Synthesis Energy Systems, Inc. (SES) (NASDAQ: SES) announced today
that it has signed a definitive Merger Agreement, whereby
Australian Future Energy Pty Ltd (AFE), a private company
incorporated in Brisbane, Australia in 2014, will merge with a
wholly owned subsidiary of SES. As a result of the
transaction, AFE will become a wholly owned subsidiary of SES.
SES currently holds approximately 35% of the issued capital
of AFE.
Upon closing and subject to the terms and
conditions of the Merger Agreement, SES will issue 3,875,000 new
shares of SES common stock for the acquisition of AFE. Each
holder of AFE ordinary shares will receive one share of SES’s
common stock for approximately each 24.44 ordinary shares of
AFE.
The current other major shareholders of AFE,
representing approximately 90% of the current issued capital of
AFE, have formally pre-committed their shares in support of the
merger transaction. The mutually agreed purchase value of AFE
is approximately $US 36 million, based on $6 per share of SES
common stock to be issued.
In connection with entry into the Merger
Agreement, SES also announces that it has offered to acquire 100%
of the issued capital of Batchfire Resources Pty Ltd (Batchfire),
owner of the Callide Mine in Queensland, Australia, via the
issuance and exchange of one share of SES common stock for each ten
ordinary shares of Batchfire.
SES has set a minimum participation level by
Batchfire shareholders of 25% inclusive of SES’s own 7.37% holding
in Batchfire. Each participating Batchfire shareholder will
enter into a Share Exchange Agreement with SES and, to date, SES
has received signed Share Exchange Agreements from 33% of Batchfire
shareholders, inclusive of SES Group’s ownership, meeting the
minimum participation level.
The Batchfire share exchange is subject to
conditions specified in the Share Exchange Agreements, including
the completion of Batchfire’s pre-emptive rights procedure and the
consummation of the transactions contemplated by the Merger
Agreement.
The valuation basis for the offer to acquire
Batchfire is based on $6 per each share of Company common stock
placing the value of 100% of Batchfire at approximately $US 80
million.
As part of the transaction, at merger closing,
Mr. Kerry Parker, current CEO of AFE, will be appointed as
President and Chief Executive Officer of SES, and Mr. Ron Higson,
current COO of AFE, will be appointed as Chief Operating Officer of
SES. An appointment of a new Chief Financial Officer for SES will
be named at, or prior to, closing.
Additionally, Mr. Edek Choros, Mr. Stephen
Lonie, and Mr. Richard Barker will be appointed to the SES Board of
Directors. Mr. Robert W. Rigdon, a long-time SES executive
who has served as Deputy Chairman and Director of AFE since its
inception and is the current Vice Chairman, President and CEO of
SES, will remain on the board of SES. Once convened, the
Board of Directors is expected to appoint one or more additional,
independent directors. All other current directors of SES
will resign their positions at merger closing.
“A lot has been accomplished since forming AFE
five years ago, which we believe makes this merger of AFE and SES a
best value course of action for both AFE shareholders and the SES
shareholders, team members and business partners around the
world. The technology commercialized by SES through its five
projects built in China has now been well-proven as a clean energy
technology solution that converts low-cost, locally sourced
resources into high value syngas and energy products,” said Mr.
Rigdon.
“Together with Edek Choros we created AFE and,
two years later, AFE spun out Batchfire Resources, now owner of one
of the lowest production cost, largest thermal coal mines in all
Australia. We believe that the executive team at AFE, led by
Kerry Parker and Ron Higson, under the experienced guidance of
AFE’s Chairman Stephen Lonie, Executive Director Edek Choros,
Director Richard Barker, and SES have the AFE company
well-positioned for growth as a vertically integrated
operation. With the exciting new Gladstone Energy and Ammonia
Project now coming forward and the increased ownership of
Batchfire, the newly merged SES is poised for growth,” concluded
Mr. Rigdon.
“From the outset, our strategy has been to
create a vertically integrated energy development and production
company that combines quality, operating cash flow assets with a
set of well advanced and well planned growth assets. We
believe that AFE has accomplished that with our position in, and
contribution towards, the successful turnaround of Batchfire’s
Callide Mine, along with a project pipeline that includes
substantial work completed on our advanced Gladstone Energy and
Ammonia Project, the acquisition of the Pentland Coal Mine Project
(270 million metric tonnes resource), and the work we have
completed for later-stage gasification projects in Townsville.
