for personal use only - asx · gauteng, south africa investigating accountant moore stephens perth...
TRANSCRIPT
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CONTENTS
1. CORPORATE DIRECTORY .............................................................................................. 5
2. DETAILS OF THE OFFER ................................................................................................ 19
3. COMPANY OVERVIEW AND CORPORATE GOVERNANCE ....................................... 23
4. INDEPENDENT GEOLOGIST’S REPORT ......................................................................... 34
5. INVESTIGATING ACCOUNTANT’S REPORT ................................................................. 69
6. SOLICITOR’S REPORT ON TENEMENTS ........................................................................ 85
7. RISK FACTORS ............................................................................................................ 99
8. MATERIAL CONTRACTS ............................................................................................ 108
9. ADDITIONAL INFORMATION .................................................................................... 112
10. DIRECTORS’ AUTHORISATION .................................................................................. 119
11. GLOSSARY ................................................................................................................ 120
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IMPORTANT NOTICE
This Prospectus is dated 5 September 2011 and was lodged with the ASIC on that date. The ASIC and its officers take no responsibility for the contents of this Prospectus or the merits of the investment to which the Prospectus relates.
The expiry date of this Prospectus is at 5.00pm WST on that date which is 13 months after the date this Prospectus was lodged with the ASIC (Expiry Date). No securities may be issued on the basis of this Prospectus after the Expiry Date.
Application will be made to ASX within seven (7) days after the date of this Prospectus for Official Quotation of the Shares the subject of this Prospectus.
The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law and persons who come into possession of this Prospectus should seek advice on and observe any of these restrictions. Failure to comply with these restrictions may violate securities laws. Applicants who are resident in countries other than Australia should consult their professional advisers as to whether any governmental or other consents are required or whether any other formalities need to be considered and followed.
This Prospectus does not constitute an offer in any place in which, or to any person to whom, it would not be lawful to make such an offer. No action has been taken to register or qualify the Shares or the Offer or to otherwise permit a public offering of the Shares in any jurisdiction outside Australia.
It is important that investors read this Prospectus in its entirety and seek professional advice where necessary. The Shares the subject of this Prospectus should be considered highly speculative.
RISK FACTORS
Potential investors should be aware that subscribing for Shares in the Company involves a number of risks. The key risk factors of which investors should be aware are set out in the Investment Overview Section and Section 7 of this Prospectus. These risks together with other general risks applicable to all investments in listed securities not specifically referred to, may affect the value of the Shares in the future. Accordingly, an investment in the Company should be considered highly speculative. Investors should consider consulting their professional advisers before deciding whether to apply for Shares pursuant to this Prospectus.
WEB SITE – ELECTRONIC PROSPECTUS
A copy of this Prospectus can be downloaded from the website of the Company at www.discoveryresources.com.au. Any person accessing the electronic version of this Prospectus for the purpose of making an investment in the Company must be an Australian resident and must only access the Prospectus from within Australia.
The Corporations Act prohibits any person passing onto another person an Application Form unless it is attached to a hard copy of this Prospectus or it accompanies the complete and unaltered version of this Prospectus. Any person may obtain a hard copy of this Prospectus free of charge by contacting the Company on +61 8 9226 0326.
The Company reserves the right not to accept an Application Form from a person if it has reason to believe that when that person was given access to the electronic Application Form, it was not provided together with the electronic Prospectus and any relevant supplementary or replacement prospectus or any of those documents were incomplete or altered.
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EXPOSURE PERIOD
This Prospectus will be circulated during the Exposure Period. The purpose of the Exposure Period is to enable this Prospectus to be examined by market participants prior to the raising of funds. Potential investors should be aware that this examination may result in the identification of deficiencies in the Prospectus and, in those circumstances, any application that has been received may need to be dealt with in accordance with Section 724 of the Corporations Act.
Applications for Shares under this Prospectus will not be processed by the Company until after the expiry of the Exposure Period. No preference will be conferred on persons who lodge applications prior to the expiry of the Exposure Period.
FORWARD LOOKING STATEMENTS
This Prospectus may contain forward looking statements or information. Forward-looking statements can be identified by the use of words such as "may", "should", "will", "expect", "anticipate", "believe", "estimate", "intend", "scheduled" or "continue" or similar expressions. Such statements and information are subject to risks and uncertainties and a number of assumptions, which may cause the actual results or events to differ materially from the expectations described in such forward looking statements or information. Whilst the Company considers the expectations reflected in any perceived forward looking statements or information in this Prospectus are reasonable, no assurance can be given that such expectations will prove to be correct. The risk factors outlined in Section 7 of this Prospectus, as well as other matters as not yet known to the Company or not currently considered material by the Company, may cause actual events to be materially different from those expressed, implied or projected in any perceived forward looking statements or information. Any forward looking statements or information contained in this Prospectus is qualified by this cautionary statement.
JORC COMPETENT PERSON STATEMENTS
The information in the Investment Overview section of the Prospectus which follows this section, Section 3 and the Independent Geologist’s Report, included in Section 4 of the Prospectus, which relates to Exploration Results, Mineral Resources, or Ore Reserves is based on information compiled by Fergus Jockel. Mr Jockel has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking, and is a member of the Australian Institute of Geoscientists. This qualifies Mr Jockel as a Competent Person as defined in the 2004 edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Jockel consents to the inclusion of information in these sections of the Prospectus based on his information in the form and context in which it appears.
PHOTOGRAPHS
Unless otherwise indicated photographs used in this Prospectus do not depict assets owned by the Company but have been included to give an indication of the nature and or location of the Company’s business operations and industry in which it operates.
DISCLAIMER
No person is authorised to give any information or to make any representation in connection with the Offer described in this Prospectus that is not contained in this Prospectus. Any information not so contained may not be relied upon as having been authorised by the Company or any other person in connection with the Offer. You should rely only on information in this Prospectus.
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1. CORPORATE DIRECTORY
Directors
Mr Stephen Belben Non-Executive Chairman
Mr Josh Puckridge Non-Executive Director
Mr Tony Adcock Non-Executive Director
Company Secretary
Mr Josh Puckridge
Registered Office
Level 9, 105 St Georges Terrace PERTH WA 6000 Telephone: +61 8 9226 0326 Facsimile: +61 8 9226 0327
Proposed ASX code: DIS
Website
www.discoveryresources.com.au
Share Registry*
Advanced Share Registry Limited 150 Stirling Highway NEDLANDS WA 6009 Telephone: +61 8 9389 8033 Facsimile: +61 8 9389 7871
Independent Geologist
Ravensgate Level 3, 44 Parliament Place WEST PERTH WA 6005 Consultant in Namibia* N.J.B. Andersen Consulting Geologist C.C. Block 5, Southern Implants Office Park 1 Albert Road Irene 0062 Gauteng, South Africa
Investigating Accountant
Moore Stephens Perth Corporate Services Pty Ltd Level 3 12 St Georges Terrace PERTH WA 6000
Auditors*
Moore Stephens Perth Level 3 12 St Georges Terrace PERTH WA 6000
Lawyers in Australia
Steinepreis Paganin Lawyers and Consultants Level 4, The Read Buildings 16 Milligan Street PERTH WA 6000
Lawyers in Namibia
Engling Stritter & Partners 12 Love Street Windhoek, Namibia Underwriter* Fleming SG Capital Pty Limited Level 9, 105 St Georges Terrace PERTH WA 6000
As Corporate Authorised Representative (Rep No. 345960) of St George Capital Pty Limited (AFSL 300641)
* This entity is included for information purposes only and has not been involved in the preparation of this Prospectus.
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CHAIRMAN’S LETTER
Dear Investor
On behalf of the Board of Directors, I am pleased to present this Prospectus to you and invite you to become a shareholder in Discovery Resources Limited (Discovery or the Company). Discovery was established in December 2010 for the purpose of evaluating and acquiring investment opportunities in the resources sector.
In April 2011 the Company acquired Solarwind Investments Pty Ltd, a Namibian based company which has 100% ownership of five prospecting licences in Namibia for the exploration of rare earths elements. Discovery is now seeking to list on ASX with a view to commencing exploration work on these tenements which together cover a total area of 293,471km2 and to continue actively pursuing the acquisition of and/or participation in, additional resources projects.
Pursuant to this offer the Company is seeking to raise up to $2.5 million to fund exploration work across these tenements and to make strategic acquisitions with the following as the Company’s main objectives post listing:
� create shareholder value through advancing exploration work on the Himbaland and Tantalite Valley rare earths projects;
� pursue additional rare earths projects that have the potential to add value to the Company;
� actively pursue the acquisition of and/or participation in additional resource projects; and
� appoint suitably qualified executive management.
Investors are invited to read the detailed information contained within this Prospectus concerning the Offer, the Company, its projects and the risks associated with investment in the Company and in an exploration company in general. I encourage you to study this document in order to make an informed decision, before deciding to invest in Discovery.
We look forward to welcoming you as a shareholder of Discovery Resources Limited.
Yours sincerely
Stephen Belben Chairman For and on behalf of DISCOVERY RESOURCES LIMITED
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INVESTMENT OVERVIEW
Important Notice
This Section is a summary only and is not intended to provide full information for investors intending to apply for Shares offered pursuant to this Prospectus. This Prospectus should be read and considered in its entirety.
THE OFFER
Summary of the Offer
By this Prospectus, the Company invites investors to apply for up to 12,500,000 Shares at an issue price of $0.20 each to raise up to $2,500,000.
Fleming SG Capital Pty Ltd has undertaken to partially underwrite the Offer up to the extent of $1,000,000. Full details of the Underwriting Agreement are set out in Section 8.4 of the Prospectus.
Indicative Timetable
Lodgement of Prospectus with the ASIC 5 September 2011
Opening Date 14 September 2011
Closing Date 5.00pm WST on 12 October 2011
Allotment of Shares
Despatch of Holding Statements
17 October 2011
21 October 2011
Expected date for listing on ASX 27 October 2011
Important Note: These dates are indicative only and subject to change. The Company reserves the right, subject to the Corporations Act and other applicable laws, to vary the dates of the Offer, including extending the Closing Date or accepting late applications, either generally or in particular cases, without notifying you. You are encouraged to submit your Application Form as soon as possible. Any extension of the Closing Date will have a consequential effect on the date of the issue of the Shares. The Offer does not require Shareholder approval.
Purpose of the Offer and Use of Proceeds
The purpose of this Offer is to raise up to $2,500,000 (and no less than $1,500,000).
The Company expects to apply the funds raised under this Prospectus towards:
(a) funding exploration of the Projects;
(b) providing for general working capital; and
(c) sourcing and reviewing additional project opportunities.
The Board believes that the funds raised from the Offer, combined with existing funds will provide the Company with sufficient working capital at anticipated expenditure levels to achieve these objectives.
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The Company intends to apply funds raised from the Offer, together with existing cash reserves, over the first two years following admission of the Company to the Official List as follows:
Funds Available Minimum
subscription ($)* Full subscription
($)
Existing cash on hand at 30 June 20111
1,000,000 1,000,000
Proceeds of Offer 1,500,000 2,500,000
Total funds available 2,500,000 3,500,000
Notes: * The minimum subscription is $1.5 million (refer to Section 2.8 of this Prospectus for further details). 1 Refer to the Investigating Accountant’s Report set out in Section 5 of this Prospectus for further details.
Use of funds available Year 1 Year 2
Minimum subscription
Fully subscribed
Minimum subscription
Fully subscribed
Exploration on the Projects*
$370,000
$420,000
$1,100,000
$1,600,000
Administration costs $230,000
$250,000
$230,000
$250,000
Project generation and working capital
$155,000
$255,000
$187,863
$437,863
Expenses of the Offer1 $227,137 $287,137
Total use of Funds Available
$982,137
$1,212,137
$1,517,863
$2,287,863
Notes: * Refer to Section 3 of this Prospectus and the Independent Geologist’s Report set out in Section 4 of this Prospectus for further details. 1 Refer to Expenses of the Offer section below for further details.
In the event the Company raises more than the minimum subscription of $1,500,000, the additional funds raised will be first applied towards the increase in expenses of the Offer, followed by allocation towards exploration expenditure and project generation on a 60:40 basis.
The above table is a statement of current intentions as of the date of lodgement of this Prospectus with the ASIC. As with any budget, intervening events (including exploration success or failure and the risk factors outlined in Section 7 below) and new circumstances have the potential to affect the ultimate way funds will be applied. The Board reserves the right to alter the way funds are applied on this basis.
To capitalise on future opportunities, depending on the success of its activities, the Company may require debt or further equity fundraisings.
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Capital Structure
The capital structure of the Company following completion of the Offer (assuming full subscription) is summarised below1:
Shares2 Number
Shares on issue at date of Prospectus 14,024,001
Shares now offered pursuant to the Offer* 12,500,000
Total Shares on issue at completion of the Offer 26,524,001
*Assumes the Offer is fully subscribed.
Options Number
Options on issue at date of Prospectus Nil
Class A Options to be issued to Andersen Geological Consulting3,4 Class B Options to be issued to Andersen Geological Consulting3,4
1,000,000
1,000,000
Total Options on issue at completion of the Offer 2,000,000
Notes: 1 Refer to the Investigating Accountant’s Report at Section 5 of this Prospectus for further details. 2 The rights attaching to the Shares are summarised in Section 9.1 of this Prospectus. 3 The rights attaching to the Class A Options are summarised in Section 9.2 of this Prospectus and the rights attaching to the Class B Options are summarised in Section 9.3 of this Prospectus. 4 Refer to Section 8.1 of this Prospectus for further information.
Substantial Shareholders Those Shareholders holding a relevant interest in 5% or more of the Shares on issue as at the date of this Prospectus and on completion of the Offer (assuming full subscription of the Offer) are set out in the table below.
Shareholder Current Shares
Current Options
Current %
Shares on Completion
of Offer1
Options on Completion
of Offer
% on
Completion of Offer1
Riverstone Corporate Pty Limited
1,166,666 nil 8.3% 1,166,666 nil 4.4%
Fleming SG Capital Special Opportunities Pty Limited
750,000 nil 5.3% 5,750,0002 nil 21.7%
SG Corporate Pty Limited3
700,000 nil 5% 700,000 nil 2.6%
Notes:
1 Assumes the Offer is fully subscribed and that no existing substantial Shareholder subscribes for and receives additional Shares pursuant to the Offer (other than under the terms of the underwriting and sub-underwriting of the Offer – refer to Note 2 below).
2 Fleming SG Capital Pty Limited is partially underwriting the Offer to the extent of $1,000,000. Fleming SG Capital Special Opportunities Pty Limited has agreed to sub-underwrite this underwriting to the extent of $1,000,000. This means that Fleming SG Capital Special Opportunities Pty Limited may be obligated to subscribe for a maximum of 5,000,000 Shares pursuant to its sub-underwriting commitment.
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Please refer to Section 8.4 of the Prospectus for further details of the underwriting and sub-underwriting of the Offer.
3 SG Corporate Pty Limited is an entity in which Stephen Belben is a director and holds a relevant interest in 50% of the issued shares. Stephen Belben is a Director of the Company.
The Company will announce to the ASX details of its top 20 Shareholders (following completion of the Offer) prior to the Shares commencing trading on ASX. BUSINESS MODEL – EXPLORATION COMPANY
The Company was incorporated on 13 December 2010 for the primary purpose of identifying exploration projects in Africa and elsewhere with the aim of discovering commercially significant mineral deposits. At the date of this Prospectus, the Company has no income producing assets and will generate losses for the foreseeable future. Please refer to Section 7.2(c) for further details.
While the Company’s initial exploration focus will be on rare earth element mineralisation (REE), the Company will also review the potential for various other commodities.
On 8 April 2011, the Company acquired 100% of the share capital of Solarwind Investments (Pty) Limited, a company registered in Namibia (Solarwind). Solarwind currently has a 100% interest in a number of granted tenements (consisting of exclusive prospecting licences (EPLs) EPL 14/2/1/4/2/3824, 14/2/1/4/2/3825, 14/2/1/4/2/3764, 14/2/1/4/2/4135 and 14/2/1/4/2/4136) (Licences) which comprise the Projects. These are located in the Karas/Karasburg, Kunene/Opuwo and Erongo/Omaruru regions and districts in Namibia as shown on Figure 1 in the Independent Geologist’s Report at Section 4 of this Prospectus.
On 29 November 2010, the Namibian Minister of Mines and Energy renewed Solarwind’s EPLs 3824 and 3825.
On 16 June 2011, the Namibian Minister of Mines and Energy approved the transfer of EPLs 3764, 4135 and 4136 to Solarwind. Please refer to the Solicitor’s Report on Tenements at Section 6 of this Prospectus for further details.
In the short to medium term after listing on the ASX, the Company intends implementing exploration work programmes on its existing projects while continuing to evaluate additional exploration and other projects both within Namibia and elsewhere that the Directors consider could add value for Shareholders. These projects may be commodities other than REE.
The Board and its advisors have extensive networks within the mining industry which will assist in the search for additional projects of interest both in Namibia and internationally.
In addition to the existing projects, the Company will review other acquisition and joint venture opportunities to secure new projects in the resources sector that meet the Company’s objectives and strategies.
Full details in respect of the Company and the Projects are set out in Section 3 of this Prospectus and in the Independent Geologist’s Report at Section 4 of this Prospectus and the Solicitor’s Report on Tenements at Section 6 of this Prospectus.
The Company’s main objectives on completion of the Offer are to:
(a) create shareholder value through advancing exploration work on the Himbaland and Tantalite Valley rare earths projects;
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(b) pursue additional rare earths projects that have the potential to add value to the Company;
(c) actively pursue the acquisition of and/or participation in additional resource projects; and
(d) appoint suitably qualified executive management.
On completion of the Offer the Board believes the Company will have sufficient working capital to achieve these objectives in accordance with the stated use of funds set out above.
SPECIFIC RISKS
The business, assets and operations of the Company are subject to certain risk factors that have the potential to influence the operating and financial performance of the Company in the future. These risks can impact on the value of an investment in the securities of the Company.
The Company aims to manage these risks by carefully planning its activities and implementing risk control measures. Some of the risks are, however, highly unpredictable and the extent to which the Company can effectively manage them is limited.
Set out below are specific risks that the Company is exposed to. Further risks associated with an investment in the Company are outlined in Section 7.
Specific Risk Area Risks Further Details
Executive Management Risk
The Company does not currently have an executive management team and is reliant on consultant and contract services (as described in Sections 8.1 and 8.2 of this Prospectus). There is no guarantee the Company will be successful in securing suitable executive management.
Section 7.2(a)
Limited History and Early Stage Exploration Risk
The Company was incorporated on 13 December 2010 and has no operating history and limited historical financial performance. The Company has not yet undertaken any exploration on the Projects and there can be no assurance that a JORC Code Compliant resource or commercial quantities of REE mineralisation are present.
Section 7.2(b)
Funding Risk At present, the Company has no income producing assets and will generate losses for the foreseeable future. Until it is able to develop a project and generate appropriate cash flow, it is dependent upon being able to obtain future equity debt funding to support long term exploration. There is no guarantee that if further funding is required, such funding can be raised.
Section 7.2(c)
Sovereign Risk The Company’s current projects are located in Namibia which is considered to be a developing county. As such it is subject to emerging legal and political systems as compared to those in place in Australia. The Company may also acquire assets in other emerging market
Section 7.2(d)
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countries subject to similar risks.
Surface Rights Risk The areas of EPLs 3824 and 3764 are situated on private farm land. There have been no agreements entered into between Solarwind and the owners of the land concerning the prospecting areas. The ability of the Company to gain access to these tenements (through obtaining consent of any relevant landowner), or to progress from the exploration phase to the development and mining phases of operations may be adversely affected.
Section 7.2(e)
Mountain Nature Conservancy Risk
EPL 3764 falls within the area of the Erongo Mountain Nature Conservancy (EMNC).
The ability of the Company to gain access to this tenement, or to progress from the exploration phase to the development and mining phases of operations may be adversely affected by the EMNC.
Section 7.2(f)
Communal Conservancy Risk
EPL 4136 falls within the Kunene River Conservancy which is a Communal Conservancy area.
The ability of the Company to gain access to this tenement, or to progress from the exploration phase to the development and mining phases of operations may be adversely affected if the Namibian Government gives a direction that the prospecting practices should have regard to a game management and utilization plan of a conservancy.
Section 7.2(g)
Communal Land Risk
EPLs 3825, 4135 and 4136 fall within an area comprising the communal land over which traditional leaders and Communal Land Boards have rights and powers.
The ability of the Company to gain access to these tenements, or to progress from the exploration phase to the development and mining phases of operations may be adversely affected by customary land rights in the areas of the said EPLs.
Section 7.2(h)
Archaeological Sites Risk
The Erongo mountain range area within which EPL 3764 falls contains a number of Bushmen rock art and paintings. Should an archaeological site be identified, the National Heritage Council will have to be notified in terms of relevant Namibian legislation.
The ability of the Company to gain access to this tenement, or to progress from the exploration phase to the development and mining phases of operations may be adversely affected by the finding of an archaeological site in the area of the said EPL.
Section 7.2(i)
Overlapping of Mineral Licences Risk
There is one existing mineral licence held by a third party which partly falls within the area of EPL4135. This third party licence relates to dimension stone and
Section 7.2(j)
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industrial minerals.
If REE mineralisation extends to the area of overlap, the ability of the Company to gain access to this area, or to progress from the exploration phase to the development and mining phases of operations may be adversely affected if the Company is unable to arrive at an arrangement with the holder of the overlapping licence.
Project Risk Regulatory approvals may be required prior to work being undertaken on the ground. The granting of such approvals may take time to achieve and no guarantees can be given that the approvals will be granted.
Section 7.3(b)
Investors should be aware that an investment in the Company involves risks that may be higher than risks associated with an investment in some other companies. Careful consideration should be given to all matters raised in this Prospectus and the relative risk factors prior to applying for Shares offered for subscription under this Prospectus. Some of these risks can be mitigated by the use of appropriate safeguards and actions, but some are outside the Company’s control and cannot be mitigated. Investors should consider the risk factors described above and outlined in more detail in Section 7, together with the information contained elsewhere in this Prospectus, before deciding whether to apply for Shares. The above list of risk factors ought not to be taken as exhaustive of the risks faced by the Company or by investors in the Company.
