TIMAH RESOURCES LIMITED - Audit Report / Information 2020

==> picture [229 x 43] intentionally omitted <==

19 March 2020
The Directors
Timah Resources Limited
Suite 2501, Level 25 St Martins Tower
31 Market Street
SYDNEY NSW 2000
Dear Sirs,
Independent Expert’s Report on the change in ownership interest
in Mistral Engineering Sdn. Bhd.
1.
INTRODUCTION
Background
1.1
Timah Resources Limited (“Timah” or “the Company”) is an
Australian public listed company focused on generating biogas
renewable energy.
1.2
Timah currently holds a 100% interest in Mistral Engineering
Sdn. Bhd. (“Mistral”), the entity in which Timah’s business is
operated. A proposed corporate restructure and debt
capitalisation in Mistral will result in Timah’s equity holding
in Mistral reducing from 100% to 49%.
1.3
The restructure and debt capitalisation in Mistral detailed in
section 2, is referred to in this report as the “Transaction”.
Opinion
1.4
In our opinion, the Transaction is fair and reasonable to the Non-
Associated Shareholders of Timah.
1.5
The ultimate decision however on whether to accept the
Transaction should be based on shareholders own assessment
of their circumstances.
Purpose of Report
1.6
You have requested Hall Chadwick Corporate (NSW) Limited
(“HCC”) to prepare an Independent Expert’s Report to advise
shareholders of Timah, other than those associated with the
Transaction (“Non-Associated Shareholders”), whether the
Transaction is fair and reasonable when considered in the
context of the interests of Non-Associated Shareholders and to
set out the reasons for our conclusions.
1.7
HCC understands and has agreed that this report will be
included in or accompany the notice to convene a meeting of
Timah shareholders, to assist the Non-Associated Shareholders
in their consideration of the proposed Transaction.

HALL CHADWICK
CORPORATE (NSW) LIMITED
ACN 080 462 488
SYDNEY
Level 40, 2 Park Street
Sydney NSW 2000 Australia
GPO Box 3555 Sydney NSW
2001
Ph: (612) 9263 2600
Fx: (612) 9263 2800
E:hcsydinfo@hallchadwick.
com.au
www.hallchadwick.com.au

2. OUTLINE OF THE PROPOSED TRANSACTION

2.1 Timah currently holds a 100% interest in Mistral, which operates a biogas power plant in Malaysia. Cash Nexus (M) Sdn. Bhd. (“Cash Nexus”) controls 62.71% of Timah. Cepatwawasan Group Berhad (“CGB”), a company incorporated in Malaysia, controls 100% of Cash Nexus.
2.2 On the 20[th] August 2019, the Company received a written notice from the Malaysian Sustainable Energy Development Authority (“SEDA”) concerning Mistral. This notice asked Mistral why its feed-in approval should not be revoked given that Mistral failed to comply with rule 15 and rule 13(1)(a) of the Renewable Energy (Feed-in Approval and Feed-in-Tariff Rate) Rules 2011. These rules are primarily concerned with ensuring only majority owned Malaysian resident companies can participate in the feed-in-tariff system.
2.3 Mistral is 100% owned by the Company and was therefore deemed to be in breach of these governing rules. It was the contention of the Company that as it is majority owned by a Malaysian resident company, Cash Nexus, as to 62.5% which in turn is beneficially owned as to 100% by CGB, that there was, in fact, no underlying beneficial breach of the resident majority ownership test as outlined by SEDA.
2.4 Satisfying SEDA’s requirement to convert Mistral to a majority owned resident Malaysian company will involve converting part of Mistral’s existing debt owed to CGB into new ordinary shares issued to Cash Nexus.
2.5 Mistral currently owes CGB RM46,906,413 (“CGB Debt”). The Transaction will involve the conversion of RM15,803,202 of the CGB Debt into 9,627,552 new ordinary shares in Mistral, to be issued to Cash Nexus. The new ordinary shares in Mistral to be issued to Cash Nexus will be equivalent to 51% in Mistral’s new shareholding structure, as shown in the diagram below:

Pre-Transaction Post-Transaction

CGB	CGB	CGB	CGB	Owned 62.71%
	Owned 100%		Owned 100%
Cash Nexus		Cash Nexus
	Owned 62.71%		Owned 51%
Timah				Timah
	Owned 100%
MESB		MESB

2.6 Non-Associated shareholders in Timah therefore currently hold a 37.29% equity interest in Timah, and therefore the same in Mistral. The Transaction will effectively reduce the equity interests of Timah’s Non-Associated shareholders in Mistral from 37.29% to 18.27% (49% of 37.29%).

