rates between negative $539 million and negative $475 million, with a negative internal rate of return (IRR) of 15.5%;
for an underground mine, MMC calculated an NPV at variable discount rates between negative $367 million and negative $273 million, with an IRR of 1.9%; and
in its conclusion, that:
- Economic analysis of open cut mining shows a negative NPV and IRR. If all economic parameters improve by 20% (prices increase and costs reduce), the economics become positive, though still not at a commercially attractive rate of return.
…
- This study has determined that even under the right conditions, the project has poor economic performance. If all economic parameters improve by 20% (prices increase and costs reduce), the economics become positive, though still not at a commercially attractive rate of return
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In relation to the Draft MMC Report, Les & Zelda submits that:
MMC conducted geological modelling on the basis of information supplied from JB Mining Services Pty Ltd at that time, which was “based on 39 holes (both recent and historical)”, which indicates the limited sampling conducted over the entire area of the Ferndale tenement. In the Palaris Report it was noted that JB Mining’s “preliminary geological model” was “based on widely spaced data points”.
MMC used “an average raw ash for each coal ply rather than a gridded model value which shows variation over the deposit” because raw ash data was limited. MMC noted that “ash variability is not well enough known and using an average ash for each ply is reasonable at this conceptual level of study”.
MMC had “no contribution to [the] study from water resources specialists” stating that it could not make any “professional comment on the severity of water management issues”.
MMC had “no environmental input”.
MMC opined that economic analysis of both open cut and underground mining showed an NPV and IRR, albeit “if all economic parameters improve[d] by 20% (prices increase and costs reduce), the economics become positive, though still not at a commercially attractive rate of return”. This was emphasised in the Draft MMC Report in which MMC stated the following:
This Conceptual Mine Planning work has shown that based on the assumptions adopted the estimated economics for both open cut and underground mining give a negative rate of return and NPV. It has also shown that with a 20% improvement for all economic components (revenue, capital costs and operating costs) the return on investment becomes positive. At greater than 20% improvement the economics will likely improve enough to give an acceptable return on investment.
History of the open cut mining industry in Australia, and elsewhere, demonstrates that improvements in both commodity prices and development/operations costs of greater than 20% are most certainly possible and can be considered, within the guidelines of the JORC code, both ‘reasonable’ and ‘eventual’.
MMC’s modelling and economic analysis was conducted on the basis that capital costs were estimated, for both open cut and underground mining, with an accuracy of +/- 30%. MMC added a further 10% contingency for all capital costs for open cut mining, and a further 25% contingency for all capital costs for underground mining. Whitehaven never proved the underlying assumptions, and Mr Yeates as the expert called by Whitehaven neither assessed their reasonableness nor conducted any independent economic analysis of Ferndale.
The geological data available to MMC indicated the existence of a “significant” deposit within the Ferndale tenement, with 33% of that located between a depth of 0m to 200m.
Geological modelling showed “strong continuity and virtually no structural discontinuity”, albeit further investigations were expected to show some faults and intrusions.
The most significant “Seam Group” was the “Bayswater” seam, at an estimated 405Mt. That was located between 500m to 800m below ground, and was “the dominant target coal for underground mining”. It possessed a low strip ratio (far below the average of 9.2 for the tenement), and low ash, both being desirable qualities, as it yields greater, more calorific coal, for each tonne of rock mined. MMC stated “The Bayswater Group is estimated to contain 405Mt of in situ coal within the EL. It therefore must be investigated”.
The Draft MMC Report was published prior to the completion of Whitehaven’s acquisition of Boardwalk, made available to and discussed with Whitehaven in January 2012, who proceeded with the acquisition of Boardwalk aware of the Draft MMC Report. The Draft MMC Report was also the subject of presentations and discussions in May and June 2012 within Whitehaven.
The 2013 Draft Budget indicated that Whitehaven planned to commit further expenditure on the exploration and development of Ferndale in FY2013 and FY2014, including land purchases of $15 million in September 2012.
Les & Zelda also relies on the fact that Whitehaven was positive about Ferndale and the potential it offered, made most plain by the fact that Whitehaven in its business judgement elected to acquire Boardwalk and pay serious consideration for its assets, including in excess of the value of opined in the PwC Report.
On 30 March 2012, Graeme Rigg (a senior mining engineer at MMC) sent an email to Boardwalk regarding further testing and activities at Ferndale. Mr Rigg stated that “if it was my resource, I would be carrying out exploration along the following lines” and then set out a list of proposed activities in two key stages. Mr Rigg proposed activities such as geotechnical testing for near seam material, geotechnical assessment for potential for goaf period weighting or windblast, spontaneous combustion testing of target seams, testing of gas content, composition and adsorption isotherms and permeability testing of the working seams. Mr Rigg concludes the email by stating:
As discussed yesterday, this is a wish-list, rather than a must-have list. We can make assumptions in a few areas, but once we get to the stage where we are having to make too many assumptions (due to too many missing items from the wish-list), then the results of the [Pre-Feasibility Study] would have so little confidence that they would be a bit meaningless.
…
The aim of exploration was to investigate the tenement’s potential to host export thermal open cut coal in the Newcastle Coal Measures, and export thermal and coking underground coal in the Wittingham Coal Measures.
In the twelve months to 17 December 2011, the Stage 1 and Stage 2 drilling programmes were completed and Stage 3A drilling commenced. A total of 36 cored holes (totalling 9,849m) were completed, comprising one as part of Stage 1 drilling, fifteen Stage 2 holes, and twenty Stage 3A holes. All holes were geophysically logged and coal cores were sent for laboratory analysis to evaluate their economic potential.
…
Work planned for the following 12 months includes the following, aimed at providing adequate data for future prefeasibility mining studies:
- the drilling of up to 60 holes for the remainder of the Stage 3 drilling program, aimed at establishing JORC (2004) classified Resources and to provide geotechnical, hydrological and environmental data;
- installation of groundwater monitoring bores;
- installation of dust monitoring equipment to the north of the tenement and in Denman township.
From the washability data available, it is possible to produce a number of products from the Ferndale resource, such as an export thermal product with a calorific Value of 5700 kcal/kg or higher, a discounted export thermal product with a calorific value of between 5300 and 5700 kcal/kg or a Domestic Thermal product with a calorific value of less than 5300 kcal/kg. There is insufficient data available to determine whether a Semi-soft coking product is possible.
As stated above, on 19 January 2012, Palaris issued the Palaris Report, being an independent technical expert’s report for Boardwalk originally prepared for the Proposed IPO but finalised for use in the context of the sale of Boardwalk to Whitehaven. It assessed geological, mining and infrastructure assets at several sites but included no economic analysis and repeatedly stressed the preliminary nature of its assessments.
In respect of Ferndale, the Palaris Report stated:
under heading “2.2 Neighbouring Projects” that Ferndale was located close to several mines, namely:
(a) Mangoola, an open cut mine owned by Xstrata producing up to 9Mt a year of thermal coal; (b) Bengalla, an open cut mine owned by Coal & Allied producing up to 6Mt a year of thermal coal; (c) Mt Arthur, an open cut mine owned by BHP producing up to 12Mt a year of thermal coal; and (d) other mining tenements at Spur Hill, Drayton South and Doyles Creek.
Historic data from Ferndale suggests that some seams of the WCM have export thermal and coking properties, with the potential to be washed to produce a low to medium ash product with low to medium sulphur and medium to high specific energy contents.
…
Coal quality assessment of seams intersected in the recent drilling program is not yet complete. This contributes further to uncertainty surrounding potential underground and open cut targets.
There are no known significant faults within EL 7430 although some of the deeper borehole intersections show evidence of faulting. …
There is a high level of uncertainty in many aspects of the geology of the Ferndale Project at the current time. However, based on the limited drilling that has been done, and the regionally well-known stratigraphic environment, it is likely that the coal sems identified as potential economic targets, will be continuous throughout the lease and structurally benign.
No attempt has been made by Palaris to estimate a JORC-compliant resource for any portion of EL 7430 as part of [the Palaris Report]. More exploration is needed to fully understand the nature of the deposit and to be able to provide resource assessment. It is uncertain if further exploration will result in the determination of a Mineral Resource.
Whilst sufficient information is available to prepare a conceptual open cut mineplan, further investigation will be required before the underground potential can be captured in a conceptual mine plan or study.
Further modelling and engineering studies are required to validate the economic viability of the target seams and pit design.
Further engineering studies and coal quality analyses are required to determine the economic viability of mining the seams included in the conceptual quantities. There is insufficient data available to date to consider the washability of the coal and possible product types.
The pit designs are conceptual only and do not make allowance for environmental or approval considerations. Pits have been designed based on strip ratio cut-offs with generic assumptions on wall batters and pit access based on similar operations in the region. Further engineering studies are required to determine the viability of these designs and changes may affect the available mining volumes.
There is insufficient information at this point in the exploration program to complete preliminary underground mine design, however initial results suggest that there is underground potential in the Whynot, Blakefield and the Bayswater seams.
As stated above, the MMC Report dated 29 February 2012 was included in the Scheme Booklet as the technical expert’s report.
As already extracted above, section 5.8.2 of the Scheme Booklet is headed “Boardwalk Transaction benefits and risks”, part of which states:
The acquisition of Boardwalk provides Whitehaven with a portfolio of coal exploration assets within New South Wales and Queensland’s established mining regions and a strategic 19.9% interest in Coalworks Limited. Whitehaven believes that Boardwalk’s portfolio of assets will provide the expanded Whitehaven group with future development options and a platform for growth in the medium to longer term.
In addition, Whitehaven expects that there will be synergies and cost saving benefits over the longer term from incorporating the Boardwalk assets within the Whitehaven group including coal blending opportunities (e.g. from blending lower quality Ferndale thermal coal with the higher quality Gunnedah thermal coal) and operating and corporate cost savings.
The value of the consideration payable by Whitehaven for Boardwalk excluding the Milestone Shares is A$393 million and including the Milestone Shares is A$491 million. The value of the consideration payable exceeds the valuation of Boardwalk determined by the Independent Expert of between A$200 million and A$330 million (as stated in the Independent Expert’s Report set out in Section 8).
As stated in the Independent Expert’s Report set out in Section 8, the Independent Expert has adopted the valuations of the Boardwalk tenements prepared its technical expert, meant Minarco–MineConsult. The Whitehaven Board has taken a commercial view of the tenements and the likelihood of their successful development under the Merged Group’s ownership. The Whitehaven Directors believe that the consideration payable for Boardwalk represents fair value. In arriving at this decision, the Whitehaven Directors have received advice from Whitehaven’s financial advisers, as well as advice from Whitehaven’s tax, legal and accounting advisers. The Whitehaven Board has considered the Boardwalk assets, their quality, location, proximity to existing mines and infrastructure and the overall benefits to Whitehaven Shareholders of adding a portfolio of exploration assets to the expanded Merged Group. As part of its consideration, the Whitehaven Board has taken into account expected tax savings from the step up in the value of Boardwalk’s tenements which have a present value of approximately A$50 million (as noted in Section 6.2). The Whitehaven Board has also had regard to other potential acquisition opportunities and the relative advantages and disadvantages of these opportunities when compared with the Boardwalk portfolio.
The Boardwalk Transaction represents an important milestone in the continued growth of the Whitehaven group.
In summary, Whitehaven regarded that it paid fair value for Boardwalk even though it was well in excess of the valuation of Boardwalk arrived at in the PwC Report.
In relation to Ferndale, the MMC Report included the following summary of “Key Outcomes”:
- Ferndale is well located with respect to infrastructure and rail to the port of Newcastle.
- The tenement has prospectivity for export thermal and semi soft coking coals from the Wittingham and Newcastle Coal Measures.
- Exploration is at an advanced stage in the northern area of the tenement where shallow open cut coal targets have been identified.
- Exploration over the remainder of the tenement and within deeper coal measures is at any early stage: the underground areas have higher uncertainty than the open cut areas.
- Additional data is required for underground structural interpretation and confirmation of the product quality.
- Underground mining in the southern part of the tenement will be influenced by the irregular shape and dimensions of the tenement.
- The main environmental limitations on mining are likely to be protection of the local drainage and underground water systems, including setbacks from the Goulburn River alluvial lands and possible impacts on the adjacent Wollemi National Park.
- An estimate of coal Resources for Ferndale was released by Coalworks on 17 February 2012; this totals 743 Mt of Inferred Resources for the combined open cut and underground coal. The Resources are purported to be estimated according to JORC Code standard, but the estimate could not be verified by MMC. The Resource estimate has been adopted by MMC for valuation with appropriate discounts for uncertainty.
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I received tonight from Alan the proposed capex and corporate cost spend for the Boardwalk projects for FY2014 to FY2015 which I have attached. … Can you take a look at it particularly the Ferndale project where it is budgeted to spend $74.85M in land purchases from March to June 2013. I assume we won’t have approval to mine at Ferndale by this date so I can’t understand why we would purchase $75M in land so early in the project development life cycle. A very big leap of faith unless I am missing something. Suggest we arrange a phone hook-up to discuss this Budget proposal.