FINANCIAL INFORMATION
The Company is in startup phase, having been recently incorporated (13 December 2010) and only recently having acquired the Projects through the purchase of Solarwind. The Company is yet to conduct its own exploration activities on the Projects and will not commence these activities until the Company has been admitted to the Official List. Therefore, the Company’s operating history and financial historical performance is limited.
As a result, the Company is not in a position to disclose any key financial ratios other than its balance sheet which is set out in the Investigating Accountant’s Report in Section 5. Investors should read the Investigating Accountant’s Report in full.
DIRECTORS AND KEY MANAGEMENT
Mr Stephen Belben – Non Executive Chairman BAcc, BCom (Hons) ACA
Mr Belben brings extensive resource industry and board experience with considerable finance and accounting expertise having previously been a partner in the Perth office of Ernst & Young for over 9 years where he was appointed the national partner in charge of that firm’s Minerals and Energy Industry Group responsible for the development of the firms client base in that sector in Australia.
Mr Belben served as the corporate and finance director of an ASX listed resources company, Auridiam Limited, with an operating mine in Southern Africa and has a good knowledge and background of the region.
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Mr Belben is currently the Finance Director of Xceed Resources Ltd, an ASX listed company with emerging coal assets in South Africa.
Mr Belben’s current directorships also include SG Corporate Pty Ltd, St George Capital Pty Ltd, Fleming SG Capital Pty Ltd, Fleming SG Capital Special Opportunities Ltd and Enerex Pty Ltd.
Mr Tony Adcock – Non Executive Director MBA, BSc (Econ) Hons, FAICD, GAICD
Mr Adcock has had extensive international experience leading teams involved in multi-million dollar, complex transformation projects.
He is currently a non executive director and former managing partner of the Birchman Group, an international management consulting firm and Founding Director of Red Pill Performance Consultants Pty Ltd which provides executive coaching, high performing teams, strategy and risk management consulting services to industry. Prior to founding Red Pill, he was a Partner in PricewaterhouseCoopers Consulting, leading a business unit across Asia Pacific. Mr Adcock is a former bank treasurer and has a capital markets and investment background.
Mr Adcock is also a Director of SIRCA, the Securities Industry Research Centre for Asia Pacific and Director of the FORCE 15 Foundation of RugbyWA. He is Chairperson of the Audit and Risk Committee of the Company.
Mr Josh Puckridge – Non Executive Director and Company Secretary
Mr Puckridge has participated in a range of business and corporate advisory ventures and projects for a number of public resource companies.
Mr Puckridge, formerly an Advisor with a national stockbroking firm, is currently Managing Director of Altare Capital Pty Ltd which advises Micro-Capitalised ASX listed resource companies on capital raisings. Mr Puckridge intends to use his networks to assist the Company in gaining access to capital to enable development of the Company’s corporate direction. He is a member of the Audit and Risk Committee of the Company.
Mr Puckridge currently resides on no other public boards.
Management and Consultants
The Company is aware of the need to have sufficient management to properly supervise the exploration and (if successful) the development of the projects in which the Company has, or will in the future have an interest. As the Company’s projects require an increased level of involvement the Board will look to appoint additional management and/or consultants when and where appropriate to ensure proper management of the Company’s projects. Please refer to Sections 8.1 and 8.2 of this Prospectus for further details of the Company’s consultant and contract service agreements.
Corporate Governance
To the extent applicable, in light of the Company’s size and nature, the Company has adopted The Corporate Governance Principles and Recommendations (2nd Edition) as published by ASX Corporate Governance Council (Recommendations).
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The Company’s main corporate governance policies and practices as at the date of this Prospectus are outlined in Section 3.9 of this Prospectus and the Company’s compliance and departures from the Recommendations are set out in Section 3.10 of this Prospectus.
In addition, the Company’s full Corporate Governance Plan is available from the Company’s website (www.discoveryresources.com.au).
Disclosure of Interests
Directors are not required under the Company’s Constitution to hold any Shares. As at the date of this Prospectus, the Directors have relevant interests in Shares and Options as set out in the table below:
Director Shares Options
Mr Stephen Belben 56,001 (direct)
700,0001 (indirect)
Nil
Mr Tony Adcock Nil Nil
Mr Josh Puckridge Nil Nil
1 SG Corporate Pty Limited which is an entity associated with Stephen Belben, a Director, holds 700,000 Shares.
The securities held by the Directors will be subject to a 24 month escrow period, in accordance with the ASX Listing Rules.
Post-Listing Interest
Upon the Company’s admission to the Official List, assuming full subscription of the Offer, the Directors will have the following interests in the Company:
Director Interest (Shares) Interest (Options )
Mr Stephen Belben 56,001 (direct)
700,0001 (indirect)
Nil
Mr Tony Adcock Nil Nil
Mr Josh Puckridge Nil Nil
1 SG Corporate Pty Limited which is an entity associated with Stephen Belben, a Director, holds 700,000 Shares.
Remuneration
The annual remuneration (inclusive of superannuation) payable to each of the Directors as at the date of this Prospectus and post listing on ASX is as follows:
Director Annual Remuneration at date of Prospectus
Annual Remuneration post listing
Mr Stephen Belben $12,000 $30,000
Mr Tony Adcock $12,000 $25,000
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Mr Josh Puckridge $12,000 $25,000
Agreements with Directors or Related Parties
The Company’s policy in respect of related party arrangements is:
(a) a Director with a material personal interest in a matter is required to give notice to the other Directors before such a matter is considered by the Board; and
(b) for the Board to consider such a matter, the Director who has a material personal interest is not present while the matter is being considered at the meeting and does not vote on the matter.
Underwriting Agreement – Fleming SG Capital Pty Limited
Fleming SG Capital Pty Limited as Corporate Authorised Representative (Rep No 345960) of St George Capital Pty Ltd (AFSL 300641) has agreed to partially underwrite the Offer up to the extent of $1 million.
The intent of the Underwriting Agreement is that the Underwriter underwrites the ‘last $1 million’ of the Offer. As such, under the terms of the underwriting agreement between the Company and Fleming SG Capital Pty Limited, should the Company have received on the Closing Date applications for greater than 2,500,000 Shares and less than 7,500,000 Shares, Fleming SG Capital Pty Limited must lodge applications with the Company for 5,000,000 Shares. Should the Company have received on the Closing Date applications for greater than 7,500,000 Shares (such amount of Shares over the amount of 7,500,000 being known as Surplus Shares), Fleming SG Capital Pty Limited must lodge applications with the Company for such amount of Shares as is calculated by subtracting the amount of Surplus Shares from 5,000,000.
As underwriter to the Offer, Fleming SG Capital Pty Limited will receive an underwriting commission of $60,000 (excluding GST). Please refer to Section 8.4 of this Prospectus for full details of the underwriting terms and the potential effect of the underwriting on the Company.
Fleming SG Capital Pty Limited is an entity in which SG Corporate Pty Limited (a company in which Stephen Belben, a Director, holds a relevant interest in 50% of the issued shares), holds a relevant interest in 33% of the issued shares. Stephen Belben is also a director of Fleming SG Capital Pty Limited.
Fleming SG Capital Special Opportunities Pty Limited (Sub-Underwriter) has agreed to sub-underwrite the Offer to the same extent as Fleming SG Capital Pty Limited (being to the extent of 5,000,000 Shares (equal to $1 million)). Under the terms of the Sub-Underwriting Agreement, the Underwriter must offer the shortfall shares under the Underwriting Agreement to the Sub-Underwriter.
The Sub-Underwriter is a wholly owned subsidiary of Fleming SG Capital Pty Limited. Stephen Belben is also a director of the Sub-Underwriter.
Notwithstanding this relationship between the Company and Fleming SG Capital Pty Limited, the Board considered prior Shareholder approval to the entry into the agreement (which is deemed under the Corporations Act to be the giving of a financial benefit to Fleming SG Capital Pty Limited) was not required on the basis that the terms of the agreement are considered by the non-interested Directors to be ‘arm’s length’.
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Corporate Services Agreement – SG Corporate Pty Limited
As previously disclosed, the Company currently has no executive directors or employees and accordingly has entered into a corporate services agreement with SG Corporate Pty Limited for the provision of office administration and company secretarial services (General Services), executive management services (Executive Management Services), services in relation to management of the Offer (IPO Management Services) and services in relation to identifying additional REE assets in Africa for potential acquisition by the Company (Asset Acquisition Services).
The Company will pay SG Corporate Pty Limited a monthly fee of $6,000 for the General Services and a monthly fee (following listing of the Company on ASX) of $5,000 for the Executive Management Services. The Company will pay SG Corporate Pty Limited a fee of $50,000 plus 1% of the total funds raised under the Offer for the IPO Management Services. The Company will pay SG Corporate Pty Limited a fee of $50,000 plus 1% of the purchase price of any REE assets identified by SG Corporate Pty Limited and acquired by the Company for the Asset Acquisition Services.
Full details of the material terms and conditions of the corporate services agreement are set out at Section 8.2 of this Prospectus.
Mr Stephen Belben, a Director, holds a relevant interest in 50% of the issued shares of SG Corporate Pty Limited and is also a director of SG Corporate Pty Limited. Notwithstanding this relationship between the Company and SG Corporate Pty Limited, the Board considered prior Shareholder approval to the entry into the agreement (which is deemed under the Corporations Act to be the giving of a financial benefit to SG Corporate Pty Limited) was not required on the basis that the terms of the agreement are considered by the non-interested Directors to be ‘arm’s length’. The non-interested directors came to this decision after considering all the options available to the Company and concluding that the fees payable under the corporate services agreement were comparable or below market rates for the services provided.
Deeds of indemnity, insurance and access
The Company intends to enter into a deed of indemnity, insurance and access with each of its Directors. Under these deeds, the Company will indemnify each officer to the extent permitted by the Corporations Act against any liability arising as a result of the officer acting as an officer of the Company. The Company will also be required to maintain insurance policies for the benefit of the relevant officer and must also allow the officers to inspect board papers in certain circumstances.
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Expenses of the Offer
The total expenses of the Offer (excluding GST) are estimated to be approximately $227,137 for minimum subscription or $287,137 for full subscription and are expected to be applied towards the items set out in the table below:
Item of Expenditure
Minimum Subscription Full Subscription
Underwriting Fees1 $60,000 $60,000
Broker Commissions2
$25,000 $75,000
ASIC fees $2,137 $2,137
ASX fees $25,000 $25,000
IPO Management Fee3
$15,000 $25,000
Legal Fees $32,000 $32,000
Independent Expert Fees
Printing and Other Expenses
$58,000
$10,000
$58,000
$10,000
TOTAL $227,137 $ 287,137
1 Please refer to the summary of the Underwriting Agreement in Section 8.4 of this Prospectus for further details. 2 Broker commissions will only be paid on applications made through a licensed securities dealer or Australian financial services licensee and accepted by the Company (refer to Section 2.10 of this Prospectus for further information). The amount calculated is based on 100% of applications being made in this manner. For those applications made directly to and accepted by the Company no broker commissions will be payable and the expenses of the Offer will be reduced and the additional funds will be put towards working capital. 3 Please refer to Section 8.2 of this Prospectus for further details.
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2. DETAILS OF THE OFFER
2.1 Summary of the Offer
By this Prospectus, the Company invites investors to apply for up to 12,500,000 Shares at an issue price of $0.20 each to raise up to $2,500,000.
The Shares offered under this Prospectus will rank equally with the Shares currently on issue (refer to Section 9.1 of this Prospectus for the rights attaching to Shares).
No oversubscriptions will be accepted by the Company.
2.2 Applications
Applications for Shares offered under this Prospectus must be made using the Application Form. Alternatively, complete a paper copy of the electronic Application Form that accompanies the electronic version of the Prospectus which can be found and downloaded from www.discoveryresources.com.au.
Applicants who receive a firm offer should return their completed Application Form to the broker from whom they received their firm allocation of Shares.
Payment for the Shares must be made in full at the issue price of $0.20 per Share. Applications for Shares must be for a minimum of 10,000 Shares and thereafter in multiples of 1,000 Shares. Applicants who receive a general offer should return their completed Application Form together with application monies in full prior to 5.00pm (WST) on the Closing Date to the Company’s Share Registry as follows:
Advanced Share Registry Limited PO Box 1156 NEDLANDS WA 6909
Or in person to:
Advanced Share Registry Limited 150 Stirling Highway NEDLANDS WA 6009
Refer to the instructions on the back of the Application Form when completing your application. Cheques should be made payable to “Discovery Resources Limited – Share Application Account” and crossed “Not Negotiable”. All cheques must be in Australian currency.
An original completed and lodged Application Form, together with a cheque for the application monies, constitutes a binding and irrevocable offer to subscribe for the number of Shares specified in the Application Form. The Application Form does not have to be signed to be a valid application. An application will be deemed to have been accepted by the Company upon allotment of the Shares.
The Offer may be closed at an earlier date, and time, at the discretion of the Directors, without prior notice. Applicants are therefore encouraged to submit their Application Forms as early as possible. The Company reserves the right to extend the Offer or accept late applications.
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2.3 Allotment
Subject to ASX granting conditional approval for the Company to be admitted to the Official List and the Company raising the minimum subscription under the Offer, allotment of Shares offered by this Prospectus will take place as soon as practicable after the Closing Date. Prior to allotment, all application monies shall be held by the Company on trust. The Company, irrespective of whether the allotment of Shares takes place, will retain any interest earned on the application monies.
The Directors reserve the right to allot Shares in full for any application or to allot any lesser number of Shares or to decline any application. Where the number of Shares allotted is less than the number applied for, or where no allotment is made, the surplus application monies will be returned by cheque to the applicant as soon as practicable after the allotment date.
2.4 Restricted Securities
Subject to the Company being admitted to the Official List, certain of the securities on issue may be classified by the ASX as restricted securities and will be required to be held in escrow for such time as prescribed by ASX.
During the period in which these securities are prohibited from being transferred, trading in Shares may be less liquid which may impact on the ability of a Shareholder to dispose of his or her Shares in a timely manner.
The Company will announce to the ASX full details (quantity and duration) of the Shares and Options required to be held in escrow prior to the Shares commencing trading on ASX.
2.5 Dividend Policy
The Company does not yet have a dividend policy. The Company anticipates that significant expenditure will be incurred in the evaluation and development of the Projects. These activities, together with the possible acquisition of interests in other projects, are expected to dominate the two year period following the issue of this Prospectus. Accordingly, the Company has no immediate intention to declare or distribute dividends and does not expect to declare any dividends during that period.
Any future determination as to the payment of dividends by the Company will be at the discretion of the Directors and will depend on the availability of distributable earnings and operating results and financial condition of the Company, future capital requirements and general business and other factors considered relevant by the Directors. No assurance in relation to the payment of dividends or franking credits attaching to dividends can be given by the Company.
2.6 ASX Listing
The Company will apply to ASX within seven (7) days after the date of this Prospectus for admission to the Official List and for Official Quotation of the Shares offered under this Prospectus. If ASX does not grant permission for Official Quotation of the Shares within three (3) months after the date of this Prospectus, or such longer period as is permitted by the Corporations Act, none of the Shares offered by this Prospectus will be allotted or issued. In that circumstance, all applications will be dealt with in accordance with the Corporations Act.
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2.7 Applicants outside Australia
This Prospectus does not, and is not intended to, constitute an offer in any place or jurisdiction, or to any person to whom, it would not be lawful to make such an offer or to issue this Prospectus. The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law and persons who come into possession of this Prospectus should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. No action has been taken to register or qualify these Shares or otherwise permit a public offering of the Shares the subject of this Prospectus in any jurisdiction outside Australia.
It is the responsibility of applicants outside Australia to obtain all necessary approvals for the allotment and issue of the Shares pursuant to this Prospectus. The return of a completed Application Form will be taken by the Company to constitute a representation and warranty by the applicant that all relevant approvals have been obtained.
2.8 Minimum Subscription
The minimum subscription in respect of the Offer is $1,500,000.
If the minimum subscription has not been raised within 4 months after the date of this Prospectus, the Company will either repay the application monies to Applicants or issue a supplementary or replacement prospectus to allow Applicants one month to withdraw their Application Form and be repaid their application money. No interest will be paid on this money.
2.9 Underwriting
The Offer is partially underwritten by Fleming SG Capital Pty Ltd as Corporate Authorised Representative (Rep No 345960) of St George Capital Pty Limited. Refer to Section 8.4 of this Prospectus for details of the underwriting terms and the potential effect of the underwriting on the Company.
2.10 Commissions on Application Forms
The Company reserves the right to pay a commission of 5% (inclusive of goods and services tax) of amounts subscribed to any licensed securities dealers or Australian Financial Services licensee in respect of valid applications lodged and accepted by the Company and bearing the stamp of the licensed securities dealer or Australian Financial Services licensee. Payments will be subject to the receipt of a proper tax invoice from the licensed securities dealer or Australian Financial Services licensee.
2.11 CHESS
The Company will apply to participate in the Clearing House Electronic Subregister System (CHESS). CHESS is operated by ASX Settlement Pty Ltd (ASX Settlement), a wholly owned subsidiary of ASX, in accordance with the Listing Rules and the ASX Settlement Rules.
Under CHESS, the Company will not issue certificates to investors. Instead, Share and Option holders will receive a statement of their holdings in the Company. If an investor is broker sponsored, ASX Settlement will send a CHESS statement.
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2.12 Forecast Financial Information
Given the speculative nature of mineral exploration and development and the fact the Company is in an early stage of exploration, there are significant uncertainties associated with forecasting future revenues and expenses of the Company. On this basis, and after considering ASIC Regulatory Guide 170, the Directors believe that reliable financial forecasts for the Company cannot be prepared and accordingly have not included financial forecasts in this Prospectus.
2.13 Privacy Statement
If you complete an application for Shares, you will be providing personal information to the Company. The Company collects, holds and will use that information to assess your application, service your needs as a Shareholder and to facilitate distribution payments and corporate communications to you as a Shareholder.
The information may also be used from time to time and disclosed to persons inspecting the register, including bidders for your Shares in the context of takeovers; regulatory bodies, including the Australian Taxation Office; authorised securities brokers; print service providers; mail houses and the Share Registry.
You can access, correct and update the personal information the Company hold about you. If you wish to do so, please contact the Share Registry at the relevant contact number set out in this Prospectus.
Collection, maintenance and disclosure of certain personal information are governed by legislation including the Privacy Act 1988 (as amended), the Corporations Act and certain rules such as the ASX Settlement Rules. You should note that if you do not provide the information required on the application for Shares, the Company may not be able to accept or process your application.
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3. COMPANY OVERVIEW AND CORPORATE GOVERNANCE
3.1 Company Overview
The Company was incorporated on 13 December 2010 for the primary purpose of evaluating and securing investment opportunities in the resources sector suitable for a public company with the aim of discovering commercially significant minerals deposits.
On 8 April 2011, the Company acquired 100% of the share capital of Solarwind Investments (Pty) Limited (Solarwind), a company registered in Namibia. Solarwind currently has a 100% interest in a number of granted tenements (consisting of exclusive prospecting licences (EPLs) EPL 14/2/1/4/2/3824, 14/2/1/4/2/3825, 14/2/1/4/2/3764, 14/2/1/4/2/4135 and 14/2/1/4/2/4136) (Licences) which comprise the Projects. These are located in the Karas/Karasburg, Kunene/Opuwo and Erongo/Omaruru regions and districts in Namibia as shown on Figure 1 in the Independent Geologist’s Report (IGR) at Section 4 of this Prospectus.
On 16 June 2011, the Namibian Minister of Mines and Energy approved the transfer of EPLs 3764, 4135 and 4136 to Solarwind. On 29 November 2010, the Namibian Minister of Mines and Energy renewed Solarwind’s EPLs 3824 and 3825.
While the Company’s primary exploration focus will be on REE mineralisation on the tenements acquired, the Company will also review the potential acquisition of additional REE projects and will also continue to evaluate investment opportunities in various other commodities.
The Projects are considered to have varying degrees of prospectivity for REE mineralisation based on the geology of the project areas and neighbouring areas however no historical exploration results are available for the Projects. Given the stage of development and information available the Company has designed appropriate detailed work programmes to define further mineralisation. The Company intends to use the funds raised from the Offer primarily to conduct these detailed work programmes.
A summary of the Projects is set out below. Please also refer to the Independent Geologist’s Report in Section 4 of this Prospectus and the Solicitors’ Report on Tenements in Section 6 of this Prospectus for more detailed information on the Projects. A full breakdown of the exploration expenditure on the Projects is contained in the Independent Geologist’s Report.
3.2 The Tantalite Valley Project
The Tantalite Valley project is located in south eastern Namibia approximately 33 km north of the border with South Africa. The project consists of EPL 3824 and has an area of 604.715km2.
Local Geology and Mineralisation
The project is located within the Namaqua Metamorphic Province with much of the area covered by undifferentiated surficial deposits. The Tantalite Valley Complex (please refer to Figure 3 in the IGR) occurs to the south west of the project area. Rocks of the Umeis Succession, Hoogoor Succession and Arus Formation crop out in the area. In the far east of the area there are also undifferentiated mafic and ultramafic rocks present.
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There are four recorded occurrences, by the Geological Survey of Namibia, of Ta, Nb, Be and REE bearing pegmatites in the project area that occur over a length of 25km in a belt of mineral occurrences.
Exploration History
The Tantalite Valley pegmetities located southwest of the project area were mined from 1949 up to the 1970’s (please refer to Figure 3 in the IGR). Samples of Tantalite Valley pegmetities (taken southwest of the project area) were submitted to the National Institute of Metallurgy (now Mintek) for extraction metallurgy tests. The results of the test indicate that Tantalum and Niobium can be effectively recovered using gravity circuits. Heavy mineral separation was found to be an efficient method for recovery of spodumene and amblygonite both of which are lithium minerals.
3.3 The Himbaland Project
The Himbaland project is located in the Kunene Region of north-western Namibia approximately 36km from the border with Angola. The Himbaland project consists of three separate licences (EPL’s 3825, 4135 and 4136) with a total area of 1,338.243km2. The project area is readily accessible all year by good quality gravel roads.
Local Geology and Mineralisation
The project area is covered predominantly by Epembe Unit gneisses, basal conglomerate, arkoses and nepheline syenite (please refer to Figures 9 & 10 in the IGR). The project area has been reviewed as part of studies with regard to tenitisation associated with the Epembe Alkaline-carbonatite complex and other geological studies.
Exploration History
The Company has been unable to locate any past exploration reports for the project area.