STRUCTURE OF REPORT

Our report is set out under the following headings:

3 PURPOSE OF REPORT
4 OPINION
5 BASIS OF EVALUATION
6 OVERVIEW OF TIMAH AND MISTRAL
7 VALUATION METHODOLOGIES
8 VALUE OF MISTRAL PRE AND POST TRANSACTION
9 ADVANTAGES AND DISADVANTAGES OF THE TRANSACTION 10 CONCLUSION AS TO FAIRNESS AND REASONABLENESS

APPENDICES

I SOURCES OF INFORMATION

II STATEMENT OF DECLARATION & QUALIFICATIONS III FINANCIAL SERVICES GUIDE

3 PURPOSE OF REPORT

3.1 The purpose of this report is to advise the Non-Associated Shareholders of Timah of the fairness and reasonableness of the Transaction.
3.2 This report provides an opinion on whether or not the terms and conditions in relation to the transaction are fair and reasonable to the Timah shareholders whose votes are not to be disregarded in respect of the transaction (that is, the Non-Associated Shareholders).
3.3 The ultimate decision whether to accept the terms of the Transaction should be based on each shareholders’ assessment of their own circumstances, including their risk profile, liquidity preference, tax position and expectations as to value and future market conditions. If in doubt about the Transaction or matters dealt with in this report, shareholders should seek independent professional advice.
3.4 For the Transaction to be fair, the post-Transaction value held by Non-Associated Shareholders in Mistral must be equal to or exceed their pre-Transaction value. To be reasonable the shareholders must obtain an overall benefit if the Transaction proceeds. In forming an opinion as to whether the Transaction is fair and reasonable, the following factors have been considered:
the underlying value of Timah and its investment in Mistral before and after the Transaction;
the likely financial position and liquidity of Timah shares if the Transaction is not implemented;
the likelihood of an alternative proposal that may realise better value for Timah Shareholders.
3.5 This report has been prepared to satisfy the requirements of the Corporations Act 2001 (Cth) (“Corporations Act”).

Corporations Act Requirements

3.6 If the Transaction is approved, Timah’s equity holding in Mistral will be reduced from 100% to 49% as a result of an issue of shares in Mistral to a related party, Cash Nexus.
3.7 Section 208 of the Corporations Act specifies a public company must not give a financial benefit (including an acquisition or disposal of an asset) to a related party without shareholder approval.
3.8 Australian Securities and Investments Commission (“ASIC”) Regulatory Guide 111 “Content of Expert Reports” requires, amongst other things, that directors of a company need to provide shareholders with an analysis of whether a proposed transaction is fair and reasonable, when considered in the context of the interests of the non-associated shareholders. Regulatory Guide 111 recommends that this analysis should include an independent expert’s report. The independent expert is required to state whether, in their opinion, the proposal is fair and reasonable having regard to the interests of non-associated shareholders and state the reasons for forming that opinion. This report provides such an opinion.

4. OPINION

4.1 In our opinion, the proposed Transaction is fair and reasonable to the Non-Associated Shareholders of Timah.
4.2
Our opinion is based solely on information available as at the date of this report.
4.3 The principal factors that we have considered in forming our opinion are summarised below.

Fair

4.3.1 For the Transaction to be fair, the post-Transaction value held by Non-Associated Shareholders in Mistral must be equal to or exceed their pre-Transaction value.
4.3.2 As detailed at section 8 of this report, the value of Mistral net assets held by NonAssociated shareholders of Timah does not change as a result of the Transaction, given that the reduction in Timah’s shareholding in Mistral is equally offset by the increase in the net asset value of Mistral following the conversion of debt to equity, as shown in the table below:

	Mistral Net Assets	Mistral Net Assets	Non-Associated Interest	Non-Associated Interest
	RM$’000	AU$’000	RM$’000	AU$’000
Pre-Transaction	15,183	5,314	37.29% 5,662	1,982
Capitalisationofdebt	15,803	5,531
Post-Transaction	30,987	10,845	18.27% 5,662	1,982

4.4 In our opinion the Transaction is fair as the value held by Non-Associated Shareholders does not change as a result of the Transaction.

Reasonable

4.5 ASIC Regulatory Guide 111 states that a transaction is reasonable if:
The Transaction is fair; or
Despite not being fair the expert believes that there are sufficient reasons for shareholders to accept the offer in the absence of any higher bid before the close of the offer.
4.5.1 We have concluded that the Transaction is reasonable. In forming our opinion we have considered the following relevant factors:
The Transaction will allow the Company to continue to be fully compliant with SEDA requirements and participate in the Feed-in-Tariff system. Without this restructure the Company will have a reduced level of income.
As a result of the reduction in debt to CGB of RM15,803,202 the Company will save yearly interest costs of RM850,212 (AU$297,574).
We are unaware of any alternative proposal at the date of this report that may realise better value for Timah shareholders and resolve the issues regarding SEDA compliance. Not achieving this compliance may result in the Mistral business no longer being viable.

Having considered that the Transaction is fair and the alternatives of not proceeding with the Transaction, in our opinion the Shareholders of Timah should benefit if the Transaction proceeds and therefore, in our opinion the Transaction is reasonable.

