Junior fights takeover after gold hunt sours

East Perth-based Nex Metals Explorations is taking legal action against joint venture partner Metalicity over two gold projects in the Eastern Goldfields and a subsequent hostile takeover attempt.

Nex Metals disclosed to ASX on Monday that it had lodged a writ in the Supreme Court seeking a declaration regarding a farm-in agreement established between the parties in 2019.

But the full contents of the writ are not yet clear.

Nex claims that Metalicity subsidiary Kym Mining had failed to notify the company of how much it had spent on exploration activity at the Kookynie and Yundamindra gold projects and had therefore not met terms of the farm-in agreement detailed in May 2019.

The agreement stated that Metalicity would need to spend an initial $500,000 to drill test projects within 12 months from the date of the arrangement and a total $5 million within five years to earn a 51 per cent stake in the named Nex Metals projects.

Exploration activities began at Kookynie and Yundamindra that same month, with Nex attributing the “quick start” to a detailed evaluation and planning process and the “on the ground” experience of Metalicity’s senior management.

Results from ongoing drilling and exploration programmes were disclosed by both parties to the ASX for the years that followed, including a 100.77 g/t gold find in September that year and a 118 g/t gold hit in May 2021.

On May 20 2021, Nex Metals confirmed receipt of notice from Metalicity that it had achieved the required $5 million spend to achieve a 51 per cent earn-in on the Kookynie and Yundamindra tenements.  

“Metalicity has achieved the spend way ahead of the five-year target, which is a positive indicator for the project,” Nex Metals’ statement to the ASX read.

“Subject to some formalities this will now convert to a joint venture.”

Metalicity also made an announcement regarding the earn-in that day, iterating it had a “51 per cent and controlling interest in both the Kookynie and Yundamindra gold projects,” in its statement.

Some months passed before Metalicity launched an all-scrip hostile takeover bid for Nex Metals on September 14, offering shareholders 4.81 Metalicity shares for every Nex share held at the time.

The deal was valued at $12.8 million.

Metalicity claimed Nex shareholders would own 37.5 per cent of the “enlarged entity that would hold a 100 per cent interest in the Kookynie and Yundamindra gold projects.”

Nex jumped in that same day urging shareholders to take no action regarding the takeover and said while there had been previous discussions with its partner, the deal had not been solicited by Nex.

Metalicity was put on notice by Nex Metals' legal representative on September 21 and claimed its partner had breached their joint venture agreement, while Metalicity lodged its formal bidder’s statement for the company on September 24.

Nex Metals urgently sought to raise $3.1 million via a non-renounceable rights issue to fund its defence of the proposed takeover and to “advance” the joint venture.

In response, Metalicity sought intervention from the Takeovers Panel to stop the rights issue on the basis it would “frustrate its bid and impede the potential acquisition of control of Nex Metals.”

In the interim, Nex strongly advised its shareholder reject the bidders statement dispatched by Metalicity on October 22 on the belief the statement lacked “pertinent information” which it claims it had been attempting to obtain from Metalicity for some time.

In its September quarterly report, Nex claimed the joint venture agreement had been in two stages and that Metalicty had yet to verify, to the satisfaction of Nex, that it had met its obligation under the first stage of the farm-in.

The panel upheld Metalicity’s appeal regarding the rights issue, announcing on November 3 that Nex would need shareholder approval to proceed with the issue and that Nex had not disclosed that the fundraising would frustrate the Metalicity takeover.

On Monday, Metalicity denied the claims contained in Nex Metals' quarterly report and affirmed its stake in the company was at 19.66 per cent.

The Takeovers Panel also made interim orders regarding the takeover bid on Monday, stating that Nex Metals' was not to physically send any information to its shareholders regarding the bid.

The orders are valid for two months or until further order of the panel or determination of proceedings.