KWG Longs,

Goodheart-r posted:

KWG RESOURCES INC.

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

NOTICE (the "Notice") IS HEREBY GIVEN that the Annual and Special Meeting of Shareholders (the "Meeting") of KWG RESOURCES INC. (the "Corporation"), for the year ended December 31, 2015, will be held on Thursday, July 21, 2016 at 11:00 a.m. (local time), at the offices of Norton Rose Fulbright Canada LLP, Suite 3800, Royal Bank Plaza, South Tower, 200 Bay Street, Toronto, Ontario, for the following purposes:

(a) TO receive the audited consolidated financial statements of the Corporation for the years ended December 31, 2015 and 2014 and the auditor’s report thereon;

(b) TO elect directors of the Corporation;

(c) TO appoint the auditor of the Corporation and to authorize the directors to fix the auditor’s remuneration;

(d) To consider and, if deemed advisable, to pass a special resolution authorizing the amendment of the articles of the Corporation to change the province in which the registered office of the Corporation is to be situated from the Province of Quebec to the Province of Ontario, the full text of which is reproduced in the Management Proxy Circular accompanying this Notice under the heading Change of Location of Registered Office;

(e) TO consider and, if deemed advisable, pass a special resolution, with or without variation, the full text of which is reproduced as Schedule "A" to the Management Information Circular accompanying this Notice and incorporated by reference in this Notice (the "Capital Reorganization Resolution"), authorizing the Corporation to:

(i) create a new class of convertible shares to be classified as "Multiple Voting Shares" in an unlimited number with the rights, privileges, restrictions and conditions described in Exhibit I to Schedule "A" to such Management Information Circular, which rights, privileges, restrictions and conditions shall be annexed to the Articles;

Thoughts from Keep Digging:

First and foremost, the proposed Capital Reorganization contemplates the creation of “…a new class of shares…” and in no way or manner contemplates the creation of “new shares”. The wording is veru specific and deliberate here, in my opinion.

The proposed Capital Reorganization contemplates a new class of shares called Multiple Voting Shares that would be comprised of bundles of 300 common shares (the ones that you and I own) so that KWG could gain access to a new party of investors (which may include financial institutions and/or “big boys” such as major players in mining) that are barred via internal controls/company policy from purchasing the shares of junior mining and exploration companies often referred to as ‘penny stocks’. The Multiple Voting Shares will also allow both new and existing investors to purchase KWG shares on margin. If this previously unavailable access to new investors results in the purchase and therefore demand for the Multiple Voting Shares, we are likely to see an increase in the price of our common shares since there is no creation of new shares being contemplated as part of the proposed Capital Reorganization and no dilution will occur as a result of the proposed Capital Reorganization being approved.

Second, there seems to be some sort of preoccupation with the term “unlimited” in the description of the Multiple Voting Shares in the Management Information Circular. Quite simply, management (and counsel who drafted the document) was compelled or more likely obligated to use the term ‘unlimited’ because they just do not know. They do not know how many common shares will be outstanding in the future and therefore do not know how many Multiple Voting Shares will exist in the future since the wo are explicity tied at a ratio of 300:1. Further, they do not know how many investors will exchange their common shares for multiple voting shares.

As well, management always and at all times reserves the right to create and issue more shares. KWG has the right to issue additional shares tomorrow, and the next day and so forth. KWG will retain the right to create and issue additional common shares whether the proposed Capital Reorganization is approved or rejected by shareholders. Noront announced a private placement last week and is issuing more shares. National Bank of Canada recently issued additional shares. Suncor created and issued over $2.5b worth of new shares last month to raise capital for acquisitions in the current environment of depressed oil prices. This is management executing their objectives and obligations to shareholders by raising the necessary capital to get the job done. KWG may issue more common shares in the future and this would effect the number Multiple Voting Shares since the two are tied at a ratio of 300:1. If Anglo American or Teck Resources approached KWG and wanted to do a private placement of an amount of shares equal to 19.9% of the outstanding, would we not jump at it? Regardless, the bottom line here is that the proposed Capital Reorganization will not itself cause any increase in the number of common shares outstanding.

My Best to All KWG Longs.

Keep Digging