Update on Merger with Polymetals - Notice of Meeting

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(b)
the Technical Specialist’s Report at Annexure B; and
The Annexures include information about:
(a)
(b)
Polymetals’ projects, mineral resources and ore reserves; and
Polymetals assets, liabilities and financial position.
1.13 Litigation
Polymetals is currently subject to litigation in the Supreme Court of New South Wales
brought by Peak Gold Mines Pty Ltd (Peak) on 6 July 2009 seeking damages of
$5,240,984. Peak alleges Polymetals made a number of misleading and deceptive
statements pursuant to section 72 of the Fair Trading Act 1987 (NSW) in relation to a joint
venture agreement between Polymetals and Peak dated 16 August 2006 (Peak JVA). The
Peak JVA concerns the development of the Mt Boppy Project held by Polymetals’
wholly-owned subsidiary, Polymetals (Mt Boppy) Pty Ltd.
The damages being sought by Peak are for:
• monies paid to Polymetals;
• GST on monies paid to Polymetals; and
• monies expended on salaries to staff engaged to further the site and costs associated
with improving the mine site,
all in relation to the Peak JVA.
Polymetals denies that there were any misrepresentations and has filed a counterclaim
against Peak. Under the counterclaim, Polymetals is seeking damages of $2,600,000 plus
interest for Peak’s breach of the Peak JVA for Peak’s failure to purchase gold products from
the Mt Boppy Project during the term of the Peak JVA.
As the Peak Litigation was brought against Polymetals prior to its listing on the ASX in 2011
(IPO), the pre-IPO Polymetals Shareholders created the PMG Unit Trust and collectively
contributed $4 million to the PMG Unit Trust. The PMG Unit Trust granted Polymetals an
indemnity against the Peak Litigation (and other litigation that has subsequently been
settled) (limited to the cash in the PMG Unit Trust) to the extent that the Peak Litigation was
determined or settled unfavourably against Polymetals (PMG Indemnity).
As at 23 May 2013, the PMG Unit Trust balance was $3.7 million. The PMG Unit Trust
meets the costs of the Peak Litigation under the terms of the PMG Indemnity.
In order to mitigate the potential risk of the Merged Group to the Peak Litigation,
Polymetals and SXG have agreed, as a Scheme Condition, that Meadowhead
Investments will grant a full indemnity in respect of the Peak Litigation.
Meadowhead Investments has agreed to grant the Meadowhead Indemnity in
exchange for the Indemnity Consideration.
The Meadowhead Indemnity is subordinate to the PMG Indemnity.
Following the implementation of the Scheme, Meadowhead Investments’ major asset will
be its SXG Shares and its ability to meet the Meadowhead Indemnity will be dependent
upon the value of those SXG Shares. To the extent that there is insufficient value in the
SXG Shares held by Meadowhead Investments to fulfil Meadowhead Investments’
obligations under the Meadowhead Indemnity, unless Meadowhead has access to other
assets at the relevant time, SXG will bear that residual exposure.