Indeed, we believe that the company is well positioned at the
right time, especially given strong local demand for gas and
gas-based products in the east-coast Australian market,” said Mr.
Parker.
“Australia needs energy. The Australian
east coast gas market is in short supply for the foreseeable
future. Three large LNG projects built in the last ten years
in Gladstone, circa 1,200 PJ (approximately 1,140 BCF) per annum,
are now exporting gas offshore to Asia, at the same time that New
South Wales and Victoria have imposed bans on new gas
developments. It’s the right time and the right place for
scalable and replicable clean energy gasification projects with
compelling economics. Production costs of conventional gas are on
the rise, and we believe that we will be able to secure long-term
production of gas at competitive pricing,” continued Mr.
Parker.
“At Gladstone, we’ve made significant progress,
putting all of the building blocks in place in logical order for a
successful project, with a disciplined approach to development, and
cautious use of funding. Callide Mine, which we spun out as a
separate company, via Batchfire Resources, is a textbook turnaround
success story. We believe that we are on the apex of seeing
the benefits of the process put in place three years ago by
Batchfire’s founding shareholders,” Mr. Parker concluded.
Assets Being Acquired
Batchfire Resources – The
merger will, if the conditions are satisfied, bring SES’s ownership
of Batchfire, currently 7.37%, to a minimum of 25% of Batchfire
shares. SES has made an offer to Batchfire shareholders to
acquire up to 100% of the Batchfire shares on issue.
Batchfire is wrapping up the three-year mine
improvement plan originally put in place in late 2016 when AFE
created Batchfire and bought the Callide mine from Anglo American
Coal. Through implementing this plan, Batchfire’s Callide
Mine increased its production from approximately 6 million tons
annually in 2016 to today’s approximately 11 million tons annually,
with approximately 4 million tons export coal, with lower
production costs, and increased profitability.
The Callide Mine is a long-time supplier to CS
Energy power stations for Australia’s national grid (approximately
18% of Queensland’s electricity generation), domestic customers in
Gladstone, and exports via the Gladstone port. Batchfire
estimates that Callide has approximately 230 million metric tons of
reserves, and is an approximately 1.0 billion metric ton (mt)
resource.
Gladstone Energy and Ammonia
Project – Advanced stage, above-ground coal gasification
development project, to supply ammonia, natural gas, and power via
SES gasification technology, upon a company-owned 120-hectare
(approximately 300-acre) site in Gladstone State Development Area,
Queensland.
SES and AFE believe that all of the key building
blocks for the Gladstone Energy and Ammonia Project are in
place:
- Long-term offtake arrangements are in place with Tier 1
Australian ASX-listed off-takers for 100% of the production output
– approximately 250,000 tpa of ammonia and approximately 14
petajoules (PJ) (approximately 13.4 BCF) per annum of pipeline
quality gas;
- Agreements for supply of coal feedstock under long-term
arrangement in place;
- Project site acquired in 2018;
- Long-term water supply agreement in place;
- Engagement of SNC Lavalin on a pathway to EPC for the
project;
- Permitting and approvals well advanced with a pathway to
completion of the Environmental Impact Statement (EIS) expected by
late 2020; and
- Final Investment Decision will be made in mid to late
2020.
The project has received strong support from all
levels of Government in Australia, and from the Gladstone
community.
Cape River Resources’ West Pentland Coal
Resource – A 270 million metric ton JORC-compliant
resource, to be utilized for future planned coal gasification
projects on-site at West Pentland, for the production of pipeline
quality gas, electrical power, and additional chemical products
(ammonia, methanol).
Interim Funding To Support Merger Process
In connection with the execution of the Merger
Agreement, SES issued $2,000,000 of 11% senior secured debentures
to certain accredited investors, along with warrants to purchase
$4,000,000 of shares of SES’s common stock. The warrants will be
exercisable into shares of SES common stock at any time: at an
exercise price of $3.00 per share of SES common stock, as to half
of the warrants of each warrant-holder; $6.00 per share of SES
common stock as to the other half of the warrants of such
warrant-holder. The warrants will terminate five years after
they become exercisable.