3.4 Erongo Project
The Erongo project is located approximately 25km southwest of Omaruru in the Erongo Region in north-western Namibia and covers an area of 990km2. The project area covers the Erongo Complex which is a Cretaceous alkaline anorogenic complex with a diameter of approximately 35km.
Local Geology and Exploration History
Geological research work and mapping has been undertaken in the area with regards to granite magmatism and pluton morphology. The Company has been unable to locate any significant past exploration records for the project area. Fluids associated with the emplacement of the Erongo Complex have led to the wide variety of mineralisation occurrences in the adjacent lithologies including REE. Tungsten and tin have been mined at the Kranzberg mine north of the project area.
3.5 Project Generation
The Company will consider and evaluate potential new projects in Namibia and elsewhere with a view to increasing the number of projects held by the
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Company and diversify into additional geographical locations. The Company has not yet determined any specific criteria for identification of these projects.
3.6 Namibia Overview
The Republic of Namibia is a vast, sparsely populated country situated along the south Atlantic coast of Africa between Angola and South Africa. Namibia’s population is approximately 2.1 million and Namibia is still an economy largely based on the exploitation of natural resources such as minerals, agriculture and fishing.
Namibia was a German colony from 1884 to 1915 after which it was occupied by South Africa during World War I and administered as a mandate until after World War II, when it annexed the territory. In 1966, the Marxist South-West Africa People’s Organization launched a war of independence for the area that became Namibia, but it was not until 1988 that South Africa agreed to end its administration in accordance with the UN peace plan for the entire region. Namibia has been governed by SWAPO as a constitutional democracy since the country won independence in 1990. Hifikepunye Pohamba was elected president in November 2004 in a landslide victory replacing Sam Nujoma who led the country during its first 14 years of self rule. Pohamba was re-elected in November 2009.
The Board believe that the stable and open political environment, sound macroeconomic policies, and favourable growth momentum combine to create a window of opportunity for investment in Namibia.
The economy is heavily dependent on the extraction and processing of minerals for export. Mining accounts for 8% of GDP, but provides more than 50% of foreign exchange earnings. Rich alluvial diamond deposits make Namibia a primary source for gem-quality diamonds. Namibia is the world’s fourth largest producer of uranium. It also produces large quantities of zinc and is a small producer of gold and other minerals.
3.7 Rare Earths Elements
The Exclusive Prospecting Licences (EPLs) the Company holds (through its wholly owned subsidiary Solarwind) allow the holder to specifically explore for rare-earth elements (REEs). The following information contained in this Section 3.7 and in Section 3.8 is provided solely to give potential investors background information on REEs.
The EPLs are at an early stage and there is no guarantee that economic mineralisation will be identified or, if identified, that any future mine development will be profitable. This Section 3.7 and Section 3.8 of the Prospectus are included for information purposes only.
The REEs are a group of elements comprised primarily of the lanthanoids series of elements. In addition, because of their similarities to the lanthanoids, scandium (Sc) and yttrium (Y) are considered to be part of the REE suite. This group of 17 elements exhibit a range of unique electronic, optical and magnetic properties, which make them indispensable in the ultimate performance of a range of complex, engineered systems and devices.
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Periodic Table of Elements Highlighting the Rare-Earth Elements
Light REEs vs Heavy REEs
REEs are further sub-divided into the so-called light REEs (LREEs) and heavy REEs (HREEs).
Sub-groups of the Rare-Earth Elements – per Industry (not Scientific) Norms
The distribution or varying proportions of the 15 REEs in any given deposit has a very significant impact on the individual REE project. HREEs frequently occur in minerals that are significantly more challenging to process than the more common LREE-rich minerals.
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3.8 Uses of Rare Earths
The end uses of REEs can include the following:
Application Rare Earth Elements
Demand Driver
Rare Earths as Process Enablers
Fluid cracking catalysts Ce La Pr Nd Petroleum refining: converting heavy crude oil into gasoline and other end products.
Automotive catalytic converters
Ce La Nd Used to reduce the emission of pollutants from internal combustion process.
Polishing media Ce La Nd Mechano-chemical polishing powders for glass, mirrors, TV screens, computer displays and the wafers used to produce silicon chips
Rare Earths as Technology Building Blocks
Permanent Magnets Nd Pr Sm Dy Tb Used in the production of electrical motors and generators found in wind turbine, hybrid vehicles. Also used in loudspeakers, hard-disk drives, cordless power tools.
Energy Storage La Ce Pr Nd Absorption alloys for rechargeable batteries used in hybrid cars
Phosphors Eu Y Tb La Dy LCDs, PDPs, LEDs, Energy-efficient fluorescent lights/lamps
Glass additives Ce La Nd Er Used to remove undesirable coloration in commercial glass. Also used to reduce UV light penetration.
3.9 ASX Corporate Governance Council Principles and Recommendations
The Company has adopted comprehensive systems of control and accountability as the basis for the administration of corporate governance. The Board is committed to administering the policies and procedures with openness and integrity, pursuing the true spirit of corporate governance commensurate with the Company's needs.
To the extent applicable, the Company has adopted The Corporate
Governance Principles and Recommendations (2nd Edition) as published by ASX Corporate Governance Council (Recommendations).
In light of the Company’s size and nature, the Board considers that the current board is a cost effective and practical method of directing and managing the
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Company. As the Company’s activities develop in size, nature and scope, the size of the Board and the implementation of additional corporate governance policies and structures will be reviewed.
The Company’s main corporate governance policies and practices as at the date of this Prospectus are outlined below and the Company’s full Corporate Governance Plan is available in a dedicated corporate governance information
section of the Company’s website (www.discoveryresources.com.au)
Board of directors
The Board is responsible for corporate governance of the Company. The Board develops strategies for the Company, reviews strategic objectives and monitors performance against those objectives. The goals of the corporate governance processes are to:
(a) maintain and increase Shareholder value;
(b) ensure a prudential and ethical basis for the Company’s conduct and activities; and
(c) ensure compliance with the Company’s legal and regulatory objectives.
Consistent with these goals, the Board assumes the following responsibilities:
(a) developing initiatives for profit and asset growth;
(b) reviewing the corporate, commercial and financial performance of the Company on a regular basis;
(c) acting on behalf of, and being accountable to, the Shareholders; and
(d) identifying business risks and implementing actions to manage those risks and corporate systems to assure quality.
The Company is committed to the circulation of relevant materials to Directors in a timely manner to facilitate Directors’ participation in the Board discussions on a fully-informed basis.
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Composition of the Board
Election of Board members is substantially the province of the Shareholders in general meeting. However, subject thereto, the Company is committed to the following principles:
(a) the Board is to comprise persons with a blend of skills, experience and attributes appropriate for the Company and its business; and
(b) the principal criterion for the appointment of new directors is their ability to add value to the Company and its business.
No formal nomination committee or procedures have been adopted for the identification, appointment and review of the Board membership, but an informal assessment process, facilitated by the Chairman in consultation with the Company’s professional advisors, has been committed to by the Board.
Identification and management of risk
The Board’s collective experience will enable accurate identification of the principal risks that may affect the Company’s business. Key operational risks and their management will be recurring items for deliberation at Board meetings.
Ethical standards
The Board is committed to the establishment and maintenance of appropriate ethical standards.
Performance evaluation
In the absence of a nomination committee, the Board will conduct a performance evaluation of its individual Directors on an annual basis. To assist in this process an independent advisor may be used.
Where applicable, the review will include:
(a) comparing the performance of the Board with the requirements of its Charter;
(b) examination of the Board’s interaction with management;
(c) the nature of information provided to the Board by management; and
(d) management’s performance in assisting the Board to meet its objectives.
Independent professional advice
Subject to the Chairman’s approval (not to be unreasonably withheld), the Directors, at the Company’s expense, may obtain independent professional advice on issues arising in the course of their duties.
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Remuneration arrangements
The remuneration of an executive Director will be decided by the Board, without the affected executive Director participating in that decision-making process.
The total maximum remuneration of non-executive Directors is initially set by the Constitution and subsequent variation is by ordinary resolution of Shareholders in general meeting in accordance with the Constitution, the Corporations Act and the ASX Listing Rules, as applicable. The determination of non-executive Directors’ remuneration within that maximum will be made by the Board having regard to the inputs and value to the Company of the respective contributions by each non-executive Director. The current amount has been set at an amount not to exceed $150,000 per annum.
In addition, a Director may be paid fees or other amounts (i.e. subject to any necessary Shareholder approval, non-cash performance incentives such as Options) as the Directors determine where a Director performs special duties or otherwise performs services outside the scope of the ordinary duties of a Director.
Directors are also entitled to be paid reasonable travelling, hotel and other expenses incurred by them respectively in or about the performance of their duties as Directors.
The Board has not established a remuneration committee at this point in the Company’s development. It is considered that the size of the Board along with the level of activity of the Company renders this impractical and the Board, acting without the affected Director participating in the decision making process, currently serves as a remuneration committee.
The Board reviews and approves the remuneration policy to enable the Company to attract and retain executives and Directors who will create value for Shareholders having consideration to the amount considered to be commensurate for a company of its size and level of activity as well as the relevant Directors’ time, commitment and responsibility. The Board is also responsible for reviewing any employee incentive and equity-based plans including the appropriateness of performance hurdles and total payments proposed.
Trading policy
The Board has adopted a policy that sets out the guidelines on the sale and purchase of securities in the Company by its key management personnel (i.e. Directors and, if applicable, any employees reporting directly to the Chairman). The policy generally provides that the written acknowledgement of the Chair (or the Board in the case of the Chairman) must be obtained prior to trading.
External audit
The Company in general meetings is responsible for the appointment of the external auditors of the Company, and the Board from time to time will review the scope, performance and fees of those external auditors.
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Audit committee
The Company has established an audit committee comprised of non-executive independent directors. The audit committee under the written terms of reference for that committee are responsible for monitoring and reviewing any matters of significance affecting financial reporting and compliance, the integrity of the financial reporting of the Company, the Company’s internal financial control system and risk management systems and the external audit function.
Diversity policy
The Board has adopted a diversity policy which provides a framework for the Company to achieve, amongst other things, a diverse and skilled workforce, a workplace culture characterised by inclusive practices and behaviours for the benefit of all staff, improved employment and career development opportunities for women and a work environment that values and utilises the contributions of employees with diverse backgrounds, experiences and perspectives.
3.10 Departures from Recommendations
Following admission to the Official List of ASX, the Company will be required to report any departures from the Recommendations in its annual financial report.
The Company’s compliance and departures from the Recommendations as at the date of this Prospectus are set out on the following pages.
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Recommendation Reference – ASX Guidelines
Notification of Departure Explanation of Departure
Recommendation 2.2 The Chairman is not an Independent Director.
Mr Belben (Chairman) is not independent as defined in the ASX Corporate Governance Principles and Recommendations. Mr Belben holds a 50% interest in SG Corporate Pty Ltd which is party to a Corporate Services Agreement with the Company. Please refer to Section 8.2 for further details. Mr Belben is also a director of Fleming SG Capital Pty Limited which is the partial underwriter to the Offer. Please refer to Section 8.4 for further details. The Board believes that the Company, in its current size and level of complexity, cannot justify the expense of searching for, and appointing, an Independent Chairman of the same experience as Mr Belben. Points of conflict arising from Mr Belben’s lack of independence are to be dealt with by Mr Belben being excluded in any voting pertaining to potentially conflicting items of business faced by the Board.
Recommendation 8.1 A Remuneration Committee has not been established.
The Board considers the Company is not currently of the relevant size or complexity to warrant the formation of a Remuneration Committee. The Board currently takes on the responsibility of establishing the remuneration requirements for Directors and Executives of the Company and considers it more prudent to set aside time within the space of board meetings than to form a specific committee. Once the Board deems that the Company warrants a Remuneration Committee, one will be formed in compliance with this Recommendation.
Recommendation 2.4 A Nomination Committee has not been established.
The Board considers that the Company is not currently of the relevant size or complexity to warrant the formation of a Nomination Committee. The Board currently takes on the responsibility of assessing and identifying the required characteristics in new, and existing, Directors and
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implementing changes as required. Once the Board deems that the Company warrants a Nomination Committee, one will be formed in compliance with this Recommendation.
Recommendation 2.3 The Board has not delegated day-to-day responsibilities and administration of the Company to Chief Executive Officer or Managing Director.
The Board considers that the Company is not of the relevant size or complexity to warrant the employment of a full time Managing Director or Chief Executive Officer and as such does not delegate any day-to-day responsibilities away from the Board. If, or when, the correct candidate is found at the appropriate time for the Company, the Board will pass on such responsibilities in compliance with this Recommendation.
Recommendation 4.2 The Audit and Risk Committee must comprise of at least three members.
Currently, the Company’s Audit and Risk Committee consists of its Chairman Tony Adcock (Non-Executive Director) and Josh Puckridge (Non-Executive Director) and does not comprise of a third member due to a lack of further independent Directors. It is of the Boards’ opinion that the added expense of a further Independent Director is not warranted given the Companies current size and level of complexity. At the time the Company’s size or level of complexity is deemed to warrant the expense of a third member the Board will move to appoint a third independent Director to the committee in compliance with this Recommendation.
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4. INDEPENDENT GEOLOGIST’S REPORT
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INDEPENDENT GEOLOGIST’S REPORT
on the
Rare Earth Element Properties in Namibia
for
DISCOVERY RESOURCES LIMITED
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30 August 2011 Discovery Resources Limited Level 9, 105 St Georges Terrace Perth WA 6000 Dear Sir
Independent Geologist’s Report on the mineral assets of Discovery Resources Limited
Corvidae Pty Ltd as Trustee for Ravensgate Unit Trust Trading as Ravensgate (‘Ravensgate’) has been commissioned by Discovery Resources Limited (ACN 147 411 881) (‘Discovery’) to provide an Independent Geologist’s Report on Discovery’s rare earth element (REE) project in Namibia. This report is to be included in a prospectus (‘Prospectus’) to be lodged by Discovery Resources Limited with the Australian Securities and Investments Commission (‘ASIC’), offering for subscription a minimum of 7.5 million to a maximum of 12.5 million fully paid ordinary shares in Discovery at an issue price of $0.20 per share, to raise a minimum of $1.5 million and up to $2.5 million (before costs associated with the issue). The funds raised will be used for the purpose of acquisition, exploration, development and evaluation of Discovery’s mineral properties.
This review is based on information provided by Discovery along with technical reports by consultants, and other relevant published and unpublished data for the areas. A listing of the principal sources of information is included in this report. Ravensgate has endeavoured, by making all reasonable enquiries, to confirm the authenticity, accuracy and completeness of the technical data upon which this report is based. Discovery was given a final draft of this report and thereby given an opportunity to identify any material errors or omissions in it. Ravensgate has not verified the status of tenure or any related access issues, which has been addressed elsewhere in the Prospectus. Ravensgate has made all reasonable enquiries to verify the data provided by Discovery. In addition, Ravensgate has carried out a site visit on behalf of Discovery, during July 2011.
This report has been prepared in accordance with the rules and guidelines issued by such bodies as the ASIC and the Australian Securities Exchange (‘ASX’), which pertain to Independent Expert Reports. If statements made in this report have been attributed to third parties, Ravensgate warrants that consent has been sought or obtained and not withdrawn before lodgement of the Prospectus with ASIC.
In consideration of the definition provided by the ASX and in the JORC/VALMIN Code, the Namibian REE properties referred to are classified as ‘Exploration Projects’ which are inherently speculative in nature. The properties are considered to be sufficiently prospective although subject to varying
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degrees of risk, to warrant further exploration and development of their economic potential consistent with the programs proposed by Discovery.
Discovery intends to raise a minimum of $1.5 million and up to $ 2.5 million and at least half of the liquid assets held, or funds proposed to be raised by Discovery are understood to be committed to the exploration and development of the properties in aggregate. Ravensgate considers the proposed exploration program to be consistent with the status and mineral potential of the projects. The planned exploration expenditure is considered to be sufficient to meet the costs of the exploration program and is adequate to meet the statutory annual expenditure for the tenements.
This independent geologist’s report has been compiled based on information available up to and including the date of this report. Mr Fergus Jockel (author), who is a Member of the Australian Institute of Mining and Metallurgy and Australian Institute of Geoscientists, has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Jockel, (BSc (Hons) Geology, MAusIMM & MAIG.) is employed by Ravensgate.
Consent has been given for the distribution of this report in the form and context in which it appears and for the inclusion of the report in a prospectus. Ravensgate have not withdrawn their consent prior to the lodgement of the prospectus with ASIC.
Ravensgate and its employees are not, nor intend to be, directors, officers or employees of Discovery and have no material interest in any of the projects or Discovery. The relationship with Discovery is solely one of professional association between client and independent consultant. The review work and this report are prepared in return for professional fees based upon agreed commercial rates and the payment of these fees is in no way contingent on the results of this Report.
Yours faithfully
Fergus Jockel For and on behalf of: RAVENSGATE
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INDEPENDENT GEOLOGIST’S REPORT
on the
Rare Earth Element Properties in Namibia
for
DISCOVERY RESOURCES LIMITED
30 August 2011
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INDEPENDENT GEOLOGIST’S REPORT
Prepared by RAVENSGATE on behalf of:
Discovery Resources Limited
Author(s): Fergus Jockel Principal Consultant BSc (Hons) Geology, MAusIMM & MAIG.
H. Kate Holdsworth Senior GIS Geologist BSc (Hons) Geology, MAusIMM
Reviewer: Stephen Hyland Principal Consultant BSc (Geology), MAusIMM, GAA, CIM, MAICD.
Date: 30 August 2011
Copies: Discovery Resources Limited (2)
Ravensgate (1)
_______________________ Fergus Jockel For and on behalf of: RAVENSGATE
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TABLE OF CONTENTS
1. EXECUTIVE SUMMARY ....................................................................................... 8
2. INTRODUCTION ..............................................................................................10
2.1 Terms of Reference ............................................................................. 10
2.2 Qualifications, Experience and Independence ............................................. 10
2.3 Disclaimer ......................................................................................... 11
2.4 Principal Sources of Information .............................................................. 11
2.5 Background Information ........................................................................ 12
2.6 Regional Geology of Namibia .................................................................. 14
2.7 Rare Earth Elements (REE) ..................................................................... 14
2.8 Rare Earth Element (REE) Mineralisation .................................................... 14
3. TANTALITE VALLEY PROJECT, ...........................................................................15
3.1 Introduction and Location ...................................................................... 15
3.2 Tenure and Physiography ....................................................................... 15
3.3 Geology and Mineralisation .................................................................... 17
3.3.1 Regional Geology .................................................................. 17
3.3.2 Local Geology and Mineralisation .............................................. 18
3.4 Exploration History .............................................................................. 18
3.5 Site Visit ........................................................................................... 20
3.6 Exploration Potential ........................................................................... 21
3.7 Exploration Strategy and Budget .............................................................. 21
4. HIMBALAND PROJECT ......................................................................................23
4.1 Introduction and Location ...................................................................... 23
4.2 Tenure and Physiography ....................................................................... 23
4.3 Regional Geology ................................................................................ 24
4.4 Geology and Mineralisation .................................................................... 25
4.5 Exploration History .............................................................................. 25
4.6 Site Visit ........................................................................................... 26
4.7 Exploration Potential ........................................................................... 26
4.8 Exploration Strategy and Budget .............................................................. 26
5. ERONGO PROJECT, .........................................................................................27
5.1 Introduction and Location ...................................................................... 27
5.2 Tenure and Physiography ....................................................................... 27
5.3 Geology and Mineralisation .................................................................... 27
5.4 Exploration History .............................................................................. 28
5.5 Exploration Potential ........................................................................... 28
5.6 Exploration Strategy and Budget .............................................................. 29
6. BIBLIOGRAPHY ...............................................................................................30
7. GLOSSARY ....................................................................................................31
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LIST OF TABLES
Table 1 Details of Discovery’s Exclusive Prospecting licences ............................................ 13
Table 2 Tantalite Valley Project: Exploration and Development Budget Expenditure ($A) ........ 22
Table 3 Himbaland Project: Exploration and Development Budget Expenditure ($A) ............... 27
Table 4 Erongo Project: Exploration and Development Budget Expenditure ($A) .................... 29
LIST OF FIGURES
Figure 1 Project Locations within Namibia ................................................................... 13
Figure 2 View across the Western Part of Discovery's Tantalite Valley Project Area ................. 16
Figure 3 Geology and Mineral Occurrences as indicated by the Geological Survey of Namibia for the Tantalite Valley Project ................................................................................ 17
Figure 4 Locality of the Farms Kinderzitt 132 and Umeis 110 in relation to the Tantalite Valley Project, EPL3824 .............................................................................................. 19
Figure 5 Previously Mined Pegmatites on the Farms Kinderzitt 132 and Umeis 110 .................. 19
Figure 6 Site Visit Localities ..................................................................................... 20
Figure 7 Tantalite observed at Location 95 .................................................................. 21
Figure 8 View of EPL4135 Showing Plains with Hills ........................................................ 23
Figure 9 Regional Geology for the Himbaland Project with Mineral Occurrences as indicated by the Geological Survey of Namibia.......................................................................... 24
Figure 10 Site Visit Localities on the Himbaland Project, licence EPL4135 ............................. 25
Figure 11 The Geology of the Erongo Project ................................................................. 28
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1. EXECUTIVE SUMMARY
Corvidae Pty Limited as Trustee for Ravensgate Unit Trust (trading as and hereinafter referred to as Ravensgate) was commissioned by Discovery Resources Limited (Discovery), to complete an Independent Geologist’s Report on the ‘Rare Earth Element’ (REE) assets of Discovery located in Namibia. Discovery is seeking to list on the Australian Securities Exchange (ASX) in order to raise working capital to fund the future technical assessment and development of its Namibian REE projects. Discovery has acquired the rights to conduct exploration at the Tantalite Valley, Himbaland and Erongo REE projects. The projects cover a combined area of 2,932km2.
Namibia is located along the south-western coast of the African continent, north of the Republic of South Africa, south of Angola and west of Botswana. Namibia’s Ministry of Mines and Energy issued a media statement with regards to public – private partnership in the mining sector in Namibia with regards to strategic minerals. These strategic minerals include uranium, gold, copper, coal, diamonds, and rare earth metals. Cabinet decided that the right to own licences for the strategic minerals should only be issued to a State owned company. Cabinet, therefore, directed that after approval of the licence by the Minister of Mines and Energy, the State-owned company may enter into joint ventures with interested parties for exploration and development. The existing exploration and mining licenses will not be affected. Infrastructure is generally good, making exploration of the more remote regions possible. Mining accounts for 8 % of the GDP. Within Africa Namibia is ranked 25th in terms of GDP (2010) with an estimated per capita income of US$6,900 (2010). Average real growth is currently estimated at 4.1 per cent.