4.6 Accordingly, in our opinion, the Transaction is fair and reasonable to the Non-Associated Shareholders of Timah.

5 BASIS OF EVALUATION

5.1 In our assessment of whether the Transaction is fair and reasonable to Timah NonAssociated Shareholders, we have given due consideration to the Regulatory Guides issued by the ASIC, in particular Regulatory Guide 111 “Content of Expert Reports” and Regulatory Guide 112 “Independence of Experts”.
5.2 Under Regulatory Guide 111, a transaction is “fair” if the value of the Company’s shares remains unchanged or increases as a result of the Transaction. Additionally, under Regulatory Guide 111 an offer is “reasonable” if it is fair. It is possible for an offer to be reasonable despite being unfair. This would be after the expert considers that, based on non-financial factors, the shareholders should still approve the Transaction in the absence of any alternative proposals.
5.3 Our report has compared the likely advantages and disadvantages to non-associated shareholders if the Transaction is agreed to, with the advantages and disadvantages to those shareholders if it is not.
5.4 Normal valuation practice is to determine the fair market value of an asset assuming a counter party transaction between a willing and not anxious buyer and a willing but not anxious seller, clearly at arm’s length. We have adopted this approach in determining the market values in this report.
5.5 In evaluating the Transaction, we have considered the value of the Timah and Mistral net assets and the impact of the Transaction on their net asset position. We consider that the Transaction will be reasonable if, on balance, Timah’s Non-Associated Shareholders will be better off if the Transaction is approved.
5.6 The documents and information relied on for the purpose of this valuation are set out in Appendix I. We have considered and relied upon this information and believe that the information provided is reliable, complete and not misleading and we have no reason to believe that material facts have been withheld. The information provided was evaluated through analysis, enquiry and review for the purpose of forming an opinion as to whether the Transaction is fair and reasonable. However, in assignments such as this, time is limited and we do not warrant that our enquiries have identified or verified all of the matters which an audit or more extensive examination might disclose. None of these additional tasks have been undertaken.
5.7 We understand the accounting and other financial information provided to us has been prepared in accordance with generally accepted accounting principles.
5.8 An important part of the information used in forming an opinion of the kind expressed in this report is the opinions and judgement of management. This type of information has also been evaluated through analysis, enquiry and review to the extent practical. However, it must be recognised that such information is not always capable of external verification or validation.
5.9 The auditors of Timah are Hall Chadwick Chartered Accountants and Business Advisors Sydney Partnership (“HC Sydney”) The partners of HC Sydney have a 100% interest in HCC. The staff that worked on this report are different to staff involved in the audit of

Timah. HCC adopts internal procedures and structures to safeguard our independence and manage any perceived conflict of interest arising from the role of HC Sydney as auditor of Timah. We have analysed and reviewed information provided by the Directors and management of Timah and made further enquiries where appropriate.

5.10 This report has been prepared after taking into consideration the current economic and market climate. We take no responsibility for events occurring after the date of this report which may impact upon this report or which may impact upon the assumptions referred to in the report. To the extent we become aware of a material change in circumstances since the date of our report, we will issue a supplementary report at the request of Timah if so required.

6. OVERVIEW OF TIMAH AND MISTRAL

6.1 Company Overview

6.1.1 Timah, incorporated in Australia in 2007, was listed on the National Stock Exchange (“NSX”) in 2008. Subsequently, it was listed on the Australian Securities Exchange (“ASX”) on 16th September 2015. The company is now focused on generating energy to meet the needs of society in a sustainable manner.
6.1.2 Timah operates a biogas power plant through its wholly owned subsidiary, Mistral. Mistral holds a feed-in approval to participate in the feed-in tariff system in Malaysia which is administered by SEDA.
6.1.3 Mistral owns and operates a biogas power plant of approximately 4.0MW located directly adjacent to the palm oil mill owned by Prolific Yield Sdn. Bhd. (“PYSB”) in Sandakan, Sabah, Malaysia (“Plant”). The Plant generates electricity by utilising, as a fuel, captured methane gas generated from a waste water byproduct of palm oil production called palm oil mill effluent (“POME”). The POME is supplied to Mistral by PYSB directly from its palm oil mill, which generates the POME as a by-product.
6.1.4 Due to high solids concentration and acidity, POME cannot legally be discharged directly into watercourses. Instead, it is standard palm oil industry practice to treat POME in open anaerobic ponds, a process which releases significant quantities of harmful methane gas directly into the atmosphere.
6.1.5 Mistral avoids this release by instead treating the POME in a closed anaerobic system that captures all of the methane gas in a form that can then be utilised as fuel by the plant. By capturing and combusting this methane gas, the Plant helps reduce the emissions of greenhouse gases which would otherwise be released into the atmosphere from the POME. At the biogas power plant in Sabah, the biogas is captured and scrubbed before being channeled to biogas engines. The mechanical power generated by these engines is converted to electrical power and exported to the national grid. This renewable energy will be sold to the national utility distributor under a long term agreement at a premium price subsidised by the National Renewable Energy Fund.
6.1.6 The Plant is registered as a Clean Development Mechanism (“CDM”) project under the Kyoto Protocol whose main objective is to reduce emissions of greenhouse gases. It is one of the very few Certified Emission Reduction Projects in Malaysia that are registered with the United Nations Framework Convention on Climate Change (“UNFCCC”).
6.1.7 Mistral has secured a long term supply of the POME from PYSB, a subsidiary of CGB. All the POME from PYSB’s Oil Mill will be supplied directly to Mistral at zero cost. CGB owns a total of 10,290 hectares of oil palm plantation in Sabah, Malaysia, which will ensure adequate internal supply of POME to sustain its growth.
6.1.8 In the 8[th] Malaysian Plan (2001-2005), the Malaysian Government declared Renewable Energy (“RE”) as the country’s fifth fuel in the nation’s energy supply mix to diversify its energy sources and launched the Green Technology Financing Scheme (“GTFS”) to provide subsidised financing for approved renewable energy projects. The Plant is a beneficiary of this scheme.