On 14 May 2012, Greg Dunn of A&B Mylec Pty Ltd provided to Mr Walker of Boardwalk a memorandum titled “Ferndale Revenue Model Update”, being an “interactive Revenue Model” to “assist [Boardwalk] in their assessment of the Ferndale lease”. The Revenue Model allowed Whitehaven to assess revenue from coal at Ferndale, including revenue after blending coal from Ferndale with coal from other tenements in the Gunnedah Basin.
On 15 May 2012, JB Mining prepared a report for Boardwalk Ferndale titled “Coal Resources at Ferndale: An Estimate of the In Situ Coal Resources at Ferndale Within EL 7430, New South Wales” that provided an estimate of coal resources for Ferndale in accordance with the JORC Code (May 2012 JB Mining Report). The May 2012 JB Mining Report estimated 369 million tonnes of bituminous coal existed, comprising 7.8 million tonnes of indicated coal resources and 361 million tonnes of inferred coal resources, within Ferndale. In compliance with the JORC Code, JB Mining was required to form an opinion as to the likelihood of “reasonable prospects for eventual economic extraction” in relation to any coal deposit. In forming this opinion, JB Mining had regard to the Draft MMC Report and arrived at the following criteria to be used to identify potential opencut resources and underground coal at Ferndale:
Opencut Coal
- Minimum coal thickness of 0.3m of fresh coal
- 250m depth cut off
- Maximum 15:1 m3/t in situ ratio (waste to coal)
- Maximum in situ ash (ad) of 45%
- At least 50m set-back from EL boundary adjacent to national parks …
- Exclude narrow restricted valleys …
At this stage in the project evaluation and after review of the Minarco-Mineconsult recommendation on not reporting underground coal, particularly for the deep Bayswater seam, it has been decided to include coal that meets the following criteria which are considered reasonable grounds for eventual economic extraction as per the JORC code (2004):
Underground Coal
- Minimum working section thickness of 1.8m
- Maximum entry depth 400m
- Minimum vertical distance between underground working sections of 25m
- Maximum working section ash of 30% (ad)
- Minimum resource per seam of 20 MT
- I had a few hours discussion with Matt King on Saturday and formed the view that this project is in very early days (prefeas [sic] at best)
- Not enough work has been done evaluating the geology/infrastructure/other strategic matters to make a call as to whether the project is initially an open cut or U/G project
- Consequently, it is too early to say what land is required other than land that lies over obvious coal to be mined and land that can be purchased for rural value or close to it. The principle here is that it never gets any cheaper. Also, it’s usually better to purchase land early in the project so we are not held to ransom during approval stage. Having said all of that, $75m is way over the top at this stage.
- I have scheduled a meeting next Tuesday at 2pm with Tony, Peter and Matt (you are very welcome to attend) to discuss Ferndale issues. An outcome of this discussion, in my view, is to determine where in the pecking order for capex Ferndale sits. My view is that it is down the list and probably behind Dingo and hence we need to be circumspect about what we do at Ferndale.
…
- In summary, Ferndale has potential to be a good project in time but there is a lot of work to be done before we put our head above the parapets and declare our hand on timing and project approach. Consequently, any capex slated for expenditure in FY13 (other than that required by JV commitments) should be obvious land purchases at rural value. Possible max $15m.
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For budgeting at this stage I suggest we use the current estimates for our major projects and, for funding purposes Austen, maybe we add a general (and generous) contingency to overall corporate capex to ensure we are raising enough money?
We have a major job to do in nailing down all the major capex, MC, Vickery, TW expansion and WC expansion and we don’t want to rush this to try and get it into the budget timetable.
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On 17 May 2012, Parvin Walia sent an email to Alan Wigan, Mr Kane, Mr Perrin, Mr Davies and Mr Picton in which he stated “the Ferndale land acquisition spend in FY2013 is to reduce from the current 70 mil to 15 mil”. As stated above, the 2013 Draft Budget in relation to Ferndale indicated that land purchases totalling $15 million would commence in September 2012, noting that this amount “could increase to $73.4 M in FY2013, however $15.0M is included in the Budget and Forecast as the project would require certainty and infrstrature [sic] proven before such significant outflows were committed”.
On 22 May 2012, Whitehaven made an announcement to the ASX, which included stating that the 369 million tonnes of bituminous coal was estimated to comprise of 7.8 million tonnes of indicated coal resources and 361 million tonnes of inferred coal resources for Ferndale based on the May 2012 JB Mining Report (May 2012 ASX A****nnouncement). The May 2012 ASX Announcement stated:
…
Commenting on the [May 2012 JB Mining Report], Whitehaven Managing Director Mr Tony Haggarty said:
“This initial JORC Resource estimate prepared for Boardwalk Ferndale is consistent with Whitehaven’s expectations from its review of the project during due diligence for the Boardwalk acquisition earlier this year.”
“JB Mining Services has conducted a robust resources estimation process for the project and its work provides the joint venture with a good starting point to commence the next phase of mine planning and development.”
“We look forward to making further announcements as the joint venture advances this project.”
The May 2012 ASX Announcement also stated that Whitehaven, through its wholly owned subsidiary Boardwalk Ferndale, had satisfied the first stage of the farm-in requirements to receive a 25% interest in Ferndale. It also stated that the second stage of the farm-in requirement to receive a further 25% interest would involve a feasibility study and a pre-feasibility study for open cut and underground mines with further expenditure of at least $15 million on project development (whichever occurred first and provided the second stage works had been completed by 31 December 2013).
On 23 May 2012, Mr King of Whitehaven prepared a briefing note that provided an update on the planning, the process of the development application lodgement and options and purchase of land at Ferndale (King Briefing Note 1). Under the heading “Status of Drilling and resource evaluation”, the King Briefing Note 1 stated:
The drilling program was completed on 20 April 2012. The program consisted of 73 holes, 71 of which were cored. Analysis is primarily being undertaken by Bureau Veritas in Newcastle with some work to be done by SGS. The results of the drilling program are expected to be compiled into the geological model by the end of September 2012.
The program was designed to focus on the open cut potential to the north of the Lease and in these areas, the drill density will be sufficient to bring the Resource up to “Measured” Status for the seams in the Newcastle Coal Measures (NCM) which have open cut potential.
The lower Wittingham Coal Measures (WCM) have also been targeted in the program. A significant portion of the Lease has been drilled to “Inferred” Status to the base of the Bayswater Seam to target possible underground potential.
Conceptual planning has been undertaken on the Ferndale Project using both Minarco Mine Consult and internal resources. It examined both possible open cut and underground targets. This work was undertaken using the (limited) data set available in November 2011. Further, more recent work has been undertaken to examine the possibilities of blending Gunnedah coal (from Maules Creek) with Ferndale and to examine the potential value of a lease extension to the north into the Yarrawa Valley.
This work has shown that the Ferndale Project will require a strategy of blending with other products to become viable.
Further planning is required to explore all options for the project and determine the one most appropriate. This planning work is expected to occur as the pre-feasibility and feasibility planning cycles progress.
Among other recommendations, the King Briefing Note 1 recommended that:
Planning should continue to ensure that Whitehaven met its obligations under the Joint Venture Agreement to earn the Stage 2 Farm In, noting that prefeasibility planning was due to start when the results of the recent drilling program became available; and
Whitehaven should commence the process of purchasing land that will be required should the project proceed.
On 29 May 2012, the Whitehaven board of directors held a meeting, the minutes of which state as follows:
[Mr Haggarty] tabled a briefing note on the planning approval process for the Ferndale project. It was noted that the Company will commence the process of purchasing land within the Zone of Affectation and the area covered by the Exploration Licence.
- Updated JORC Resource increasing confidence in Sept Qtr
- Proceed to Pre-Feasibility Study – July 2012
- Proceed to Feasibility Study – January 2013
- First coal mid 2017
On 6 June 2012, a meeting of the Ferndale Coal Farm-In Management Committee was held in which the report by Whitehaven and Loyal Coal titled “Ferndale JV Report May 2012” was presented. This report noted that:
the current level of planning did not have a robust business case;
an early lodgement of the “Application for Director General’s Requirements” to avoid the proposed Gateway Process should not occur because “there is still significant planning to be undertaken to determine the optimum plans (the PFS and BFS planning)”; and
it was recommended that the Ferndale joint venture “commence purchasing land (or entering into an agreement with the landholder to obtain the option to purchase the land at a future date for a fixed price) that is on the open market or land that we are advised by the owner that it is up for sale if the land is”, where that land was either “necessary for the project should it proceed” or “at or near market value”.
On 14 June 2012, Mr King prepared a briefing note on the “proposal to acquire land in Ferndale area” (King B****riefing N****ote 2), which referred to “conceptual level studies” having been finalised, with “some significant challenges that need to be overcome in the Pre-Feasibility and Feasibility planning cycles which make the purchase of large amounts of land at inflated prices in the Ferndale area a significant financial risk”. The King Briefing Note 2 also stated:
As discussed in the Land Acquisition Committee Meeting held on 6 June 2012, there is a significant amount of goodwill enjoyed by the Joint Venture in the local area and a significant amount of uncertainty amongst the local Ferndale community as to their future. If it is not appropriately managed, the uncertainty will erode any goodwill we currently enjoy.
The following points are recommended to the JV Land Acquisition Committee:-
- Purchase land for sale in Zones 1 and 2 provided the price is within 120% of existing land use value. It is believed that the property ‘Cameroo’ (Zone 2) will fit into this category as it is going to auction.
- Make contact with Col & Helen Hewitt (Zone 1) to enquire if they would be willing to sell on this basis.
- Make contact with Bev Hicks (Zone 1) to see if there is any scope to acquire a significant portion of her property.
- Make contact with other landholders to let them know our position – at least in general terms – to ensure that the misinformation is limited. The Joint Venture should be prepared to negotiate with other landholders at this point.
A good note from Matt King on Ferndale land purchase strategy.
Are you ok with Boardwalk pushing ahead with the specified purchases - circa $7.5m (100%)?
Ferndale Land Acquisition Strategy agreed with Coalworks
The JV will purchase land which is for sale (either formally listed or not) at or near market rates if the land is within the Exploration License area or is known to be required if the project should proceed.
The mechanism for purchasing the land is to be finalised.
- Proceed to Pre-Feasibility Study – July 2012
- Proceed to Feasibility Study – January 2013
- Commence land purchases ($15.0 million) – September 2012. This total could increase to $73.4 M in FY2013, however $15.0M is included in the Budget and Forecast as the project would require certainty and infrstracture [sic] proven before such significant outflows were committed.
In the 2013 Draft Budget, the issue of a mining lease for Ferndale is depicted as forecast at the end of the second quarter of FY2015.
On 28 June 2012, Mr Slesarewich of Whitehaven sent an email to Mr Wigan, copied to Mr Picton, which stated:
I believe there are a number of ways to assess the value of Boardwalk’s assets. In my opinion the PWC/MMC methodology was extremely conservative and narrow in its approach. I make the following comments in relation to valuation:
- New Resource data at Ferndale, and soon to be available at Dingo, can be used to change the valuation multiple from exploration target to resource. In Dingo’s case it would result in a blend of exploration and resource multiples applied to the project;
…
- As mentioned above the MMC/PWC methodology was unnecessarily conservative and narrow. If you are to take this same methodology and apply the mean $/t of exploration target, rather than the median, the overall valuation range shifts to $41m - $454m. I have attached the calculation for your benefit.
- Blending considerably improves the economics of the Ferndale operation without detracting value from the Gunnedah operation
- Reliant upon the validity of revenue profile used
- Improves Ferndale’s negative operating margin to slightly positive/breakeven
- Improves NPV in the order of 50%, however project is still significantly NPV negative
The June 2012 Ferndale Presentation concluded that the “Ferndale/Gunnedah Blend” option provided “significant benefit to Ferndale project economics” that “warrant[ed] further investigation”.
On 20 July 2012, a meeting of the board of directors of Whitehaven was held. The agenda and board papers for that meeting (July 2012 Board Papers) included an updated draft budget and expenditure forecast for Whitehaven, which budgeted $31.093 million in capital expenditure for Boardwalk in FY2013, and a further $25.38 million in capital expenditure for Boardwalk in FY2014. The July 2012 Board Papers stated that:
Contact has been made with 2 landholders in regard to purchase of their properties that underlie or are adjacent to EL7430. No significant progress has been made to date. However, both landholders remain interested in pursuing the potential sale of their properties.
On 9 August 2012, Cumberland Ecology issued a “Preliminary Ecological Assessment” for Ferndale for Hansen Bailey Environmental Consultants (CE Report). The CE Report stated that:
To the extent flora or fauna would be impacted by the Ferndale Project, steps could be taken to avoid or minimise environmental impacts such as translocation of threatened flora to safe areas.
There is a potential need to “provide compensatory offset measures” where impacts could not be avoided or minimised.
Previous mining projects in the Hunter region have been able to deal with impacts by offsetting land on or off-site (through land purchase).
To avoid the requirements for off-site offsetting, any mining proposal “should include vegetation rehabilitation within the study area where possible”.
These findings cohered with the Environmental Factors Report which is referred to above.
