Update on Merger with Polymetals - Notice of Meeting

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(ii)
possible differences in the management culture of the two groups leading to
the loss of key employees of SXG and Polymetals.
If the integration is not achieved in an orderly fashion and within a reasonable time
period, the full benefits, cost savings and other expected synergies, efficiencies and
benefits may be achieved only in part, or not at all. This could adversely impact the
Merged Group’s financial performance and position, and the future prospects of the
Merged Group.
This risk of integration is mitigated due to the scale of each respective organisation.
Each of SXG’s three non-executive directors is proposed to remain on the Board
post-Merger. SXG’s personnel comprises only five full time employees, who it is
proposed will remain with the Company.
(c)
Exposure to Polymetals assets
SXG Shareholders will become exposed to Polymetals’ existing asset portfolio
which carries specific risks which may differ to SXG’s existing assets. Polymetals’
portfolio is comprised of development and exploration stage assets, including the
development stage Mt Boppy Project. The development of the Mt Boppy Project
has additional inherent risks which SXG Shareholders will become exposed to if the
Scheme is implemented. However, these risks are largely the same as those that
SXG Shareholders are currently facing with the development of the Marda Project
and Sandstone Project, and as such, the impact of these risks will likely be reduced
as a result of more diversified operations.
(d)
Accounting risk
In accounting for the Merger, the Merged Group will need to perform a fair value
assessment of all of Polymetals’ assets, liabilities and contingent liabilities, which
will include the identification and valuation of mineral rights and intangible assets.
As a result of this fair value assessment, the Merged Group’s depreciation and
amortisation charges may be greater than the depreciation and amortisation
charges of SXG and Polymetals as separate businesses and to that extent may
reduce the future earnings of the Merged Group.
To the extent goodwill is recognised in respect of accounting for the Merger, it will
be subject to annual impairment testing. In the event that the recoverable amount of
goodwill is impaired, this will result in a charge against future earnings.
The Merged Group will be subject to the usual business risk that there may be
changes in accounting policies which may have an adverse impact on the Merged
Group.
The impact of changes to Australian International Financial Reporting Standards
could adversely affect the Merged Group’s reported earnings performance in any
given period and its financial position from time to time.
2. Resolution 2 – Ratification of issue of Placement Shares
Introduction
As announced to ASX on 25 October 2012, the Company has raised $1.5 million through a
share placement to long term institutional investors and cornerstone investors (Placement).
Of the 35,555,556 SXG Shares issued pursuant to the Placement, 34,231,787 SXG Shares
were issued under the shortfall arrangements arising from the Company’s rights issue in
September 2012. The balance of the Placement, being 1,323,769 SXG Shares
(Placement Shares), were issued under the Company’s “15% capacity” pursuant to Listing
Rule 7.1.