You will be aware that the services agreement between MEC Resources Ltd, Trandcorp Pty Ltd and Mr David Breeze for Managing Director services was terminated recently. The Board believes that Mr David Breeze has been unable to create value for shareholders, as evidenced by MEC Resources' share price dropping from a high of $1.08 per share in 2010 to $0.02 per share in 2016.
Following numerous discussions with shareholders the Board wishes to reaffirm its intentions to create value for its shareholders, and has determined that a fresh approach, which includes a new managing director, is needed to be able to recognise the full value of MEC Resources and its group companies. Considerable shareholder support has been received for the action that has been undertaken and the intention to create value in your Company.
The Directors are unanimous in their position that the present actions proposed by Mr David Breeze and associated entities are not commensurate with creating value for shareholders. Mr Goh Hock holds a relevant interest in 5,085,098 shares in MEC Resources Ltd. Mr K O Yap holds an interest in 4,039,350 shares in MEC Resources and Mr Heng Yu holds an interest in 30,000 shares in MEC Resources. The Board holds a very strong interest in the future success of the Company. We strongly recommend you vote against all resolutions proposed in this notice.
As you are aware, MEC Resources Ltd is a registered Pooled Development Fund under the Pooled Development Fund Act 1992 ("PDF Act"). This provides most shareholders with Capital Gains Tax free investing and dividends. In addition, MEC Resources' corporate tax rate is 15%. The PDF Act was designed to encourage venture capital into higher risk early stage businesses. A guiding principle of investing in higher risk ventures is to diversify the asset base to reduce the overall risk to an investor. Under the former Managing Director's control of your Company, asset diversification was strongly opposed and control of assets was favoured. This is evident in the existing share structure of Advent Energy Ltd, MEC Resources Ltd, Grandbridge Ltd and BPH Energy Ltd, with myriad cross-shareholdings and intercompany loans. The Directors are unanimous in their position that this strategy of control of assets presents untenable risk to the Company and its shareholders and that it is now time for a change. We therefore strongly recommend you vote against all resolutions proposed in this notice.
MEC Resources' investment mandate under its registration pursuant to the PDF Act is to target new and emerging companies in which investments have the potential to yield significant returns. The Company will favour investments into exploration companies targeting potentially large energy and mineral resources. Our investment scope will assess all energy and mineral sectors, and we are actively pursuing and will welcome the opportunity to engage with suitable enterprises in the future that may be seeking ASX exposure and association with this unique PDF Act registered status.
The present global market conditions for oil and gas assets presents considerable challenges moving forward, however, your Board is committed to supporting Advent Energy Ltd in ensuring its petroleum title assets are provided the best opportunity for value creation restoring long term value for our shareholders. On the 8th of December 2016 advice was provided to the market that Mr Matthew Battrick, a significantly experienced and highly regarded consultant, was engaged to commence a strategic review of Advent Energy Ltd's assets. This is being conducted to allow Advent Energy Ltd the best opportunity to improve its asset valuation, and correspondingly commence restoration of shareholder value in MEC Resources. The results of this strategic review of assets will be released once finalised.
Proposed New Directors by Mr Breeze and his associates
We note that two of the nominee directors proposed by Mr Breeze and his associates (Mr Thomas Fontaine and Mr Gregory Gilbert) to your Board under this action by Mr Breeze and his associates are current Board members of BPH Energy Ltd (ASX: BPH) ("BPH"), a company where Mr David Breeze serves as Chairman and Executive Director. BPH Energy also holds approximately 27% of Advent Energy, a company consolidate with MEC Resources for accounting purposes. Further to this, MEC Resources currently holds an investment in BPH Energy. Therefore, the aforementioned control strategy favoured by Mr David Breeze results in a very high probability of permeating through to MEC Resources Ltd again in the unlikely event that the resolutions currently proposed are carried.
Nominee director Mr Gilbert is a health professional with, to the Board's knowledge, no demonstrated experience in resources investment. He is also a director of BPH Energy Ltd subsidiary Molecular Discovery Systems Ltd, a company only focussed on biotechnology and not resources.
We are of the strong opinion that the nominee directors' experience level and track record in the oil and gas industry is not likely to add value to the Company. MEC Resources must have a strong Board and management with sufficient skills and experience who represent the interest of shareholders first. MEC Resources' Chairman Mr Goh Hock and Director Mr Heng Yu have over 60 years of combined experience in the oil and gas industry worldwide.
BPH's primary history resides in biotechnology, and it originally listed on the ASX in 2004 as Biopharmica Ltd. In December 2010, BPH obtained shareholder approval for a change in the nature and scale of its activities from biotechnology to an 'alternative investment company' (with a focus on investment in the resources sector), however BPH still maintains management control over unlisted biotechnology subsidiaries including Molecular Discovery Systems Ltd and Cortical Dynamics Ltd, developing a brain anaesthesia monitoring device. Despite the spin-out of these two entities from BPH and statements of intention by BPH for these entities to list on the ASX, the listing has never occurred. These spin-outs attracted considerable investment from existing shareholders that has never been returned.
Under Mr David Breeze's recommendation, your Company invested in BPH in December 2010 at $0.226 per share. BPH's current share price is $0.005, representing a drop in value over 97%.
This track record of disintegration of shareholder value cannot be allowed to affect the future of MEC Resources. Your support in voting against all resolutions proposed by Mr David Breeze and associated entities is critical to protecting your investment in MEC Resources.
