Digging deep for industry gems
Mining offers New Zealand industry growth opportunities, but poses sky-high risks for investors.
New Zealand’s mining sector could treble in output and infrastructure investments in the coming years, say experts.
Straterra, which represents Kiwi mineral producers, explorers, researchers, engineers and geotechnical firms believes New Zealand’s geologically rich landscape is offering a number of emerging opportunities to make money out of the earth’s resources. Gold, iron sands and coal all present opportunities for future mining investment revenues, Straterra boss Chris Baker said this week.
‘‘Mining ventures have to be assessed on a case by case basis, but as a country we have our doors open to companies who want to make mining applications and assessments.
‘‘As long as they meet our standards with regard to environmental impact, health and safety and other issues, then we would like to encourage investment.’’
He said the gold mining company Oceana Gold had made a positive impact in East Otago. ‘‘On a relatively small footprint of land it has been exporting gold, and that sort of activity is of great value to the country,’’ said Baker. But for individuals and other institutions tempted to invest directly in mining, it is a high risk business.
Mike Taylor, the founder of Pie Funds, a boutique investment funds management company, said mining was an extreme ‘‘win or lose’’ investment.
‘‘Mining is not only high risk, it is cyclical because commodities are volatile and sensitive to sharp falls and rises in demand.
‘‘You either make a lot of money, or you can lose everything.
‘‘People need to understand the quality of the asset being mined, and the geological report results, or pay someone to do it for them.’’
Halfway between Invercargill and Gore is a gently rolling, forested tract of land known as Pebbly Hill.
The land is owned by a forestry company, but underground lies a vast deposit of silica that businessmen half a world away would like to get their hands on but, so far, efforts to mine it have been frustrated.
Smelted into silicon for computer chips and solar panels, the deposit could be worth billions, according to those behind a proposal to exploit it, but it will also cost up to $6 billion to extract the mineral and build a refinery.
Fifteen years after the project was first mooted, and four years after directors announced they would raise capital through an NZX listing, not a stone has been turned and investors’ money has dried up.
Now, several investors are angry that nothing has come of the project. Driving the venture from South Africa is Andrew Cecil, a former rugby-playing Welshman in his 70s who is linked to gold and oil projects in Liberia.
Cecil’s Amalia Gold Corp, based in Johannesburg, struck a deal with Liberia’s then president Charles Taylor in the late 90s to exclusively develop the country’s mineral resources, but it went broke.
Cecil’s interest in New Zealand goes back 20 years when Kiwi Tony Baker walked into the Amalia Gold offices and said he was looking for investment in a gold mining project in Southland.
Baker was a director of Aurum Reef Resources which had a gold mining permit for Pebbly Hill. The Africans jumped on board, and there was talk of a $2.4 million injection, but the money never arrived.
‘‘When they got out here, they set up this new company called Commonwealth Resources,’’ Baker says.
Some Aurum Reef directors and shareholders went with the Africans, the company went into liquidation and Baker spent the 20 years rebuilding a new company.
It turned out there was no gold at Pebbly Hill, but there was something else that was potentially valuable – silica. A subsidiary company of Commonwealth Resources was formed, Silicon Metal Industries (SMI), to develop the proposal and an exploration permit obtained from NZ Petroleum and Minerals.
The man appointed to run the New Zealand operation was Michael Hawarden. A former deputy chairman of the South African mining conglomerate JCI, Hawarden had retired to Christchurch and was a director of Solid Energy. Hawarden could not be reached for this article and left the board in 2012.
Graeme Walker, an Invercargill air traffic controller who had invested in some of the African companies, was also appointed a director.
The directors of SMI went public with their plans in the early 2000s and began raising money from investors, mostly in Hong Kong and South Africa, but nothing much happened for several years.
‘‘We went through great difficulties – obviously New Zealand is not a country that is welcoming to mineral development,’’ Cecil said.
When the National Government came to power things ramped up and, in 2011, a proposal was put forward for a public float and two new companies were formed for this purpose, Millennium Mineral Corp and a subsidiary, Cornerstone Mineral Corp.
Shareholders in Commonwealth Resources and SMI were offered shares in the new entities, but the listing never happened. The two original companies were wound up and shareholders say they were left with nothing.
Meanwhile, the silica project had struck a major problem.
It appeared there had been an error during an iwi land transfer deal decades earlier and the mineral rights at Pebbly Hill weren’t owned by the state at all, but the University of Otago.
For more than 10 years, SMI had been paying the wrong entity $8000 annually for an exploration permit.
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‘A number of shareholders have either died, or are in ill health, or retired . . . with nothing to show for our years of financial contribution.’ Len McLeod
Investors have been sharing information online in an effort to find answers.
Len MacLeod of Hong Kong summed up the situation in an email last year.
‘‘A number of shareholders have either died, or are in ill health, or retired . . . with nothing to show for our years of financial contribution.’’
Walker resigned as a director last year and also emailed shareholders.
‘‘I feel very strongly that it is most unlikely our investments will ever come to anything tangible,’’ he wrote, adding that he was ‘‘extremely angry and upset’’ by what he regarded as a lack of governance and accountability from the management team in South Africa.
He wrote that without a significant financial injection from the South African management team – who he claimed had been promising money by ‘‘the end of the week’’ for the better part of a year – the project was ‘‘doomed to failure’’.
Craig Copland of Otago, who, along with his late father Ken, became involved with Cecil during their time working in the mining sector in South Africa, said he was unhappy it took a decade to discover who owned the rights to the silica.
‘‘Once you’ve got your shares and you’ve invested all your time, your money and your effort, you really don’t want to see it disappear. And so by that stage you’re just another passenger on this massive bus, hoping someone might give you back some money some time.’’
But Cecil meanwhile remains upbeat about what he calls ‘‘a very important project for New Zealand’’ and claims there will be another attempt to list the Cornerstone company once further research work is carried out.
He says allegations about his business background which has included an investigation into several of his previous companies by the Department of Trade and Industry, come from business rivals who want to take over the project.
‘‘There was no action taken because there was nothing to act upon,’’ said Cecil. ‘‘The stories are there to try and make it difficult for us to list, try to make it difficult for us to raise the money.
‘‘It’s one of the biggest and best projects in the world. It’s quite simple, we are here to stay.’’
Separately, mining organisation Stratarra’s chief executive, Chris Baker, said there was additional burden in mining silica because there was no shortage of it. ‘‘It is one of the most common elements in the earth’s crust,’’ said Baker.
‘‘With a silica deposit there are marketing issues, which are additional to the usual challenges of mining. The quality of the silica is important and a customer or customers who want that particular quality often need to be identified to win investment. It is hard to get into the market. You need someone who is a user of the silica to do a deal with you.’’
Baker said waiting many years for anything to happen was not unusual because of these issues.