Image Resources’ major shareholder, Chinese backed Murray Zircon is looking to show the existing board and management at Image the door despite three solid and profitable years at the mineral sands miner. Murray Zircon has lobbed a section 249D notice over the wall seeking to remove the directors and Murray Zircon’s largest beneficial shareholder, Chinese titanium dioxide pigment manufacturer, LB Group, is working the phones looking for support for the 249D – the key question however is why?
Murray Zircon Pty Ltd is using its 23 per cent shareholding in Image to seek the removal of Chairman Robert Besley, Managing Director Patrick Mutz and Non-executive director Chaodian Chen, all of whom are to be replaced by three of its own nominees under the Murray Zircon plan.
In an announcement to the market recently, the Image board, with the exception of Mr Huang Cheng Li who is remaining neutral, came out swinging, accusing Murray Zircon of seeking to get its hands on the valuable heavy mineral sands concentrate being produced at Image’s successful Boonanaring minerals sands mine north of Perth.
It said the move raised conflict of interest concerns and corporate governance risks in ensuring that Image receives a fair price for its heavy minerals sands concentrate, or “HMC”.
Murray Zircon has a controlling shareholder in the form of Guangdong Orient Zirconic Ind. Sci. Tech. Co. Ltd, or “OZC”. In 2020, control of OZC went to another Chinese outfit, LB Group, the world’s third-largest manufacturer of high-performance titanium dioxide pigments – in other words a prospective buyer of Image’s HMC products.
Image said in its response to the 249D notice that Murray Zircon’s bid is largely about its controlling shareholder, OZC’s recent moves to secure access to Image’s HMC output that is already contracted elsewhere at market prices.
Image’s offtake agreements hark back to 2018 when it built its Boonanaring mine and were part of its deal to secure finance for the operation.
Under the terms of the deal, Image is free to offer its HMC elsewhere at higher prices however the company’s existing off-taker has the right to match that price – a scenario that played out recently and left OZC empty handed.
The three Image directors targeted by the 249D notice said Murray Zircon’s assertion that Image’s performance in the first half of calendar year 2021 could have been better are misleading.
Murray Zircon asserts the company did not fully take advantage of the booming minerals sands market in calendar year 2021 and cites the company’s increased product pricing but lower EBITDA as evidence of this. However, the three Image directors say this assertion does not account for the fact that the price of zircon had dropped by 17 per cent in Australian dollar terms in the first half of calendar 2021 compared to the same period the year before.
Despite the boardroom stoush Image has enjoyed a solid three years of profitability since building its mine – which the directors say was built on time and on budget and became profitable within weeks.
It has paid down all debt, paid out a $19m dividend in 2021 and is about to pay out another 2c fully franked dividend.
Perhaps most notably, it was sitting on a $79m pile of cash at last report – a fact that has no doubt not escaped the notice of the company’s Chinese suitors.
The company reported a stellar December quarter that showed an impressive $33m dropping to the bottom line – more than double the $14m result for the September quarter.
LB Group, which controls Murray Zircon’s major shareholder, OZC, issued a statement on Tuesday saying it supports the efforts by OZC and Murray Zircon and that the move is about “improving the long-term performance” of Image Resources in addition to improving its understanding of global markets.
The warring parties are due to slug it out at West Perth’s Celtic Club on March 24th and if maths is any guide, Murray Zircon has a head start given its existing 23 per cent holding in Image.
If this week’s hard hitting statement by the three Image directors targeted by the 249D notice is anything to go by however, this one promises to be a boots and all affair – oh to be a fly on the wall at the Celtic Club.
Is your ASX-listed company doing something interesting? Contact: matt.birney@businessnews.com.au
By Matt Birney
