pierpont's lament- the rabble (those pesky investors) are ... · dec 1 2016 at 2:30 pm updated...

12/2/2016 Pierpont's lament: The rabble (those pesky investors) are taking over | afr.com

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Dec 1 2016 at 2:30 PM Updated Dec 1 2016 at 2:35 PM

Pierpont's lament: The rabble (those pesky investors) are takingover

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Pesky shareholders are making life difficult for a few troubled miners. Robert Rough

Today's column is being written as a warning to directors that the

rabble are winning.

As an ancient director of Blue Sky Mines, Pierpont enjoys a life of

high fees, long lunches and little responsibility, all paid for by that

rabble known as shareholders who – just because they put money

into the company – are under the delusion they have some rights

over what it does.

So your correspondent views with alarm the trend in recent annual meetings. Take

the situation in Kasbah Resources as an example.

As Pierpont mentioned in September, Kasbah owns the Achmmach (pronounced

"Arshmarsh") tin deposit in Morocco. Kasbah was a market darling in 2010, raising

$30 million when the tin price was $30,000 a tonne.

To cut a long story short, the tin price fell, production was delayed and Kasbah's share

price has been crushed. Kasbah has established a reserve of 6.5 million tonnes

averaging 0.85 per cent tin at Achmmach, but although the company has spent $64

million on the project it still needs another $US65 million to bring it into production.

by Trevor Sykes

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This year the Toronto-listed Asian Mineral Resources (AMR) appeared as a white

knight, proposing a reverse takeover in which Kasbah shareholders would get 52 per

cent of the merged entity.

But AMR was in little better financial condition than Kasbah. AMR's main asset has

been the Ban Phuc nickel mine in Vietnam, but that is now on care and maintenance

thanks to low nickel prices and Pierpont is not sure whether it should be classified as

an asset or a liability.

Mineral firm struggling

AMR made a $C3 million loss in FY16 and had only $C1 million left in the bank by

June. (The Canadian dollar is close to parity with the Australian dollar.)

AMR is effectively controlled by its 72 per cent shareholder Pala Investments, which is

wholly owned by a German-born Russian billionaire named Vladimir Iorich.

The Kasbah-AMR merger was approved by shareholders at a Kasbah meeting in Perth

on November 23. The meeting was enlivened by proxy and shareholder asking

questions.

They inquired whether any of the board had met Vladimir. The answer was "no

comment": not too surprising because Vlad is notoriously reclusive.

Then they asked why Kasbah's independent expert, BDO, had used the spot tin price

of $US17,830 on March 18 when valuing the company. As the price has since risen to

more than $US21,000 that meant Kasbah was undervalued in the merger document.

The directors said the shareholders should ask BDO.

The shareholders asked if anyone from BDO was present at the meeting and were told

no. That was rather amusing, because the meeting was being held in BDO's office.

Kasbah's chairman and managing director were equally uninformative at the AGM on

November 30.

Hurdles to jump

The directors still have a few hurdles to jump, because the merger still has to be

approved by Judge Neil McKerracher of the Federal Court of Western Australia at a

court hearing on December 6. In a preliminary hearing, the judge was quite interested

in the basis of the BDO valuation of Kasbah at 3.3¢ to 3.9¢ a share.

Under the merger, the shareholders of Kasbah will receive no cash because AMR

doesn't have any to spare. Instead, Kasbah shareholders are now being offered AMR

shares and warrants.

If everything is approved, the present shareholders of Kasbah will emerge with about

half of AMR. To Pierpont's rheumy eyes, this does not appear any great win. AMR has

little cash, its only mine is closed and it owes Pala $1 million.

The tin market appears to be improving and there are few tin projects coming on

stream around the world, so Achmmach could have a bright prospect. But AMR is in

no better position to fund Achmmach's development than Kasbah.

Pala is the key to Achmmach's future. Pierpont's research on Pala has been slight, but

it is said to hold 43 per cent of Nevada Copper and used to control the Australian gold

miner Alacer.

$295sqm pa

For Lease

Please contact agent

For Lease



So the Kasbah board has pushed the merger on the grounds that Pala could provide

the finance for Achmmach.

Shareholders at risk

If Pierpont were a Kasbah shareholder, he would be happier if Pala had explicitly

guaranteed the funding. If it has not then there's another possible scenario.

If AMR is unable to repay its debt to Pala (and right now that looks doubtful), one

possibility is that Pala could exercise its rights as the major creditor and put AMR into

liquidation. If that occurred, the shareholders of AMR (including the present

shareholders of Kasbah) could be wiped out.

Speculative, of course, but if Kasbah does have an ironclad guarantee from Pala it

might be worth mentioning it to the judge on December 6.

The second annual meeting Pierpont wanted to cite was that of Jervois Minerals on

November 24. At this one, the rabble entirely routed the board, raising the chilling

spectre that in future the directors will have to buy their own lunches.

Readers with long memories may recall that Pierpont mentioned Jervois in his

November scribblings. For the benefit of those who didn't stay awake, your

correspondent will recapitulate a little of the history.

