Update on Merger with Polymetals - Notice of Meeting
Update on Merger with Polymetals - Notice of Meeting
Update on Merger with Polymetals - Notice of Meeting
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underperform the market’s average return in a falling market. On the other hand, a beta less than <strong>on</strong>e<br />
implies that the business’ performance compared to that <strong>of</strong> a business whose beta is greater than <strong>on</strong>e will<br />
provide an inverse relati<strong>on</strong>ship in terms <strong>of</strong> the market’s average return.<br />
Equity betas are normally either an historical beta or an adjusted beta. The historical beta is obtained<br />
from the linear regressi<strong>on</strong> <strong>of</strong> a stock’s historical data and is based <strong>on</strong> the observed relati<strong>on</strong>ship between<br />
the security’s return and the returns <strong>on</strong> an index. An adjusted beta is calculated based <strong>on</strong> the assumpti<strong>on</strong><br />
that the relative risk <strong>of</strong> the past will c<strong>on</strong>tinue into the future, and hence derived from the historical data.<br />
It is then modified by the assumpti<strong>on</strong> that a stock will move towards the market over time, taking into<br />
c<strong>on</strong>siderati<strong>on</strong> the industry risk factors which make the operating risk <strong>of</strong> the investment project greater or<br />
less risky than comparable listed companies when assessing the equity beta for an investment project.<br />
It is important to note that it is not possible to compare the equity betas <strong>of</strong> different companies <strong>with</strong>out<br />
having regard to their gearing levels. Thus, a more valid analysis <strong>of</strong> betas can be achieved by “ungearing”<br />
the equity beta (β a ) by applying the following formula:<br />
β a = β / (1+(D/E x (1-t))<br />
In order to assess the appropriate equity beta for the Merged Entity we have had regard to the equity<br />
betas <strong>of</strong> listed companies involved in similar activities in similar industry sectors. The geared betas below<br />
have been calculated against the All Ordinaries Index.<br />
Company Market Capitalisati<strong>on</strong> ($) Geared beta Gross debt/equity Ungeared beta<br />
<strong>Polymetals</strong> Mining Limited 6,891,412 0.81 0% 0.81<br />
Rand Mining Limited 21,294,422 1.28 9% 1.20<br />
BCD Resources NL 3,622,562 0.78 1% 0.77<br />
Kalnorth Gold Mines Limited 20,389,200 0.86 0% 0.86<br />
Octag<strong>on</strong>al Resources Limited 10,604,800 0.93 0% 0.93<br />
Ramelius Resources Limited 64,172,432 1.06 2% 1.04<br />
Excelsior Gold Limited 53,830,193 1.01 0% 1.01<br />
Tanami Gold NL 48,766,525 1.04 71% 0.69<br />
Selected Beta (β)<br />
In selecting an appropriate Beta for the Merged Entity, we have c<strong>on</strong>sidered the similarities between the<br />
projects and the comparable companies selected above. The comparable similarities and differences<br />
noted are:<br />
• the comparable companies’ mining and explorati<strong>on</strong> assets have varying risk pr<strong>of</strong>iles depending <strong>on</strong><br />
the maturity <strong>of</strong> the assets and the stages and locati<strong>on</strong> <strong>of</strong> producti<strong>on</strong>; and<br />
• several companies having been producing for a c<strong>on</strong>siderable time period.<br />
Mean 0.92<br />
Median 0.90<br />
Having regard to the above we c<strong>on</strong>sider that an appropriate ungeared beta to apply to the Merged Entity<br />
is between 0.90 and 1.20. We c<strong>on</strong>sider it reas<strong>on</strong>able that a forward looking ungeared beta for the Merged<br />
Entity will reflect that <strong>of</strong> its peers. The median beta <strong>of</strong> the comparable companies was selected as the<br />
low end <strong>of</strong> the beta range. The high end <strong>of</strong> the beta range <strong>of</strong> 1.20 was selected to reflect the higher risk<br />
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