6.1.9 In the 10[th] Malaysian Plan (2011-2015), the Malaysian Government established the SEDA to further support and promote the development of the Malaysian renewable energy industry. Feed-in Tariffs have been introduced and implemented by SEDA to ensure the profit sustainability of local renewable energy projects. The Malaysian Industrial Development Authority (“MIDA”) has granted an Investment Tax Allowance to the Group as an additional tax credit against the income tax payable.

6.2 Financial Information

6.2.1 Set out below is the Audited Consolidated Balance Sheet of Timah and the stand-alone Balance Sheet of Mistral as at 31 December 2019, presented in Malaysia Ringgit (“RM”), the parent entity’s functional and operational currency, and Australian dollars (“AU$”):

CONSOLIDATED BALANCE SHEET	CONSOLIDATED BALANCE SHEET	CONSOLIDATED BALANCE SHEET	CONSOLIDATED BALANCE SHEET
CURRENT ASSETS Cash and cash equivalents Trade and other receivables Other assets Inventories NON-CURRENT ASSETS Trade and other receivables1 Right of use Deferred tax assets Property, plant & equipment TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Lease liabilities Borrowings NON-CURRENT LIABILITIES Borrowings – Holding company Lease liabilities Deferred tax liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Options reserves Accumulated losses TOTAL EQUITY	Timah Consolidated 31 Dec 2019 RM$’000 6,074 4,450 355 213	Mistral 31 Dec 2019 RM$’000 3,013 3,303 315 213	Timah Consolidated 31 Dec 2019 Mistral 31 Dec 2019 AU$’000 AU$’000 2,126 1,055 1,558 1,156 124 110 75 75
	11,092	6,845	3,882 2,396
	54,768 352 13,993 593	54,768 352 13,993 593	19,169 19,169 123 4,898 4,898 208 207
	69,706	69,706	24,397 24,397

	80,798	76,551	28,279 26,793
	1,727 9 2,757	1,695 9 2,757	604 593 3 965 965
	4,493	4,462	1,573 1,562
	46,906 356 9,644	46,906 356	16,417 16,417 125 125
	56,906	56,906	19,917 19,917

	61,399	61,368	21,490 21,479

	19,399	15,183	6,790 5,314
	31,711 (288) (12,024)	9,250 - 5,933	11,099 3,238 (101) - (4,208) 2,077
	19,399	15,183	6,790 5,314

1Non-current receivables is a service concession receivable, being an amount due from Sabah Electricity Sdn. Bhd. (“SESB”) under the Renewable Energy Power Purchase Agreement (“REPPA”) entered into in April 2015. Under the REPPA Timah would design, construct, own and maintain the facility and sell and deliver electrical energy to SESB under a Feed-In Tariff Programme. SESB in turn agreed to purchase the annual baseline energy generated from the facilities at a fixed tariff over sixteen years from the commercial operation date, which reduces the receivable over this time.

6.2.2 Set out below is the Audited Statements of Profit and Loss for Timah for the years ended 30 June 2017 (“FY2017”), 30 June 2018 (“FY2018”) and 30 June 2019 (“FY2019”) presented in Malaysia Ringgit (“RM”) and Australian dollars (“AU$”):

RM $’000	FY2017 FY2018 FY2019
Revenue1 Cost of sales Gross profit Interest income Other income Administrative expenses Finance costs Impairmentloss 2	13,609 4,593 14,421 (13,707) (4,519) (14,264)
	(98) 74 157
	2,557 3,006 3,109 551 560 3,736 (730) (907) (757) (1,779) (2,210) (2,597) - - (2,236)
Profit/(loss) before income tax Income tax(expense)/benefit3	501 523 (1,697) (557) 57 5,358
Profit/(loss) for the period (“NPAT”)	(56) 580 3,661
EBITA(earnings before interest, taxation and impairment loss)	(2,056) (2,483) (2,570)

AU $’000	FY2017 FY2018 FY2019
Revenue Cost of sales Gross profit Interest income Other income Administrative expenses Finance costs Impairment loss	4,763 1,608 5,047 (4,797) (1,582) (4,992)
	(34) 26 55
	895 1,052 1,088 193 196 1,308 (256) (317) (265) (623) (774) (909) - -(783)
Profit/(loss) before income tax Income tax(expense)/benefit	175 183 (594) (195) 201,875
Profit/(loss) for the period (“NPAT”)	(20) 203 1,281
EBITA(earnings before interest, taxation and impairment loss)	(720) (869) (900)

1 Revenue in FY2018 was materially impacted by frequent unexpected shutdowns and downtimes, due mainly to underperforming gas engines. Replacement of these engines was carried out during FY2019.