On 21 August 2012, a meeting of the directors of Whitehaven was held. The board papers for this meeting stated the following in relation to Ferndale:
…
Further discussions have been had with several landholders in the Yarrawa area regarding the potential sale of their properties. To date, only two are keen to pursue the matter further.
One Property “Yarrawonga” is being valued by Wayne Brorson on Thursday, 16 August 2012.
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On 21 August 2012, as stated above, Whitehaven acquired Coalworks, meaning Coalworks became a 100% owned subsidiary of Whitehaven (who acquired Coalworks’ 92.5% interest in Loyal Coal).
By the time of this acquisition of Coalworks, it was clear from the events outlined above that while work had been undertaken to make an initial JORC Resource estimate at Ferndale in the May 2012 JB Mining Report, which were announced in the May 2012 ASX Announcement, considerable further work was required to determine whether Ferndale was economically feasible and even whether it would be an open cut or underground mine. While budgets indicate that capital expenditure for Boardwalk would be undertaken in FY2013 of $31.093 million and in FY2014 of $25.38 million, the expenditure planned for Ferndale for land purchases had been scaled back from $74.85 million to $15 million.
From September 2012, the further work required to be undertaken at Ferndale was impacted by the capital expenditure limit imposed by Whitehaven.
As stated above, on 5 September 2012, Mr Haggarty sent the 5 September 2012 Capex Memo to all executive general managers, general managers and commercial managers of Whitehaven stating that “any request for capital expenditure greater than $20,000 requires approval by both the Managing Director and Chief Financial Officer”. It was later confirmed in the email of 12 September 2012 at 9:32am by Mr Boyd that the “$20,000 limit [was] intended to apply against all capital expenditure, including costs incurred in exploration”.
As stated above, on 12 September 2012, Mr Perrin sent an email to Mr Haggarty, Mr Kane and others that recorded a recap of a meeting with Mr Kane concerning expenditure on Boardwalk Projects, confirming that only the minimum work was required to protect the tenement and place a project into care and maintenance, or progress it to JORC-compliant status, and noting Ferndale was under “care and maintenance”.
In September 2012, Whitehaven prepared a report for Loyal Coal regarding Ferndale, in which it stated:
Due to the current market conditions, no further exploration works are planned in the short term. Prefeasibility studies are set to commence on the receipt of the coal quality data from the Stage 3 drilling programs.
On 24 September 2012, Mr Wigan sent an email to Mr Haggarty, Mr Perrin, Mr Kane and copied to others that attached a document titled “Reforecast: June 30 2013” (June 2013 R****eforecast B****udget), which was said in the email to reflect the “discussions and decisions made by Tony [Haggarty] and Peter [Kane] in Brisbane on Tuesday 18 September in relation to the ex Boardwalk projects”. The June 2013 Reforecast Budget recorded a reduction in the planned capital expenditure on Ferndale during FY2013 to $3.035 million following the actual capital expenditure on Ferndale in FY2012 of $11.056 million.
On 19 October 2012, an updating reforecast budget titled “Reforecast 3 + 9: October 19 2013” (Updated June 2013 Reforecast Budget) recorded that the planned capital expenditure on Ferndale during FY2013 had been further reduced to $2.326 million.
As stated above:
Between October and November 2012, Whitehaven explored a number of budgetary measures, including the “Fugly Case” cost cutting scenario in the October 2012 Fugly Case Discussion Paper, which would lead to the “Boardwalk projects [being] mothballed indefinitely”.
On 16 November 2012, Whitehaven made the 16 November 2012 ASX Announcement that Whitehaven had decided to “scale back the company’s Business Development Unit”.
In December 2012, Whitehaven prepared the December 2012 Impairment Discussion Paper in which it considered whether any impairment of the Boardwalk Projects was necessary in light of the decline in coal prices and the budgetary measures implemented in response to that decline. No impairment was recorded at that time (or in FY2014), with the December 2012 Impairment Discussion Paper prepared for the purpose of that assessment recording that the budgetary measures implemented had been in response to macro-economic factors and “not made in response to any material adverse exploration results or other outcomes”.
…
In November 2012, JB Mining estimated coal resources (reported in compliance with the 2004 JORC Code) totalling 445 million tonnes comprising 103.23 Mt Measured, 135.4 Mt Indicated and 207 Mt Inferred, at Ferndale within EL 7430 within the defined working sections for seams in the Newcastle and Wittingham coal measures. …
The exploration undertaken during 2012 has provided a significant amount of additional data to identify additional potential opencut coal resources to the 287 Mt reported in May 2012.
Work planned for the following 12 months comprises desktop feasibility studies.
The 2012 Geos Ferndale Annual Report also stated under the heading “Proposed Exploration” that “[d]esktop mining feasibility studies planned to be completed in the 2012-2013 reporting period is budgeted to cost approximately $20K”.
On 22 January 2013, JB Mining published a report for Boardwalk Ferndale titled “Coal Resources at Ferndale: An Estimate of the In situ Coal Resources at Ferndale within EL 7430, New South Wales” (January 2013 JB Mining Report), which under the heading “Summary” stated:
…
Coal resources totalling 445 million tonnes comprising 103.23 Mt Measured, 135.4 Mt Indicated and 207 Mt inferred have been estimated at Ferndale within EL 7430 within the defined working sections for seams in the Newcastle and Wittingham coal measures. It is proposed that the total 372 Mt coal resources reported within the Newcastle Coal Measures are amenable to opencut mining, whilst 73 Mt reported for the Whittingham Coal Resources are potentially amenable to underground mining using the criteria set out by Boardwalk Ferndale Pty Ltd.
…
The estimated coal resources of 445 million tonnes in the January 2013 JB Mining Report reflected an increase from the estimated coal resources of 369 million tonnes stated in the May 2012 JB Mining Report.
On 26 February 2013, Whitehaven made an announcement to the ASX which included the following statements, based on the January 2013 JB Mining Report and the 2012 Geos Ferndale Annual Report:
… Total Coal Resources have increased in the past half year by 81.2 Mt (2%) from 3,706.7 Mt (August 2012) to 3,787.9Mt. Marketable Coal Reserves are unchanged at 776.58 Mt. The main points to note from the February 2013 statements are:-
• An overall increase of 76.9Mt (21%) of Coal resources at Ferndale to 445.7Mt. Measured and Indicated Resources rose 230.8Mt to 238.6Mt;
…
These results were later included in the 2013 Annual Report, which was published on 2 October 2013.
On 6 February 2013, Jonathan Vandervoort, the executive general manager of infrastructure for Whitehaven, sent an email to Mr Haggarty in relation to the expenditure on the Boardwalk Projects, which stated:
…
I understand the book value of these assets is Ferndale - $132m; Dingo - $58m; Sienna - $46m; and Monto - $53m. As you are aware we would need to maintain some activity on all these projects to retain the exploration permits. We have commenced drafting a more detailed strategy document on the recommended approach to these projects in FY2014. We need to understand how we can protect the value of these assets whilst minimising the exploration costs. …
Ferndale
- Is currently on hold
- We have done conceptual planning only
- This planning shows significant hurdles to overcome
- Planning approval is probably two years away from the time it is lodged (based on Maules Creek timing for a greenfield project)
- Say we took a year to develop business case (this would be fast track)
- Earliest we could mine would be early 2016.
Ferndale
- Environmental Monitoring continues
- The JORC Resource was finalized for Ferndale in February or thereabouts (440Mt) comprising of 100.73 Measured, 123 Indicated and 216 Inferred – this work was undertaken in November 2012
- No further work has occurred of note due o [sic] cost constrataints [sic], however there is some planned work coming up to attempt to determine where the edge of the alluvials might be in relation to the more prospective areas for mining (we will most likely be unable to mine on the alluvials)
On 23 July 2013, Mr Tinkler, as CEO of Bentley Resources Pte Limited, sent a letter by email to Mr Vaile and Mr Flynn, copied to others, containing a proposal for the purchase of Ferndale, Dingo, Sienna and Oaklands North (amongst other assets). In the email, Mr Tinkler stated that the offer was supported by equity from Bentley Resources and Trafigura Pte Ltd and “senior debt” that was subject to “some standard due diligence”. In the letter, the indicative proposed purchase price for the suite of assets was US$520 million subject to due diligence, approvals and formal contracts.
On 26 July 2013, Grant Samuel gave a presentation to the board of Whitehaven titled “Wagyu II Proposal Preliminary Considerations” in relation to Mr Tinkler’s indicative proposal for the purchase of various assets. The presentation said that “there appears to be little, if any, strategic rationale for selling these assets at the current time”, one of the reasons for which was stated to be that the “exploratory tenements” (which included Ferndale) were described as “an important part of the company’s long term growth options beyond the development of Maules Creek and Vickery”.
In cross examination, Mr Haggarty said that by this time he was a non-executive director of Whitehaven but he could not recall any specific discussion about the indicative proposal by the Whitehaven board although he did recall that it came up and was declined (T409–411). The minutes of the meeting of the Whitehaven board on 29 July 2013 do not refer to any consideration of the indicative proposal by the Whitehaven board and Mr Haggarty could not recall if it was dealt with by way of circular resolution or by way of a management recommendation to the board (T411–413).
On 30 July 2013, Mr Vaile sent a letter to Mr Tinkler and Pierre Lorinet of Trafigura rejecting the indicative proposal of the purchase of various Whitehaven assets. The letter stated:
…
The Whitehaven Board has considered the indicative proposal in light of Whitehaven’s strategic direction and is of the view that there is no strategic or financial merit in entering into such a transaction, nor does it believe the proposal would be in the best interests of all Whitehaven shareholders.
Accordingly, Whitehaven does not propose to engage in discussions in relation to the proposal.
On 23 December 2013, the annual report for Ferndale (the year ending 18 December 2013) was prepared (2013 Ferndale Annual Report), which:
under the heading “Abstract” stated:
…
During the reporting period no field activities were carried out other than drillhole rehabilitation and environmental monitoring. Office activities were largely related to finalising the geological and coal quality databases. Administrative functions and the project core library were relocated to Whitehaven Coal’s Gunnedah area facilities.
During the next period, activities will be limited to a project review and preparation of an annual report and renewal application.
During the twelve months ended 18 December 2013 the following activities took place:
- The Ferndale borehole database was converted from Geos’ proprietary system to the Whitehaven group CoaLOG format,
- Coal quality reporting and database was completed by AB Mylec,
- Drillsite clearance and rehabilitation was completed,
- The environmental monitoring program continued to collect baseline data particularly with respect to air quality and groundwater,
- The Ferndale core yard was closed and all core was shipped to Whitehaven’s coreshed at Boggabri,
- The Ferndale Project office in Denman was closed.
…
The Work Program proposed in the Exploration Licence Application is essentially complete, with 75 holes of the proposed 84 drilled at approximately 500m spacing within the defined resource area.
At this time the deposit is sub-economic and it is unlikely that a decision to proceed with further exploration or feasibility studies will be made during 2014, which is the final year of tenure.
The project will be reviewed internally during the second half of 2014, and a renewal application will be prepared if warranted.
also under the heading “Proposed Exploration in Next Reporting Period” stated the proposed exploration activity and expenditure for Ferndale to be a total of $15,000, comprised of a renewal application and annual report of $5,000 and a project review of $10,000.
In the December 2013 Impairment Discussion Paper (referred to above), there was no suggestion that Ferndale should be impaired because it was “sub-economic” in the manner described in the Draft MMC Report and the 2013 Ferndale Annual Report.
On 2 December 2014, shortly before it was due to expire on 18 December 2014, Whitehaven submitted a renewal application for EL 7430 to the NSW Department of Trade & Investment (EL 7430 Renewal Application**)**. Receipt of the application was acknowledged on 8 December 2014. The application included a report titled “Renewal Justification Statement”, which noted:
the results and coal resources that had been located during the initial five-year tenure of the exploration licence;
that $15,463,074 had been expended during the initial five-year tenure of the exploration licence (which included expenditure prior to Whitehaven acquiring Boardwalk);
that $2,129,600 was forecast to be expended during the second five-year tenure of the exploration licence (being 2014 to 2019); and
a decision whether to proceed with or defer feasibility and environmental studies was to be made during the second five-year tenure.
In relation to the Renewal Justification Statement, Les & Zelda submits that:
It contains inconsistencies when compared to contemporaneous records. It references significant upcoming work at the tenement, including large core drilling and airborne magnetic surveys, and described further exploration as “imminent” under a 2015 – 2019 work program, although other documents from the same period indicated no further work was scheduled. For example, on 7 May 2014, Mr Brian Cullen (general manager of technical services at Whitehaven) sent an internal email that stated (with which Jamie Frankcombe agreed):
As far as I know we have no plans for Ferndale in the pipeline. We want to maintain the tenement and hence we will want to continue to do minimal exploration on it but that is about it.
It did not assert that additional expenditure on exploratory activities at Ferndale, or activities to progress a mining lease, would have been futile or improvident, in contrast to what was asserted by Whitehaven in these proceedings.
I agree with these observations that the contemporaneous documents do not coincide with the statements made in the Renewal Justification Statement.