SES shall receive the $2,000,000 pursuant to the
Merger Debentures schedule, beginning seven business days after
this announcement and concluding within two business days of
stockholder approval of the merger. The merger debentures are
intended to assist SES and AFE in financing the business through
the closing of the merger. SES expects the merger to close in
the first quarter of 2020.
Other Relevant Information
Upon completion of the merger, the Company
intends to further implement strategies for the development of its
projects, including in relation to the project financing activities
AFE has previously undertaken with its strategic and financial
partners related to the Gladstone Project.
AFE has completed lodgments with the Australian
Federal Government to support the project finance (debt)
requirements for the Gladstone Project through participation by the
Northern Australia Infrastructure Facility (NAIF).
All currently outstanding SES stock options and
restricted stock shall remain outstanding post-merger on the same
terms and conditions as currently applicable to such awards.
The Merger Agreement includes provision for a
change in the Company name and a re-branding of the Company, with
further announcements forthcoming.
Transaction Process Overview
SES will require stockholder approval to approve
the merger. Additional information related to the merger will
be included in SES’s registration statement on Form S-4, that will
include a proxy statement for a special meeting of stockholders of
SES to approve the merger, among other things. The merger is
subject to customary closing conditions, including stockholder
approval.
T. R. Winston & Company served as financial
advisors to SES, in relation to the AFE and Batchfire transactions.
Additionally, the firm served as placement agent for the
issuance of the $2 million senior secured debentures.
Porter Hedges LLP, based in Houston, Texas, and
King and Wood Mallesons, based in Brisbane, Queensland, Australia
served as legal counsel to SES and Jones Day, based in Brisbane and
Houston, served as legal counsel to AFE.
About Synthesis Energy Systems,
Inc.
Synthesis Energy Systems (SES) is a
Houston-based technology company focused on generating clean,
high-value energy from low-cost and low-grade coal, biomass and
municipal solid waste through its proprietary technology for
conversion of these resources into a clean synthesis gas (syngas)
and methane. SES’s proprietary technology enables the production of
clean, low-cost power, industrial fuel gas, chemicals, fertilizers,
transportation fuels, and substitute natural gas, replacing
expensive natural gas-based energy. SES’s technology can also
produce high-purity hydrogen for cleaner transportation fuels. SES
enables greater fuel flexibility for both large-scale and efficient
small- to medium-scale operations close to fuel sources. Fuel
sources include low-rank, low-cost high ash, high moisture coals,
which are significantly cheaper than higher grade coals, waste
coals, biomass, and municipal solid waste feedstocks. SES: Growth
With Blue Skies. For more information, please visit:
www.synthesisenergy.com.About Australian Future Energy Pty
Ltd
Australian Future Energy (AFE) is a privately
owned Australian company founded in 2014 by its primary
shareholders being Mr. Edek Choros and Synthesis Energy Systems,
Inc. (SES).
AFE was established to secure an ownership
position in local resources, such as coal and biomass, for
production of fuel gas and synthetic natural gas for use in power
generation and the production of agricultural chemicals using SES
gasification technology that will reduce carbon dioxide emissions,
and support Australian industry and regional growth. As part
of the formation of AFE, SES and AFE entered into a Master
Technology Agreement whereby AFE will exclusively use SES
technology for its gasification projects, while SES will
exclusively use AFE as its channel to the Australian market.
AFE is currently seeking to develop energy
projects that will produce synthesis gas “syngas” - an alternative
to natural gas - for use in east-coast Australia as pipeline
quality gas and for use as a feedstock for the production of
agricultural chemicals, such as ammonia, urea, and methanol.
AFE’s first project is the Gladstone Energy and
Ammonia Project that is aimed at supplying approximately 250,000
tpa of ammonia and approximately 14 PJ (approximately 13.4
BCF) of pipeline quality gas per annum to industrial customers
and users in Gladstone, Queensland, Australia.
For further information about Australian Future
Energy Pty Ltd – please see website at
www.ausfutureenergy.com.au.