REE are comprised of 15 lanthanide elements as well as the elements yttrium and scandium which are often associated and reported with REE deposits. Yttrium is chemically similar to heavy REE.
REE are utilised in a variety of applications including magnets, mobile phones and LCD screens. Global demand has increased in recent years for REE. China currently produces approximately 95% of global production dominating the world market for REE.
Principal REE concentrations are associated with alkaline igneous rocks and carbonatites, placer deposits, pegmatites, iron-oxide, copper-gold deposits and marine phosphates. The majority of significant REE deposits are associated with igneous rocks and in particular alkaline rocks and carbonatites.
The Tantalite Valley Project is located in south eastern Namibia approximately 33km north of the border with South Africa. The project consists of one licence EPL3824 with an area of 604.715km2. Much of the project area is covered by undifferentiated surficial deposits. The Tantalite Valley Complex occurs to the south west of the project area. Rocks of the Umeis Succession, Hoogoor Succession and Arus Formation outcrop in the area. In the far east of the area there are also undifferentiated mafic and ultramafic rocks present. There are four recorded occurrences of Ta, Nb, Be and REE bearing pegmatites, identified by the Geological Survey of Namibia, in the project area that occur over a length of 25km in a belt of mineral occurrences (Andersen, 2011). According to Andersen (pers. comm, 2011) the south western part of the project encompasses the northern extent of the Tantalite Valley pegmatite field. The project is located in a high grade metamorphic terrane which has been intruded by igneous rocks of various ages and types. Much of the property has been mapped as undifferentiated surficial deposits below which further potential host lithologies may occur. Further geological work should involve more detailed mapping of the area and investigation of the nature of the surficial cover as well as the underlying bedrock lithologies. The use of partial selective digest geochemistry may be warranted for analysis of the surficial deposits but would need to be tested in addition to using radiometric data for targeting.
The Himbaland Project is located in the Kunene Region of north western Namibia approximately 36km from the border with Angola. The Himbaland Project consists of three separate licences with a total area of 1,338.2km2. The project area is covered
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predominantly by Epembe Unit gneisses, basal conglomerate, arkoses and nepheline syenite. The project area has been reviewed as part of studies with regard to fenitisation associated with the Epembe Alkaline-carbonatite complex and other geological studies. Discovery has been unable to locate any records of past exploration for the project area. During the traversing of Discovery’s EPL4135, no evidence of any carbonatite type lithology was found but as the area is covered extensively by sheetwash this was not expected. The association of REE, Nb, Ta, Th, U, Rb, Sr and Sn with carbonatites and alkaline igneous rocks is well known. Examples include Palabora (South Africa), Mt Weld (Australia) and Kvanefjeld (Greenland). Thus there is the potential for carbonatite-hosted REE-U mineralisation in the Epembe Complex. Whether the Epembe Complex extends into the Project area needs to be investigated. The phosphorous (apatite) content may also be of interest, making this a viable exploration target type. In addition to which there may be a second base metal-precious metal target type associated with possible gossans/ironstones found on Discovery’s ground during traversing on this field trip. However, without further investigation including sampling and assaying, discussion about this latter type can only be considered conjectural.
The Erongo Project EPL3764 has an area of 990km2. The project is located approximately 25km southwest of Omaruru in the Erongo Region in north-western Namibia. The project covers the Erongo Complex which is a Cretaceous alkaline anorogenic complex with a diameter of approximately 35km. It is the eroded core of a caldera structure with peripheral granite and central granite intrusions. A dolerite ring-dyke surrounds the outer granitic intrusions of the Erongo Complex. Geological research work and mapping has been undertaken in the area with regards to granite magmatism and pluton morphology. Discovery has been unable to locate any significant past exploration records for the project area. Fluids associated with the emplacement of the Erongo Complex have lead to the wide variety of mineralisation occurrences in the adjacent lithologies including REE. Tungsten and tin have been mined at the Kranzberg mine north of the project area. The complex has been extensively mapped and it has shown anorogenic granites to be present. These granites tend to have higher concentrations of certain trace elements including REE due to their genesis and further field investigation is warranted.
Discovery have indicated they will undertake a systematic, staged approach with respect to their exploration programme, and will be carefully monitoring, assessing and refocussing their exploration programmes as necessary.
Discovery is understood to have committed over half of the funds intended to be raised in the IPO to the exploration and evaluation of their mineral properties. Ravensgate considers the proposed exploration programme to be consistent with the status and mineral potential of the projects and Discovery’s initial objectives. The proposed expenditure is in the opinion or Ravensgate sufficient to meet the costs of the exploration programme and meet statutory tenement expenditure requirements.
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2. INTRODUCTION
Ravensgate was requested by Discovery Resources Limited (Discovery), to complete an Independent Geologist’s Report on its REE projects in Namibia. Discovery is seeking to list on the Australian Securities Exchange (ASX) in order to raise working capital to fund the future technical assessment of its Namibian projects. Discovery has Rare Earth Element (REE) projects in Namibia and this report provides an Independent Technical Report on these projects.
2.1 Terms of Reference
This report has been prepared in accordance with the Code and Guidelines for Assessment and Valuation of Mineral Assets and Mineral Securities for Independent Expert Reports (The VALMIN Code, 2005) and the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code, 2004).
Ravensgate has not attempted and is not required to establish the legal status of tenements within the project areas with respect to any Royalty or Reserve claims. Ravensgate has not independently verified ownership and current standing of the tenements and is not qualified to make legal assessments or representations in this regard. Details of the legal ownership of the mineral assets are dealt with elsewhere in the Prospectus.
The Independent Geologist’s Report is based on information available up to and including the date of this report. Ravensgate has endeavoured, by making all reasonable enquiries, to confirm the authenticity, accuracy and completeness of the technical data upon which this report is based. Consent has been given for the distribution of this report in the form and context in which it appears.
2.2 Qualifications, Experience and Independence
Ravensgate is an independent, privately owned consulting firm and has been providing exploration, mining and mineral resource consulting services to the minerals industry since 1997.
Author: Fergus Jockel, Principal Consultant. BSc (Hons) Geology, MAusIMM, MAIG.
Fergus Jockel is a geologist with over 30 years experience in near mine and regional mineral exploration, resource development and geological management. He has worked in a variety of different geological environments, including REE-Y-Ta-Nb-P–rich Carbonatites; and for a range of commodities in Indonesia, Australia, New Zealand, Eastern Europe, South America and several countries in Africa. Prior to working for Ravensgate Fergus had completed seven years working in Zambia and Tanzania on coal, copper, gold and uranium projects. Fergus has the required 5 years experience of working in a number of commodities, which includes precious and industrial metals, coal, phosphate, magnesite and laterite nickel deposits. Mr. Jockel holds the relevant qualifications and professional associations required by the ASX, JORC and VALMIN Codes in Australia.
Co Author: H. Kate Holdsworth, Senior GIS Geologist. BSc (Hons) Geology, MAusIMM.
Kate Holdsworth is a senior GIS geologist with over 17 years GIS experience who joined the Ravensgate team in September 2006. During her tenure at Ravensgate, she has contributed to the compilation of numerous Independent Geologists Reports, Valuation Reports, GIS projects as well as having assisted clients with their exploration reporting requirements and QA/QC investigations into client’s data quality. Prior to joining Ravensgate, she worked for Giscoe Pty Ltd, a GIS company in Johannesburg, for ten years, where she was involved in diverse GIS projects, including database creation, database population and data validation. Kate has four years’ experience in GIS with the Geological Survey of South Africa, where she was a member of their GIS database design team.
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Peer Reviewer: Stephen Hyland, Principal Consultant and Director. BSc Geology, MAusIMM, CIMM, GAA, MAICD.
Stephen Hyland has had extensive experience of over 20 years in exploration geology and resource modelling and has worked extensively within Australia as well as offshore in Africa, Eastern and Western Europe, Central and South East Asia, modelling base metals, gold, precious metals and industrial minerals. Stephen’s extensive resource modelling experience commenced whilst working with Eagle Mining Corporation NL in the diverse and complex Yandal Gold Province where for three and half years he was their Principal Resource Geologist. The majority of his time there was spent developing the historically successful Nimary Mine. He also assisted the regional exploration group with preliminary resource assessment of Eagle’s numerous exploration and mining leases. Since 1997, Stephen has been a full time consultant with the minerals industry consulting firm Ravensgate where he is responsible for all geological modelling and reviews, mineral deposit evaluation, computational modelling, resource estimation, resource reporting for ASX / JORC and other regulatory compliance areas. Primarily, Stephen specialises in Geological and Resource Block Modelling generally with the widely used MEDSystem / MineSight® 3D mine-evaluation and design software. Stephen Hyland holds the relevant qualifications and professional associations required by the ASX, JORC and VALMIN Codes in Australia. He is a Qualified Person under the rules and requirements of the Canadian Reporting Instrument NI43-101.
2.3 Disclaimer
The Authors of this report, are not, nor intend to be, a director, officer or other direct employee of Discovery Resources Limited and have no material interest in the projects of Discovery Resources Limited. The relationship with Discovery Resources Limited is solely one of professional association between client and independent consultant. Neither Ravensgate nor any of its employees or associates is an insider, associate or affiliate of Discovery Resources Limited or any associated company. This Report has been compiled based on information available up to and including the date of this Report. Consent has been given by Ravensgate for the distribution of this report by Discovery Resources Limited in the form and context in which it appears. Ravensgate’s professional fees are based on time charges for work actually carried out, and are not contingent on any prior understanding concerning the conclusions to be reached.
2.4 Principal Sources of Information
This review is based on the information provided by Discovery, the technical reports of consultants and previous explorers, as well as other published and unpublished data relevant to the area. Ravensgate has carried out, to a limited extent, its own independent assessment of the quality of the geological data. Mr Fergus Jockel, Principal Consultant for Ravensgate, carried out a site visit to the Tantalite Valley Project and the Himbaland Project on the 4th to 13th of July 2011. On a limited review, Ravensgate’s site inspection identified no material concerns in the current geological understanding and REE prospectivity. As part of the site visit Ravensgate completed a review of the geology, site access and exploration potential. Ravensgate is of the opinion that the site visit reasonably covered all relevant areas for the purposes of this report. The status of agreements, royalties or tenement standing pertaining to the assets was, however, not investigated.
The authors have endeavoured, by exercising reasonable due diligence along with other associated enquiries, to confirm the authenticity and completeness of the technical data upon which this report is based. Discovery was given a final draft of this report and requested to identify any material errors or omissions prior to its ultimate lodgement.
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2.5 Background Information
Namibia is located along the south-western coast of the African continent, north of the Republic of South Africa, south of Angola and west of Botswana. Namibia is best known for its offshore marine and onshore diamond deposits. They contribute one per cent of world diamond production. Other well known deposits in Namibia include the Tsumeb (no longer operating) polymetallic orebody, and the Rio Tinto Rossing uranium Mine. Namibia is the 4th largest exporter of uranium in the world.
Infrastructure is good making exploration of the more remote regions possible. Mining accounts for 8 % of the GDP. Within Africa Namibia is ranked 25th in terms of GDP (2010) with an estimated per capita income of US$6,900 (2010). Average real growth is currently at 4.1 per cent. (CIA- The world Fact Book)
Discovery is the holder of five exclusive prospecting licences within Namibia. The licence details are listed in Table 1 and project localities are indicated on Figure 1.
Namibia’s Ministry of Mines and Energy issued a media statement by the Honourable Isak Katali, Minister of Mines and Energy on public – private partnership in the mining sector in Namibia held on the 10th may 2011 the cabinet decision follows, quoted from the press release “The Cabinet at its Fifth Meeting (2011) declared certain minerals as controlled and high value minerals or strategic minerals. These strategic minerals include uranium, gold, copper, coal, diamonds, and rare earth metals. They are declared strategic minerals in the interest of Namibia’s mineral resources and national development towards the realisation of Vision 2030.
Cabinet decided that the right to own licences for the strategic minerals should only be issued to a State owned company. Cabinet, therefore, directed that after approval of the licence by the Minister of Mines and Energy, the State-owned company may enter into joint ventures with interested parties for exploration and development. The existing explorations and mining licenses will not be affected. There are however individuals and companies that have been granted mining licenses for which no development has taken place for a very long time. In order to accelerate the development of resources under such licences, it will be in the interest of both government and licence holder to look at a joint development arrangement without negatively impacting the rights of the existing holder, but in the interest of the development of the resource.
Mining Licences applications arising from existing EPLs
The applications will be considered under the existing procedure on own merit. It is well known that the licence holders often do not have the full technical and financial resources to develop a mine once a mining licence is granted. They often seek capital funds in exchange of shareholding from investors or bank loans to finance the development. It might require that the conditions of the licence include one that subjects the licence holder to give the first right of refusal of shareholding to the GRN before they can approach other parties. Importantly, each application will have to be considered on its strength without prejudice. It should also be clear that an application remains an application, where there is no guarantee that it will be successful until it has been assessed and has been determined to have satisfied the minister.
To implement the Cabinet decision, a change in legislation shall be effected. The Minerals (Prospecting and Mining) Act, 33 of 1992 is currently being drafted and when finalized, it will inform the licence holders and the general public on the operating modalities.” (Namibian Ministry of Mines and Energy, 2011).
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Table 1 Details of Discovery’s Exclusive Prospecting licences
Project Name Licence number Application
status Area (km2)
Tantalite Valley Project EPL 3824 Granted 604.715
Himbaland Project ERL 3825 Granted 998.897
Himbaland Project EPL 4135 Granted 177.556
Himbaland Project EPL 4136 Granted 161.79
Erongo Project EPL 3764 Granted 990
Figure 1 Project Locations within Namibia
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2.6 Regional Geology of Namibia
The regional geology of Namibia is dominated by three geological provinces. The Archaean Congo Province in the north, the Proterozoic Kalahari Province in the south-east and the Pan African orogenic belts (PAOB) along the west. There are three branches to the PAOB, the intracratonic Damara Belt, the northern Kaoko Belt and the southern Gariep Belt. These three PAOB host numerous mineral prospects and deposits including the Tsumeb, Kombat, Rosh Pinah, and Skorpion mines.
Nosib Group sediments and Naauwpoort Volcanics were deposited in grabens at the onset of the Damara Orogen. Prolonged sedimentation followed with the deposition of the Otavi Group, Mulden Group and Swakop Group sediments. Granites intruded into the sedimentary Damara Sequence towards the end of the orogenic episode.
Five styles of sediment hosted mineralization have been recognised in the Namibian PAOB; sediment-hosted massive sulphides (SHMS), diagenetic replacement, Mississippi Valley replacement type (MVT), breccia (pipe)-related Cu (Pb-Zn) and possibly Broken Hill type highly metamorphosed SHMS deposits (Borg 2000). Other styles of mineralisation that also occur include skarn, hydrothermal vein and porphyry mineralisation.
2.7 Rare Earth Elements (REE)
REE are comprised of 15 lanthanide elements as well as the elements yttrium and scandium which are often associated and reported with REE deposits. Yttrium is chemically similar to heavy REE. The element promethium has no stable isotopes and only exits in minute quantities in the earth’s crust. REE have variously unique chemical, magnetic and fluorescent properties.They are divided into light and heavy REE. Light REE have a lower atomic number and are the elements lanthanum (La), cerium (Ce), praseodymium (Pr), neodymium (Nd), and samarium (Sm). Heavy REE include europium (Eu), gadolinium (Gd), terbium (Tb), dysprosium (Dy), holmium (Ho), erbium (Er), thulium (Tm), ytterbium (Yb) and lutetium (Lu).
REE are utilised in a variety of applications including magnets, mobile phones and LCD screens. Global demand has increased in recent years for REE. China currently produces approximately 95% of global production thereby dominating the world market for REE.
2.8 Rare Earth Element (REE) Mineralisation
REE occur widely dispersed in many rock types but in concentrations that are not necessarily economical. The majority of REE anomalies or deposits are associated with alkaline igneous rocks and carbonatites, placer deposits, pegmatites, iron-oxide, copper-gold deposits and marine phosphates.
Alkaline igneous rocks form from the crystallization of magmas derived from small degrees of partial melting of mantle rocks. The partial melting process concentrates those elements that are not easily accommodated in the structures of common rock forming minerals. Alkaline magmas are relatively uncommon and may be enriched in elements such as zirconium, niobium, strontium, barium, lithium, tantalum, tin, hafnium and REE.
Carbonatites are intrusive igneous rocks with greater than 50% carbonate (CO3-bearing) minerals and less than 10% SiO2. The majority of carbonatites are either intrusives or subvolcanic intrusives as they are genrally poorly preserved as carbonatite lava flows dissolve quickly in normal surface atmospheric conditions. They are relatively rare and only formed in relatively unusual circumstances by way of specific pyrochemical processes. A few of the processes as described by Du Bray (1995) are listed below:
Direct generation by way of partial melts at a relatively low temperature in the mantle and through melt differentiation.
Liquid immiscibility between carbonate and silicate melt.
Peculiar, extreme crystal fractionation.
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Carbonatites may contain economic or anomalous concentrations of rare earth elements, phosphorus, niobium - tantalum, uranium, thorium, copper, iron, titanium, vanadium, barium, fluorine, zirconium, and other rare or incompatible elements. Apatite, barite and vermiculite are among the industrially important minerals associated with some carbonatites (Du Bray, 1995).
Vein deposits of thorium, fluorite, or rare earth elements may be associated with carbonatites, and may be hosted internal to or within the metasomatised aureole of a carbonatite (Du Bray, 1995).
Pegmatites are a group of very coarse grained igneous rocks that represent the last phases of the crystal fractionation process. They may host economic concentrations of niobium, tantalum, yttrium, tin and tungsten. REE bearing pegmatites are generally small and of not great significance economically.
3. TANTALITE VALLEY PROJECT,
3.1 Introduction and Location
The project is located in south eastern Namibia approximately 33km north of the border with South Africa. The project is approximately 6km from Warmbad, within the Magisterial district of Karas. Warmbad is 672km from Windhoek. The project can be accessed via the Warmbad-Velloorsdrift road. The Project area is located in an arid area which receives an annual rainfall of 96 millimetres. The average winter temperatures vary between a minima of 3oC at night to 18-21oC during the day. In summer average night temperatures vary between 18-22oC and the average day temperature is about 37oC.
3.2 Tenure and Physiography
The project is comprised of one licence EPL3824 with an area of 604.715km2. Refer to Table 1 and Figure 3 for the licence details. Discovery’s project area mainly consists of an alluvial plain, often rocky, with poor low-lying outcrop. Vegetation is sparse and the plains are mainly grass covered. However, within the region hills occur above the plains. Note the hills in Figure 2 are not within Discovery’s project area.
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Figure 2 View across the Western Part of Discovery's Tantalite Valley Project Area
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Figure 3 Geology and Mineral Occurrences as indicated by the Geological Survey of Namibia for the Tantalite Valley Project
3.3 Geology and Mineralisation
3.3.1 Regional Geology
The project is located within the Namaqua Metamorphic Province which is part of the Namaqua-Natal Mobile Belt. This belt is comprised of varying pre-tectonic rocks and syn-tectonic plutonic rocks and has undergone poly-phase deformation and metamorphism.
The Tantalite Valley Lineament (Pofadder Lineament) is a major shear zone with large dextral displacement. It can be traced from Lüderitz in Namibia to north of Pofadder in South Africa. Rocks close to the shear zone are intensely deformed with mylonite development. This shear zone is also the site for emplacement of a number of mafic intrusions. The Tantalite Valley Complex is roughly concentric and has a number of different intrusions, which include gabbroid, peridotitic and ultra basic magmas which occupy a surface area of more than 50km2. Late stage quartz veins and granite pegmatites are also present. The Tantalite Valley Igneous Complex has ore mineral assemblages that are associated with magmatic sulphide mineralization in mafic / ultramafic rocks. These include chalcopyrite, chromite, pentlandite, pyrite and pyrrhotite. The Tantalite Valley Pegmatites form part of the Kenhardt and Gordonia Pegmatite Districts in South Africa. There are two ages of pegmatites identified which are 1,000 to 980Ma, and 930 to
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880Ma.The latter carry accessory ore minerals such as columbite-tantalite, beryl, lithium bearing phases, bismuth minerals and REE minerals. Overall the Namaqua Metamorphic Province is characterized by a number of deformation phases. The pegmatites are dyke-like bodies up to 1km in length and seldom more than 10m wide, although the Witkop pegmatite exceeds 100m in width and is located southwest of the project area on the farm Kinderzit 132. The pegmatites are zoned with a quartz core. The main minerals are quartz, plagioclase, alkali feldspar and micas. They are thought to have crystallized from the walls inwards producing the zonation characteristic of many pegmatites. Many of the pegmatites out crop along the steep sides of mountains which facilitates identification and exploration. The pegmatites were discovered in 1949 and up to 50 of these were mined up to the mid 1970s. Many different rock types occur locally which include various gneisses, amphibolites and schists. Other relatively undeformed granite intrusions also occur in the area.
The Tantalite Valley Mine mineralisation comprises a series of pegmatites intruding high-grade metamorphic rocks of mafic origin, i.e., amphibolite schist. The area of mineralisation visited as part of the Ravensgate site visit has been exposed by three small drives (adits) into a near flat-lying predominantly quartz-feldspar-biotite pegmatite. The mica minerals in many places form ‘books’ up to 300mm in thickness. Accessory minerals include pyrope or alamandine garnet and the lithium-rich mineral spodumene. What appears to be possible minor copper staining and chrysocolla was also noted during the site visit. The principal ore mineral was tantalite, which occurs along the upper contact of the pegmatite; however, it is not known whether this is always the case. Specimens of tantalite were also found in one of the old mine dump areas.
3.3.2 Local Geology and Mineralisation
Much of the project area is covered by undifferentiated surficial deposits. The Tantalite Valley Igneous Complex occurs to the south west of the project area. Rocks of the Umeis Succession, Hoogoor Succession and Arus Formation outcrop in the area. In the far east of the area there are also undifferentiated mafic and ultramafic rocks present. There are four recorded occurrences, by the Geological Survey of Namibia, of Ta, Nb, Be and REE bearing pegmatites in the project area that occur over a length of 25km in a belt of mineral occurrences (Andersen, 2011). According to Andersen (pers. comm, 2011) the south western part of the project encompasses the northern extent of the Tantalite Valley pegmatite field. Refer to Figure 3.