Despite Whitehaven lodging the application on time, EL 7430 was not renewed until 22 November 2023, with the renewal period ending on 18 December 2026.
Whitehaven submits that this delay was related to investigations undertaken by the Australian Competition and Consumer Commission (ACCC) and the Independent Commission Against Corruption (ICAC). ICAC commenced an investigation in relation to the award of EL 7430 in late 2012 and other coal interests in the Upper Hunter Valley. The ACCC brought proceedings against Loyal Coal in relation to interests associated with the Obeid family. Whitehaven says that while neither the ACCC investigation or ICAC proceedings concerned the conduct of Whitehaven, the fact that they have concerned EL 7430 and its part owners “is sufficient to cast a cloud over that tenement”.
On 8 October 2018, David Humphris of the NSW Department of Planning and Environment sent a letter by mail to Loyal Coal in relation to the application for the renewal of EL 7430, which stated:
…
The application is the subject of ongoing assessment by the [Division of Resources and Geoscience] which has included input from the NSW Resources Regulator.
As you are aware both the applicant (Loyal Coal Pty Ltd) and one of the Directors (Mr Andrew Kaidbay) have been the subject of investigations by the [ACCC] and [ICAC].
…
In the email, Mr Humphris then requested information about Mr Kaidbay’s involvement in Loyal Coal, which was provided by Whitehaven on 26 October 2018. Later in June and July 2019, the NSW Department of Planning and Environment requested additional information about Mr Kaidbay’s involvement in Loyal Coal, which was provided by Mr Burt of Loyal Coal in a letter (with the Whitehaven logo) dated 9 August 2019 that attached various documents.
Whitehaven says that the delay in the renewal of EL 7430 is relevant because, for almost the entire period in issue, its renewal remained uncertain. In that context, it is entirely unsurprising that substantial project development did not occur. Whitehaven argues that the effect of the delay was to stall the work performed on Ferndale, as recorded in the annual reports in the subsequent periods as set out below:
The annual report for Ferndale for the period 19 December 2016 to 18 December 2017 (2017 Ferndale Annual Report) stated under the heading “Proposed Exploration in the Next Reporting Period”:
Planning for the exploration work program advanced in the 2014 renewal application can commence when renewal is granted.
The exploration work program advanced in the 2014 renewal application can commence when renewal is granted.
The field program will be preceded by:
- Community consultation and land access negotiations.
- A Review of Environmental Factors, including an agricultural impact statement, to be submitted for State Government approval,
- A Groundwater Monitoring and Management Plan, to be submitted to and approved by the NSW Office of Water.
The full proposed Work Program of field activities is described below but until renewal is granted it is not clear how much can be achieved during the year remaining.
There are no field based exploration activities proposed for the next reporting period.
Commencement of the proposed renewal work program is pending the outcome of the renewal application assessment.
It is anticipated that a request to amend the renewal work program will be submitted during the current term.
In relation to the delay of the approval of the renewal of EL 7430, Les & Zelda submits that:
The delayed renewal does not justify any of Whitehaven’s conduct from May 2012 to December 2014.
Even if Whitehaven had received the renewal earlier, the work foreshadowed in the Renewal Justification Statement would not have been sufficient to cause a Trigger Event to occur.
It is unclear that a renewal application premised on substantially greater past and future expenditure on EL 7430 would have taken the same amount of time to approve, particularly given the limited evidence explaining the delay.
A material part of the delay was attributable to Whitehaven’s failure to compel Loyal Coal (almost wholly owned by Coalworks, which it had acquired in mid-2012) to provide information requested by the NSW Department of Planning and Environment. A notice dated 28 June 2019 recorded that Loyal Coal had been asked on 13 July 2017 to complete a “Company Probity declaration”, due on 3 August 2017. That information was not provided, despite extensions, ultimately prompting a formal notice two years later seeking details of those with a direct or indirect involvement in Loyal Coal (namely Mr Kaidbay). A further notice repeating the request was issued on 30 July 2019.
On 9 August 2019, a response to the notice and supporting attachments were provided. The evidence does not reveal why the renewal was not approved until November 2023. However, Les & Zelda seeks an inference that the paltry budget allocated to the tenement materially detracted from the merit of the application.
I am not in a position to make any findings about why it took so long for the renewal of EL 7430 to occur. I am certainly not able to attribute fault to Whitehaven for the delay. It is clear that the investigations by the ACCC and the ICAC had a role to play in the delay in considering and determining the renewal. The fact is that EL 7430 was renewed and is not set to expire until December 2026.
As indicated above in the 2017 Ferndale Annual Report, pending the renewal of EL 7430, no substantive work was undertaken on Ferndale in this period.
On 7 January 2015, Mark Dawson (geology manager at Whitehaven) sent an email to Mark Edmonson (general manager – technical services at Whitehaven), which stated:
Attached FYI. The jewel in the crown.
The attached document was the Draft MMC Report. Whitehaven says this statement was “justified sarcasm”. Les & Zelda contends that characterisation is beside the point and, even if it is accepted, it is inconsistent with the earlier positive assessment of Ferndale on which Whitehaven had been preparing by mid-2012 to undertake substantive land acquisitions before market-driven company-wide capital reductions ensued. I do not think that anything turns on this email and it certainly plays no role in my assessment of the evidence regarding Ferndale.
On 18 April 2017, Mr Edmonson sent an email to Mr Ball (CFO of Whitehaven) in relation to Ferndale, apparently prompted by Mr Ball seeking Mr Edmondson’s thoughts on a property coming onto the market, which stated (emphasis added in bold):
I have reviewed the latest Conceptual Mining Study completed Dec 2011 and offer the following observations:
- The Ferndale deposit contains a significant coal resource (circa 2Bt) however very few of those tonnes are economic.
- The target seams are high in inherent ash (avg 32%) and wash to produce a modest thermal coal (16 – 25% product ash) at yields of 50%.
- The most financially attractive OC pit shell yields a potential OC coal resource of 69Mt at a ROM strip ratio of 8.5:1. The target seams are all poor yielding resulting in a product strip ratio is >15:1.
- Economic analysis at the time showed a negative NPV. Pricing and/or costs needed to change by 20% to generate a positive NPV, though still at a very poor rate of return.
- The preferred OC mine plan is highly constrained for ex-pit dump room. The Lease boundary is very restrictive with the study assuming OB could be dumped off lease (this in itself could be fatal flaw).
- There is [underground] potential however the target Bayswater seam is very deep (600 – 800m), will most likely contain high levels of gas and at >600 depth strata management will be a major concern.
While the study material is at a Conceptual level, it would appear very difficult if not impossible to develop an [sic] mine plan that overcomes the significant environmental and community concerns and is economic.
With this in mind I believe future spend at Ferndale should be kept to a minimum with any monies directed towards exploration (both field and desktop works) in order to further prove up the resource.
At some future time, a decision can be made whether Ferndale is retained as a going concern or packaged up for disposal.
In relation to this email of 18 April 2017, Les & Zelda submits that:
It was a “contemporaneous and uncontrived” assessment of Ferndale (which Whitehaven agrees with but indicates this challenges Les & Zelda’s case instead of supporting it).
It consisted of a review of the Draft MMC Report without apparently reviewing the significant data that had been obtained since, or the recognised benefits to blending Ferndale coal with Gunnedah coal.
It did not appear to appreciate, as set out above, the limitations of the Draft MMC Report, or the fact that is also advised even at a preliminary stage of a profitable standalone project (putting aside the benefits of blending Ferndale coal with Gunnedah coal), with modest (and more than conceivable) changes in prices and costs (20%).
It asserted the existence of “significant environmental and community concerns”, however, that does not appear to have been predicated upon any report or finding. Indeed, the Denman office had closed years earlier as part of Whitehaven’s cost-cutting programme and “[d]ue to the general lack of activity on the site there has been very little in the way of community engagement” as recorded in an update by Whitehaven as to Ferndale on 27 February 2014.
Les & Zelda says that reliance on the Draft MMC Report to justify a minimal future expenditure on Ferndale was misplaced and at odds with Whitehaven’s considered attitude in mid-2012, in the context of having acquired Boardwalk and Coalworks (after substantial due diligence) and its budgetary plans in the immediate aftermath of the merger (before the implementation of a company-wide capital reduction programme).
Whatever the various bases for the statements made by Mr Edmondson (some of which are obviously drawn from the Draft MMC Report), it is clear that at this time the prevailing view within Whitehaven was that expenditure on Ferndale was to be kept to a minimum. I do not regard the email from Mr Edmondson as evidencing a reasoned basis on which it could be said that Whitehaven considered that Ferndale should not be developed because it was uneconomic. If that is the inference that Whitehaven asks me to draw based on this email, I reject it.
…
Note the conclusions of the paper, consistent with Resource Strategies’ due diligence comments in relation to the Boardwalk assets provided to Whitehaven in December 2011, are as follows:
A number of key environmental assessment aspects present a high risk to the approvability of an open cut coal mine within EL 7430, including:
- potential impacts to local amenity, particularly in relation to the proximal equine and viticulture industries and the town of Denman;
- potential impacts to water resources, particularly in relation to the proximal equine and viticulture industries and the Goulburn River; and
- potential ecological impacts, particularly on the World Heritage listed Wollemi National Park.
- Even with the implementation of the potential mitigation measures identified, an open cut coal mining proposal within EL 7430 is highly likely to attract significant opposition from the local community and equine and viticulture industries.
- **These opponents would be well versed in the key aspects of the Planning Assessment Commission’**s second refusal of the Drayton South Coal Project and would readily transfer that experience to oppose the proposal.
- The key environmental aspects identified would have the potential to materially constrain an open cut mining operation (e.g. constraining the extent of disturbance through buffer distances, or prohibiting blasting during the thoroughbred covering season) to an extent that there would be significant detrimental impact to the value of the proposal.
- Political opposition is also likely due to the second refusal of the Drayton South Coal Project and subsequent amendment to the NSW State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2007 to prohibit open cut mining on the Drayton South exploration licence.
- Therefore, within the context of current regulatory environment and community and stakeholder relationships, there would be significant risks to approval prospects and project value if consent was sought for open cut mining within EL 7430 and ultimately a high potential for refusal or resource loss.
These conclusions were also reflected in a document titled “Draft Ferndale Environmental Approvals Report” that Mr Cribb sent by email on 14 March 2018 to Ms Gollogly. Mr Cribb’s email confirmed that the conclusions summarised in his email of 24 January 2018, which were based on an earlier version of the Draft Ferndale Environmental Approvals Report, had not changed in the Draft Ferndale Environmental Approvals Report. The Draft Ferndale Environmental Approvals Report stated:
Under the heading “Community Relationships and Political Factors”:
There are a number of similarities between the Project and the Drayton South Coal Project, refused by the PAC in October 2014 and February 2017.
It would be expected that any application seeking approval of an open cut coal mine within EL 7430 would face a considerable body of opposition and a PAC/Independent Planning Commission investigation of similar intensity to that which occurred in relation to the Drayton South Coal Project. As such it would [sic] prudent to assume that such an application would carry a significant risk that it would ultimately be given a negative determination by the PAC/Independent Planning Commission.
Les & Zelda says that these opinions should be questioned because:
the Maxwell Coal Mine Project (which contains the former Drayton Mine) received approval from the Independent Planning Commission after the preparation of the Draft Ferndale Environmental Approvals Report; and
Mr Cribb’s analysis was conducted largely having regard to “public domain information” as opposed to site specific information or prior studies/investigations.
I can only treat these emails and the Draft Ferndale Environmental Approvals Report as an expression of Mr Cribb’s opinions at the time that they were provided. I am not in a position to attach any particular weight to these opinions as they were not the subject of any challenge before me and Mr Cribb did not give evidence about them.
On 4 April 2018, RPM Global prepared a report titled “Ferndale Mine Planning Update” (RPM Report) for Whitehaven, which states:
Under the heading “Executive Summary”:
…
The major objective of this work was to review the previous conceptual study for the Ferndale Project and update the mine planning and economic models with current cost and revenue assumptions with a view to assessing the current economic viability of the project. The Ferndale Coal Deposit, by definition, is contained within Exploration Licence 7430, though in reality the coal extends beyond the EL boundaries. The EL is a complex shape which limits the continuity of both the potential underground and open cut mining operations.
…
Economic analysis was carried out for the preferred open cut scheduling option. Project development capital costs were estimated at approximately AUD 451 million plus a 45% contingency to reflect the early stage planning accuracy of the estimate. Operating margin (revenue less for operating costs) was calculated to be approximately minus AUD 24/t product. The resulting economic outcomes are not compelling for the development of Ferndale with significantly negative NPV’s for a range of discount rates. Sensitivity analysis on key project value drivers was completed for a range of +/-20% from the base inputs for which the NPV result in all cases was negative.
…
Underground mining was also examined at the conceptual level as part of the 2011 study but has not been updated as part of this study. …
…
The study concludes:
- Economic analysis of open cut mining shows a negative NPV and IRR. If all modelled economic parameters (current as at Mach [sic] 2018) improve by 20% (that is prices increase AND costs reduce), the project valuation remain [sic] negative.