We also note that the third nominee director, Mr Anthony Huston, does not appear to have senior management experience in publicly listed oil and gas companies with a sustainable business model. Furthermore, the Company is aware that Mr Anthony Huston represents a service company providing a novel reservoir stimulation technology. Numerous discussions have been held between Advent Energy Ltd representatives and Mr Anthony Huston in his capacity as representative of this reservoir stimulation technology company. Shareholders should be aware of the potential for related party transactions to occur should Advent Energy choose to deploy this technology in its Bonaparte Basin assets, as has been considered to date and referred to in this year's annual report.
It is our opinion that Mr David Breeze intends to stack your Company with directors who have a close association with him. This may result in Mr David Breeze controlling the Company and reappointing himself in a senior executive management role. In addition to using BPH, it is our opinion also that Mr David Breeze is utilising Grandbridge Ltd, another ASX listed entity of which he is Chairman and the largest shareholder, to gain control of your Company.
Grandbridge Ltd, another ASX listed entity considered by the Board to be under the effective control of Mr David Breeze, is purportedly a corporate advisory and investment company. Its major source of revenue since listing has simply been the office administration and management of BPH and our Company. This again demonstrates an inability to be successful in creating shareholder value and an unconstructive desire for control.
As per the other companies controlled by Mr Breeze, Grandbridge has also seen a significant decrease in its share price and considerable loss of value.
Actions Since Removal of Mr David Breeze
It should also be noted that in the time since the removal of Mr David Breeze as Managing Director of the Company, despite several requests by the Company, Mr David Breeze has failed to return all confidential information to the Company which the Company believes to be in his possession. This has negatively impacted the Company's ability to continue with its business on a day to day basis. The recent change of registered address of the Company is a direct result of denial of access by Mr David Breeze to the Company's previous registered office and access to its records. The Company notes that it is seeking legal advice in relation to a number of unresolved issues regarding recovery of Company records and property from Mr Breeze's time as Managing Director of the Company. These records include the contact details of the Company's shareholders, which have obstructed our ability to reach our shareholders in this critical time.
Shareholders will also be pleased to know that existing Board members have recently agreed to reduce their Director fees to a nominal amount of $1 during this transition phase. Although no cash payments have been made to Directors over recent years it will reduce any further increase to $1 only in these liabilities that are currently recorded on the Company's balance sheet. These fees are accrued annually and may be payable upon termination of services of each
GBA Director. It is essential that these resources are preserved to ensure the Company is provided every opportunity possible to succeed in its vision to create value for Shareholders.
Furthermore, the nominee directors are not bound by the remuneration policy agreed by the existing Board members, and there is a risk that they may not agree to such policy.. This places considerable risk on the resources of your Company in the immediate future.
In the transition to a new board appointed leadership, Mr Goh Hock has taken over the role previously undertaken by Mr David Breeze, along with the assistance of Mr Tobias Foster, a long term employee of the Company. We will, following an extensive search, install a suitably experienced and qualified leader to fulfil the vision of the Company as managing director. A review of suitable candidates has commenced and will be taken very seriously to ensure the most appropriate candidate is identified.
MEC Chairman Mr Hock Goh says:
"Being on several global boards of leading companies has reinforced my guiding principle that good corporate governance, transparency and risk management are key to the success of any company. This directly corresponds to the generation of shareholder value.
I strongly recommend that shareholders do not support any of the three nominee directors, who the Board consider to be associated with the former Managing Director. To the Board's knowledge, none of the three proposed directors has demonstrated risk management responsibility. No details of the background or experience of the three nominated directors have been provided to the Company by the requisitioning shareholders.
As Chairman and member of the MEC Resources Board, I have endeavoured to uphold my guiding principles of good governance, transparency and risk management. This has included opposing the entry of our investee Advent Energy into a gas sales contract to support fundraising when these two key risks were not mitigated:
(i) petroleum reserves of the rocks had not yet been sufficiently proven, and (ii) our financial ability to invest in infrastructure to produce and transport the gas across indigenous land.
The current management team has no experience in the pricing mechanism and selling gas. The potential sale contract imposed penalties and liabilities which I consider to be an unacceptable risk to Advent Energy and the Company's investment in the event that it failed to deliver the gas when needed.
I consider that decisions such as the above were in the best interests of the Company and its shareholders as a whole in the context of the sharp decline of oil and gas price over the last two years coupled with the drying up of new capital funding. My experience from serving on several other boards has given me this insight into the short and long term challenges of the global economy and how we can best manage these challenges. PEP11 in the offshore Sydney Basin is an asset we believe could be a game changer for Advent Energy and subsequently your Company with the imminent forecast gas shortage in the state of NSW.
Unfortunately, under the previous executive management there were delays in procuring funding for a new 3D high-resolution seismic survey to be conducted followed by further exploration work. The Board is focused on supporting Advent Energy in procuring suitable funding as a matter of priority.
Moving forward, we have embarked upon a strategic review of the assets held within our investee company Advent Energy (PEP11, EP386 and RL1). Each of these assets presents considerable upside opportunity but also requires new funding and technical capabilities to monetise them. Our plan is to support Advent Energy to recruit a new experienced Managing Director with subsurface background to build a new team and further develop these assets. The Board will work hard to support them in fundraising and finding good partners.
Planning to renew and refresh the Board with directors with industry experience whose only interest is to rebuild this Company will be another priority. It is important that these directors will be independent and serve the interests of all shareholders.
I give you my commitment to help our Board, Company, our shareholders and our stakeholders meet MEC Resources' strategy of value creation. Please feel free to contact us at +61 8 9245 6187 or email us at firstname.lastname@example.org while we are trying hard to obtain some shareholders' contact details which we do not currently have access to through our lawyers."
The Board of MEC Resources Ltd thanks you for your continued support and strongly recommends you to vote AGAINST ALL RESOLUTIONS proposed in this Notice.
Mr Goh Hock
Ms Deborah Ambrosini
Mr KO Yap
Mr Heng Yu