3.4 Exploration History
The Tantalite Valley pegmatites located southwest of the project area were mined from 1949 up to the 1970s (refer to Figure 4 and Figure 5). The Tantalite Valley Mine was mined principally for tantalum throughout the 1970s to early the 2000s, however, it is not known what the production figures were, or whether the operation worked continuously for all that time. Moreover, it is known that the ownership changed several times throughout that period. It is known that there is a REE and lithium association in areas within the general Tantalite Valley Mine location. The current status of the mine area is unclear. Refer to Figure 6 for the location of the Tantalite Valley Mine. Four drillholes (K2-K5 for a total of 473m) were drilled west of the Tantalite Valley homestead (southwest of the project area, Figure 6). These intersected pegmatites at varying depths, K2 26.3 to 55m, K3 12 to 40.7m, K4 0 to 12m, 20 7 to 24.7m, 63.3 to 91.3m and four other intersections of less than 2m in thickness, K5 0 to 11m, 16 to 22.6m and five other intersections of less than 2m in thickness. Samples of Tantalite Valley pegmatites (taken southwest of the project) were submitted to the National Institute for Metallurgy (now Mintek) for extraction metallurgy tests. The results of the tests indicate that tantalum and niobium can be effectively recovered using gravity circuits. Heavy mineral separation was found to be an efficient method for the recovery of spodumene and amblygonite, both of which are lithium minerals.
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Figure 4 Locality of the Farms Kinderzitt 132 and Umeis 110 in relation to the Tantalite Valley Project, EPL3824
Figure 5 Previously Mined Pegmatites on the Farms Kinderzitt 132 and Umeis 110
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3.5 Site Visit
The target type for Discovery is primarily pegmatite-hosted REE deposits with similarities to the TV Mine style. Consequently, it was considered the best approach was to find the localities of known mineral occurrences (as published by the Namibian Geological Survey) targeting evidence of pegmatite and secondly tantalite as an indicator of potential REE mineralisation.
During the site visit, seven of these mineral occurrence locations (Location 63, 64, 69, 95, 96, 97, 101, refer to Figure 6) were observed within, or proximal to, Discovery’s project area. There was no evidence of historical workings or prospecting at any of the locations visited.
Of the mineral locations visited, Location 95 is considered the most prospective, where the lithology consisted of a sheared pink quartz-K-feldspar-mica pegmatite, with accessory pyrope or almandine garnet, all occurring as sub-crop. Tantalite was found within quartz-rich float (Figure 7). Tantalite was also observed at Location 97.
The other notable mineral located was small amounts of brown ‘smoky’ quartz within pegmatite found at Location 69 and Location 101, which is often regarded as an indicator of U-Th mineralisation. Whilst there may not be economic quantities of uranium, this does have ramifications with respect to the exploration approach, i.e., use radiometric data for targeting.
Figure 6 Site Visit Localities
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Figure 7 Tantalite observed at Location 95
3.6 Exploration Potential
The project is located in a high grade metamorphic terrane which has been intruded by igneous rocks of various ages and types. Much of the property has been mapped as undifferentiated surficial deposits below which further potential host lithologies may occur. Further geological work should involve more detailed mapping of the area and investigation of the nature of the surficial cover as well as the underlying bedrock lithologies. The use of ‘partial selective digest geochemistry’ may be warranted for analysis of the surficial deposits but would need to be tested in conjunction with the use of radiometric data for targeting.
3.7 Exploration Strategy and Budget
Discovery has proposed an exploration program comprising:
Data Review - collate all geology and geophysics and geochemical data, develop up-dated geological maps and identify areas for field visits/mapping.
Acquire regional airborne magnetic/radiometrics over project area to aid in defining targets.
Field mapping – complete field mapping and surface sampling programs over the project area.
Drilling – systematic drill testing of targets as required.
Discovery intends to focus in Year 1 on gathering geological, geochemical and geophysical data, with a small initial field program planned.
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The subsequent work programme in Year 2 is contingent on successful Year 1 results, and will involve a more intense exploration program including more detailed field mapping/sampling along with a drilling program. The proposed strategy builds on available data and geological interpretation, and should prove to be effective.
Ravensgate considers that the proposed exploration program is consistent with the mineral potential and status of the project. Discovery have proposed the following budget (Table 2). Budgeted expenditure on the Tantalite Valley Project is considered consistent with the project’s potential and is adequate to cover the costs of the proposed exploration programs and meet statutory expenditure requirements.
Table 2 Tantalite Valley Project: Exploration and Development Budget Expenditure ($A)
Activity Minimum Subscription Maximum Subscription
Year 1 Year 2 Total Year 1 Year 2 Total
Purchase of geophysical data (aeromagnetic, radiometric and hyperspectral) from Geological Survey, processing and interpretation (target generation)
$50,000 $20,000 $70,000 $50,000 $20,000 $70,000
Ground truthing and sampling, analysis and interpretation
$50,000 $50,000 $100,000 $50,000 $50,000 $100,000
Drilling on confirmed targets, analysis and interpretation
- $200,000 $200,000 - $350,000 $350,000
Total $100,000 $270,000 $370,000 $100,000 $420,000 $520,000
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4. HIMBALAND PROJECT
4.1 Introduction and Location
The Himbaland Project is located in the Kunene Region of northwestern Namibia approximately 36km from the border with Angola. Main towns in the region are Opuwo and Swartbooisdrif. Opuwo is the capital of the Kunene Region and is approximately 720km north-northwest of the Namibian capital Windhoek. Opuwo has a population of 12,000. The licence areas are all directly accessible all year round by good quality gravel roads. The C43 gravel road between Opuwo and Epupa passes through EPL 4135, and EPL 4136 lies due east, with the D3702 gravel road passing through that licence. EPL 3825 is to the west of Opuwo and is accessible by the D3703 gravel road.
4.2 Tenure and Physiography
The Himbaland Project is comprised of three separate licences with a total area of 1,338.2km2. Refer to Table 1 and Figure 9 for the licence details. The terrain is rugged and consists of plains with hills as shown in Figure 8. Vegetation in the project area is comprised of low trees and grasses.
Figure 8 View of EPL4135 Showing Plains with Hills
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Figure 9 Regional Geology for the Himbaland Project with Mineral Occurrences as indicated by the Geological Survey of Namibia.
4.3 Regional Geology
The basement complex consists of felsic (granulite facies orthogneisses and paragneisses) and mafic units (amphibolites facies orthogneisses and paragneisses). The Epembe complex intrudes the basement complex and is made up of two groups of alkaline rocks. The first group consists of plugs of massive to banded nepheline syenite with marginal syenite, the Epembe Carbonatite and minor syenite and lamprophyre dykes. Some of the intrusions are associated with west northwest trending fault zones. The second group of alkaline rocks consist of dykes of sodalite-ankerite ferrocarbonatite and syenite together with carbonatite, biotite-albite, lamprophyre and composite syenite-lamprophyre-carbonatite dykes. These trend mostly north northwest and intrude the anorthosites of the Kunene Complex. The Kunene Anorthosite Complex straddles Namibia and Angola and is the largest anorthosite intrusive on Earth. It can be subdivided into two portions, a dome like mass in the south east consisting of leucocratic pyroxene bearing anorthosite and relatively unaltered leucotroctolite, and a massive portion in the northwest consisting of pale anorthosite.
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4.4 Geology and Mineralisation
The project area is covered predominantly by Epembe Unit gneisses, basal conglomerate, arkoses and nepheline syenite (Figure 9). The Epembe Carbonatite is a north-west trending sovite dyke which is up to 250m wide and 6.5km long that has been intruded along a north-west trending fault zone into nepheline syenite (Miller, 2008). The Epembe Carbonatite has only been sporadically prospected and is found to be apatite-rich (a primary phosphate ore mineral). This sovite dyke as well as the nepheline syenite into which it is intruded occurs north of the project area (EPL4135, refer Figure 9). Fenitisation can be considered to be a metasomatic aureole which surrounds carbonatite and alkaline igneous rocks. Fenitisation is concerned mainly with the movement of alkalis and silica, especially the introduction of the former into the country rock. Fenitisation extends up to one kilometre from the Epembe Carbonatite and the nepheline syenite into which it is intruded.
Figure 10 Site Visit Localities on the Himbaland Project, licence EPL4135
Note: Carb is an abbreviation for Carbonatite
4.5 Exploration History
The project area has been reviewed as part of studies with regard to fenitisation associated with the Epembe Akaline-carbonatite complex and other geological studies.
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Discovery has been unable to locate any significant past exploration reports for the project area.
4.6 Site Visit
During the traversing of Discovery’s EPL4135, no evidence of any carbonatite type was found, however the area is covered extensively by sheetwash. On one traverse, gossan/ironstone outcrops and sub-crops were located indicating that in addition to carbonatite-hosted mineralisation, there may be potential for gold and/or base-metals hosted within the schists.
4.7 Exploration Potential
The association of REE, Nb, Ta, Th, U, Rb, Sr and Sn with carbonatites and alkaline igneous rocks is well known. Examples include Palabora (South Africa), Mt Weld (Australia) and Kvanefjeld (Greenland). Thus there is the potential for carbonatite-hosted REE-U mineralisation in the Epembe Complex. Whether the Epembe Complex extends into the Project area needs to be investigated. The phosphorous (apatite) content may also be of interest, making this a viable exploration target type. In addition, to which there may be a second base metal-precious metal target type associated with possible gossans/ironstones found on Discovery’s ground (EPL4135) during traversing on the Ravensgate site visit. However, without further investigation including sampling and associated assaying discussion about this latter type can only be considered conjectural.
4.8 Exploration Strategy and Budget
Discovery has proposed an exploration program comprising:
Data Review - collate all geology and geophysics and geochemical data, develop up-dated geological maps and identify areas for field visits/mapping.
Acquire regional airborne magnetic/radiometrics over project area to aid in defining targets.
Field mapping – complete field mapping and surface sampling program over the project area.
Drilling – systematic drill testing of targets as required.
Discovery intends to focus in Year 1 on gathering geological, geochemical and geophysical data, with a small initial field program planned.
The work program in Year 2 is contingent on successful Year 1 results, and will involve a more intense exploration program including more detailed field mapping/sampling along with a drilling program. The proposed strategy builds on available data and geological interpretation, and should prove to be effective.
Ravensgate considers that the proposed exploration program is consistent with the mineral potential and status of the project. Discovery has proposed the following budget (Table 3). Budgeted expenditure on the Himbaland Project is considered consistent with the project’s potential and is adequate to cover the costs of the proposed exploration
programs and meet statutory expenditure requirements.
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Table 3 Himbaland Project: Exploration and Development Budget Expenditure ($A)
Activity Minimum Subscription Maximum Subscription
Year 1 Year 2 Total Year 1 Year 2 Total
Purchase of geophysical data (aeromagnetic, radiometric) from Geological Survey, processing and interpretation (target generation)
$40,000 $20,000 $60,000 $40,000 $20,000 $60,000
Fly hyperspectral survey, processing and interpretation (target generation)
$200,000 $200,000 $200,000 $200,000
Groundtruthing and sampling, analysis and interpretation
$150,000 $150,000 $300,000 $200,000 $150,000 $350,000
Drilling on confirmed targets, analysis and interpretation
- $400,000 $400,000 - $600,000 $600,000
Total $190,000 $770,000 $960,000 $240,000 $970,000 $1,210,000
5. ERONGO PROJECT,
5.1 Introduction and Location
The project is located approximately 25km southwest of Omaruru in the Erongo Region in north-western Namibia. Omaruru has a population of 4,800. It can be accessed via the sealed road from Swakopmund to Otjiwarongo. Omaruru is approximately 173km from Windhoek the capital of Namibia. Mineralisation in the area consists of exhalative sediment hosted copper, lead, zinc and barite.
5.2 Tenure and Physiography
The Erongo Project EPL3764 has an area of 990km2. The area is mountainous and approximately 1,000m above the surrounding flat lying plains.
5.3 Geology and Mineralisation
The project covers the Erongo Complex which is a Cretaceous alkaline anorogenic complex with a diameter of approximately 35km (Figure 11). It is the eroded core of a caldera structure with peripheral granite and central granite intrusions. A dolerite ring-dyke surrounds the outer granitic intrusions of the Erongo Complex. The ring dyke reaches a thickness of 200m in places. The centre of the complex is comprised of a layered sequence of volcanic rocks. The basement of the complex consists of mica schists and meta-greywackes of the Kuiseb Formation as well as granites. The rocks of the southeast of the complex overlie the Triassic Lions Head Formation which is comprised of conglomerates, gritstone, arkose with interbedded siltstone and mudstone, and quartz arenite. The base of the Erongo Complex is comprised of a series of flat-lying basaltic lava flows and interbedded pyroclastics. These are exposed throughout the complex. In places they reach thicknesses of 300m with the thickest layers located in the south eastern part of the complex. Pegmatite pods occur in a quartz-albite rock and contain tourmaline and beryl. The granite is typical of peraluminous S-type granites. High concentrations of lanthanides and actinide trace elements are a feature of many anorogenic granites. Gravity and magnetic anomalies indicate a large gabbro body at depth.
Mineralisation styles associated with the Erongo Complex include hydrothermal alteration by boron and fluorine rich fluids. This has resulted in a wide range of styles of hydrothermal alteration with the most common being tourmalinisation, greisens-type tungsten, tin, fluorite and beryllium mineralisation. Gold and uranium mineralisation also occur in places. Minerals containing lithium, rubidium, beryllium, boron, niobium,
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tantalum, tin, bismuth, fluorine and other REEs occur in miarolitic cavities. These form by the incorporation of volatiles in the magma during cooling. F and B type metasomatism has resulted in the almost complete replacement of host rocks in places. The replacement mineralogy has been mined at Krantzberg mine (now dormant) north of the project area (Figure 11).
Figure 11 The Geology of the Erongo Project
5.4 Exploration History
Geological research work and mapping has been undertaken in the area with regards to granite magmatism and pluton morphology. Discovery has been unable to locate any past exploration reports or associated data for the project area.
5.5 Exploration Potential
Fluids associated with the emplacement of the Erongo Complex have lead to the wide variety of mineralisation in the adjacent lithologies including REE. Tungsten and tin has been mined at the Krantzberg mine north of the project area. The complex has been extensively mapped and it has shown anorogenic granites to be present. These granites tend to have higher concentrations of certain trace elements including REE due to their genesis and further investigation is warranted.
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5.6 Exploration Strategy and Budget
Discovery has proposed an exploration program comprising:
Data Review - collate all geology and geophysics and geochemical data, develop up-dated geological maps and identify areas for field visits/mapping.
Acquire regional airborne magnetic/radiometrics over project area to aid in defining targets.
Field mapping – complete field mapping and surface sampling program over the project area.
Drilling – systematic drill testing of targets as required.
Discovery intends to focus in Year 1 on gathering geological, geochemical and geophysical data, with a small initial field program planned.
The work programme in Year 2 is contingent on successful Year 1 results, and will involve a more intense exploration program including more detailed field mapping/sampling along with a drilling program. The proposed strategy builds on available data and geological interpretation, and should prove to be effective.
Ravensgate considers that the proposed exploration program is consistent with the mineral potential and status of the project. Discovery has proposed the following budget (Table 4). Budgeted expenditure on the Erongo Project is considered consistent with the project’s potential and is adequate to cover the costs of the proposed exploration programs and meet statutory expenditure requirements.
Table 4 Erongo Project: Exploration and Development Budget Expenditure ($A)
Activity Minimum Subscription Maximum Subscription
Year 1 Year 2 Total Year 1 Year 2 Total
Purchase of geophysical data (aeromagnetic, radiometric) from Geological Survey, processing and interpretation (target generation)
$30,000 $10,000 $40,000 $30,000 $10,000 $40,000
Groundtruthing and sampling, analysis and interpretation
$50,000 $50,000 $100,000 $50,000 $50,000 $100,000
Drilling on confirmed targets, analysis and interpretation
$150,000 $150,000
Total $80,000 $60,000 $140,000 $80,000 $210,000 $290,000
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6. BIBLIOGRAPHY
Andersen, N., 2011. The Mineral Potential of Exclusive Prospecting Licence 3824 in Southern Namibia. Andersen Consulting Geologist C.C.
Carbonatite, 2011. http://www.mineralszone.com/minerals/carbonatite.html
Diehl, B., J., M., Niobium and Tantalum
Du Bray, E., 1995. Preliminary compilation of descriptive geoenvironmental mineral deposit models, U.S. Geological Survey.
Erongo Complex, Namibian Geological Survey Poster.
Ferguson, J., McIver, J. R., Danchin, R. V., Fenitisation Associated with the Alkaline - Carbonatite Complex of Epembe South West Africa
Hatch, G. P., 2011. A Summary Overview of the Rare-Earth Markets.
JORC, 2004. Australasian Code for Reporting of Mineral Resources and Ore Reserves (The JORC Code) prepared and jointly published by: The Joint Ore Reserve Committee of the Australasian Institute of Mining and Metallurgy, Australia Institute of Geosciences and the Minerals Council of Australia (JORC) Published December 2004.
Long,K., R., Van Gosen, B., S., Foley, N., K., Cordier, D., 2010. The Geology of Rare Earth Elements, Republished from: The Principal Rare Earth Elements Deposits of the United States, USGS Scientific Investigations Report 2010-5220
Miller, R. McG. 2008. The Geology of Namibia, Volume 3, Palaeozoic to Cenozoic. Ministry of Mines and Energy Geological Survey 2008.
Miller, R. McG. 2008. The Geology of Namibia, Volume 1, Archaean to Mesoproterozoic. Ministry of Mines and Energy Geological Survey 2008.
Namibian Ministry of Mines and Energy, 2011. Media statement by Honourable Isak Katali, minister of Mines and Energy on public – private partnership in the mining sector in Namibia held on the 10th May 2011 @ 17:00 at the Ministry of Mines and Energy
The CIA – World Fact Book https://www.cia.gov/library/publications/the-world-factbook/geos/wa.html
VALMIN, 2005. Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports – The VALMIN Code, 2005 Edition.
Von Backstrom, J. W., 1976. The Geology and Mineral Deposits of Tantalite Valley, Warmbad District, South West Africa.
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7. GLOSSARY
Aeromagnetic A survey undertaken by helicopter or fixed-wing aircraft for the purpose of recording magnetic characteristics of rocks by measuring deviations of the Earth’s magnetic field.
airborne geophysical data
Data pertaining to the physical properties of the Earth’s crust at or near surface and collected from an aircraft.
aircore Drilling method employing a drill bit that yields sample material which is delivered to the surface inside the rod string by compressed air.
alluvial Pertaining to silt, sand and gravel material, transported and deposited by a river.
alluvium Clay silt, sand, gravel, or other rock materials transported by flowing water and deposited in comparatively recent geologic time as sorted or semi-sorted sediments in riverbeds, estuaries, and flood plains, on lakes, shores and in fans at the base of mountain slopes and estuaries.
alteration The change in the mineral composition of a rock, commonly due to hydrothermal activity.
andesite An intermediate volcanic rock composed of andesine and one or more mafic minerals.
anomalies An area where exploration has revealed results higher than the local background level.
anorogenic Either time or formation during periods of no tectonic disturbances.
anorthosite A coarse grained plutonic igneous rock which is comprised of greater than 90% plagioclase (feldspar).
Antiformal An anticline-like structure.
Appinite A horneblende rich plutonic rock with a high feldspar content.
Achaean The oldest rocks of the Precambrian era, older than about 2,500 million years.
Assayed The testing and quantification metals of interest within a sample.
Au Chemical symbol for gold.
Bedrock Any solid rock underlying unconsolidated material.
Carbonate Rock of sedimentary or hydrothermal origin, composed primarily of calcium, magnesium or iron and CO3. Essential component of limestones and marbles.
Carbonatite Intrusive or extrusive igneous rocks that typically have a mineralogical composition of greater than 50% carbonate minerals. They are relatively rare and form through unusual volcanic/plutonic processes.
Chert Fine grained sedimentary rock composed of cryptocrystalline silica.
Chlorite A green coloured hydrated aluminium-iron-magnesium silicate mineral (mica) common in metamorphic rocks.
Clastic Pertaining to a rock made up of fragments or pebbles (clasts).
Depletion The lack of gold in the near-surface environment due to leaching processes during weathering.
Dolerite A medium grained mafic intrusive rock composed mostly of pyroxenes and sodium-calcium feldspar.
Ductile Deformation of rocks or rock structures involving stretching or bending in a plastic manner without breaking.
Dykes A tabular body of intrusive igneous rock, crosscutting the host strata at a high angle.
Erosional The group of physical and chemical processes by which earth or rock
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material is loosened or dissolved and removed from any part of the Earth’s surface.
fault zone A wide zone of structural dislocation and faulting.
feldspar A group of rock forming minerals.
felsic An adjective indicating that a rock contains abundant feldspar and silica.
fenitisation Metasomatic alteration around a carbonatite plug resulting in nepheline development.
foliated Banded rocks, usually due to crystal differentiation as a result of metamorphic processes.
follow-up A term used to describe more detailed exploration work over targets generated by regional exploration.
g/t Grams per tonne, a standard volumetric unit for demonstrating the concentration of precious metals in a rock.
Gabbro A fine to coarse grained, dark coloured, igneous rock composed mainly of calcic plagioclase, clinopyroxene and sometimes olivine.
Geochemical Pertains to the concentration of an element.
Geophysical
Gneiss
Pertains to the physical properties of a rock mass.
A banded or foliated metamorphic rock with a composition often similar to granite
Granite A coarse-grained igneous rock containing mainly quartz and feldspar minerals and subordinate micas.
Granodiorite A coarse grained igneous rock composed of quartz, feldspar and hornblende and/or biotite.
greywackes A sandstone like rock, with grains derived from a dominantly volcanic origin.