…
This report has been prepared by RPM Global (“RPM”) for Whitehaven Coal Limited (“WHC”) to document the mine planning update undertaken for the Ferndale Coal Deposit (“Ferndale”) near Denman in New South Wales, Australia. RPM trading as Minarco-MineConsult completed a Conceptual Mine Planning Report in 2011 for Boardwalk Resources.
Whitehaven submits that the RPM Report indicates that Ferndale was not economically viable and, contrary to Les & Zelda’s submission, is not a “distraction” but instead goes to the heart of the issues in these proceedings. Whitehaven says that Les & Zelda suggests that Whitehaven should have expended time, money and resources in attempting to obtain approvals for a project that Whitehaven’s consultant was reporting was not economically viable.
Les & Zelda raises the following issues with the RPM Report:
RPM did limited work in relation to the RPM Report because:
(a) 47 of the 71 substantive pages of the report are almost or entirely identical in content and form to the Draft MMC Report, which was prepared by MMC (which is the entity trading as RPM). (b) 12 pages of the RPM Report are maps or diagrams, which have similar counterparts in the Draft MMC Report. (c) Many pages have only been changed so that references to MMC have been replaced by references to RPM. (d) The RPM Report did not update the proposed project schedule, which still had feasibility studies being completed in 2012/2013 and first coal being mined in 2015, being well before the date of the RPM Report in April 2018. (e) Section 8 of the RPM Report titled “Conclusions & Recommendations” is a word-for-word reproduction of the conclusion in the Draft MMC Report, including reproducing the results of MMC’s economic analysis, namely that a 20% change in economic parameters would produce a positive NPV and IRR for open cut mining. This is notwithstanding that was contrary to the analysis performed by RPM.
(a) provide any commentary or opinion as to the reasonableness of the assumptions used or whether they were supported by credible sources; (b) undertake any independent economic analysis of Ferndale on a historic or current basis; or (c) provide any justification for the aggressive estimates as to costs or conservative forecast coal prices.
(a) assuming, as a base case coal price for “Export Thermal Pricing”, a price of A$86.70 per Mt, which compared to $112.50 in the Draft MMC Report; (b) assuming (prior to contingencies) capital costs for open cut mining of $451.022 million, an increase from $322.18 million in the Draft MMC Report (i.e. up about $130 million in about six years), noting that the accuracy of the updated estimate of $451.022 million was +/- 45% accurate (cf. +/- 30% as applied to the estimate in the Draft MMC Report); and (c) adding a further contingency to capital costs of 45% (i.e. $203 million) compared to the 10% figure used in Draft MMC Report, resulting in RPM’s financial modelling being done on an initial capital cost of $654.1 million (cf. estimate in the Draft MMC Report of $354.4 million after applying a 10% contingency).
These assumptions in the RPM Report indicate that it is hardly surprising that Ferndale did not show a positive NPV or IRR under base case coal pricing or, indeed, under any scenario analysis that involved altering the inputs by +/-20%. RPM modelled Ferndale on the most asperous of coal mining assumptions and employed the capital cost assumptions of $654.1 million, being approximately $300 million more than what had appeared in the Draft MMC Report (i.e. 84.5% higher). None of this was explained or justified in the RPM Report or by Mr Yeates in his evidence.
RPM did not perform any update as to the prospect of underground mining and instead reproduced what appeared in the Draft MMC Report, which exhorted further investigation of Bayswater seemingly not performed by Whitehaven.
In light of these issues, Les & Zelda says that any reliance on the RPM Report by Whitehaven in submitting that Ferndale was uneconomic is misplaced because:
the combination of the identified deficiencies fundamentally undermines the reliability of RPM Report;
the RPM Report would have withstood even less scrutiny from 2022 onwards, when coal prices rose sharply, yet Whitehaven did not revisit or update the modelling to reflect those materially changed market conditions;
Whitehaven did not act on what it stated in the August 2015 Impairment Paper; namely, that despite the recommended impairment it intended to keep the assets in good standing with the potential for further exploration at the appropriate time; and
Whitehaven likewise failed to follow through on its 16 November 2012 ASX Announcement that, as global coal prices improved, it would continually revisit the status of its development plans, which it did not do despite significant coal price increases.
Having admitted the Draft MMC Report into evidence on a limited basis only, being as evidence that a report in that form and content was prepared and provided to Whitehaven, meaning that it cannot be used to prove any opinion that Ferndale was or is objectively uneconomic to develop, I do not accept the RPM Report to prove that opinion either. In my view, for the reasons submitted by Les & Zelda, the RPM Report is not substantively different in any meaningful way to the Draft MMC Report, with no new economic analysis having been undertaken between December 2011 (when the Draft MMC Report was issued) and April 2018 (when the RPM Report was issued). As RPM is merely a trading name of MMC, it is unsurprising that the previous work contained in the Draft MMC Report was referenced but I would have expected that it would have been updated.
Accordingly, I reject Whitehaven’s submission that the RPM Report indicates that Ferndale was not economically viable.
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Les & Zelda submits that Whitehaven’s initial assessment of Ferndale in 2011 to 2012 was positive, as shown by:
its decision to acquire Boardwalk’s assets, including Ferndale, for substantial consideration — the Scheme Booklet stated the total consideration for Boardwalk excluding the Milestone Shares was $393 million, which was in fact $444.885 million due to a higher Whitehaven share price of $5.18 at the date of the issuance of the 85,885,183 Unrestricted Shares (excluding Milestone Shares);
numerous positive public statements during the merger, including in the 16 November 2012 ASX Announcement in which Whitehaven stated that it “remain[ed] confident of the long-term value of our development assets”;
internal and external assessments placing significant probabilities on Ferndale satisfying a Trigger Event by 31 December 2014, ranging from 35% (KPMG Valuation Report in 2012) to 50–70% (estimates by Whitehaven executives in early 2012); and
initial budgets allocating meaningful expenditure to the development of Ferndale, including a proposed $15 million for land purchases in FY2013.
Les & Zelda submits that exploratory activities undertaken between 2011 – 2013 revealed sizeable coal resources, which warranted further investigation. The resources were estimated at 369Mt in May 2012 and 445Mt in January 2013, which indicated the need for continued exploratory work to assess Ferndale’s economic viability, such as the possibility of blending or underground mining. Les & Zelda says that Whitehaven’s acquisition of Boardwalk and later Coalworks demonstrates that further exploration and development were, at the time, seen as justified and warranted.
However, Les & Zelda says that those further investigatory works were never carried out, not because Ferndale lacked merit, but because:
a company-wide capital expenditure freeze from late 2012 led to the Boardwalk Projects being mothballed irrespective of their individual prospects;
Whitehaven subsequently refused to incur further expenditure on Ferndale (relying almost entirely on the Draft MMC Report) notwithstanding that this plan had previously posed no impediment to its acquisition rationale or initial development budgets; and
Whitehaven ignored repeated advice that additional work was needed to assess properly the project’s potential.
In short, Les & Zelda submits that, notwithstanding being repeatedly advised that further works were necessary to assess Ferndale (being works that also would have progressed Ferndale towards a mining lease), Whitehaven refused to expend such money. Far from being a prudent and unimpeachable business judgement, Les & Zelda says that Whitehaven paid substantial money to acquire Ferndale (it was booked in value at $237 million prior to the end of FY2015), yet it perversely refused to spend the money needed to investigate properly the potentiality of Ferndale, thereby setting at naught the significant money expended to acquire that asset — expenditure that could only be justified if money was spent to realise Ferndale’s potential or, at the very least, determine after proper investigations that the asset was incapable of being turned into a financially productive one. Les & Zelda says that this was compounded by the fact that, as part of its takeover of Boardwalk, Whitehaven was capitalised with the money needed to develop Ferndale, with Whitehaven representing that it would expend such money on the “ongoing development” of Boardwalk’s assets.
Whitehaven submits that:
At the time of Whitehaven’s acquisition of Boardwalk, Ferndale was recognised as a very early-stage project.
Limited exploration of Ferndale was undertaken but scaled back from late 2012 due to economic conditions.
A renewal application for EL 7430 lodged in 2014 then remained in abeyance for nine years, during which further substantial exploration was not possible.
Assessments during that period indicated that Ferndale was sub-economic, had no apparent prospect of becoming an economically mineable coal mine, and carried a significant risk of refusal of environmental approval.
It is true that Ferndale was an early stage coal exploration project when it was acquired as part of Whitehaven’s acquisition of Boardwalk that was completed in May 2012. It is clear that Whitehaven regarded the Boardwalk Projects as showing promise in light of the significant consideration that Whitehaven was prepared to pay for them, being $393 million (excluding the Milestone Shares) and $491 million (including the Milestone Shares), which was recognised by Whitehaven in the Scheme Booklet as being a fair value despite the fact that it was considerably in excess of PwC’s view of the value of them (between $200 million and $330 million as stated in the PwC Report).
Upon the completion of the acquisition of Boardwalk on 1 May 2012, Whitehaven then considered that Ferndale would be investigated to determine what work would be undertaken in relation to it. Multiple contemporaneous documents indicated that work was being undertaken to assess Ferndale, including the May 2012 JB Mining Report which estimated 369 million tonnes of bituminous coal existing comprising 7.8 million tonnes of indicated coal resources and 361 million tonnes of inferred coal resources within Ferndale, which assessment was then made public in the May 2012 ASX Announcement by Whitehaven. The view then held within Whitehaven was epitomised by the email of 15 May 2012 from Mr Davies which stated:
In summary, Ferndale has potential to be a good project in time but there is a lot of work to be done before we put our head above the parapets and declare our hand on timing and project approach.
Also in May 2012, Whitehaven was contemplating that $15 million would be spent on land purchases for Ferndale in FY2013, having been reduced from $73.4 million as recorded in the 2013 Draft Budget, with this expenditure noted by the Whitehaven board in its meeting on 29 May 2012. The June 2013 Budget Presentation which was made to the board at that meeting indicated that the $15 million was part of a budgeted expenditure of $33.65 million during FY2013 for Ferndale and that the planned timeline for Ferndale would be a pre-feasibility study in July 2012, a feasibility study in January 2013 and first coal in mid 2017.
From my assessment of the contemporaneous documents, none of the work contemplated in the email of 15 May 2012 and the June 2013 Budget Presentation has ever been done in relation to Ferndale for three reasons.
First, the capital expenditure limit imposed in the 5 September 2012 Capex Memo, which then led into the June 2013 Reforecast Budget on 24 September 2012 and the Updated June 2013 Reforecast Budget on 19 October 2012 led to the budgeted expenditure during FY2013 for Ferndale being reduced to $2.326 million. This led to the October 2012 Fugly Case Discussion Paper and the Boardwalk Projects being “mothballed indefinitely”, which became part of the 16 November 2012 ASX Announcement in which Whitehaven’s business development activities were stated to have terminated, although it was reiterated that Whitehaven “remain[ed] confident of the long-term value of our development assets”. Further, the December 2012 Impairment Discussion Paper indicated that the budgetary measures implemented had been in response to macro-economic factors and “not made in response to any material adverse exploration results or other outcomes”, without noting an impairment at that time.
Secondly, the renewal of EL 7430 at Ferndale took from December 2014 until November 2023 to be completed. As I have indicated above, I do not ascribe any fault to Whitehaven for the delay which was experienced in that renewal. It is entirely understandable that no further expenditure occurred on Ferndale while the renewal application was outstanding.
Thirdly, as the unchallenged evidence of Mr Ball makes clear, the reason the Milestone Projects have not been developed up until now is that they have not demonstrated sufficient merit to attract the capital necessary to advance them when compared to other competing priorities in allocating capital within Whitehaven. Instead, the expenditure on Ferndale has remained at nominal amounts since FY2013, which is at a level that Whitehaven has repeatedly said is to “keep them in good standing with the potential for further exploration at the appropriate time” (see, for example, the August 2017 Impairment Paper).
Having reached these conclusions, I reject Whitehaven’s submission that it had concluded that Ferndale is uneconomic to develop. For the reasons I have stated above, I do not consider that I have any reasoned basis on which to make such a finding based on any of the contemporaneous documents. In particular, none of the documents supporting the impairment of the Boardwalk Projects makes any such suggestion, I cannot use the Draft MMC Report or the RPM Report on which to base that conclusion and I do not put any weight in statements made by Mr Edmondson in his email of 18 April 2017, which were not reasoned opinions that could be challenged at the trial. I do not consider that any of the impairments of Ferndale in Whitehaven’s accounts (which went from $237.6 million in FY2015 to zero in FY2017) have the slightest relevance to whether or not Ferndale can be developed in an economic way.
Before an applicant may seek State Significant Development (SSD) approval for land shown on the Strategic Agricultural Land Map, it must first obtain a Gateway Certificate. This requirement has been in place since 2013. It applies to Ferndale because a large proportion of the land on which that project is located is designated as critical industry cluster land for both the equine and viticulture industries. The Gateway Certificate process is focused on protecting strategic agricultural land within NSW.
