Island miner's intriguing past

IT has been a fascinating year at Christmas Island company Phosphate Resources Limited, which has been embroiled in a shareholder squabble since Como-based Asset Backed Holdings entered the company’s register in 2002 and its directors – Michael Perrott, David Argyle, Peter Huston and Antony Rigol – took seats on the board.

The company, widely considered to be a cash cow because of its strong revenue streams, has had 12 months of intense corporate and boardroom activity, including the resignation of Mr Perrott and Mr Rigoll this week.

Corporate machinations aside, the miner has been negotiating with the Federal Government for compensation for mining leases it resumed to make way for a refugee detention centre, extensions to the island’s airport and the Asia Pacific Space Centre project. The amount is rumoured to be any-where between $20 million and $100 million.

But while Asset Backed is a newcomer to the island, Mr Argyle, Mr Huston and Mr Perrott all have a long history with the 12-year-old Phosphate Resources.

Both Mr Argyle and Mr Huston are intrinsically linked to the company’s creation and appear to have played a large part in Asset Backed taking a 27 per cent stake in the lucrative phosphate miner. Indeed, Phosphate Resources’ shared office space with Mr Huston in Como for several years and is now based at level one of Troika House, a building he owns with Mr Perrott.

Mr Perrott has been involved with the miner for many years through his various businesses, including Major Constructions.

Mr Argyle, or interests associated with him, bought 700,000 shares, more than 17 per cent of the company’s then issued capital, in 1999 in a $2.1 million deal around the time of the arrival of ‘corporate raider’ North Star on the island. This transaction was conducted at the advice of Peter Huston.

That placement made Mr Argyle the company’s largest shareholder.

State Development Minister Clive Brown, who became a director of Phosphate Resources in 1992 and was its chairman from 1997 until he resigned from the board in 1999, approved that placement.

Mr Brown denied that the placement had been part of an attempt to protect the company from North Star and has no recollection of Mr Huston advising that the company pursue the capital raising.

He said the $2.1 million had been needed for works to automate parts of the plant and for general refurbishment.

However, former Clough and Phosphate Resources director Geoff Smith said the placement had been in response to North Star sniffing around the island for shares and was suggested by Peter Huston.

“We received legal advice from Peter Huston so we all understood our responsibilities and what we could tell the shareholders,” he said.

“Peter said that if North Star got a certain number of shares we could be vulnerable.

“There was suggestion from the management and totally supported by the board that we sell shares and David Argyle said he would buy them.”

Auridiam chairman and former North Star director Peter Rowe said North Star had been interested in Phosphate Resources because it “looked like a reasonable investment”.

“It was a good company. It was going ahead,” he said.

Mr Rowe said North Star had not been interested in taking over the company but had been interested in taking a stake.

It was offering $3 a share, three times the going share price on the island.

“We didn’t make any formal offers other than saying to shareholders that we would buy if they wanted to sell,” Mr Rowe said.

He said there had been a lot of interest in the offer when North Star first went through but when it returned those sellers had dried up.

Mr Argyle had quit as managing director and left the Phosphate Re-sources board in 1994 to form China-based phosphate miner and processor Norwest Chemicals.

He returned to the Phosphate Re-sources board in 2000.

Mr Argyle said he had come back onto the board because the company had made a large profit but dividends to shareholders had diminished.

“Dividends were down but executive salaries were up and I was not happy about that,” he said.

After his return Mr Argyle also attempted to have Phosphate Resources enter a joint venture with Norwest Chemicals, a move that was blocked by other mine stakeholders.

“My view is that Phosphate Resour-ces needs more than one revenue stream. If the Australian dollar goes through the roof or the Chinese attack the market or if something goes wrong with the cantilevers [used for loading the phosphate into ships], the whole thing can come to a screeching halt,” Mr Argyle said.

“Why not take a separate revenue stream such as Norwest Chemicals?”

On February 19, 2002 Asset Backed announced to the Australian Stock Exchange that it had bought 544,450 Phosphate Resources shares for $840,000 and 3.8 million Asset Backed shares worth $1.34 million. That took Asset Backed’s Phosphate Resources stake to 19 per cent.

It also announced that Mr Argyle had been made a director.

This, along with the remaining Phos-phate Resources shares – now valued at around $4 each – represented a nearly $700,000 profit to Mr Argyle’s interests over the four years since the 700,000 shares had been purchased.

With Mr Perrott, Mr Huston, Mr Rigoll and Mr Argyle on the Phosphate Resources board, Asset Backed lifted that stake to 26.7 per cent after the miner undertook a $4.2 million share buy-back because Asset Backed did not take part.

Asset Backed’s stake could have risen to nearly 40 per cent. Phosphate Resources launched a $4.2 million rights issue in December that Asset Backed was underwriting $2.7 million of. If that issue had closed under-subscribed, then Asset Backed’s holding would have risen to 39.6 per cent.

This sparked an investigation by the Takeovers Panel and has drawn the interest of the Australian Securities and Investments Commission after com-plaints by shareholders Gerry Pauley and Gordon Elkington.

The Takeovers Panel accepted Phosphate Resource’s board’s under-taking to scrap the rights issue and also imposed several conditions on the company.

By most accounts the phosphate miner is a cash cow with an annual turnover of around $50 million, recording net profits of $2.6 million in 2000-01 and $3.4 million in 1998-99, and paying fully franked dividends of around 15 cents a share.

Phosphate Resources was borne out of the ashes of a Federal government-run phosphate operation that was closed in 1988.

After several court battles the government put out a tender for an operator to reopen the mine.

Ron Manners from Croesus put in a bid, as did Wesfarmers’ subsidiary Gascoyne Trading, Elders had a tilt and Clough Engineering was drawn in with Perth-based businessman John Booth’s company Saley.

The mine was reopened in 1991 through a joint venture between the Union of Christmas Island Workers, Clough and Saley, but the union bought out Mr Booth’s 9 per cent stake. Island legend has it that the stake was bought for $100,000 and a Toyota Camry.

In the lead up to the joint venture being formed, the union had been in partnership with Wesfarmers’ subsidiary Gascoyne Trading Limited – now Wesfarmers Transport Limited.

Mr Argyle and Mr Huston had been instrumental in the union’s battle with the Federal Government over the status of the mine. Mr Argyle provided financial advice to the union and Mr Huston provided legal advice.

They were also instrumental in the creation of the public unlisted company Phosphate Resources, which the union registered after it bought out Clough’s share for, it is understood, the $1 million that the engineer had put into the company and a royalty deal.

According to its first annual report the company recorded an after-tax profit of $424,083 and had 263 shareholders, most of them UCIW members.