High Field Strength Elements
Elements of high valency that are not readily incorporated into the lattices of common rock forming silicate minerals. Examples include Sn. W, U, Nb, Zr, Ti
hydrothermal fluids
Pertaining to hot aqueous solutions, usually of magmatic origin, which may transport metals and minerals in solution.
igneous Rocks that have solidified from a magma.
infill Refers to sampling or drilling undertaken between pre-existing sample points.
intermediate A rock unit which contains a mix of felsic and mafic minerals.
intrusions A body of igneous rock which has forced itself into pre-existing rocks.
ironstone A rock formed by cemented iron oxides.
joint venture A business agreement between two or more commercial entities.
laterite A cemented residuum of weathering, generally leached in silica with a high alumina and/or iron content.
lead A metallic element, the heaviest and softest of the common metals.
magnetite A mineral comprising iron and oxygen which commonly exhibits magnetic properties.
metamorphic A rock that has been altered by physical and chemical processes involving heat, pressure and derived fluids.
metasomatism metamorphism which involves the introduction of material from an external source.
Ma Mega annum – the commonly used geological abreviation for one million years
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Mt Million Tonnes.
mylonite A hard compact rock with a streaky or banded structure produced by extreme granulation of the original rock mass in a fault or thrust zone.
outcrops Surface expression of underlying rocks.
pegmatite A very coarse grained intrusive igneous rock which commonly occurs in dyke-like bodies containing lithium-boron-fluorine-rare earth bearing minerals.
placer deposits Residual deposits formed from deep weathering of igneous rocks.
porphyries Felsic intrusive or sub-volcanic rock with larger crystals set in a fine groundmass.
ppb Parts per billion; a measure of low level concentration.
Proterozoic An era of geological time spanning the period from 2,500 million years to 570 million years before present.
Rare Earth Elements
A suite of 17 elements (15 lanthanides (La, Ce, Pr, Nd, Pm, Sm, Eu, Gd, Tb, Dy, Ho, Er, Tm, Yb, Lu) plus Sc and Y.
regolith The layer of unconsolidated material which overlies or covers in situ basement rock.
residual Soil and regolith which has not been transported from its point or origin.
resources In situ mineral occurrence from which valuable or useful minerals may be recovered.
rhyolite Fine-grained felsic igneous rock containing high proportion of silica and felspar.
rock chip sampling
The collection of rock specimens for mineral analysis.
schist A crystalline metamorphic rock having a foliated or parallel structure due to the recrystallisation of the constituent minerals.
scree The rubble composed of rocks that have formed down the slope of a hill or mountain by physical erosion.
sedimentary A term describing a rock formed from sediment.
sericite A white or pale apple green potassium mica, very common as an alteration product in metamorphic and hydrothermally altered rocks.
shale A fine grained, laminated sedimentary rock formed from clay, mud and silt.
sheared A zone in which rocks have been deformed primarily in a ductile manner in response to applied stress.
sheet wash Referring to sediment, usually sand size, deposited over broad areas characterised by sheet flood during storm or rain events. Superficial deposit formed by low temperature chemical processes associated with ground waters, and composed of fine grained, water-bearing minerals of silica.
Silica Sillimanite
Dioxide of silicon, SiO2, usually found as the various forms of quartz.
An alumina-silcate mineral that is indicative of high temperature metamorphism.
sills Sheets of igneous rock which is flat lying or has intruded parallel to stratigraphy.
silts Fine-grained sediments, with a grain size between those of sand and clay.
soil sampling The collection of soil specimens for mineral analysis.
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stocks A small intrusive mass of igneous rock, usually possessing a circular or elliptical shape in plan view.
strata Sedimentary rock layers.
stratigraphic Composition, sequence and correlation of stratified rocks.
stream sediment sampling
The collection of samples of stream sediment with the intention of analysing them for trace elements.
strike Horizontal direction or trend of a geological structure.
Poorly exposed bedrock.
sulphide A general term to cover minerals containing sulphur and commonly associated with mineralisation.
supergene Process of mineral enrichment produced by the chemical remobilisation of metals in an oxidised or transitional environment.
tectonic Pertaining to the forces involved in or the resulting structures of movement in the Earth’s crust.
veins A thin infill of a fissure or crack, commonly bearing quartz.
volcanics Formed or derived from a volcano.
zinc A lustrous, blueish-white metallic element used in many alloys including brass and bronze.
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69
5. INVESTIGATING ACCOUNTANT’S REPORT
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Moore Stephens Perth Corporate Services Pty Ltd
ABN 41 421 048 107
Level 3, 12 St Georges Terrace Perth , Western Australia 6000
Telephone +61 8 9225 5355 Facsimile +61 8 9225 6181
Email [email protected] Website www.moorestehphens.com.au Liability limited by a scheme approved under Professional Standards Legislation
An independent member of Moore Stephens International Limited- members in principal cities throughout the world The Perth Moore Stephens firm is not a partner or agent of any other Moore Stephens firm
31 August 2011 The Directors Discovery Resources Limited Level 9 105 St George’s Terrace PERTH WA 6000 Dear Sirs INVESTIGATING ACCOUNTANT’S REPORT 1. Introduction This report has been prepared at the request of the Directors’ of Discovery Resources Limited (“Discovery” or “the Company”) for inclusion in the Prospectus. The Company is offering for subscription a total of 12,500,000 ordinary shares at an issue price of 20 cents per share payable in full on application, to raise $2,500,000 (“Capital Raising” or “the Offer”), with a minimum level of subscription of $1,500,000. Upon completion of the Capital Raising, application is to be made for admission of the Company’s shares to the official list of the Australian Securities Exchange Limited (“ASX”). Expressions defined in the Prospectus have the same meaning in this report. 2. Basis of Preparation This report has been prepared to provide investors with information in relation to the Statement of Financial Position and a pro-forma Statement of Financial Position of Discovery as at 30 June 2011 adjusted on the basis that the Capital Raising and certain proposed transactions disclosed in this report are completed. The historical and pro-forma financial information is presented in an abbreviated form insofar as it does not include all of the disclosures required by Australian Accounting Standards applicable to financial reports in accordance with the Corporations Act 2001.
The report does not address the rights attaching to the shares to be issued in accordance with the Offer, nor the risks associated with accepting the Offer. Moore Stephens Perth Corporate Services Pty Ltd has not been requested to consider the prospects for Discovery nor the merits and risks associated with becoming a shareholder and accordingly has not done so, nor purports to do so.
Consequently Moore Stephens Perth Corporate Services Pty Ltd has not made and will not make any recommendation, through the issue of this report, to potential investors of the Company, as to the merits of the investment and takes no responsibility for any matter or omission in the Prospectus, other than responsibility for this report.
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3. Background
Discovery Resources Limited is a public Company which was incorporated in Western Australia on 13 December 2010. Since incorporation the activities undertaken by the Company have comprised an initial capital raising, pursuant to a prospectus issued in December 2010, the acquisition of a number of tenements in Namibia and preparation of this Prospectus to facilitate a further capital raising and the listing of the Company on ASX. In April 2011 the Company acquired 100% of the issued capital in Namibian company Solarwind Investments Pty Ltd (Solarwind) for cash consideration of $23,976. Solarwind has no material assets or liabilities other than a 100% interest in five Rare Earth Element (REE) exclusive exploration licences (EPL’s) all of which are located in Namibia. The Company intends to implement an exploration program on its existing REE tenements in Namibia whilst continuing to evaluate, for potential acquisition, additional exploration projects, for REE and other commodities, both within Namibia and elsewhere. During the period 13 December 2010 to 30 June 2011 the Company derived interest revenue of $24,097, incurred administration overheads of $48,306 and derived a net loss of $24,209. From the date of incorporation to the date of this report, ordinary shares were issued as follows:
Number of
Shares #
Paid Up Capital $
To subscribers on incorporation Shares issued on 17 December 2010 Shares issued on 9 March 2011
1 3,000,000 9,524,000
1 3,000 1,062,904
Exercise of Options on 10 March 2011 1,500,000 1,500 14,024,001 1,067,405
The Company also has an obligation to issue 2,000,000 options to acquire ordinary shares upon listing of the Company on ASX, the terms of which are set out in Section 8.1 of the Prospectus. The obligation to issue these options arises pursuant to the acquisition of Solarwind. Further information about the Company and its future plans can be found in other sections of the Prospectus.
4. Scope of Report You have requested Moore Stephens Perth Corporate Services Pty Ltd to prepare an Investigating Accountant’s Report on: a) The consolidated Statement of Financial Position of Discovery as at 30 June 2011. b) The consolidated pro-forma Statement of Financial Position of Discovery as at 30 June 2011
adjusted to include funds to be raised by the Prospectus and the completion of certain transactions as disclosed in this report.
We have not separately disclosed all related party transactions, as these are disclosed elsewhere in the Prospectus.
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5. Scope of Review The historical financial information has been extracted from the Company’s audited consolidated financial report for the period from incorporation to 30 June 2011, which was subject to audit by Moore Stephens. The Directors of Discovery are responsible for the preparation and presentation of the historical and pro-forma financial information, including the determination of the pro-forma transactions. We have conducted a review of the historical financial information in accordance with Australian Auditing Standard ASRE 2410 “Review of Interim and Other Financial Reports Performed by the Independent Auditor of the Entity”. We made such inquiries and performed such procedures as we, in our professional judgement, considered reasonable in the circumstances including:
a) A review of contractual arrangements; b) a review of work papers, accounting records and other documents;
c) a comparison of consistency in application of the recognition and measurement principles in
Accounting Standards and other mandatory professional reporting requirements in Australia, with the accounting policies adopted by the Company;
d) a review of the assumptions used to compile the pro-forma Statement of Financial Position; and e) enquiry of directors, management and others. These procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than that given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. In conducting our review of Discovery we have also reviewed recent management accounts of Solarwind, which have not been subject to audit. Based on these management accounts, the assets and liabilities recorded in the balance sheet are not significant in terms of the consolidated pro-forma statement of financial position of Discovery. Whilst nothing has come to our attention to suggest that the recent management accounts of Solarwind have not been prepared on a reasonable basis, we have not performed an audit and, accordingly, do not express an audit opinion in relation to them. The consolidated Statement of Financial Position as at 30 June 2011 of the Company is included in Appendix 1. Also included in Appendix 1 is the consolidated pro-forma Statement of Financial Position of the Company which incorporates the consolidated Statement of Financial Position as at 30 June 2011 adjusted as if certain transactions as disclosed in this report had been finalised at that date. Details of these transactions are set out in Note 2 of Appendix 2. 6. Valuation of Interests in Exploration and Mining Tenements The principal assets of Discovery are its interests in exploration and mining tenements, comprising tenement acquisition and exploration costs, which have been capitalised in the Balance Sheet. The interests in exploration and mining tenements have been included at cost in the Balance Sheet. We have not performed our own valuations of the tenements and do not express a view on whether the carrying values of the tenements are fairly stated. The value of the tenements may rise or fall depending on future exploration results and world prices for minerals being sought.
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7. Opinion Based on our review, which is not an audit, nothing has come to our attention which causes us to believe that: · The consolidated Statement of Financial Position of the Company, as set out in Appendix 1, does
not present fairly the assets and liabilities of the Company and its controlled entities as at 30 June 2011 in accordance with the accounting methodologies required by Australian Accounting Standards.
· The pro-forma consolidated Statement of Financial Position of the Company, as set out in
Appendix 1, does not present fairly the assets and liabilities of the Company and its controlled entities as at 30 June 2011 in accordance with the accounting methodologies required by Australian Accounting Standards and on the basis of assumptions and transactions set out in Note 2 of Appendix 2.
8. Subsequent Events
To the best of our knowledge and belief, there have been no material items, transactions or events subsequent to 30 June 2011 not otherwise disclosed in this report or the Prospectus, that have come to our attention during the course of our review which would cause the information included in this report to be misleading.
9. Other Matters Moore Stephens Perth Corporate Services Pty Ltd does not have any pecuniary interest that could reasonably be regarded as being capable of affecting our ability to give an unbiased opinion on this matter. Moore Stephens, a related practice entity, currently acts as auditor of the Company. Moore Stephens Perth Corporate Services Pty Ltd will receive a professional fee for the preparation of this Investigating Accountant’s Report.
Moore Stephens Perth Corporate Services Pty Ltd were not involved in the preparation of any other part of the Prospectus and accordingly make no representations or warranties as to the completeness and accuracy of any information contained in any other part of the Prospectus. Yours faithfully
Neil Pace Director
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APPENDIX 1
DISCOVERY RESOURCES LIMITED
Audited Consolidated Statement of Financial Position
Note
Actual As at
30 June 2011
$
Pro-forma As at
30 June 2011
$ Current Assets
Cash and cash equivalents 3 998,999 3,161,862 Trade and other receivables 11,197 11,197 Prepayments 21,204 21,204 GST Receivable 9,320 9,320
Total Current Assets 1,040,720 3,203,583
Non-Current Assets
Exploration and evaluation assets 4 23,976 93,976 Total Non-Current Assets 23,976 93,976 Total Assets 1,064,696 3,297,559
Current Liabilities
Trade and other payables 21,500 21,500
Total Current Liabilities 21,500 21,500
Total Liabilities 21,500 21,500 Net Assets/(Liabilities) 1,043,196 3,276,059
Equity
Issued capital 5 1,067,405 3,280,268 Reserves - 70,000 Accumulated losses (24,209) (74,209) Parent interest 1,043,196 3,276,059 Outside Equity Interest - -
Total Equity 1,043,196 3,276,059
To be read in conjunction with Appendix 2
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APPENDIX 2
DISCOVERY RESOURCES LIMITED
NOTES TO THE STATEMENTS OF FINANCIAL POSITION Note 1 Statement of Accounting Policies
The consolidated Statements of Financial Position have been prepared in accordance with applicable Accounting Standards, including the Australian Equivalents of International Financial Reporting Standards (“AIFRS”), the Corporations Act 2001 and other authoritative pronouncements of the Australian Accounting Standards Board. The financial information has been prepared on an accruals basis and is based on historical costs and does not take into account changing money values or, except where stated, current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. The following is a summary of the material accounting policies adopted by the Company in the preparation of the financial information. a) Basis of Consolidation
The consolidated statements of financial position comprise those of Discovery and its subsidiary, Solarwind. Subsidiaries are those entities over which Discovery has the power to govern the financial and operating policies so as to obtain benefits from their activities. In preparing the consolidated statements of financial position all intercompany balances have been eliminated in full and consistent accounting policies have been applied.
b) Exploration and Evaluation Assets
Exploration and evaluation expenditure incurred (including tenement acquisition costs) is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area of interest (or alternatively by its sale) or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves, and active operations are continuing. Accumulated costs in relation to an abandoned area are written off to the income statement in the period in which the decision to abandon the area is made. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward capitalised costs. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Such costs will be determined using estimates of future costs on a discounted basis.
c) Going Concern
The financial statements have been prepared on a going concern basis, which anticipates the ability of the Company to meet its obligations in the normal course of business. The ability of the Company to meet its existing and future obligations will depend on the ability to raise funds pursuant to the Prospectus, or from other sources, and to raise further funds through the issue of additional share capital to meet future exploration/development costs, as and when required.
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APPENDIX 2
DISCOVERY RESOURCES LIMITED NOTES TO THE STATEMENTS OF FINANCIAL POSITION d) Share Issue Costs
In accordance with Australian Accounting Standard AASB 132.37 Financial Instruments: Presentation, all transaction costs on the issue of equity instruments are to be recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate.
e) Foreign Currency Translation
Both the functional and presentation currency of Discovery and its subsidiaries is Australian Dollars. Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange applicable at balance date. All differences are recognised in the statement of comprehensive income.
f) Income Tax
The charge for current income tax expense is based on the profit for the year adjusted for any non assessable or disallowed items.
Deferred income tax is provided on all temporary differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: · except where the deferred income tax liability arises from the initial recognition of an asset
or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
· in respect of taxable temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, expect where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: · except where the deferred income tax asset relating to the deductible temporary difference
arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
· in respect of deductible temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
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APPENDIX 2
DISCOVERY RESOURCES LIMITED
NOTES TO THE STATEMENTS OF FINANCIAL POSITION
f) Income Tax (cont) The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Income taxes relating to items recognized directly in equity are recognised in equity and not in the income statement.
g) Plant & Equipment
Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset at the following rates: Plant and equipment – 7.5% to 43% Leasehold improvements - 25% Impairment The carrying values of plant and equipment are reviewed for impairment at each reporting date, with the recoverable amount being estimated when events or changes in circumstances indicate the carrying value may be impaired. An impairment exists when the carrying value of an asset or cash generating unit exceeds its estimated recoverable amount. The assets or cash-generating units are then written down to their recoverable amount. Derecognition and disposal An item of plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised.
h) Impairment of Assets
At each reporting date, the Company assesses whether there is any indication that an asset may be impaired. Recoverable amount is the higher of its fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
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APPENDIX 2
DISCOVERY RESOURCES LIMITED
NOTES TO THE STATEMENTS OF FINANCIAL POSITION
h) Impairment of Assets (cont)
Where an indicator of impairment exists, the Company makes a formal estimate of recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset or cash generating unit exceeds its estimated recoverable amount the assets or cash generating unit is considered impaired and is written down to its recoverable amount.
i) Provisions
Provisions are recognised when the Company has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reasonable estimate is made of the amount of the obligation.
The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
j) Cash and Cash Equivalents
Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.
k) Inventories
Inventories are valued at the lower of cost and net realisable value. Costs are allocated to inventories as follows;
· Raw materials – purchase cost on a first in, first out basis. · Finished goods and work in progress – cost of direct materials and labour and a
proportion of manufacturing overheads, based on normal operating capacity, excluding borrowing costs.
l) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST except:
· where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
· receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.
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APPENDIX 2
DISCOVERY RESOURCES LIMITED
NOTES TO THE STATEMENTS OF FINANCIAL POSITION
m) Financial Instruments
Initial recognition and measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions and instrument. For financial assets, this is equivalent to the date that the company commits itself to either purchase or sell the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified ‘at fair value through profit and loss in which case transaction costs are expensed to profit and loss immediately. Classification and subsequent measurement Financial instruments are subsequently measured at fair value, amortised cost using the effective interest rate method or cost. Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted. Amortised cost is calculated as: (i) the amount at which the financial asset or financial liability is measured at initial recognition; (ii) less principal repayments; (iii) plus or minus the cumulative amortisation of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and (iv) less any reduction for impairment. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts future cash payments or receipts (including fees, transaction costs and other premium or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit and loss.
(i) Financial assets at fair value through profit or loss Financial assets are classified at 'fair value through profit or loss' when they are either held for trading for the purpose of short term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss.
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APPENDIX 2
DISCOVERY RESOURCES LIMITED
NOTES TO THE STATEMENTS OF FINANCIAL POSITION m) Financial Instruments (cont)
(ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. (iii) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the group's intention to hold these investments to maturity. They are subsequently measured at amortised cost. (iv) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either not capable of being classified into other categories of financial assets due to their nature or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. (v) Financial liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm's length transactions, reference to similar instruments and option pricing models.
Impairment At each reporting date, the company assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the income statement.
n) Employee Leave Entitlements
Liabilities for wages and salaries including non monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable.
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APPENDIX 2
DISCOVERY RESOURCES LIMITED NOTES TO THE STATEMENTS OF FINANCIAL POSITION o) Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, be definition seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed as follows; Capitalised Exploration and Evaluation Assets The future recoverability of capitalised exploration and evaluation assets is dependent on a number of factors, including whether the Company decides to exploit the related lease itself or, if not, whether is successfully recovers the related exploration and evaluation asset through sale. Factors which could impact the future recoverability include the level of measured, indicated and inferred mineral resources, future technological changes, which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices. To the extent that capitalised exploration and evaluation assets are determined not to be recoverable in the future, this will reduce profit and net assets in the period in which this determination is made. In addition, exploration and evaluation assets are capitalised if activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent that it is determined in the future that this capitalised expenditure should be written of, this will reduce profits and net assets in the period in which the determination is made.
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APPENDIX 2
DISCOVERY RESOURCES LIMITED NOTES TO THE STATEMENTS OF FINANCIAL POSITION Note 2 The Preparation of the Pro-Forma Statement of Financial Position The 30 June 2011 Statement of Financial Position of the Company has been adjusted to reflect the impact of the following proposed transactions: · The issue pursuant to this Prospectus of 12,500,000 ordinary shares at 20 cents each, raising
$2,500,000 cash.
· The payment of an estimated $287,137 in costs incurred by the Company in relation to the Capital Raising and the subsequent write off of these costs against the issued capital.
· The payment of an estimated $50,000 in costs incurred by the Company in relation to initial
public offer management services payable to SG Corporate Pty Ltd and the subsequent write off of these costs to the Statement of Comprehensive Income.
· The issue of 2,000,000 options to form part of the success fee to be payable to Andersen
Geological Consulting (or its nominees) upon successful completion of the Solarwind transaction (completed) and admission of Discovery to the ASX. The options have been valued using a binomial option valuation model at $70,000. The Pro-Forma Statement of Financial Position has this transaction recorded as an exploration and evaluation asset with the corresponding credit being the option valuation reserve in equity.
Note 3 Cash and Cash Equivalents Actual
30 June 2011 $
Pro-forma 30 June 2011
$ Cash 998,999 3,211,862 The movements in cash at bank are as follows:
Actual 30 June 2011
998,999
Issue of shares pursuant to Prospectus ( assuming full subscription)
2,500,000
Estimated share issue costs (287,137) Payments to SG Corporate Pty Ltd
(50,000)
3,161,862
Note: The Company is offering for subscription 12,500,000 shares at $0.20 per share to raise
$2,500,000. The pro-forma cash balance has been prepared on this basis and does not include the potential impact of only the minimum subscription of $1,500,000 being raised. In the event that only the minimum subscription is raised the pro-forma cash balance and contributed equity would be decreased by up to $1,000,000, less any associated share issue costs.
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APPENDIX 2
DISCOVERY RESOURCES LIMITED
NOTES TO THE STATEMENTS OF FINANCIAL POSITION Actual
30 June 2011 $
Pro-forma 30 June 2011
$ Note 4 Exploration and Evaluation Assets
Exploration Licences and related exploration and Evaluation expenditure – Namibian REE licences
23,976
93,976
23,976 93,976
Note 5 Contributed Equity
26,524,001 ordinary shares fully paid 3,375,337 Movements during the Period: No of Shares $ Ordinary issued and paid up share capital Opening balance – To subscribers on incorporation 13 December 2010 Share issued on 17 December 2010
1
3,000,000
1
3,000 Shares issued on 9 March 2011 Exercise of options on 10 March 2011 Shares issued pursuant to prospectus Transaction Costs
9,524,000 1,500,000
12,500,000 -
1,062,904 1,500
2,500,000 (287,137)
Closing Balance 26,524,001 3,280,268
The Company also has an obligation to issue 2,000,000 options to acquire ordinary shares upon listing of the Company on ASX, the terms of which are set out in Section 8.1 of the Prospectus. The obligation to issues these options arises pursuant to the acquisition of Solarwind.
