08/10/2008 - 22:00

A little clarity wouldn’t hurt

08/10/2008 - 22:00


Save articles for future reference.

SINCE I wrote my piece on Tony Sage a few weeks ago, two of his companies - Cape Lambert Iron Ore Ltd and International Goldfields Ltd - have lodged annual reports.

SINCE I wrote my piece on Tony Sage a few weeks ago, two of his companies - Cape Lambert Iron Ore Ltd and International Goldfields Ltd - have lodged annual reports.

Both have hazy bits of detail of the type that clearly annoy investment boffins on St Georges Terrace. Then again, Mr Sage reckons Perth's investment community has consistently failed to back him and that they lack vision, so I doubt he cares too much what they think.

The Cape Lambert annual report does nothing to cast light on a $38 million success fee owed to a Hong Kong firm for brokering the $400 million deal with Chinese-giant MCC.

Mr Sage has defended the size of the fee and stated the broker, whom he confirmed was called Westlink Ltd, is a third party that Cape Lambert has dealt with previously.

A spokesman for Hong Kong-based Westlink confirmed that his firm was part of the consortium that put the deal together. The same consortium, which likes to fly beneath the radar, has also been an adviser to Chinese-backed Yilgarn Infrastructure Ltd, which was the under-bidder in the Okajee port development process.

While the MCC deal is apparently cloaked in confidentiality clauses - and there are, at times, good business reasons to be secretive - it seems odd to me that a public company such as Cape Lambert has got involved in a deal lacking such transparency and allowed the question of who brokered it to persist without a formal clarification, or at least an explanation, to the market.

Similarly odd is how I'd describe the circumstances that led to International Goldfields receiving a qualified audit from its auditor, BDO Kendalls. International Goldfields had current assets of $5.1 million at June 30, with almost half of that tied up in a short-term loan to a mysterious company for which the repayment terms had been extended.

The loan was made in January to Dubai-based Exchange Minerals, a company that is, intriguingly, reported to be linked to investor Michael Shemesian, who has been actively trying to stop Cape Lambert's deal to buy a Sierra Leone asset and wants to dump the current board of Cape Lambert.

The original loan from International Goldfields has since been re-assigned to a company called Golden Falls Trading 565 (Pty) Ltd. According to BDO, International Goldfields could not provide "sufficient audit evidence to determine the recoverability of this asset".

My own checking revealed that Golden Falls Trading is an extremely popular company name in South Africa and a company with the same numerical designation last year did a $9 million deal to sell some minerals assets to a US company called Pinnacle Resources Inc.

Mr Sage confirmed the current loan was to a South African company and was linked to some assets International Goldfields is no longer interested in. He said he was confident the loan would be paid by the end of the year and that the company simply couldn't get the paperwork to the auditors in time to avoid the qualification.

That may be the case, but it seems sloppy to say the least - no-one wants a qualified audit, especially with a market like this where cash is king and investors can be very picky.

Mr Sage admitted to me a few weeks ago that the nasty rumours floating about his connections due to his ownership of West Perth bar Onyx a few years ago had been damaging, so he knows how Perth talks and how apparently small sparks can start a fire.

Under such circumstances, you'd think that getting the detail accurate and transparent on deals with third parties would be something of a priority.

Cash in a crash

CASH is certainly king right now.

The pessimists have been warning for a few months that more skittles will fall due to the sub-prime issue, and that certainly appears to be the case.

It is fascinating to watch the market change so quickly, especially here in WA, where things have appeared solid and resilient compared with what was taking place elsewhere.

But suddenly, what was troubling everyone else has infected the mining industry as well.

With funds short and doubt about commodity prices - I even heard someone mention oil at $50 a barrel - there is a very different landscape.

Being the eternal optimist, I don't believe we are in for anything like what we'll see in the US, even with a bailout. But there will be a cost.

Again, looking on the positive side, this will create opportunities for those who have been more conservative.

As far back as December last year I spoke to one mining company executive who was already starting to look at the quality of assets and balance sheets of potential merger partners or acquisitions, with the view that a shake-out was coming.

Well, it's here.

There will be pain. The real question is whether the optimists are right, and we squeak by under the radar because, in the end everyone knows the Chinese will want our minerals and energy, though maybe not at any cost.

Or will I be wrong and will the world's problems bring things to a shuddering halt?

The decision to mothball Poseidon Nickel's Mount Windarra development was probably the first time I thought the latter could be possible.

While a number of major investment projects are unstoppable, there are plenty of things that could grind to a halt.

That may well mean our economy won't suffer terribly over the next two years, but there will be plenty of individual losers who have committed too much to backing their horse.


Subscription Options