2 The impairment loss in FY2019 relates to the fair value adjustment on the service concession agreement, due to the underperformance of the previous engines which caused a decrease in the fair value of the service concession asset, which is based on the value of the services delivered.

3 Income tax benefit in FY2019 includes a deferred tax asset recognised from an investment tax allowance approved by IRB (Malaysian Inland Revenue Board) amounting to RM5,688,000, being the value of the allowance of RM23,698,665 at the corporate tax rate of 24%.

6.3 Share trade information

6.3.1 The table below sets out the movement of Timah share prices and trading up to and including 21 October 2019. No Timah shares have traded between 21 October 2019 and the date of this report:

	Low $	High $	VWAP	Total Volume
1 month	0.066	0.073	0.071	311,590
2 months	0.060	0.073	0.068	689,560
3 months	0.057	0.073	0.066	820,890
6 months	0.040	0.073	0.058	1,475,370
12 months	0.017	0.073	0.049	2,372,850

(1) The VWAP was calculated using the total value of all transactions divided by the total trading volume in the time period considered.

7 VALUATION METHODOLOGIES

7.1 Selection of Methodology

7.1.1 In order to assess the fairness of the Transaction a value needs to be attributed to the value held by Non-Associated Shareholders in Timah and its interest in Mistral.
7.1.2 In assessing the value of Timah we have considered a range of valuation methods. ASIC Regulatory Guide 111 Content of Expert Reports states that in valuing a company the expert should consider the following commonly used valuation methodologies:
Realisation of Assets: the amount that would be available for distribution to security holders on an orderly realisation of assets;
Capitalisation of Future Maintainable Earnings: the value of trading operations based on the capitalisation of future maintainable earnings;
Discounted Cash Flow: the net present value of future cash flows;
Comparable Market Transactions: the identification of comparable sale transactions or valuation of comparable businesses.

We consider each of these valuation methodologies below.

7.1.3 Realisation of Assets

The net assets or cost based approach to value is based on the assumption that the value of all assets (tangible and intangible) less the value of all liabilities should equal the value of the entity. The net asset value is determined by marking every asset and liability on and off the company’s balance sheet to market value.

This approach is generally not appropriate where assets are employed productively and are earning more than the cost of capital. It is often used as a cross check to assess the relative riskiness of the business.

We believe that the notional realisation of assets method is the most appropriate in assessing Mistral’s net asset value relating to the Transaction, given that Mistral’s operations are not yet profitable (negative EBITA) and forecast earnings cannot be reliably estimated.

7.1.4 Capitalisation of Future Maintainable Earnings

Under the earnings based valuation method, the value of the business is determined by capitalising the estimated future maintainable earnings of the business at an appropriate capitalisation rate or multiple of earnings. The multiple is a coefficient, representing the risk that the business may not achieve future earnings. This method is appropriate in valuing a business when there is a history of earnings, the business is established and it is assumed the earnings are sufficiently stable to be indicative of ongoing earnings potential.

This method is not considered appropriate as Mistral is currently trading at an EBITA loss.

7.1.5 Discounted Cash Flow – Net Present Value

Discounted cash flow valuations involve calculating the value of a business on the basis of the net cash flows that will be earned from the business over its life. The cash flows are discounted to reflect the risk involved with achieving the forecast cash flows.

The use of the discounted cash flow method has not been used for Timah. The Company has concluded that there is insufficient reasonable grounds to prepare forecast financial information in relation to the Mistral business.

7.1.6 Comparable Market Transactions

This methodology involves the identification of comparable sale or equity raising transactions for similar businesses to that being valued.

We have determined that this method is not considered appropriate due to the following: i. Lack of historical or current profits as a basis for applying a comparable multiple of earnings;
ii. Lack of significant transactions on which to apply a comparable transactions approach.

7.1.7 Financial information relied upon in applying selected valuation methods

We have reviewed consolidated and management accounting financial information for Timah to the extent available. Ultimately, the management of the respective companies are responsible for the preparation and presentation of the financial information provided. The purpose of our review is to establish that the financial information used is not materially misstated. This review does not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

8 VALUE OF MISTRAL

8.1 General

8.1.1 This section sets out our assessment of the underlying value of Mistral held by NonAssociated Shareholders before and after the Transaction.
8.1.2 We have selected the realisation of assets as the valuation methodology as detailed in section 7.
8.1.3 Given that Mistral’s operations are not yet profitable (negative EBITA) and forecast earnings cannot be reliably estimated, a secondary valuation approach has not been considered appropriate.