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APPENDIX 2 DISCOVERY RESOURCES LIMITED NOTES TO THE STATEMENTS OF FINANCIAL POSITION Note 6 Contingent Liabilities At 30 June 2011 the following contingent liabilities existed;
· The Company has an obligation to issue 2,000,000 options relating to the acquisition of Solarwind, as previously disclosed in this report.
· SG Corporate Pty Ltd will receive a fixed IPO success fee of $50,000 and variable fee of 1% of funds raised ($25,000 assuming $2,500,000 raised pursuant to the Prospectus), monthly executive management services fees of $5,000 post listing on ASX. SG Corporate Pty Ltd is also engaged to assist the Company identify additional REE assets for a success based fee of $50,000 plus one percent of the value of the acquisition.
There are no other material contingent assets or liabilities existing at 30 June 2011 or at the date of this report. Note 7 Capital and Leasing Commitments There are no material capital or leasing commitments existing at 30 June 2011 or at the date of this report. For details of proposed exploration commitments refer to the proposed application of funds in the Prospectus. It should however be noted that actual expenditure levels may differ from the estimates provided due to such factors as market conditions and the results of exploration activities carried out.
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6. SOLICITOR’S REPORT ON TENEMENTS
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7. RISK FACTORS
7.1 Introduction
The Shares offered under this Prospectus should be considered highly speculative because of the nature of the Company’s business.
Whilst the Directors recommend the Offer, there are numerous risk factors involved in the Company’s operations. The following is a summary of the more material matters to be considered. However, this summary is not exhaustive and potential investors should examine the contents of this Prospectus in its entirety and consult their professional advisors before deciding whether to apply for the Shares.
Based on the information available, a non-exhaustive list of risk factors which may affect the Company’s financial position, prospects and the price of its listed securities include the following.
7.2 Risks Specific to the Company and its Projects
(a) Lack of Executive Management
The Company’s management currently consists of three non-executive directors. The Board is aware of the need to have sufficient management to properly supervise the exploration and (if successful) the development of the projects in which the Company has, or will in the future have, an interest and the Board will continually monitor the management roles in the Company. To this end, the Company currently has a non-executive director with significant experience in the resource sector and intends to appoint a reputable consultant to manage its exploration activities. The Directors have engaged consulting services through SG Corporate Pty Ltd to provide executive management assistance with the day to day operational management of the Company.
In the meantime, the Company has also appointed a consultant, N.J.B Andersen Consulting Geologist C.C., to source additional REE assets in Namibia for potential acquisition by the Company. Please refer to Section 8.1 of this Prospectus for details of the Agreement between the Company and N.J.B Andersen Consulting Geologist C.C.
As the Company’s projects require an increased level of involvement the Board will look to appoint additional management and/or consultants when and where appropriate to ensure proper management of the Company’s projects. However, there is a risk that the Company may not be able to secure personnel with the relevant experience at the appropriate time which may impact on the Company’s ability to complete all of its preferred exploration programmes within its preferred timetable.
(b) Limited History of the Company and the Projects
The Company was only recently incorporated (13 December 2010) and has no operating history and limited historical financial performance. The Company is yet to conduct its own exploration activities on the Projects and will not commence these activities until the Company has been admitted to the Official List. No assurance can be given that the
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Company will achieve commercial viability through the successful exploration and/or mining of the Projects. Until the Company is able to realise value from its projects, it is likely to require additional working capital and incur ongoing operating losses.
The Projects are at early stages of exploration and potential investors should understand that REE exploration and development are high-risk undertakings. None of the Licences currently have a Mineral Resource. The Projects have been subject to no drill testing to date. Whilst rare earth mineralisation has been located during field work, until the exploration prospects have been drill tested, the Company will not know if it contains mineralisation of commercial grade and quality. Even then, a substantial drilling and testing program and feasibility study will have to be undertaken to determine whether a commercially viable mineral deposit exists. In particular, REE mineralisation is often subject to metallurgical challenges and cannot be economically extracted even where grade appears to be commercially viable. The Company has not conducted any mineralogical or metallurgical studies into the mineralisation present on the Projects and, accordingly, there is a risk that the identified mineralisation cannot be economically extracted or exploited.
The prospects of the Company must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly in the mineral exploration sector which has a high level of inherent uncertainty.
(c) Funding
At the date of this Prospectus, the Company has no income producing assets and will generate losses for the foreseeable future. Until it is able to develop a project and generate appropriate cash flow, it is dependent upon being able to obtain future equity debt funding to support long term exploration, after the expenditure of the net proceeds raised under the Offer. Neither the Company nor any of the Directors or any other party can provide any guarantee or assurance that if further funding is required, such funding can be raised on terms favourable to the Company.
Any additional equity funding will dilute existing Shareholders. Also, no guarantee or assurance can be given as to when a project can be developed to the stage where it will generate cash flow. As such, a project would be dependent on many factors, for example exploration success, subsequent mine development, commissioning and operational performance.
(d) Sovereign Risk - Namibia
There are risks associated with exploration activities and investments generally in foreign countries that may adversely affect the business, costs, expenditure and profitability of the Company. Government action or policy change (either Australian or Namibian or other countries’ governments), particularly in relation to access to land and infrastructure, compliance with environmental regulations, taxation and royalties, may adversely affect the Company’s operations and financial performance.
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Most of the Company’s current operations are governed by a series of Namibian laws, regulations and decrees. Breaches or non-compliance with these laws, regulations and decrees can result in penalties and other liabilities for violation or breach including, without limitation, withdrawal of the relevant permit. These may have a material adverse impact on the financial position, financial performance, cash flows, growth prospects and share price for the Company. These laws, regulations and decrees may be amended from time to time which may also have a material adverse impact on the financial position, financial performance, cash flows, growth prospects and share price for the Company. While the Company is familiar with the Namibian regulatory regime and will undertake all reasonable due diligence in assessing and managing the risks associated with investing and having mining operations in Namibia (and other countries in which it may invest), the legal and political conditions of the country and any changes thereto are outside the control of the Company. There is also no guarantee that the political climate will remain stable and friendly to foreign investment. Changes in government policy, regime change, or political or civil unrest may result in the Company being unable to explore or develop the Projects, or may result in nationalisation or loss of the Licences. In particular, the Namibian Minister of Mines and Energy, Hon Isak Katali announced on 20 April 2011 that the Namibian Cabinet had decided that the right to own licences for strategic minerals (which includes REE) would be issued exclusively to the state-owned mining company. In a subsequent media release on 10 May 2011, the Minister clarified that the statutory rights of existing licence holders would not be affected, including the right to convert from an exclusive prospecting licence into a mining licence, which would be judged under the existing regime on its own merits. The Minister may grant an application for mineral licences, or the renewal or transfer thereof on such terms and conditions as may be determined in writing by him or her. It was stipulated in the said media release that it might be required that the conditions of a licence include one that subjects the licence holder to give the first right of refusal of shareholding to the Namibian Government before the holder can approach other parties. Nonetheless, there remains a risk that the Namibian Government will implement legislation which undermines the existing rights of licence holders. Possible consequences to the Company of such an action include transacting with the state-owned mining company on less than favourable terms, a decrease in the perceived value of the Company’s assets and/or a materially adverse impact upon the Company’s viability.
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(e) Surface Rights and Compensation of Landowners
It is a term and condition of every EPL that the holder thereof is obliged to exercise any of its rights reasonably and in such a manner that the rights and interests of the owner of any land are not adversely affected, except to the extent to which such owner is compensated. The areas of EPLs 3824 and 3764 are situated on private farm land. There have been no agreements entered into between Solarwind and the owners of the land concerning the prospecting areas falling within private owned land as the stage of prospecting operations currently reached has not required this. The ability of the Company to gain access to these tenements (through obtaining consent of any relevant landowner), or to progress from the exploration phase to the development and mining phases of operations may be adversely affected.
The Directors will closely monitor the potential effect of compensation claims involving tenements in which the Company has or may have an interest. Please refer to the Solicitor’s Report on Tenements in Section 6 of this Prospectus for further details.
(f) Mountain Nature Conservancy
EPL 3764 falls within the area of the Erongo Mountain Nature Conservancy (EMNC) and the area that concerns the Erongo Mountain Rhino Sanctuary Trust which trust is an initiative to introduce protected and endangered animals especially the black rhino into this area.
The ability of the Company to gain access to this tenement, or to progress from the exploration phase to the development and mining phases of operations may be adversely affected by the EMNC.
The Directors will closely monitor the potential effect of the EMNC on EPL 3764. Please refer to the Solicitor’s Report on Tenements in Section 6 of this Prospectus for further details.
(g) Communal Conservancy
EPL 4136 falls within the Kunene River Conservancy which is a Communal Conservancy area.
The ability of the Company to gain access to this tenement, or to progress from the exploration phase to the development and mining phases of operations may be adversely affected if the Namibian Government gives a direction that the prospecting practices should have regard to a game management and utilization plan of a conservancy.
The Directors will closely monitor the potential effect of any conservancy regulations on EPL 3764. Please refer to the Solicitor’s Report on Tenements in Section 6 of this Prospectus for further details.
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(h) Communal Land
EPLs 3825, 4135 and 4136 fall within an area comprising the communal land known as the Kaokoland over which traditional leaders and Communal Land Boards have rights and powers.
All communal land areas vest in the State in trust for the benefit of the traditional communities residing in those areas and for the purpose of promoting the economic and social development of the people of Namibia. It is not clear what particular traditional leaders or Communal Land Boards exist in respect of the areas of these EPLs. Customary land rights that may be allocated are a right to a farming unit, a right to a residential unit and a right to any other form of customary tenure that may be recognised and described by the Minister of Lands and Resettlement. It is not clear whether or not there exist any customary land rights in the areas of the said EPLs.
The ability of the Company to gain access to these tenements, or to progress from the exploration phase to the development and mining phases of operations may be adversely affected by customary land rights in the areas of the said EPLs.
The Directors will closely monitor the potential effect of any customary land rights in the areas of the said EPLs. Please refer to the Solicitor’s Report on Tenements in Section 6 of this Prospectus for further details.
(i) Archaeological Sites
The Erongo mountain range area within which EPL 3764 falls contains a number of Bushmen rock art and paintings. Should an archaeological site be identified, the National Heritage Council will have to be notified in terms of relevant Namibian legislation. The ability of the Company to gain access to this tenement, or to progress from the exploration phase to the development and mining phases of operations may be adversely affected by the finding of an archaeological site in the area of the said EPL.
The Directors will closely monitor the potential effect of any finding of an archaeological site in the area of the said EPL. Please refer to the Solicitor’s Report on Tenements in Section 6 of this Prospectus for further details.
(j) Overlapping of Mineral Licences
There is one existing mineral licence held by a third party which partly falls within the area of EPL4135. This third party licence relates to dimension stone and industrial minerals. The Minerals Act allows such an overlap where the overlapping licences relate to different mineral groups (as is the case in respect of EPL4135), provided that the holder of a prior existing licence has been afforded a reasonable opportunity to make representations in relation to an application for an overlapping new licence. If REE mineralisation extends to the area of overlap, the ability of the Company to gain access to this area, or to progress from the exploration phase to the development and mining phases of
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operations may be adversely affected if the Company is unable to arrive at an arrangement with the holder of the overlapping licence.
(k) No JORC Compliant Resource
The Projects do not have a JORC resource. Further exploration is required to determine the extent of the Company’s viable mineral deposits.
There can be no assurance that exploration of the Licences, or any other tenements that may be acquired by the Company in the future, will result in the discovery of a JORC Code compliant resource.
(l) Exploration Risks
The business of mineral exploration involves risks and hazards. For example, in an exploration context no assurance can be given that REE will be detected with preferred or desirable tonnages or grades. High risk and substantial expense can be incurred without the requisite or expected degree of reward. Even if commercial quantities of REE are discovered unforeseen risks can arise in the development and production phases. Risks include mining or processing issues, environmental hazards, industrial accidents, labour force disruption, the unavailability of materials and equipment, unusual or unexpected geological formation, pit failures, changes in the regulatory environment and weather conditions. Such occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability.
(m) Environmental Risks
Rare Earths exploration, development and production can be hazardous to the environment. The Projects are subject to Namibian laws and regulations regarding environmental matters and the discharge of hazardous wastes and materials. As with all mining projects, the Projects may have a variety of environmental impacts should development proceed.
The Company intends to conduct its activities in an environmentally responsible manner. However, the Company could be subject to liability due to risks inherent to its activities. The Company may incur substantial costs for environmental rehabilitation, damage control and losses by third parties resulting from its operations.
(n) Reliance on Key Management
The responsibility of overseeing the day-to-day operations and the strategic management of the Company depends substantially on its board and contracted consultants. There can be no assurance given that there will be no detrimental impact on the Company if one or more of these board members or consultants cease their engagement with the Company.
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(o) Resource Estimates
Resource estimates are expressions of judgement based on knowledge, experience and industry practice. Estimates, which when made, may change significantly when new information becomes available. In addition, resource estimates are imprecise and depend to some extent on interpretations, which may prove to be inaccurate. Should the Company encounter mineralisation or formations different from those predicted by past sampling and drilling, resource estimates may have to be adjusted and mining plans may have to be altered in a way which could have a positive or negative effect on the Company’s operations.
7.3 Risks of operating in a Developing country
The Company’s current primary projects are located in Namibia and any potential projects that it may acquire an interest in may be located in Namibia or other developing countries. Operating in such regions carries additional risks including but not limited to the failure of infrastructure and loss or damage due to any number of unpredictable circumstances. Furthermore, retaining and attracting technical personnel to live and work in such areas is challenging and may delay the Company from achieving its objectives if it cannot satisfactorily address this issue.
(a) Operating in Namibia
Namibia and other developing countries may be subject to political, economic and other uncertainties, some of which may not be found in other developing countries. Future government activities concerning the economy, foreign ownership or the operation and regulation of facilities such as mines or mineral exploration operations, could have a significant effect on the Company.
The value of the Company’s exploration and mining interests will most likely be derived from its existing Namibian Rare Earths projects (although it is noted that these risks may apply in other developing countries that the Company may operate in). As a result, the Company may be exposed to a number of risks customary for international operations, including but not limited to:
(i) Political Risk
The Company’s investment in exploration projects in Namibia may be exposed to adverse political developments that could affect the economics of the Projects.
(ii) Uncertainty of Laws and Enforcement of Laws
The Government of Namibia has been developing a comprehensive system of commercial laws and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organisation and governance, commerce, taxation and trade. However, because these laws are relatively new, and because of the limited volume of published cases and their non-binding nature, interpretation and enforcement of these laws and regulations involve uncertainties. In addition, as the legal system in Namibia develops, changes in such laws and
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regulations, their interpretation or enforcement may have a material adverse effect on the Company’s business operations.
(iii) Repatriation of Funds and Adverse Taxation Consequences
Significant funds raised under the Offer may be held in financial institutions in Namibia. Whilst Namibian financial institutions are regulated, there are risks associated with repatriation, exchange controls and currency exchange fluctuations.
Repatriation of funds out of Namibia is subject to Namibian exchange control approval, obtained through the banking system. While the Company is unaware of any instances in which such approval has been refused, there is no certainty that any funds or future profits can be repatriated. Further, any material changes in taxation legislation in relation to the returning of capital or profits from Namibia may affect the viability and profitability of the Company.
(iv) Sovereign Immunity Risk
The Company may be hindered or prevented from enforcing its rights with respect to a governmental instrument because of the doctrine of sovereign immunity.
(b) Title Risk
Mining and exploration licences are subject to periodic renewal and Ministerial discretion. In particular, there is no guarantee that applications for future exploration licences or production licences will be approved. Renewal and transfer conditions may include increased expenditure and work commitments or compulsory relinquishment of areas of the exploration licences comprising the Company’s projects.
Interests in Namibian tenements are governed by the relevant domestic legislation and are evidenced by the granting of licences or leases over tenements. Each licence or lease is for a specific term and carries with it annual expenditure and reporting commitments, as well as other conditions requiring compliance. Consequently, the Company could lose title to or its interest in tenements if licence conditions are not met or if insufficient funds are available to meet expenditure commitments.
The imposition of new conditions or the inability to meet conditions may adversely affect the operations, financial position and/ or performance of the Company.
(c) Black Economic Empowerment
The Namibian Government has proposed policies for the advancement of black economic empowerment. In implementing any such policies, the Namibian Government has sought and may seek to require companies to transfer an equity interest in the company holding or applying for mineral licences to previously (or historically) disadvantaged natural Namibian citizens or corporate entities which are owned or controlled by previously (or historically) disadvantaged natural Namibian citizens, as a condition of the grant or transfer of such mineral licences.
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In a media release on 10 May 2011, the Namibian Minister of Mines and Energy clarified that the statutory rights of existing licence holders would not be affected by these proposed policies, including the right to convert from an exclusive prospecting licence into a mining licence, which would be judged under the existing regime on its own merits.
Nonetheless, there remains a risk that the Namibian Government will implement legislation which undermines the existing rights of licence holders. Possible consequences to the Company of such an action include transacting with the state-owned mining company on less than favourable terms, a decrease in the perceived value of the Company’s assets and/or a materially adverse impact upon the Company’s viability.
7.4 General Economic Risks and Business Climate
The future viability and profitability of the Company is also dependent on a number of general economic factors affecting performance of all industries and not just the exploration industry including, but not limited to, the following:
• movements in interest and inflation rates and currency exchange rates;
• changes in share market conditions and in investor sentiment toward particular market sectors; and
• changes in commodity prices.
The market price of quoted securities can fall as well as rise and may be subject to varied and unpredictable influences on the market for equities in general and resource exploration stocks in particular. Neither the Company nor the Directors warrant the future performance of the Company or any return on an investment in the Company.
7.5 Investment Speculative
The above list of risk factors ought not to be taken as exhaustive of the risks faced by the Company or by investors in the Company. The above factors, and others not specifically referred to above, may in the future materially affect the financial performance of the Company and the value of the Shares offered under this Prospectus. Therefore, the Shares to be issued pursuant to this Prospectus carry no guarantee with respect to the payment of dividends, returns of capital or the market value of those Shares.
Potential investors should consider that the investment in the Company is speculative and should consult their professional advisers before deciding whether to apply for Shares pursuant to this Prospectus.
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8. MATERIAL CONTRACTS
8.1 Andersen Geological Consulting – Letter Agreement
The Company has entered into a Letter Agreement dated 7 April 2011 (Commencement Date) with N.J.B Andersen Consulting Geologist C.C. (Andersen) under which Andersen shall identify and evaluate suitable investment opportunities in the resources sector in Namibia for the Company for a term of 12 months from the Commencement Date.
The duties to be performed by Andersen are in the nature usually prescribed for an appointment of this type and include identifying REE assets in Namibia for potential acquisition by the Company.
Under the Letter Agreement, upon successful completion of the acquisition by the Company of REE assets identified by Andersen (which has now occurred with the Company’s acquisition of Solarwind) and upon admission of the Company to the Official List, the Company shall issue Andersen 1,000,000 Class A Options exercisable at $0.40 with an expiry date a minimum of 24 months from the date of Official Quotation of the Company’s Shares and 1,000,000 Class B Options exercisable at $0.60 with an expiry date a minimum of 24 months from the date of Official Quotation of the Company’s Shares (please refer to Sections 9.3 and 9.4 of this Prospectus for full details of the terms of the Class A Options and the Class B Options). The Letter Agreement also grants the Company a first right of refusal over any REE opportunities that Andersen secure in Namibia for a period of 12 months from the Commencement Date. The indemnity provisions of the Letter Agreement are in the nature usually prescribed for an appointment of this type.
8.2 Corporate Services Agreement – SG Corporate Pty Limited
The Company has entered into a Corporate Services Agreement dated 11 July 2011 (as varied) with SG Corporate Pty Limited (SG Corporate) (in which Director Mr Stephen Belben has a 50% relevant interest and is also a director) for the provision of office administration and company secretarial services (General Services), executive management services (Executive Management Services), services in relation to management of the Offer (IPO Management Services) and services in relation to identifying REE assets in Africa for potential acquisition by the Company (Asset Acquisition Services).
The agreement commenced on 1 April 2011 and shall end on the first anniversary of the date the Company is admitted to the Official List of ASX.
The General Services include the provision of a registered office, the services of an executive secretary and company secretarial services. The Executive Management Services include the services of an executive manager who shall be responsible for all accounting and financial services of the Company and the day to day management of the Company. The IPO Management Services include the management of the Offer which include the coordination of the preparation of this Prospectus, the completion of all necessary due diligence and managing relationships with third party advisors. The Asset Acquisition Services include identifying potential REE assets to be acquired by the Company and managing the acquisition of such assets.
The Company will pay SG Corporate a monthly fee of $6,000 for the General Services and a monthly fee (following listing of the Company on ASX) of $5,000 for the Executive Management Services. The Company will pay SG Corporate a
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fee of $50,000 plus 1% of the total funds raised under the Offer for the IPO Management Services. The Company will pay SG Corporate a fee of $50,000 plus 1% of the purchase price of any REE assets identified by SG Corporate and acquired by the Company for the Asset Acquisition Services.
The agreement may be terminated immediately by the Company if at any time during the term of the agreement:
(a) SG Corporate (or its nominee) or any of its directors or servants are found guilty of grave misconduct in relation to the affairs of the Company;
(b) SG Corporate (or its nominee) enters into liquidation (except voluntary liquidation for the purpose of reconstruction);
(c) a receiver or receiver and manager is appointed to the whole or part of the undertaking of SG Corporate (or its nominee); or
(d) SG Corporate (or its nominee) is guilty of any gross default, breach, non-observance or non-performance of any of the terms and conditions contained in the agreement.
The agreement (or any of the individual services provided under the agreement) may be terminated by either the Company or SG Corporate without reason by providing 30 days written notice to the other party of such termination.
8.3 Directors’ Deeds of Indemnity
The Company intends to enter into deeds of indemnity and access with each of its Directors (Deeds) following listing of the Company on the ASX.
Pursuant to these Deeds, the Company will indemnify each Director to the extent permitted by the Corporations Act against any liability arising as a result of the Director acting as an officer of the Company. The Company will be required under the Deeds to maintain insurance policies for the benefit of the relevant Director for the term of the appointment and for a period of 7 years after the relevant Director’s retirement or resignation.