The decision-maker is the NSW Mining and Petroleum Gateway Panel, a body of independent scientific experts. Under s 2.31 of the State Environmental Planning Policy (Resources and Energy) 2021 (NSW) (SEPP), the Gateway Panel must consider a range of specified matters when determining an application for a Gateway Certificate. These include matters relating to the impact on the land (for biophysical strategic agricultural land) and the effect on industry (for critical industry cluster land). As a result, the designation of land as strategic agricultural land is not merely relevant to enlivening the Gateway Certificate requirement; it forms a critical part of the substantive assessment that informs whether SSD approval should ultimately be granted. The Gateway Panel is expressly directed to consider the effect of any development on the relevant critical industry.
Additionally, under cl 2.30 of the SEPP, the Gateway Panel must refer the application to the IES Committee and the Minister for Regional Water for advice regarding the impact of the proposed development on water resources.
Section 65 of the Mining Act 1992 (NSW) provides that the Minister for Natural Resources must not grant a mining lease unless an appropriate development consent is already in force. Under s 63 of the Mining Act, the Minister for Natural Resources may grant a mining lease over all or part of the land for which the lease is sought. Development consent is granted under the EPA NSW Act.
The EPA NSW Ac**t sets out the procedures for evaluating development applications (s 4.15), the power to grant development consent (s 4.16), the power to attach conditions (s 4.17) and the requirements regarding the preparation of environmental impact assessments. All coal mining proposals in NSW must be assessed under the SSD framework, which is an assessment and approval process under the EPA NSW Act. SSD approval is given by either the Minister or the Independent Planning Commission (IPC), with the IPC generally determining coal mining projects as that is the determining authority for contentious applications. The Department of Planning and Environment (DPE) coordinates the assessment in relation to SSD approval. SSD projects are determined having regard to, amongst other things, their economic, environmental and social impacts and the principles of ecologically sustainable development.
The SSD process comprises several defined stages:
Project identification and SEARs stage: The process begins with individuals or organisations discussing their plans with the DPE and preparing a proposal identifying the nature, scope and location of the project. The DPE then reviews the proposals and determines whether the proposal qualifies for SSD approval based on its size, complexity and potential impact on the State. The proponent then submits a Secretary’s Environmental Assessment Requirements (SEARs) application, which involves collaborating with relevant authorities to define the key environmental and community aspects that must be assessed in the Environmental Impact Statement (EIS). The SEARs application will typically address environmental considerations, traffic impacts and social impacts.
Preparation of the EIS: The next stage is the preparation of the EIS, a comprehensive report assessing various aspects of the proposal, such as environmental effects, social implications, traffic considerations and economic gains. Technical experts contribute to the EIS, which also identifies measures to mitigate any adverse effects. Government agencies review the EIS to ensure completeness and compliance with policies and regulations, and independent expert panels may also provide impartial analysis.
This page shows the first part of a long judgment. Read the rest on NSW Caselaw.
Read the judgment on NSW CaselawLes & Zelda Investments Pty Ltd (as trustee for Les & Zelda Family Trust)
Whitehaven Coal Limited
(2003) 179 FLR 1
(1998) 44 NSWLR 349
(1977) 139 CLR 54
(2015) 88 NSWLR 281
(1999) 46 NSWLR 267
(2014) 253 CLR 560
(2012) 247 CLR 345
(1998) 43 NSWLR 104
(2016) 257 CLR 440
(1993) 61 SASR 165
(2012) 39 VR 1
(2009) 239 CLR 269
(1977) 180 CLR 266
(2001) 117 FCR 424
(2001) 69 NSWLR 558
(1995) 185 CLR 410
(2009) 238 CLR 304
(2011) 192 FCR 445
(1987) 10 NSWLR 468
(2014) 314 ALR 62
(2024) 281 CLR 39
(2007) 69 NSWLR 680
(1982) 149 CLR 337
(2014) 253 CLR 169
(1991) 174 CLR 64
(1990) 170 CLR 394
(1986) 160 CLR 226
(2006) 230 ALR 437
(2016) 260 CLR 1
(2010) 78 NSWLR 483
(2011) 83 NSWLR 728
(2005) 227 CLR 18
(2017) 261 CLR 544
(1999) 161 ALR 599
(2014) 251 CLR 640
(2004) 218 CLR 471
(2021) 388 ALR 128
(1997) 80 FCR 137
(1989) 168 CLR 385
(2003) 214 CLR 118
(2009) 76 NSWLR 603
(1999) 196 CLR 101
(2006) 66 NSWLR 186
(2002) 170 FLR 451
(1937) 59 CLR 641
(1910) 10 CLR 417
(2012) 290 ALR 372
(2022) 409 ALR 187
(1984) 156 CLR 41
(1919) 27 CLR 133
(1990) 23 NSWLR 190
(1988) 166 CLR 351
(1959) 101 CLR 298
(2023) 112 NSWLR 564
(2024) 281 CLR 484
(2011) 243 CLR 361
(2023) 276 CLR 500
(1983) 152 CLR 406
(2010) 383 ALR 577
(1990) 169 CLR 638
(2015) 237 FCR 534
(2017) 94 NSWLR 500
(2015) 256 CLR 104
(1985) 1 NSWLR 86
(2004) 218 CLR 451
(2015) 236 FCR 199
(2005) 80 ALJR 317
(2001) 205 CLR 126
(2018) 265 CLR 522
(2016) 258 CLR 134
(2019) 60 VR 118
(2017) 348 ALR 605
(1996) 39 NSWLR 417
(1990) 20 NSWLR 588
(2022) 277 CLR 115
(1982) 39 ALR 257
(1992) 26 NSWLR 234
(2012) 37 VR 486
(2019) 267 CLR 514
(2007) 69 NSWLR 603
(2010) 79 NSWLR 453
(1998) 196 CLR 329
(1979) 144 CLR 596
(1994) 179 CLR 332
(1931) 45 CLR 359
(2014) 251 CLR 505
(1988) 13 NSWLR 466
(1995) 126 FLR 61
(2012) 41 VR 1
(2001) 51 NSWLR 399
(1986) 7 NSWLR 170
(2009) 236 CLR 272
(1933) 49 CLR 507
(2004) 219 CLR 165
(2011) 288 ALR 310
(1928) 41 CLR 181
(2024) 115 NSWLR 489
(2004) 186 FLR 360
(2009) 179 FCR 346
(2012) 292 ALR 788
(1988) 164 CLR 387
(2014) 88 NSWLR 689
(1995) 182 CLR 544
(1995) 49 NSWLR 315
(1985) 180 CLR 459
(1991) 24 NSWLR 146
(2021) 271 CLR 456
(2015) 89 NSWLR 594
(1961) 109 CLR 105
(1993) 177 CLR 635
(2008) 234 CLR 151
(2011) 282 ALR 604
(2016) 92 NSWLR 247
(2014) 291 FLR 246
(2004) 207 ALR 136
A particular feature of the sale of the Boardwalk shares and warrants to Whitehaven was that the consideration payable to the Boardwalk Shareholders, the Farallon/Noonday Lenders and the Minority Lenders for the Boardwalk shares and warrants was entirely comprised of shares in Whitehaven, with each of them receiving approximately 1.8595 ordinary shares in Whitehaven for each share they held in Boardwalk. As part of the transaction, Whitehaven issued 119,905,183 shares comprising:
85,885,183 ordinary Whitehaven shares (71.6%) issued without any restriction (Unrestricted Shares), being shares which allowed the holder to receive any dividends declared by Whitehaven, vote at any Whitehaven general meeting and sell the Unrestricted Shares as and when it suited them; and
34,020,000 ordinary Whitehaven shares (28.4%) issued with restrictions (Milestone Shares), being shares for which the holder agreed not to exercise the right to receive any dividends declared by Whitehaven, vote at any Whitehaven general meeting or sell, amongst other things.
Annexed to each of the SPA, the WPA and the Minority Lenders SPA was a draft Restriction Deed, which set out the restrictions on the Milestone Shares (together the Restriction Deeds). Each Restriction Deed was executed on 1 May 2012.
The restrictions on the Milestone Shares contained in the Restriction Deed continue to apply until the occurrence of certain events, which are defined as Trigger Events. The Trigger Events on which the restrictions can be lifted include the grant of a mining lease and associated environmental approvals over any one or more of the Boardwalk Projects and another tenement called Oaklands North, the latter being owned by Coalworks (the Boardwalk Projects and Oaklands North collectively being the Milestone Projects). The restrictions on 50% of the Milestone Shares (17,010,000) are to be released upon one of the Milestone Projects being the subject of a Trigger Event and the restrictions on the remaining 50% of the Milestone Shares are to be released upon a second of the Milestone Projects being the subject of a Trigger Event.
An important feature of the transactions – the essence of which was a scrip takeover of Boardwalk by Whitehaven – is that, immediately before they were entered into, the largest shareholder of Boardwalk (Boardwalk Resources Investments Pty Ltd (BRI)) was required to make a capital injection of $150 million to Boardwalk ($150 million Capital Injection). Approximately US$50 million of the $150 million Capital Injection was earmarked to repay debt owed by Boardwalk and $15 million was for deferred payments relating to Sienna, with the remaining amount being described in contemporaneous documents applying the expression: “will be used for the ongoing development of [Boardwalk’s] assets”.
Les & Zelda allege, consistent with that description, that there was an understanding, expectation and commitment made by Whitehaven during the course of negotiating the transactions that it would expend what remained of the $150 million Capital Injection after the payment of specified debts to develop the Boardwalk Projects. Les & Zelda assert that the evidence of this exists in the contemporaneous documents. Such an understanding, expectation and commitment found no expression in the extensively negotiated and complex commercial contractual documents agreed between the parties.
The rule in Jones v Dunkel only applies once all the evidence in the case is in.
Whether some inference should be drawn, what inference, and with what significance, are all matters of discretion that depend upon the particular case. A particular inference to be drawn will generally only be of material significance where the balance of evidence is equivocal.
In some cases no inference will be drawn merely because corroborative or cumulative witnesses are not called.
The rule in Jones v Dunkel cannot be used to draw a positive inference if the evidence does not otherwise admit of a rationally drawn inference.
The rule in Jones v Dunkel does not permit a court to infer that the uncalled evidence would have been positively damaging to a party’s case.
The rule in Jones v Dunkel does not supply missing gaps in the evidence, or convert conjecture or suspicion into inference; rather, it enables an already available inference to be drawn more comfortably.
The effect of the rule in Jones v Dunkel is not that any inference favourable to the party that failed to call the witness should not be drawn.
The court would be able to infer, relevant to the Oppression Claim, that Mr Flynn has conducted the affairs of Whitehaven in knowing departure from the mutual understanding which formed the principal basis of the transaction, and he has not come along to explain or justify his actions.
As will be plain in the relevant parts of the judgment below, it has not been necessary for me to use the absence of Mr Flynn for the purpose of drawing any inference against Whitehaven pursuant to the rule in Jones v Dunkel. I have made findings in relation to the evidence without any reference to Mr Flynn’s absence from the witness box.
Mr Peck said that in light of these matters, the options were to:
continue with the current Proposed IPO preparations and timeframe;
delay the Proposed IPO until the resources were better defined and the impacts of the QLD policy on Sienna could be clarified; or
consider revisiting an alternative such as a private sell-down or sale of stakes either as a final solution or to provide interim liquidity prior to a later initial public offering.
Mr Peck said that, in light of the issues identified and the generally weak state of equity markets, the right advice was to either delay the Proposed IPO and look to obtain better value from an IPO in early 2012 or consider another form of transaction.
On 23 August 2011, Mr Christensen prepared a draft memorandum for Mr Peck and Mr Kane to review, which was intended to be copied to Mr Tinkler (amongst others), stating that they had decided to delay the Proposed IPO until the first quarter of FY2012, positing the reason to be:
Mr Tinkler knew that Whitehaven had been operating for about 10 years; had allocated space with the railway companies and coal terminal providers; and was interested in acquiring the Maules Creek coal mine project because it had been the unsuccessful tender party in acquiring it from Rio Tinto Ltd (with Aston the successful tender party). Mr Tinkler also thought that a merger of Aston and Whitehaven would mean that the Maules Creek coal mine project would obtain access to infrastructure directly rather than by relying on other mining companies to sell their allocated space to Aston if Aston decided to develop the project alone.
Mr Tinkler thought that the merger of Whitehaven and Aston would be advantageous to both companies and would build a very strong company (T233).
Mr Di Pilla on behalf of Aston approached Whitehaven to raise the possibility of a merger.
In the cross-examination of Mr Haggarty, he said that between 21 November 2011 and the signing of the Final Term Sheet on 25 November 2011 (dealt with in detail below) there were conversations between the advisers and he was unable to recall the precise number of discussions in which he participated with Mr Tinkler, other than two of them occurring on 21 November 2011 (T371–372).
denied that he said he wanted a 20% shareholding of the merged entity.
There is a contemporaneous record of the UBS Meeting that is independent of the respective recollections of Mr Tinkler and Mr Haggarty.