8.2 Realisation of Assets

8.2.1 As at 31 December 2019 Mistral had net assets totalling RM$15,183,000, as shown in the balance sheet at section 6.2.1.
8.2.2 Non-Associated shareholders in Timah currently hold a 37.29% equity interest in Timah, and therefore the same in Mistral. The Transaction will effectively reduce the equity interests of Timah’s Non-Associated shareholders in Mistral from 37.29% to 18.27% (49% of 37.29%).
8.2.3 The effect of the Transaction on the value of Mistral net assets held by Non-Associated shareholders of Timah is shown in the table below:

RM$’000	Net Assets	Non-Associated	Interest
Pre-Transaction	15,183	37.29%	5,662
Capitalisation of debt	15,803
Post-Transaction	30,987	18.27%	5,662

8.2.4 Given that the value of CBG Debt to be capitalised totalling RM$15,803,000 has been determined on a net asset basis which results in Cash Nexus holding a 51% interest in Mistral, the value of Mistral net assets held by Non-Associated shareholders of Timah does not change as a result of the Transaction. Effectively, the reduction in Timah’s shareholding in Mistral is equally offset by the increase in the net asset value of Mistral following the conversion of debt to equity.

8.3 Premium for Control Consideration

8.3.1 This report is required to provide an opinion on the value of Timah's shares held by NonAssociated Shareholders. We have concluded that the value of Mistral net assets held by Non-Associated shareholders of Timah does not change as a result of the Transaction, given that the reduction in Timah’s shareholding in Mistral is equally offset by the increase in the net asset value of Mistral following the conversion of debt to equity.
8.3.2 The Transaction does not result in any change in the shareholding of the listed entity, Timah, only with the shareholding of the subsidiary, Mistral. The ultimate ownership of the group remains the same, with Cash Nexus controlling Timah and CGB controlling Cash

Nexus, and the Transaction does not involve any change to Directors or management. Therefore no adjustments to the valuation is required for changes in ultimate control. The ultimate ownership of Mistral remains the same, with Cash Nexus controlling Timah and CGB controlling Cash Nexus. We therefore do not believe its necessary to make any adjustments for control premiums for the purpose of this report.

9 ADVANTAGES & DISADVANTAGES OF THE TRANSACTION

9.1 Approach to assessing Fairness and Reasonableness

HCC has followed the guidelines of ASIC Regulatory Guide 111 in assessing the fairness and reasonableness of the Transaction. In forming its conclusions in this report, HCC compared the advantages and disadvantages for Non-Associated Shareholders if the Transaction proceeds.

9.2 Advantages of the Transaction

9.2.1 The Transaction will allow the Company to continue to be fully compliant with SEDA requirements and participate in the Feed-in-Tariff system. Without this restructure the Company will have a reduced level of income and may no longer be viable.
9.2.2 As a result of the reduction in debt to CGB of RM15,803,202 the Company will save yearly interest costs of RM850,212 (AU$297,574).
9.2.3 We are unaware of any alternative proposal at the date of this report that may realise better value for Timah shareholders and resolve the issues regarding SEDA compliance. Not achieving this compliance may result in the Mistral business no longer being viable.

9.3 Disadvantages of the Transaction

9.3.1 Timah’s equity interest in Mistral will decrease from 100% to 49% as a result of the Transaction. However we note the ultimate ownership remains the same, with Cash Nexus controlling Timah and CGB controlling Cash Nexus.

10 CONCLUSION AS TO FAIRNESS AND REASONABLENESS

10.1 Fairness

10.1.1 For the Transaction to be fair, the post-Transaction value held by Non-Associated Shareholders in Mistral must be equal to or exceed their pre-Transaction value.
10.1.2 As detailed at section 8 of this report, the value of Mistral net assets held by NonAssociated shareholders of Timah does not change as a result of the Transaction, given that the reduction in Timah’s shareholding in Mistral is equally offset by the increase in the net asset value of Mistral following the conversion of debt to equity, as shown in the table below:

	Mistral
RM$’000	Net Assets	Non-Associated	Interest
Pre-Transaction	15,183	37.29%	5,662
Capitalisation of debt	15,803
Post-Transaction	30,987	18.27%	5,662

10.1.3 In our opinion the Transaction is fair as the value held by Non-Associated Shareholders does not change as a result of the Transaction.

10.2 Reasonableness

ASIC Regulatory Guide 111 states that a transaction is reasonable if:

The Transaction is fair; or
Despite not being fair the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any higher bid before the close of the offer.

We have concluded that the Transaction is fair and therefore also reasonable. In forming our opinion we have also considered the advantages and disadvantages of the Transaction detailed at section 9.

Having considered the above, in our opinion the Non-Associated Shareholders of Timah should benefit if the Transaction proceeds and therefore, in our opinion the Transaction is reasonable.

Yours faithfully

Hall Chadwick Corporate (NSW) Limited

==> picture [97 x 47] intentionally omitted <==

DREW TOWNSEND

APPENDIX I - SOURCES OF INFORMATION

Timah Resources Limited audited financial statements and consolidation schedules for the years ended 30 June 2017, 30 June 2018, 30 June 2019 and 31 December 2019;
Timah Resources Limited Notice of General Meeting and Explanatory Memorandum;
Timah registry details;
Publicly available information on Timah, Mistral and comparable companies, including media releases, ASX announcements and websites;
ASIC Regulatory Guide 74 ‘Acquisitions Approved by Members’;
ASIC Regulatory Guide 111 ‘Content of Expert Reports’;
ASIC Regulatory Guide 112 ‘Independence of Expert’s Reports’;
APES 225 ‘Valuation Services’.