The Deeds will also provide for the Director’s right of access to Board papers.
8.4 Underwriting Agreement - Fleming SG Capital Pty Ltd
Pursuant to an underwriting agreement dated 5 September 2011 between the Company and Fleming SG Capital Pty Limited as Corporate Authorised Representative (Rep No 345960) of St George Capital Pty Ltd (AFSL 300641) (Underwriter), the Underwriter agrees to partially underwrite the Offer to the extent of $1 million (Underwriting Agreement).
The intent of the Underwriting Agreement is that the Underwriter underwrites the ‘last $1 million’ of the Offer. As such, under the terms of the Underwriting Agreement between the Company and the Underwriter, should the Company have received on the Closing Date valid applications for greater than 2,500,000 Shares and less than 7,500,000 Shares, the Underwriter must lodge applications with the Company for 5,000,000 Shares (equal to $1 million). Should the Company have received on the Closing Date applications for greater than 7,500,000 Shares (such amount of Shares over the amount of 7,500,000 being known as Surplus Shares), the Underwriter must lodge applications with the
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Company for such amount of Shares as is calculated by subtracting the amount of Surplus Shares from 5,000,000. That is, subscriptions received from investors in excess of $1.5 million will go in relief of the Underwriter’s underwriting commitment on a dollar for dollar basis.
The Underwriter is an entity in which SG Corporate Pty Limited (a company in which Stephen Belben, a Director, holds a relevant interest in 50% of the issued shares), holds a relevant interest in 33% of the issued shares. Stephen Belben is also a director of the Underwriter.
Fleming SG Capital Special Opportunities Pty Limited (Sub-Underwriter) has agreed to sub-underwrite the Offer to the same extent as Fleming SG Capital Pty Limited (being to the extent of 5,000,000 Shares (equal to $1 million)). The Sub-Underwriter is a wholly owned subsidiary of the Underwriter. Stephen Belben is also a director of the Sub-Underwriter. Under the terms of the Sub-Underwriting Agreement, the Underwriter must offer the shortfall shares under the Underwriting Agreement to the Sub-Underwriter.
The Company agrees to pay the Underwriter a commission of $60,000 (6% of the $1,000,000 underwritten amount) as consideration for the underwriting obligation undertaken by the Underwriter. No scale back in the Underwriter’s commission will occur for any reduction in the Underwriter’s underwriting commitment as a result of subscriptions received in excess of $1.5 million.
The Underwriter’s obligation to underwrite the Offer is subject to certain events of termination. The Underwriter may terminate its obligations under the Underwriting Agreement on the occurrence of specified events including the following and other events considered standard for an underwriting agreement:
(a) (Restriction on allotment): the Company is prevented from allotting the Shares the subject of the Offer within the time required by the Underwriting Agreement, the Corporations Act, the Listing Rules, any statute, regulation or order of a court of competent jurisdiction by ASIC, ASX or any court of competent jurisdiction or any governmental or semi-governmental agency or authority;
(b) (Termination events): the occurrence of any termination events including:
(i) (Default): default or breach by the Company under the Underwriting Agreement of any terms, condition, covenant or undertaking;
(ii) (Incorrect or untrue representation): any representation, warranty or undertaking given by the Company in the Underwriting Agreement is or becomes untrue or incorrect;
(iii) (Adverse change): an event occurs which gives rise to a material adverse effect or any adverse change or any development including a prospective adverse change after the date of the Underwriting Agreement in the assets, liabilities, financial position, trading results, profits, forecasts, losses, prospects, business or operations of the Company including, without limitation, if any forecast in the Prospectus becomes incapable of being met or in the Underwriter's reasonable opinion, unlikely to be met in the projected time;
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(iv) (Misleading information): any information supplied at any time by the Company or any person on its behalf to the Underwriter in respect of any aspect of the Offer or the Issue or the affairs of the Company is or becomes misleading or deceptive or likely to mislead or deceive without being remedied by way of amended disclosure in accordance with Section 719 of the Corporations Act;
(v) (Prescribed Occurrence): a Prescribed Occurrence (as defined in the Underwriting Agreement, being a number of events relating to the restructuring of the Company’s issued capital and events of insolvency) occurs;
(vi) (Change in shareholdings): there is a material change in the major or controlling shareholdings of the Company or a takeover offer or scheme of arrangement pursuant to Chapter 5 or 6 of the Corporations Act is publicly announced in relation to the Company; or
(vii) (Sub-underwriters): any of the sub-underwriters to the Offer that are introduced by the Company do not comply with their obligations under the sub-underwriting agreements or threaten to not comply with their respective obligations under the sub-underwriting agreements.
The Company also provides a number of indemnities, representations and warranties to the Underwriter under the Underwriting Agreement that are considered standard for an underwriting agreement.
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9. ADDITIONAL INFORMATION
9.1 Rights Attaching to Shares
Full details of the rights attaching to Shares are set out in the Company’s Constitution, a copy of which can be inspected, free of charge, at the Company’s registered office during normal business hours.
The following is a broad summary of the rights, privileges and restrictions attaching to all Shares. This summary is not exhaustive and does not constitute a definitive statement of the rights and liabilities of Shareholders.
(a) General Meetings
Shareholders are entitled to be present in person, or by proxy, attorney or representative to attend and vote at general meetings of the Company.
Shareholders may requisition meetings in accordance with Section 249D of the Corporations Act and the Constitution of the Company.
(b) Voting Rights
Subject to any rights or restrictions for the time being attached to any class or classes of shares, at general meetings of shareholders or classes of shareholders:
(i) each shareholder entitled to vote may vote in person or by proxy, attorney or representative;
(ii) on a show of hands, every person present who is a shareholder or a proxy, attorney or representative of a shareholder has one vote; and
(iii) on a poll, every person present who is a shareholder or a proxy, attorney or representative of a shareholder shall, in respect of each fully paid share held by him, or in respect of which he is appointed a proxy, attorney or representative, have one vote for the share, but in respect of partly paid shares shall have such number of votes as bears the same proportion to the total of such shares registered in the shareholder’s name as the amount paid (not credited) bears to the total amounts paid and payable (excluding amounts credited).
(c) Dividend Rights
Subject to the rights of persons (if any) entitled to shares with special rights to dividends the Directors may declare a final dividend out of profits in accordance with the Corporations Act and may authorise the payment or crediting by the Company to the shareholders of such a dividend. The Directors may authorise the payment or crediting by the Company to the shareholders of such interim dividends as appear to the Directors to be justified by the profits of the Company. Subject to the rights of persons (if any) entitled to shares with special rights as to dividends, all dividends are to be declared and paid according to the amounts paid or credited as paid on the shares in respect of which the
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dividend is paid. Interest may not be paid by the Company in respect of any dividend, whether final or interim.
(d) Winding-Up
If the Company is wound up, the liquidator may, with the authority of a special resolution of the Company, divide among the shareholders in kind the whole or any part of the property of the Company, and may for that purpose set such value as he considers fair upon any property to be so divided, and may determine how the division is to be carried out as between the shareholders or different classes of shareholders. The liquidator may, with the authority of a special resolution of the Company, vest the whole or any part of any such property in trustees upon such trusts for the benefit of the contributories as the liquidator thinks fit, but so that no shareholder is compelled to accept any shares or other securities in respect of which there is any liability. Where an order is made for the winding up of the Company or it is resolved by special resolution to wind up the Company, then on a distribution of assets to members, shares classified by ASX as restricted securities at the time of the commencement of the winding up shall rank in priority after all other shares.
(e) Transfer of Shares
Generally, shares in the Company are freely transferable, subject to formal requirements, the registration of the transfer not resulting in a contravention of or failure to observe the provisions of a law of Australia and the transfer not being in breach of the Corporations Act or the Listing Rules.
(f) Variation of Rights
Pursuant to Section 246B of the Corporations Act, the Company may, with the sanction of a special resolution passed at a meeting of shareholders vary or abrogate the rights attaching to shares.
If at any time the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class), whether or not the Company is being wound up may be varied or abrogated with the consent in writing of the holders of three-quarters of the issued shares of that class, or if authorised by a special resolution passed at a separate meeting of the holders of the shares of that class.
9.2 Terms of Class A Options
The terms and conditions of the Class A Options are as follows:
(a) each Class A Option entitles the holder to one (1) Share in the Company;
(b) the Class A Options cannot be exercised prior to the date being three (3) months from the date of issue;
(c) the Class A Options are exercisable at any time after 17 October 2011 and on or prior to 5:00pm (WST) on the second anniversary of the date the Company is admitted to the Official List of ASX (Expiry Date) by
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completing a Class A Option exercise form and delivering it together with the payment for the number of Shares in respect of which the Class A Options are exercised to the registered office of the Company;
(d) the Class A Option exercise price is $0.40 per Class A Option;
(e) a Class A Option does not confer the right to a change in exercise price or a change in the number of underlying securities over which the Class A Option can be exercised;
(f) subject to the Corporations Act, the Listing Rules and the Company’s Constitution, the Class A Options are freely transferable;
(g) all Shares issued upon exercise of the Class A Options will rank pari passu in all respects with the Company’s then issued Shares. The Company will apply for quotation of the Shares issued upon exercise of the Class A Options on ASX;
(h) there are no participating rights or entitlements inherent in the Class A Options and holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Class A Options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least 7 Business Days after the issue is announced. This will give Class A Option holders the opportunity to exercise their Class A Options prior to the date for determining entitlements to participate in any such issue; and
(i) if at any time the issued capital of the Company is reconstructed, all rights of a Class A Option holder are to be changed in a manner consistent with the Corporations Act and the Listing Rules.
9.3 Terms of Class B Options
The terms and conditions of the Class B Options are as follows:
(a) each Class B Option entitles the holder to one (1) Share in the Company;
(b) the Class B Options cannot be exercised prior to the date being three (3) months from the date of issue;
(c) the Class B Options are exercisable at any time after 17 October 2011 and on or prior to 5:00pm (WST) on the second anniversary of the date the Company is admitted to the Official List of ASX (Expiry Date) by completing a Class B Option exercise form and delivering it together with the payment for the number of Shares in respect of which the Class B Options are exercised to the registered office of the Company;
(d) the Class B Option exercise price is $0.60 per Class B Option;
(e) a Class B Option does not confer the right to a change in exercise price or a change in the number of underlying securities over which the Class B Option can be exercised;
(f) subject to the Corporations Act, the Listing Rules and the Company’s Constitution, the Class B Options are freely transferable;
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(g) all Shares issued upon exercise of the Class B Options will rank pari passu in all respects with the Company’s then issued Shares. The Company will apply for quotation of the Shares issued upon exercise of the Class B Options on ASX;
(h) there are no participating rights or entitlements inherent in the Class B Options and holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Class B Options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least 7 Business Days after the issue is announced. This will give Class B Option holders the opportunity to exercise their Class B Options prior to the date for determining entitlements to participate in any such issue; and
(i) if at any time the issued capital of the Company is reconstructed, all rights of a Class B Option holder are to be changed in a manner consistent with the Corporations Act and the Listing Rules.
9.4 Remuneration
The Company’s Constitution provides that the remuneration of non-executive Directors will be not more than the aggregate fixed sum determined by a general meeting. The aggregate remuneration for non-executive Directors has been set at an amount not to exceed $150,000 per annum. Refer to the Investment Overview section at the beginning of this prospectus for the Directors’ current remuneration.
The remuneration of executive Directors will be fixed by the Directors and may be paid by way of fixed salary or consultancy fee.
9.5 Fees and Benefits
Other than as set out below or elsewhere in this Prospectus, no:
(a) Director of the Company;
(b) person named in this Prospectus as performing a function in a professional advisory or other capacity in connection with the preparation or distribution of this Prospectus;
(c) promoter of the Company; or
(d) underwriter (but not a sub-underwriter) to the issue or a financial services licensee named in this Prospectus as a financial services licensee involved in the Offer,
has, or had within 2 years before lodgement of this Prospectus with the ASIC, any interest in:
(i) the formation or promotion of the Company;
(ii) any property acquired or proposed to be acquired by the Company in connection with its formation or promotion or in connection with the offer of Shares under this Prospectus; or
(iii) the offer of Shares under this Prospectus,
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and no amounts have been paid or agreed to be paid and no benefits have been given or agreed to be given to any of those persons as an inducement to become, or to qualify as, a Director of the Company or for services rendered in connection with the formation or promotion of the Company or the offer of Shares under this Prospectus.
Ravensgate has acted as the Independent Geologist and has prepared an Independent Geologist’s Report which has been included in Section 4 of this Prospectus. The Company estimates that it will pay a total of $48,000 for these services. During the 24 months preceding lodgement of this Prospectus with the ASIC, Ravensgate has not received any other fees from the Company.
Moore Stephens Perth Corporate Services Pty Ltd has acted as Investigating Accountant and has prepared an Investigating Accountant’s Report which has been included in Section 5 of this Prospectus. The Company estimates it will pay Moore Stephens Perth Corporate Services Pty Ltd a total of $10,000 for these services. Subsequently, fees will be charged in accordance with normal charge out rates. During the 24 months preceding lodgement of this Prospectus with the ASIC, Moore Stephens Perth Corporate Services Pty Ltd had not received any fees from the Company.
Steinepreis Paganin has acted as the Australian solicitors to the Company in relation to the Offer, and has been involved in due diligence enquiries on legal matters. The Company estimates it will pay Steinepreis Paganin $25,000 for these services. Subsequently, fees will be charged in accordance with normal charge out rates. During the 24 months preceding lodgement of this Prospectus with the ASIC, Steinepreis Paganin has received approximately $9,000 for other legal services provided to the Company.
Engling Stritter & Partners has acted as the Namibian solicitors to the Company in relation to the Offer and has prepared a Solicitor’s Report which has been included in Section 6 of this Prospectus. The Company estimates it will pay Engling Stritter & Partners a total of $7,000 for these services. Subsequently, fees will be charged in accordance with normal charge out rates. During the 24 months preceding lodgement of this Prospectus with the ASIC, Engling Stritter & Partners received no fees from the Company. Fleming SG Capital Pty Limited, has agreed to act as partial Underwriter to the Company in respect of the Offer. Fleming SG Capital Pty Limited will be paid $60,000 (excluding GST) for services in relation to the Offer. N.J.B. Andersen Consulting Geologist C.C. has acted as the Namibian consultants to the Company. N.J.B. Andersen Consulting Geologist C.C. has been paid $10,000 (excluding GST) and will be issued 1,000,000 Class A Options and 1,000,000 Class B Options in the Company for services provided to the Company. Moore Stephens Perth has acted as the Company’s auditors. Moore Stephens Perth have received no fees from the Company to date.
9.6 Consents
Each of the parties referred to in this Section:
(a) does not make, or purport to make, any statement in this Prospectus other than those referred to in this Section; and
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(b) to the maximum extent permitted by law, expressly disclaim and take no responsibility for any part of this Prospectus other than a reference to its name and a statement included in this Prospectus with the consent of that party as specified in this Section.
Ravensgate has given its written consent to being named as the Independent Geologist to the Company in this Prospectus and to the inclusion of the Independent Geologist’s Report in Section 4 in the form and context in which the report is included. Ravensgate has not withdrawn its consent prior to the lodgement of this Prospectus with the ASIC.
Moore Stephens Perth Corporate Services Pty Ltd has given its written consent to being named as Investigating Accountant in this Prospectus and to the inclusion of the Investigating Accountant’s Report in Section 5 in the form and context in which the report is included. Moore Stephens Perth Corporate Services Pty Ltd has not withdrawn its consent prior to lodgement of this Prospectus with the ASIC.
Steinepreis Paganin has given its written consent to being named as the Australian solicitor to the Company in this Prospectus. Steinepreis Paganin has not withdrawn its consent prior to the lodgement of this Prospectus with the ASIC.
Engling Stritter & Partners has given its written consent to being named as the Company’s Namibian lawyer in this Prospectus and to the inclusion of the Solicitor’s Report in Section 6 in the form and context in which the overview is included. Engling Stritter & Partners has not withdrawn its consent prior to the lodgement of this Prospectus with the ASIC.
Moore Stephens Perth has given its written consent to being named the Company’s Auditor in this Prospectus. Moore Stephens Perth has not withdrawn its consent prior to lodgement of this Prospectus with the ASIC.
Fleming SG Capital Pty Limited has given its written consent to being named as the partial Underwriter to the Offer. Fleming SG Capital Pty Limited has not withdrawn its consent prior to the lodgement of this Prospectus with the ASIC.
N.J.B. Andersen Consulting Geologist C.C. has given its written consent to being named as the Company’s Namibian consultants in this Prospectus. N.J.B. Andersen Consulting Geologist C.C. has not withdrawn its consent prior to the lodgement of this Prospectus with the ASIC.
9.7 Litigation
As at the date of this Prospectus, the Company is not involved in any legal proceedings and the Directors are not aware of any legal proceedings pending or threatened against the Company.
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9.8 Continuous disclosure obligations
Following admission of the Company to the Official List, the Company will be a “disclosing entity” (as defined in Section 111AC of the Corporations Act) and, as such, will be subject to regular reporting and disclosure obligations. Specifically, like all listed companies, the Company will be required to continuously disclose any information it has to the market which a reasonable person would expect to have a material effect on the price or the value of the Company’s securities.
Price sensitive information will be publicly released through ASX before it is disclosed to shareholders and market participants. Distribution of other information to shareholders and market participants will also be managed through disclosure to the ASX. In addition, the Company will post this information on its website after the ASX confirms an announcement has been made, with the aim of making the information readily accessible to the widest audience.
9.9 Electronic Prospectus
Pursuant to Class Order 00/044, the ASIC has exempted compliance with certain provisions of the Corporations Act to allow distribution of an electronic prospectus and electronic application form on the basis of a paper prospectus lodged with the ASIC, and the publication of notices referring to an electronic prospectus or electronic application form, subject to compliance with certain conditions.
If you have received this Prospectus as an electronic Prospectus, please ensure that you have received the entire Prospectus accompanied by the relevant application forms. If you have not, please email the Company at [email protected] and the Company will send you, for free, either a hard copy or a further electronic copy of the Prospectus or both. Alternatively, you may obtain a copy of the Prospectus from the Company’s website at www.discoveryresources.com.au.
The Company reserves the right not to accept an Application Form from a person if it has reason to believe that when that person was given access to the electronic Application Form, it was not provided together with the electronic Prospectus and any relevant supplementary or replacement prospectus or any of those documents were incomplete or altered.
9.10 Taxation
The acquisition and disposal of Shares in the Company will have tax consequences, which will differ depending on the individual financial affairs of each investor. All potential investors in the Company are urged to obtain independent financial advice about the consequences of acquiring Shares from a taxation viewpoint and generally.
To the maximum extent permitted by law, the Company, its officers and each of their respective advisors accept no liability and responsibility with respect to the taxation consequences of subscribing for Shares under this Prospectus.
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10. DIRECTORS’ AUTHORISATION
This Prospectus is issued by the Company and its issue has been authorised by a resolution of the Directors.
In accordance with Section 720 of the Corporations Act, each Director has consented to the lodgement of this Prospectus with the ASIC.
_______________________________ Stephen Belben Chairman For and on behalf of DISCOVERY RESOURCES LIMITED
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11. GLOSSARY
Where the following terms are used in this Prospectus they have the following meanings:
A$ or $ means an Australian dollar.
Andersen means N.J.B Andersen Consulting Geologist C.C.
Applicant means a person who submits an Application Form.
Application Form means the application form accompanying this Prospectus relating to the Offer.
ASIC means Australian Securities & Investments Commission.
Associated Body Corporate means:
(a) a related body corporate (as defined in the Corporations Act) of the Company;
(b) a body corporate which has an entitlement to not less than 20% of the voting Shares in the Company; or
(c) a body corporate in which the Company has an entitlement to not less than 20% of the voting shares.
ASX means ASX Limited (ABN 98 008 624 691) or the Australian Securities Exchange (as the context requires).
Board means the board of Directors as constituted from time to time.
Business Day means a week day when trading banks are ordinarily open for business in Perth, Western Australia.
Class A Option means an Option to be issued to Andersen on the terms set out in Section 9.2.
Class B Option means an Option to be issued to Andersen on the terms set out in Section 9.3.
Closing Date means the closing date of the Offer as set out in the Investment Overview Section of this Prospectus.
Company or Discovery or Discovery Resources means Discovery Resources Limited (ACN 147 411 881).
Constitution means the constitution of the Company.
Corporations Act means the Corporations Act 2001 (Cth).
Directors means the directors of the Company at the date of this Prospectus.
EPL means Exclusive Prospecting Licence.
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Exposure Period means the period of 7 days after the date of lodgement of this Prospectus, which period may be extended by the ASIC by not more than 7 days pursuant to Section 727(3) of the Corporations Act.
Independent Geologist’s Report means the Independent Geologist’s Report included in Section 4 of this Prospectus.
IPO means initial public offering.
JORC Code means the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (2004) prepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia.
Licences means the Namibian exclusive prospecting licences 14/2/1/4/2/3824, 14/2/1/4/2/3825, 14/2/1/4/2/3764, 14/2/1/4/2/4135 and 14/2/1/4/2/4136.
Listing Rules means the official listing rules of ASX.
Mineral Resources has the meaning given in the JORC Code.
Minerals Act means the Minerals (Prospecting and Mining) Act 1992 (Namibia).
Offer means the offer of Shares pursuant to this Prospectus as outlined in Section 2.
Official List means the Official List of ASX.
Official Quotation means official quotation by ASX in accordance with the Listing Rules.
Option means an option to subscribe for a Share.
Projects means the REE projects comprised of Namibian exclusive prospecting licences 14/2/1/4/2/3824, 14/2/1/4/2/3825, 14/2/1/4/2/3764, 14/2/1/4/2/4135 and 14/2/1/4/2/4136.
Prospectus means this prospectus.
REE means rare earth element mineralisation.
Share means a fully paid ordinary share in the capital of the Company.
Share Registry means Advanced Share Registry Limited (ACN 127 175 946).
Shareholder means a holder of Shares.
Solarwind means Solarwind Investments (Pty) Limited, a company registered in Namibia.
Solicitor’s Report means the Solicitor’s Report included in Section 6 of this Prospectus.
US$ or USD means the currency of the United States of America.
WST means Western Standard Time, Perth, Western Australia.
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