Pierpont is a great admirer of Jervois, which has survived for several decades on the

boards as a junior explorer. Being chronically lazy, Pierpont has not dug through its

records for all those years, but it must have reported very few profits and he doubts it

has ever paid a dividend.

Over the past 10 years it has raised $26 million by flogging shares to optimistic

punters, but it still doesn't hold any mineral prospect close to production and by the

end of September had only $219,000 left in the till.

Push for new team

Jervois was in the hands of the executive chairman Duncan Pursell and two other

directors, but the rabble were getting restive. The disgruntled shareholders were led

by Richard Karn, who wanted to toss out the board and put a new team in charge.

Over the years, Jervois has had several main assets. One was the Bullabulling gold

prospect near Coolgardie. That was sold in 2010 to Auzex Resources, which was taken

over by Norton Gold Mines in 2014.

Jervois stands to collect $30 per ounce from any production up to 400,000 ounces and

$20 an ounce beyond that. Bullabulling is a potential bonanza, because the Chinese-

owned Norton has found an indicated and inferred resource totalling 95 million

tonnes averaging just over 1 gram per tonne, and is planning to get it into production.

Bullabulling would best be operated on large scale, indicating the royalty could be

quite valuable in future. Duncan reckons Jervois could receive $80 million.

With Bullabulling gone, Jervois' main asset was the Flemington scandium deposit

near Fifield. For the benefit or readers who've never heard of the stuff, scandium is

present in most uranium and rare earth compounds.



Scandium is only produced from three mines (in the Ukraine, China and Russia) at

about 10 tonnes a year. It is mainly used in the car industry to strengthen aluminium

alloys with as little as 0.5 per cent scandium.

Scandium demand is growing. Bloom Energy in the US reckons it is going to need

30tpa, for instance. Jervois reckons Flemington contains 2085 tonnes of scandium at

grades around 430 parts per million.

Jervois discovered the Flemington deposit in 2013 and Richard, as chief executive

office of Scandium Developments International (SDI), was getting impatient at the

slow pace of its development.

Relations turn hostile

It would be wearying to retrace the history of the dispute between Richard and

Duncan, which Pierpont gave in some detail last month. Suffice to say that relations

between the two soured and eventually became downright hostile.

Richard wrote to shareholders seeking support to sack the board. Duncan threatened

him with defamation.

Richard gained the support of 30 per cent, giving him the chance to win a second

strike against the remuneration report, which would have forced the Jervois board

into a re-election.

Richard called an extraordinary meeting for November 24 to sack the board. Then on

October 10, Jervois announced it had optioned the Flemington project to Australian

Mines for a total of $6 million to be paid over time.

Australian Mines was quite happy to take Flemington, but its priority is development

of the Sconi scandium resource (near the Plutonic gold mine in WA) at a cost of $212

million.

Meanwhile Jervois fought desperately to stop Richard. Jervois issued 8 million shares

on November 4 and another 4 million on November 22 to muster support for the

board.

Richard had issued proxy forms for the EGM, but Jervois issued different ones and

circulated a letter to shareholders saying the bad proxy forms wouldn't count at the

meeting but the good ones would. Jervois also moved its registered office in

Melbourne on November 14.

Fate resolved in court

The fate of Jervois was really decided in the Supreme Court of NSW on November 23

by Justice Geoff Lindsay. Richard's Scandium Development International was the

plaintiff and Jervois and its directors were the defendants.

The defendants had claimed the resolutions to be put to the EGM to sack the board

were invalid because less than two months' notice had been given, as required under

the Corporations Act, and so no meeting should be held.

The judge found that the lateness of giving notice was caused largely, if not entirely,

by the actions of the defendants. He thought it just and equitable that the EGM should

proceed even though there had been a technical defect.



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He ordered that the meeting should be chaired independently by Dr Bob Austin, a

leading corporations law scholar and a former judge of the NSW Supreme Court.

Finally, Justice Lindsay ordered that the costs of the hearing should be borne by the

three directors and not by Jervois.

Those decisions were lethal to the board's chances.

Interesting times for board

The meeting was held the following day. It was a fairly quiet affair, the old board were

removed and three new directors appointed by roughly 45 million votes to 37 million.

The new board also includes Pierpont's old drinking chum John Byrne and mining

veteran Norm Seckold, so Jervois looks headed for interesting times.

The new board have inherited a few problems, though. Jervois' issued capital is 113

million shares, of which 37 million are hostile. Their best potential asset is the

Bullabulling royalty, which is currently yielding zero.

The Chinese from Norton have quietly picked up 4.9 per cent of Jervois and their

intentions are unknown.

There is some hope Jervois could regain Flemington, because Australian Mines has

only paid $600,000 so far and will be challenged to find the rest of the $6 million.

But right now, all the rabble has taken over is rubble.

Pip! Pip!

Pierpont

(www.pierpont.com.au)

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pierpont's lament- the rabble (those pesky investors) are ... · dec 1 2016 at 2:30 pm updated...

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