APPENDIX II - STATEMENT OF DECLARATION & QUALIFICATIONS

Confirmation of Independence

Prior to accepting this engagement HCC determined its independence with respect to Timah and Mistral with reference to ASIC Regulatory Guide 112 (RG 112) titled “Independence of Expert’s Reports”. HCC considers that it meets the requirements of RG 112 and that it is independent of Timah.

Also, in accordance with s648 (2) of the Corporations Act we confirm we are not aware of any business relationship or financial interest of a material nature with Timah, its related parties or associates that would compromise our impartiality.

Mr Drew Townsend, a director of Hall Chadwick Corporate (NSW) Limited, has prepared this report. Neither he nor any related entities of Hall Chadwick Corporate (NSW) Limited have any interest in the promotion of the Transaction nor will Hall Chadwick Corporate (NSW) Limited receive any benefits, other than normal professional fees, directly or indirectly, for or in connection with the preparation of this report. Our fee is not contingent upon the success or failure of the proposed transaction, and has been calculated with reference to time spent on the engagement at normal professional fee rates for work of this type. Accordingly, HCC does not have any pecuniary interests that could reasonably be regarded as being capable of affecting our ability to give an unbiased opinion under this engagement.

HCC provided a draft copy of this report to the Directors and management of Timah for their comment as to factual accuracy, as opposed to opinions, which are the responsibility of HCC alone. Changes made to this report, as a result of the review by the Directors and management of Timah have not changed the methodology or conclusions reached by HCC.

Reliance on Information

The statements and opinions given in this report are given in good faith and in the belief that such statements and opinions are not false or misleading. In the preparation of this report HCC has relied upon information provided on the basis it was reliable and accurate. HCC has no reason to believe that any information supplied to it was false or that any material information (that a reasonable person would expect to be disclosed) has been withheld from it. HCC evaluated the information provided to it by Timah and Mistral as well as other parties, through enquiry, analysis and review, and nothing has come to our attention to indicate the information provided was materially mis-stated or would not afford reasonable grounds upon which to base its report. Accordingly, we have taken no further steps to verify the accuracy, completeness or fairness of the data provided.

Our procedures and enquiries do not include verification work, nor constitute an audit or review in accordance with Australian Auditing Standards (AUS). HCC does not imply and it should not be construed that it has audited or in anyway verified any of the information provided to it, or that its enquiries could have verified any matter which a more extensive examination might disclose.

The sources of information that we relied upon are outlined in Appendix I of this report.

Timah has provided an indemnity to HCC for any claims arising out of any mis-statement or omission in any material or information provided by Timah to HCC in preparation of this report.

Qualifications

Hall Chadwick Corporate (NSW) Limited (“HCC”) carries on business at Level 40, 2 Park Street, Sydney NSW 2000. HCC holds Australian Financial Services Licence No. 227902 authorising it to provide financial product advice on securities to retail clients. HCC’s representatives are therefore qualified to provide this report.

Consent and Disclaimers

The preparation of this report has been undertaken at the request of the Directors of Timah. It also has regard to relevant ASIC Regulatory Guides. It is not intended that the report should be used for any other purpose than to accompany the Notice of General Meeting to be sent to Timah shareholders. In particular, it is not intended that this report should be used for any purpose other than as an expression of HCC’s opinion as to whether or not the proposed Transaction is fair and reasonable.

HCC consent to the issue of this report in the form and context in which it is included in the Notice of General Meeting to be sent to Timah shareholders.

Shareholders should read all documents issued by Timah that consider the proposed Transaction in its entirety, prior to proceeding with a decision. HCC had no involvement in the preparation of these additional documents, with the exception of our report.

This report has been prepared specifically for the Non-associated shareholders of Timah. Neither HCC, nor any member or employee thereof undertakes responsibility to any person, other than a Non-associated shareholder of Timah, in respect of this report, including any errors or omissions howsoever caused. This report is "General Advice" and does not take into account any person's particular investment objectives, financial situation and particular needs. Before making an investment decision based on this advice, you should consider, with or without the assistance of a securities advisor, whether it is appropriate to your particular investment needs, objectives and financial circumstances.

Our procedures and enquiries do not include verification work, nor constitute an audit or review in accordance with Australian Auditing Standards (AUS).

Our opinions are based on economic, market and other conditions prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time. Furthermore, financial markets have been particularly volatile in recent times. Accordingly, if circumstances change significantly, subsequent to the issue of the report, our conclusions and opinions may differ from those stated herein. There is no requirement for HCC to update this report for information that may become available subsequent to this date.

APPENDIX III - FINANCIAL SERVICES GUIDE

Dated 19 March 2020

What is a Financial Services Guide (FSG)?

This FSG is designed to help you to decide whether to use any of the general financial product advice provided by Hall Chadwick Corporate (NSW) Limited ABN 28 080 462 488, Australian Financial Services Licence Number 227902 (HCC).

This FSG includes information about:

HCC and how they can be contacted
the services HCC is authorised to provide
how HCC are paid
any relevant associations or relationships of HCC
how complaints are dealt with as well as information about internal and external dispute resolution systems and how you can access them; and
the compensation arrangements that HCC has in place.

