Clash of iron and mettle

Long-simmering war between factions at Todd-controlled mine flares up with formal request for inquiry, writes Pattrick Smellie

MUndoubtedly, a reasonable person would expect the release

of the BFS [bankable feasibility study] to have

a material effect on the price of value of Flinders

Mine’s securities.

inority shareholders of Western Australian iron ore developer Flinders Mines have renewed their battle with Todd Corp, lodging a formal request for an investigation by the Australian Securities and Investment Commission into dealings at the Asx-listed company.

Flinders minorities have been at war on and off with the board of Flinders Mines (FMS), which is controlled with a 59 per cent shareholding by Todd Corp, the holding company for the estimated $4 billion of assets held by New Zealand’s wealthiest family.

As a group, they represent no more than 19.78 per cent of the FMS register but have been a remarkably effective thorn in the side of a company whose owners habitually shun publicity, although that influence has waned since a 20.76 per cent shareholder, OCJ, decamped to support Todd’s proposals in 2020. A group of the remaining shareholders appears to have pooled resources to fund an investigation into FMS by Melbourne solicitor

Catherine Ballantyne, a partner at Australian legal firm Madgwicks.

Her 37-page report was lodged with the Australian Securities and Investment Commission (Asic) this week, requesting it to investigate the matters raised for breaches of the ASX listing rules.

The FMS project involves one of the largest remaining unexploited iron ore deposits in the Pilbara region of WA, with the company first listing on the ASX in 2002.

In the past, development costs have been put at $7.2 billion to construct a 160km railway line to the mining site and a brand new, purpose-built port at Balla Balla, some 1500km north of Perth, through a company called BBIG, which is 94 per cent Todd-owned. The FMS/BBIG joint venture is known as the Pilbara Iron Ore Project (PIOP) and has required special legislation and agreements with the WA Government.

Offtake agreements have been advanced but not finalised with Chinese buyers over the years. However, the project has never got under way, frustrating a group of vocal and feisty minority shareholders who have campaigned for more than eight years on their belief, in essence, that Todd is delaying development until it has full control of FMS.

The complaints

Top of the list for the requested Asic probe is the unexplained fate of a never-completed bankable feasibility study (BFS) for FMS that was done by international resources sector consultants Worley Parsons in June 2015. “The BFS was discontinued seven [business days] before finalising on June 30, 2015,” Ballantyne’s report says.

Yet it was “highly relevant” to the FMS share price, particularly in the context of two subsequent events: a decision on an option agreement proposed in May 2015, which shareholders voted to reject in September that year, and an offmarket takeover bid that Todd then launched in March 2016, which also failed.

The BFS was also highly relevant to the price at which Todd bought FMS shares between May and August 2016, taking its interest in the company from 20.58 per cent to 52.64 per cent, Ballantyne argues.

Given that Worley Parsons had “spent years assessing the feasibility of mining the PIOP” . . . “in my opinion, it is inconceivable that seven business days prior to the completion [of the BFS] that Flinders Mines’ directors would not have been told verbally of the results and findings or provided with a draft of the BFS”.

Ballantyne suggested these results were critical to determine the future of the PIOP project.

“Undoubtedly, a reasonable person would expect the release of the BFS to have a material effect on the price of value of Flinders Mine’s securities.”

The second major area of investigation sought by shareholders relates to whether the directors of FMS were aware of a “proposed 18-month delay of the rail project by BBIG” at the time of a March 3 extraordinary general meeting at which FMS approved the PIOP.

The Madgwicks report asks Asic to consider whether, if the proposed delay had been known at the time, it “should have been reported to the market” and whether ASX listing rules were breached because it wasn’t.

— Catherine Ballantyne,

Melbourne solicitor

Director overlaps

The third area of suggested inquiry is whether the market should have been formally notified that senior

Both attempts [by Todd

to take the company private] failed because minorities stuck together

and were able to defeat the majority shareholder, which was unable to vote

on its own proposals .

Todd executives Evan Davies and Michael Wolley were directors of both FMS and BBIG between October 2016 and October 2019. Wolley and Davies remained FMS directors at the time of FMS EGM in March 2020.

Wolley remains an FMS director today, although Davies resigned in April in what is understood to reflect corporate restructuring at Todd Corp in NZ following the departure of its former group chief executive, Jon Young, earlier this year.

The company has made no public announcements, but the Todd website no longer shows a group CEO, but lists four divisional CEOS instead, with Davies heading Todd Capital.

A fourth proposed area for Asic investigation is whether there were agreements between FMS and BBIG between January 2016 and September 2019, when FMS “claims that it had no existing commercial agreements with BBIG”.

BBIG was performing tenement management and field services for FMS during this time, the Madgwicks report claims, and it “also appeared that during this time BBIG carried on its business as if there was an existing agreement with Flinders Mines, including entering into agreements for the sale of iron ore”.

If that was the case, Asic should determine whether any ASX listing rules were broken.

No comment

Todd Corp’s reluctance to discuss its plans publicly means that the future of the project is far from clear, although Businessdesk understands that recent work has centred on a less capital-intensive, longer-dated approach to mining the Flinders tenement. Among factors at play are understood to have been the sharp deterioration in political and diplomatic relations between

Australia and China in the last two years, making long-term Chinese offtake contracts uncertain.

However, as an Asx-listed company, FMS has been subject to public disclosure requirements, allowing some insight into two attempts by Todd to take the company private since it first began acquiring FMS shares in 2014.

Both attempts failed because minorities stuck together and were able to defeat the majority shareholder, which was unable to vote on its own proposals.

The first effort was the off-market takeover bid in 2016, and the second was an attempted delisting in 2018, which the Australian takeovers panel decided involved “unacceptable circumstances”, forcing Todd to withdraw the application.

Turning point

The March 2020 EGM, however, marked a turning point. Todd prevailed over minority shareholders when OCJ, with a 20.76 per cent stake and understood to be representing Chinese investors, supported the proposed PIOP joint venture, outweighing opposition among other small shareholders. OCJ representative Amy Jiang has since been appointed to the FMS board.

Since that meeting, apart from occasional outbursts of protest from minorities, FMS has been in stasis.

The most recent development was the resignation of its non-executive chair Neil Warburton on June 20 and his replacement by an existing board member and former WA state politician, Cheryl Edwardes.