On 21 November 2011 at 4:57pm, Nikolas Pojezny (executive director of Goldman Sachs) sent an email to other members of the Goldman Sachs team reporting on a meeting held that day between Whitehaven representatives and Aston representatives. I infer that this was a report of the UBS Meeting as representatives from Goldman Sachs were not present at the Café Meeting or the Later Meeting (as demonstrated in the email of 21 November 2011 at 8:52pm from Mr Bartlett to Mr Haggarty, which is referred to below). The email from Mr Pojezny stated:
In Mr Pojezny’s email there is no mention of anything to do with the $150 million Capital Injection into Boardwalk, no mention of Milestone Shares and nor is there any mention of a discussion occurring in relation to Plan B of Whitehaven acquiring Aston. While I accept that Whitehaven was clearly working with its advisers on such a Plan B, there is no reliable evidence that it had been raised with the Aston/Tinkler interests during the UBS Meeting. This is important because, as I have outlined in more detail below, the contemporaneous documents demonstrate that the $150 million Capital Injection only arose at the point when Plan B came under active discussion between Whitehaven and the Aston/Tinkler interests, which was not until 23 November 2023.
A further indication of the unreliability of Mr Tinkler’s recollection is that, tellingly, Mr Pojezny’s email records that “AZT wants WHC directors to praise Boardwalk assets and express a view on valuation at time of announcement (i.e. before any IER on these assets) to support the transaction”, which was quite different to Mr Tinkler’s recollection that Mr Haggarty wanted Mr Tinkler to pay “an additional $150 million to support the development of these assets [and] allow all shareholders to support the transaction”.
Accordingly, I am not satisfied that Mr Haggarty made any suggestion at the UBS Meeting that the Tinkler interests invest an additional $150 million to support the development of Boardwalk’s assets. I am also not satisfied that Mr Tinkler said anything at the UBS Meeting about the timely triggering of Milestone Shares and that he “get the rewards for doing so” if he was going to make an injection of $150 million into Boardwalk. I do not accept Mr Tinkler’s evidence to the contrary.
To be clear, this finding does not mean that the essential matters which Mr Tinkler recollected as having been said at the UBS Meeting were not said at some other time. As set out below, I have considered whether that was the case.
The reference to the two documents having been “tabled today” does not enable me to determine whether they had been provided beyond Mr Tinkler to those at Whitehaven or had remained internally with Mr Tinkler and his advisers. They could have been “tabled” at an internal meeting, an external meeting or both. The position is not clear. It is, however, clear from an internal Goldman Sachs email on 22 November 2011 at 10:11pm and an email on 22 November 2011 at 10:37pm sent by UBS to Mr Plummer and copied to Mr Haggarty and others at Whitehaven (which are referred to below) that the revised transaction structure contained within the documents was provided to Whitehaven and was discussed with Whitehaven representatives.
The fourth document attached to the email of 22 November 2011 at 8:28pm is described as a set of “funding overview slides”, which are two slides headed “Funding Overview – Tax optimised” and “Funding Overview – Non tax optimised”. In the description of the slides in the covering email it specifically refers to those slides being “discussed this afternoon”. Given that they appear as an attachment to the email at 10:11pm that day from Mr Pojezny, they were clearly handed over by the Aston representatives to the Whitehaven representatives earlier on 22 November 2011.
Both slides contain tables headed “Sources” (including “AZT equity” of $2.8 billion, “AZT rights issue” of $300 million and “HY bond” of $1 billion) and “Uses” (including “WHC equity - scrip” of $2.8 billion and “WHC equity - cash” of $800 million). Amongst the matters described as “Key assumptions” on the first slide is “Other: Ex. Boardwalk exploration spend. Tax optimisation assumes $50m benefit p.a” and on the second slide “Other: Ex. Boardwalk exploration spend”.
On 22 November 2011 at 10:11pm, Mr Pojezny sent an email to others at Goldman Sachs, which referred to a “[s]eries of meetings today” and then listed “a few key points” as follows:
Importantly, the email of 22 November 2011 at 10:11pm from Mr Pojezny raises the “[k]ey rationale” for raising Structure B is that it could deliver the “key outcome sought after by Tinkler (which is to own at least 20% in MergeCo)”, which is consistent with Mr Tinkler’s consideration of the minimum 20% shareholding as an important matter (T237–238), while not leading to negative tax consequences for Mr Mende.
It is also significant that Mr Pojezny states in the same email that Goldman Sachs were “working through certain mechanisms to increase Tinkler’s stake if it comes out below 20% (e.g. Tinkler contributing cash into Boardwalk; WHC paying a special dividend prior to merger)”. This was the forerunner to what would occur over the next day, with Plan B/Structure B being proposed, together with mechanisms to meet Mr Tinkler’s objective of a minimum 20% in the merged entity, one of which involved Mr Tinkler contributing cash into Boardwalk.
I also find that beyond this limited mention of Boardwalk, as reflected in the email of 22 November 2011 at 10:11pm from Mr Pojezny, there were “[n]o further discussions on Boardwalk” on 22 November 2011.
The “attached scan of pages received” referred to in Mr Pojezny’s email of 22 November 2011 at 10:11pm are in the form of the “funding overview slides” with handwriting across each of them. The handwritten comments on the “Funding Overview – Non tax optimised” slide state:
“cash into BWK” with the figure of “$150m” written next to it and overwritten by the figure “$100m”; and
“spec. dividend of $250m to WHC sh”.
The last handwritten comment appears to be related to the handwritten comment on the “Funding Overview – Tax optimised” slide, which is “250m fully franked div” followed by one arrow sign above another arrow sign to indicate that it leads to “share price down WHC” and “SER” (which means “share exchange ratio”) leading to a double underlined “NT stake” with an up arrow. In other words, the special dividend could ultimately increase Mr Tinkler’s stake in the merged entity.
There are no means by which I could discern whose handwriting it is or when it was placed on those documents. In cross-examination, Mr Haggarty did not recall seeing these slides, did not know if they were provided during the course of meetings on 22 November 2011 and was unable to identify the handwriting, confirming that it was not his (T403).
Mr Haggarty said in cross-examination that he did not recall participating in meetings on 22 November 2011 and he had no recollection of a meeting on 22 November 2011 attended by him, Mr Tinkler and their respective advisers (T404). However, Mr Haggarty accepted that there must have been a discussion on 22 November 2011 where someone raised the possibility of cash going into Boardwalk and that the figure of $150 million was mentioned on either 22 of 23 November 2011 (T404). Mr Haggarty confirmed that he did not have a specific recollection of any of the other matters which are referred to in the handwritten comments as being raised in a meeting on 22 November 2011, including the payment of a fully franked special dividend (T405–406). His evidence under cross-examination was that the advisers were “sent away” on 21 November 2011 “to see if they could come up with something and that’s what they came up with” (T406).
In light of this evidence, any acceptance by Mr Haggarty that there “must have been discussion” on 22 November 2011 of cash going into Boardwalk is of limited assistance because he did not give any evidence that he was at such a meeting and does not know who wrote on the slides. The handwritten comments are just as likely to reflect someone’s uncommunicated thoughts as they are a record of matters forming part of a discussion. The handwritten comments may have been placed there on some other day than 22 November 2011. I would be speculating about all those matters. I do not consider that there is any firm basis on which I could make a finding that the detail of any idea of Mr Tinkler putting money into Boardwalk was raised or was the subject of discussion on 22 November 2011 as opposed to some other day.
The fact that the covering email of 22 November 2011 at 10:11pm said there were “[n]o further discussions on Boardwalk today” supports my conclusion above that I do not have a firm basis for finding that the detail of the concept of funds being injected into Boardwalk was discussed on 22 November 2011. Instead, I find that only the concept of Plan B/Structure B was discussed on 22 November 2011, including the possibility of cash being injected into Boardwalk.
On 22 November 2011 at 10:37pm, Victoria Hardie of UBS sent an email to Mr Plummer, which was copied to Mr Haggarty, Mr Bartlett, Mr Pojezny and Mr Di Pilla. The email referred to a discussion that afternoon and attached the “indicative shareholding breakdown based on the revised proposed structure”. The attachment is headed “Trifecta indicative shareholding outcomes” and contains a pie chart with the different percentages for the shareholding of the merged entity under the revised structure. It lists as key assumptions:
Mr Haggarty and Mr Tinkler must have been involved in discussions about Structure B prior to this point because the email records Mr Haggarty’s observation that UBS had pushed back on it initially, presumably due to a loss of fees from the highly leveraged Structure A transaction, but Mr Tinkler and others “were open minded about this and, in subsequent discussions, see merit in this option”. It was by adopting Structure B that the leveraged nature of Structure A was avoided, which would cause a loss of fees to UBS. In this regard, UBS’ reaction had been predicted in the email of 22 November 2011 at 10:11pm from Mr Pojezny.
The discussions involving Mr Haggarty and Mr Tinkler must also have involved an explanation of all of the elements of Structure B because the “subsequent discussions” between them seem to have included the outlining of the advantages of Structure B in the form of “better tax asset write up, avoids the related party issue with Boardwalk, solves the WHC shareholder tax issue and, overall, look[s] simpler and more conventional”.
I infer that the discussions between Mr Haggarty and Mr Tinkler about Structure B included the idea of $150 million being injected into Boardwalk and Whitehaven declaring a special dividend. This is because those were the two means that had already been identified within Whitehaven of achieving Mr Tinkler’s desired minimum 20% shareholding in the merged entity to which reference is made in the email (the email of 23 November 2011 at 1:02am from Mr Jing evidences this). Elements along those lines had certainly been the subject of discussion such that they are mentioned in the email of 23 November 2011 at 1:27pm from Ms Hardie (albeit that the proposed cash injection mentioned was of $100 million). But having said this, from this document alone, I have no basis on which I could determine the terms in which that discussion occurred.
In cross-examination about a discussion with Mr Tinkler in the “last 24 hours” which is referred to in the email of 23 November 2011 at 1:48pm, Mr Haggarty said that he did not have any specific recollection of meetings with Mr Tinkler on 22 November 2011 but those discussions would have been a group discussion probably involving Mr Haggarty, Mr Tinkler and their respective advisers, normally being quite long meetings, commonly with breakouts to discuss their individual positions (T372–373). Mr Haggarty also said in cross-examination that in this email he was anticipating a further discussion that afternoon with the Tinkler interests about Plan B (T375–376).
Mr Haggarty’s evidence in cross-examination accords with Structure B, the $150 million Capital Injection into Boardwalk and the special dividend all being more likely to have been mentioned in detail on 23 November 2011 rather than 22 November 2011, albeit with no specific recollection of any of those meetings (T404).
The Second Term Sheet that was attached to Mr Haggarty’s email of 23 November 2011 at 1:48pm was prominently marked “DRAFT FOR DISCUSSION”. The Second Term Sheet included the following content (with square brackets around amounts not then finalised):
The “Benefits of proposal” are listed to be shareholding objectives achieved, no related party issues for Boardwalk transaction, only one IE (independent expert) report and no new debt funding requirement.
The Aston/Whitehaven transaction is divided into different sections including:
By reference to the Q&A document for investor meetings which took place from December 2011 to March 2012 (dealt with in detail below), Mr Haggarty accepted in cross-examination that the $150 million Capital Injection was agreed between Whitehaven and the Tinkler Group as part of the negotiations to acquire Boardwalk in which Mr Haggarty was a part and probably involved Mr Bartlett, Mr Tinkler and Mr Di Pilla, although Mr Haggarty could not remember the precise conversations, how many there were or the precise date of them (T360–362). Mr Haggarty also agreed that at some point, part of the discussion when the $150 million Capital Injection was negotiated included that it would be used to help fund the exploration and development of the Boardwalk assets, although Mr Haggarty could not specifically recall it (T362).
Having been reminded of his earlier evidence as outlined above and the email of 24 November 2011 at 11:07pm, the following cross-examination of Mr Haggarty took place (T382–383):
Mr Tinkler may have said in effect why should he be the one to put up the $150 million, but Mr Haggarty could not recall.
It was Mr Haggarty’s view during the course of the negotiations that if Mr Tinkler did put in $150 million to enable the transaction to go forward it would be a strong statement of belief on his part in the Boardwalk assets, and this was probably something Mr Haggarty conveyed to Mr Tinkler in one of the meetings, although he could not remember.
Mr Haggarty did not recall indicating to Mr Tinkler that the contribution of $150 million would also give comfort to the Tinkler interests that the Boardwalk assets had a prospect of being developed, adding that he was not focused on Mr Tinkler’s shareholders.
Mr Haggarty did not recall Mr Di Pilla or an adviser to Mr Tinkler saying in effect that if Mr Tinkler has to put in $150 million he should have an additional incentive or benefit.
Mr Haggarty did not recall Mr Tinkler in one of the meetings saying in effect that if he was going to get Milestone Shares, he wanted them to be based on mining lease approval not first coal. Mr Haggarty added that he could only recall two meetings on 21 November 2011.