This FSG forms part of an Independent Expert's Report (Report) which has been prepared for inclusion in a disclosure document or, if you are offered a financial product for issue or sale, a Product Disclosure Statement (PDS). The purpose of the disclosure document or PDS is to help you make an informed decision in relation to a financial product. The contents of the disclosure document or PDS, as relevant, will include details such as the risks, benefits and costs of acquiring the particular financial product.

Financial services that HCC is authorised to provide

HCC holds an Australian Financial Services Licence, which authorises it to provide, amongst other services, financial product advice for securities and interests in managed investment schemes, including investor directed portfolio services, to retail clients.

We provide financial product advice when engaged to prepare a report in relation to a transaction relating to one of these types of finance products.

HCC's responsibility to you

HCC has been engaged by the independent directors of Timah Resources Limited (“Timah” or the “Client”) to provide general financial product advice in the form of a Report to be included in the Notice of Meeting (Document) prepared by Timah in relation to the proposed change in shareholding in Mistral Engineering Sdn. Bhd. (“Mistral”) (the “Transaction”).

You have not engaged HCC directly but have received a copy of the Report because you have been provided with a copy of the Document. HCC nor the employees of HCC are acting for any person other than the Client.

HCC is responsible and accountable to you for ensuring that there is a reasonable basis for the conclusions in the Report.

General Advice

As HCC has been engaged by the Client, the Report only contains general advice as it has been prepared without taking into account your personal objectives, financial situation or needs.

You should consider the appropriateness of the general advice in the Report having regard to your circumstances before you act on the general advice contained in the Report.

You should also consider the other parts of the Document before making any decision in relation to the Transaction.

Fees HCC may receive

HCC charges fees for preparing reports. These fees will usually be agreed with, and paid by, the Client. Fees are agreed on either a fixed fee or a time cost basis. In this instance, the Client has agreed to pay HCC $25,000 (excluding GST and out of pocket expenses) for preparing the Report. HCC and its officers, representatives, related entities and associates will not receive any other fee or benefit in connection with the provision of this Report.

HCC officers and representatives receive a salary or a trust and partnership distribution and dividends from Hall Chadwick entities (the Hall Chadwick Sydney Partnership). Remuneration and benefits are not provided directly in connection with any engagement for the provision of general financial product advice in the Report.

Further details may be provided on request.

Referrals

HCC does not pay commissions or provide any other benefits to any person for referring customers to them in connection with a Report.

Associations and relationships

Through a variety of corporate and trust structures HCC is controlled by and operates as part of the Hall Chadwick Sydney Partnership. HCC's directors may be partners in the Hall Chadwick Sydney Partnership. Mr Drew Townsend, director of HCC and partner in the Hall Chadwick Sydney Partnership, has prepared this report. The financial product advice in the Report is provided by HCC and not by the Hall Chadwick Sydney Partnership.

From time to time HCC, the Hall Chadwick Sydney Partnership and related entities (HC entities) may provide professional services, including audit, tax and financial advisory services, to companies and issuers of financial products in the ordinary course of their businesses. Hall Chadwick Sydney are the auditors of Timah. The partners of Hall Chadwick Sydney have a 100% interest in HCC. The staff that worked on this report are different to staff involved in the audit of Timah. HCC adopts internal procedures and structures to safeguard our independence and manage any perceived conflict of interest arising from the role of Hall Chadwick Sydney as auditor of Timah.

No individual involved in the preparation of this Report holds a substantial interest in the Client or has other material financial interests in the Transaction.

Complaints resolution

If you have a complaint, please let HCC know. Formal complaints should be sent in writing to: The Complaints Officer

Hall Chadwick Corporate (NSW) Limited GPO Box 3555 Sydney NSW 2001

If you have difficulty in putting your complaint in writing, please telephone the Complaints Officer on 02 9263 2600 and they will assist you in documenting your complaint.

Written complaints are recorded, acknowledged within 5 days and investigated. As soon as practical, and not more than 45 days after receiving the written complaint, the response to your complaint will be advised in writing.

External complaints resolution process

If HCC cannot resolve your complaint to your satisfaction within 45 days, you can refer the matter to the Australian Financial Complaints Authority (AFCA). AFCA provides free advice and assistance to consumers to help in resolving complaints relating to the financial services industry.

Further details about AFCA are available at their website www.afca.org.au or by contacting them directly at: Australian Financial Complaints Authority Limited GPO Box 3, Melbourne Victoria 3001 Telephone: 1800 931 678 Facsimile (03) 9613 6399 Email: [email protected]

The Australian Securities and Investments Commission also has a free call infoline on 1300 300 630 which you may use to obtain information about your rights.

Compensation arrangements

HCC has professional indemnity insurance cover as required by the Corporations Act 2001(Cth).

Contact Details

You may contact HCC at: Hall Chadwick Corporate (NSW) Limited GPO Box 3555 Sydney NSW 2001 Telephone: 02 9263 2600 Facsimile: 02 9263 2800