Forward-Looking Statements
This press release includes “forward-looking
statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Exchange Act. All statements other than statements of
historical fact are forward-looking statements and are subject to
certain risks, trends and uncertainties that could cause actual
results to differ materially from those projected. Among
those risks, trends and uncertainties are the possibility
that the companies may be unable to obtain stockholder approval or
satisfy the other conditions to closing, the ability of Batchfire
Resources Pty Ltd (“BFR”), and Australian Future Energy Pty Ltd
management to successfully grow and develop their Australian assets
and operations, including Callide, Pentland, and the Gladstone
Energy and Ammonia Project; the ability of BFR to produce earnings
and pay dividends; the ability of SES EnCoal Energy sp. z o. o.
management to successfully grow and develop projects, assets and
operations in Poland; our ability to raise additional capital; our
indebtedness and the amount of cash required to service our
indebtedness; our ability to develop our power business unit
and our other business verticals, including DRI steel, through our
marketing arrangement with Midrex Technologies; our ability to
successfully develop our licensing business; the ability of our
project with Yima to produce earnings and pay dividends; the
economic conditions of countries where we are operating; events or
circumstances which result in an impairment of our assets; our
ability to reduce operating costs; our ability to make
distributions and repatriate earnings from our Chinese operations;
our ability to maintain our listing on the NASDAQ Stock Market; our
ability to successfully commercialize our technology at a larger
scale and higher pressures; commodity prices, including in
particular natural gas, crude oil, methanol and power; the
availability and terms of financing; our customers’ and/or our
ability to obtain the necessary approvals and permits for future
projects; our ability to estimate the sufficiency of existing
capital resources; the sufficiency of internal controls and
procedures; and our results of operations in countries outside of
the U.S., where we are continuing to pursue and develop projects.
Although we believe that in making such forward-looking statements
our expectations are based upon reasonable assumptions, such
statements may be influenced by factors that could cause actual
outcomes and results to be materially different from those
projected by us. We cannot assure you that the assumptions upon
which such forward-looking statements are based will prove to be
correct. Please refer to our latest Form 10-K available on
our website at www.synthesisenergy.com.
Additional Information about the Transaction
In connection with the proposed transaction, the
Company intends to file with the SEC a registration statement on
Form S-4 that will include a proxy statement of the Company that
also constitutes a prospectus of the Company relating to the Common
Stock to be issued pursuant to the Merger. The proxy
statement/prospectus will include important information about both
the Company and AFE. The Company also plans to file other relevant
documents with the SEC regarding the proposed transaction.
INVESTORS AND SECURITY HOLDERS ARE URGED TO CAREFULLY READ THE
REGISTRATION STATEMENT, THE PROXY STATEMENT/PROSPECTUS AND OTHER
RELEVANT DOCUMENTS FILED WITH THE SEC IF AND WHEN THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE
COMPANY, AFE AND THE PROPOSED TRANSACTION. Investors and security
holders may obtain these documents when available free of charge at
the SEC’s website at www.sec.gov. In addition, the documents
filed with the SEC by the Company can be obtained free of charge
from the Company’s website at www.synthesisenergysystems.com.
Participants in Solicitation
The Company and its executive officers and
directors may be deemed to be participants in the solicitation of
proxies from the shareholders of the Company in respect of the
proposed transaction. Information regarding the Company’s
directors and executive officers is available in its annual report
on Form 10-K for the year ended June 30, 2018, which was filed with
the SEC on November 14, 2018, and its proxy statement for its
2018 annual meeting of shareholders, which was filed with the SEC
on April 29, 2019. Other information regarding the participants in
the proxy solicitation and a description of their direct and
indirect interests, by security holdings or otherwise, will be
contained in the proxy statement/prospectus and other relevant
materials to be filed with the SEC when they become available.
Contact: MDC
GroupInvestor Relations:David CastanedaArsen
Mugurdumov414.351.9758IR@synthesisenergy.com
Media Relations:Susan
Roush805.624.7624PR@synthesisenergy.com
Australian Future EnergyMr. Kerry ParkerChief
Executive Officer+61 417 731 014k.parker@ausfutureenergy.com.au
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