Although Mr Haggarty’s answers in this passage of the cross-examination are peppered with his expressed lack of recollection of certain matters, there are core elements of it which are consistent with the essence of Mr Tinkler’s evidence in chief in relation to the UBS Meeting and the Café Meeting on 21 November 2011. These elements include the proposed transaction having problems with Whitehaven’s shareholders, Grant Samuel having done work to show that an additional $150 million from Mr Tinkler’s interests would allow Whitehaven’s shareholders to support the transaction and Mr Haggarty probably conveyed to Mr Tinkler that it would be a strong statement of belief in the Boardwalk assets.
When the answers in the passages of the cross-examination of Mr Haggarty at T360–362, T382–383 and T390–394 are considered in combination, most of the essence of the critical items of what Mr Tinkler alleges were said in the UBS Meeting and the Café Meeting on 21 November 2011 were accepted by Mr Haggarty as having been the subject of discussion in the period from 21 to 24 November 2011.
Timing: Acquisition to be announced simultaneously with the announcement of the Aston/Whitehaven merger.
Offer conditions: Any necessary regulatory approvals and other conditions may emerge following due diligence.
The Final Term Sheet concluded with a section concerning the process and timetable, referencing the due diligence period, concurrent negotiation of the key terms of the scheme implementation agreement and the Boardwalk share purchase agreement. The Final Term Sheet then states that the signing of the scheme implementation agreement and the Boardwalk share purchase agreement together with the announcement of the transactions are scheduled for 6 December 2011.
The calculations set out above, which underpin the Third Term Sheet in relation to the pre-cash injection valuation of Boardwalk at $286 million, the post-cash injection valuation of Boardwalk at $436 million, the 85.88 million unrestricted shares in Whitehaven to be issued to the Boardwalk shareholders and the 34.02 million Whitehaven shares to be issued as part of the milestone payments, remained applicable to the Final Term Sheet. So too did the lack of mathematical relationship between the $150 million Capital Injection and the number of Whitehaven shares to be issued as part of the milestone payments.
The principal change to the consideration in the Whitehaven/Boardwalk transaction between the Third Term Sheet and the Final Term Sheet was that the milestone payments were now extended so that the mining and environmental approvals on Monto and Oaklands North were included as Trigger Events.
There was no mention in the Final Term Sheet of there being any restriction on the use which could be made of the $150 million Capital Injection from the Tinkler Group. There is no express purpose linking the $150 million to any of the Milestone Projects. The $150 million is simply identified in the Final Term Sheet as one of the integers by which the 85.88 million Whitehaven shares to the Boardwalk shareholders was calculated.
There is also no mention in the Final Term Sheet of Whitehaven having any obligation to develop the Milestone Projects within a time period, or to develop them at all.
In cross-examination, Mr Tinkler agreed that the Final Term Sheet did not contain any statement as to how the Tinkler Group’s $150 million Capital Injection would be spent or that the Boardwalk Projects would be developed in any particular timeframe or at all (T266). This is significant because it is reflective of a position in Mr Tinkler’s mind where any statement regarding the intended use of the $150 million Capital Injection was not anticipated to form part of what were to become commitments with contractual operation and enforcement.
The Final Term Sheet does expressly anticipate the negotiation of a Boardwalk share purchase agreement.
In the cross-examination of Mr Haggarty, he was questioned about his understanding of certain matters as at the date of the Final Term Sheet, variously by reference to the Q&A document for investor meetings that took place from December 2011 to March 2012, the 12 December ASX Announcement and the Scheme Booklet of 9 March 2012 (each defined and dealt with in more detail below). Mr Haggarty gave the following evidence:
Mr Haggarty agreed that the intent at the time of the Final Term Sheet was to develop the Boardwalk assets and invest further capital to develop those assets (T320).
Based on the negotiations Mr Haggarty participated in prior to the signing of the Final Term Sheet, Mr Haggarty agreed that he regarded it to be an accurate description that as part of the proposed Boardwalk transaction of acquiring all Boardwalk shares in exchange for Milestone Shares and initial shares that existing Boardwalk investors will contribute $150 million of cash to Boardwalk that will be used for the ongoing development of its assets (T320–321).
Mr Haggarty agreed that it reflected his understanding as at the date of the signing of the Final Term Sheet that the $150 million in cash to Boardwalk will be used for the ongoing development of its assets including for the repayment of existing debt (T337–338).
Mr Haggarty agreed repeatedly that as at the date of the Final Term Sheet it was his understanding as part of the transaction formalised in the Final Term Sheet that existing Boardwalk shareholders will contribute $150 million in cash to Boardwalk that will be used for the ongoing development of its assets, which was “obviously part of the deal” that made its way into the agreement and the announcement (T346–347 and T350).
Mr Haggarty agreed that as at the date of the Final Term Sheet it was the intent that the $150 million or a portion of it would be spent on further development work for the Boardwalk assets (T349).
Mr Haggarty agreed that as at the date of the Final Term Sheet because the $150 million was under the control of the merged entity of which Mr Haggarty was going to be the managing director, the only people able to say to the market in the announcement how those funds would be used was Mr Haggarty and the board of the merged entity (T350–351).
Mr Haggarty did not agree that the only basis on which he was able to say to the market in the announcement, with the agreement of his advisers, as to how the $150 million would be used was based on what had been discussed between Mr Haggarty and Mr Tinkler and their respective advisers before the date of the signing of the Final Term Sheet (T353).
Despite Mr Haggarty’s reluctance to agree that the source of what appeared in the 12 December ASX Announcement (which is defined and described below) regarding how the $150 million Capital Injection would be used were the discussions between Mr Haggarty and Mr Tinkler and their advisers before the signing of the Final Term Sheet, in my finding those discussions were clearly the source of what appeared in the 12 December ASX Announcement. I do not accept Mr Haggarty’s answers to the contrary. There is no other explanation as to how the statement on the use of the $150 million in the 12 December ASX Announcement came to be made.
The essence of Mr Haggarty’s evidence accepting that there had been discussions between him and Mr Tinkler concerning the expenditure of the $150 million is caught in the following passage of Mr Haggarty’s cross-examination (T322–323):
Les & Zelda rely on the 9 December Further Draft ASX Announcement as making and/or confirming the Use of Funds Representation. I have dealt below with the Use of Funds Representation and its role in Les & Zelda’s case in more detail when considering the Promissory Estoppel Claim.
This communication and the attached 9 December Further Draft ASX Announcement provide contemporaneous documentary evidence that those within the Aston/Tinkler interests (including Mr Tinkler) had the same understanding as Whitehaven about the intended use of the $150 million Capital Injection. Again, that understanding could only have come from discussions which took place as part of the negotiations in which it was agreed that the $150 million would be injected into Boardwalk as recorded in the Final Term Sheet. But that understanding must also be conditioned by the meaning of the disclaimer contained in the 9 December Further Draft ASX Announcement.
Mr Tinkler said in his affidavit evidence that he reviewed the 9 December Further Draft ASX Announcement when he received it attached to the email addressed to him. In cross-examination, Mr Tinkler said that he would have read this document ahead of the transaction being announced and agreed that he could not recall precisely when he read it (T267). Mr Tinkler was challenged that he had no memory of having read this document in 2011, which he refuted (T267). The attack on Mr Tinkler’s assertion that he read the 9 December Further Draft ASX Announcement was also made by reference to there being no mention of the document in the December 2018 SOC, which he again rejected (T267).
As I have already stated above, the lack of any mention of the 9 December Further Draft ASX Announcement in the December 2018 SOC has no significance to the issue of whether Mr Tinkler is to be believed that he read this document. The December 2018 SOC was not drafted by him, it was drafted by lawyers to state pleaded causes of action, he did not sign, attest or otherwise adopt it and there is no evidence that he even reviewed it before it was filed.
I accept Mr Tinkler’s evidence that he read the email and the attached 9 December Further Draft ASX Announcement in light of the fact that the email was addressed to him, he was the chairman of Aston, the announcement was a joint one on behalf of Whitehaven and Aston and it related to a significant transaction affecting his interests which was about to be made public. In light of those matters, Mr Tinkler had a real interest in ensuring that the 9 December Further Draft ASX Announcement accurately reflected his understanding of the transaction so that the Aston shareholders were properly advised about what was occurring. It would be a dereliction of his duties if he did not scrutinise it in full. To my mind it would strain credibility for me to find that he did not read the 9 December Further Draft ASX Announcement in those circumstances.
Accepting that Mr Tinkler read the 9 December Further Draft ASX Announcement means that he must also be taken to have read the disclaimer contained within it. As I have stated above, the disclaimer meant that the statement of Whitehaven’s intention concerning the use of the $150 million Capital Injection (“will be used for the ongoing development of [Boardwalk’s] assets”) could be subject to various risk factors and change.
Mr Tinkler rejected the notion that when he read the 9 December Further Draft ASX Announcement he understood that Vickery South was as much a Boardwalk asset as was Oaklands North on the basis that both projects were owned by Boardwalk indirectly via its 19.9% shareholding in Coalworks (T294–295). I accept his evidence on this point.
In cross-examination, Mr Tinkler agreed that when he signed the SPA on 11 December 2011 that it was a document intended to create legally binding rights and obligations between the Boardwalk Shareholders and Whitehaven (T268). Critically, Mr Tinkler also conceded in cross-examination that when he signed the SPA on 11 December 2011, as an experienced businessman, he knew that draft ASX announcements were not documents intended to create binding legally binding rights and obligations between the Boardwalk Shareholders and Whitehaven (T268–269). This concession has force for the reasons I have explained in dealing with the Promissory Estoppel Claim below.
It was then put to Mr Tinkler in cross-examination that he did not rely on statements contained in draft ASX announcements but instead signed the SPA in the belief that it would meet his objective of the Tinkler Group receiving approximately 20% of the merged entity, as evidenced in the following exchange (T269):
At the end of the 12 December ASX Announcement is a type of disclaimer regarding what are described as “Forward Looking Statements”, which is in the same form as the section headed “Forward Looking Statements” in the 9 December Further Draft ASX Announcement and the 10 December Draft ASX Announcement. For the same reasons as I have expressed above in relation to those drafts, I hold the opinion that the statement “will be used for the ongoing development of its assets” in the 12 December ASX Announcement is a statement of Whitehaven’s intention that must be read with the disclaimer.
As part of the content of the 12 December ASX Announcement, I consider that the disclaimer must also be considered to have been read and understood by Mr Tinkler. The disclaimer makes it clear that Whitehaven's statement of intention could be subject to change and did not amount to a commitment.
Les & Zelda relies on the 12 December ASX Announcement as making and/or confirming the Use of Funds Representation, particularly emphasising the twice used “will” in relation to the $150 million Capital Injection and the use of it in the final paragraph of this section. Les & Zelda says that "will" was used in the same sense on both occasions to describe the certainty and sense of obligation attached to what was described. I disagree. For the reasons I have given above, I consider that the use of the word "will" was indicative of Whitehaven's intention, which was subject to the disclaimer.
In my opinion, the 12 December ASX Announcement is a contemporaneous formal documentary record of the mutual understanding that was held by Mr Tinkler for the Aston/Tinkler interests and Mr Haggarty for Whitehaven arising from the negotiations between them leading up to the Final Term Sheet that Whitehaven had made a statement of intention regarding the use and expenditure of the $150 million Capital Injection – that it “will be used for the ongoing development of [Boardwalk’s] assets”, subject to the operation of the disclaimer.
For the reasons I have stated above in relation to the 9 December Draft ASX Announcement, I regard the reference in the Scheme Booklet to the “development of its assets” as only including the development of “Boardwalk’s assets”, being the tenements described - Sienna, Dingo, Monto and Ferndale, collectively the Boardwalk Projects - and not including Boardwalk acquiring further assets such as a greater shareholding interest in Coalworks. The assets to be developed were those comprising the Boardwalk Projects and did not include Oaklands North, which was a project of Coalworks and in which Boardwalk had an indirect interest by its shareholding in Coalworks.
Whitehaven relies on the “Important Notices” section of the Scheme Booklet, which contains a heading “Disclaimer as to forward-looking statements”, including the following:
In short, Whitehaven continues to hold Ferndale as an asset, has renewed EL 7430 to December 2026 and has kept it in good standing capable of development should it wish to do so.
Public exhibition: The EIS is then placed on public exhibition through public meetings, online platforms and physical displays, to enable community members, interest groups and stakeholders to review the proposal and provide feedback. Government agencies, local councils and the proponent engage with these groups in a two-way consultation process.
Submission review: After the exhibition period, stakeholders lodge formal submissions containing their responses, concerns and opinions. These submissions are reviewed by government agencies, local councils and the proponent.
Assessment and recommendation: Government agencies, experts and stakeholders then review the EIS to ensure its accuracy, thoroughness and regulatory compliance. The assessment incorporates technical reports, expert reviews and public submissions to evaluate the project’s potential impacts, benefits and proposed mitigation measures. Section 4.15 of the EPA NSW Act sets out the evaluation criteria that must be considered. The DPE subsequently prepares a recommendation for the consent authority.
Determination: Where the IPC is the determining authority, it examines the EIS, expert assessments and public feedback, and conducts public hearings and meetings. It evaluates the proposal having regard to the public interest and the objective of achieving ecologically sustainable development. After deliberation, the IPC may reject the project, approve the project, or approve the project with conditions.