hawsons: a game of chinese checkers.

An interesting read:

Source: http://www.pierpont.com.au/article.php?A-Game-of-Chinese-Checkers-557

Edward,

My wife had control of the TV again tonight and I came across this, how accurate is the article, there are some decent size numbers qouted?

Sorry I missed your question in a previous post, I have not spoken to Nick since the EGM, but plan on calling Nick if we don't get any news regarding Hawsons J/V by the end of January.

Surely the liquidator can't drag this out much longer.......

ARTICLE:


A Game of Chinese Checkers
Friday, August 3rd, 2012
p030812
A GAME OF CHINESE CHECKERS

Tony Abbott was in Beijing the other day warning top Chinese businessmen that he would take a tough line on foreign investment in Australia. This sent our Labor Government into a swoon, with Trade Minister Craig Emerson labelling Tony’s sentiments as “stupid and dangerous”.

Pierpont can soothe Craig’s fears. He can stop worrying, because Chinese investors are already well aware that they get rough treatment when they try to invest here. In previous columns, Pierpont has referred to the trials of Xiaojang Wang, who invested $11 million in Altius Mining but had to fight like a tiger to get a board seat. Pierpont may yet quill another column on Altius, which is currently refinancing itself through a rights issue.

For today, Pierpont will relate the troubles of another Chinese investor, Wilson Cheung, who invested $16.5 million in a private company called Bonython Metals Group and was repeatedly frustrated in his efforts to get a board seat or even relevant information about its financial affairs.
Bonython’s major shareholders were a geologist called John Hillam and his de facto wife Sarobol Teeranukul. Bonython won the right to take 40 percent of a joint venture with the listed Carpentaria Exploration on its Hawsons iron ore project in far western New South Wales. In fact, Hawsons is so far west that if the chap drawing the borders on the map of Australia had hiccoughed, it would be in South Australia.

Hawsons is the hottest exploration project in NSW. Given the total neglect of the mining industry by past governments of NSW, that’s not much of a commendation, but Hawsons contains possibly 6 to 11 billion tonnes of magnetite grading 14 to 17 percent iron, so it’s certainly worth a few drill holes.

Bonython could get the 40 percent if it provided Carpentaria with $13 million for exploration. The only difficulty was that Bonython didn’t have $13 million and had to meet a tight deadline. John, wjho was managing director of Bonython, met a Chinese lass named Linda Lau on April 3, 2010 and told her that if he couldn’t raise the money quickly the offer to get part of Hawsons might lapse.

John must have been pretty persuasive, because by April 20 Linda’s friend Wilson had agreed to put up $16.5 million. Of the $16.5 million, $13 million would go to Carpentaria and the balance would be used as working capital for Bonython.

Wilson invested through his wholly owned company Ample Source International. As part of the deal, a shareholders’ agreement was drawn up on April 20 giving Ample 25 percent of Bonython. The agreement also provided that:

. The quorum for board meetings would be at least one director nominated by each party (Hillam and Ample), and that director had to be present for the whole meeting.
. Bonython had to provide directors with enough management and financial information to allow them to understand the company’s affairs and control its operations efficiently.
. At such meetings, Ample would be represented by either Wilson or Linda.
. John would be chief executive for a contract fee of $25,000 a month paid to his company CFM Media. The agreement said that neither CFM nor John were “entitled to any other payment, remuneration or compensation” for their services.

Pierpont admires the speed shown by Wilson in doing the deal in 17 days, but can’t help wondering if he might have skimped on the due diligence, because he’s had nothing but trouble ever since. The ink had barely dried on the agreement before hostilities broke out between the parties.
In mid-May Wilson and Linda discovered that $300,000 of Ample’s cash had been used by Bonython to repay borrowings from John. John and his partner also charged Bonython for rent on their apartment (which was used as Bonython’s office) and car parking space.

Bonython had loaned $175,000 to CFM and another $209,000 had been paid to a separate company of John’s called Wentworth Metal. Further, Wentworth had acquired mining tenements near those of Bonython, which Ample claimed John should have offered to Bonython.

The most aggravating issue seems to have been the difficulties Wilson and Linda had getting onto the board. On a small company such as Bonython, it should have been a simple matter of signing a couple of forms and starting a board meeting on the spot. Instead Wilson did not become a director for more than three months. John blamed paperwork for the delays.

Linda, who was supposed to be Wilson’s alternate, suffered endless difficulties. She was first appointed in December 2010, the day after Ample had started proceedings against Bonython. Her appointment may have been aided by the fact that Ample had frozen Bonython’s bank account a few days before. At a meeting in January 2011, John and Sarobol voted her off the board again. In an email to another prospective investor, John said he wanted to remove Linda from Bonython “as this will allow me to run BMG how I want to without their interference”.

She appears to have been a director of some sort from February to April. Then a board meeting was called for May 24, 2011 to ratify Linda’s appointment, but as John didn’t attend there was no quorum. John told the court he had forgotten to attend. However, he didn’t forget to email Linda on June 20 telling her she had ceased to be a director on June 18. Ample went to court and had Linda reappointed from July 6.

Ample also grizzled that it had not been receiving adequate information from John. Ample had to go to court in December 2010 and get an order which permitted its nominees to be allowed to inspect and copy Bonython’s financial and bank records.

As Wilson lived in Hong Kong and Linda in China, it was always likely that board meetings would have to be arranged a little in advance, which didn’t happen. The Chinese were told on November 23, 2010 that there would be a meeting on November 24. When they said they couldn’t attend, John said the shareholders’ agreement was at an end. The November 23 meeting was held without an Ample representative and so was another on December 9, which ratified the $175,000 loan to CFM. After that meeting, Ample had Bonython’s bank account frozen.

The rancour between the parties was so bitter that Ample took Bonython and John to the Federal Court, where Justice Alan Robertson found last December that John had been in breach of the agreement on all the matters Pierpont has mentioned.

In rebuttal, John had claimed Ample began paying slowly. The first payment was a mere $1 million and didn’t arrive until May 14. Only $6.7 million had been paid by June 4. He also said Linda’s daughter, Janet McCormack, had received a $973,000 commission for the $16.5 million raising without Bonython being informed and that Ample representatives had deliberately stayed away from meetings when they were called.
Justice Robertson dismissed a cross-claim by John and found the conduct of Bonython had been oppressive to Ample. He also ordered that Bonython be wound up. John appealed the judgement but in May the full Federal Court dismissed the appeal, saying it was “a clear case of commercial unfairness at a number of levels”. And that John had “systematically denied Ample Source necessary information about the affairs and management of BMG”. The facts in this column are drawn from those two Federal Court judgements.

Those judgements look like being very expensive for John. If he had found a modus vivendi with Wilson, he could now be sitting on 64 percent of 51 percent of a potential big iron ore mine. Indeed, Wilson – who has gold mines in China - was prepared to invest a total of $105 million. But thanks to the fracas between John and Wilson, Bonython is now being liquidated by David Leigh of PPB.

The liquidator is about to conduct an auction for the right to Hawsons and also the other joint venture interests held by Bonython. David told Pierpont he was a bit handicapped because John still hadn’t made out a report as to affairs, giving his estimate of Bonython’s assets and liabilities.

Let’s say David manages to flog the Hawsons interest, pay off Bonython’s debts and he’s left with a net $20 million to distribute to shareholders. John and his partner should be happy because their 64 percent will be worth $12.8 million. But Wilson, who has plumped $16.5 million into Bonython, would only retrieve $5 million. Wilson needs David to finish the liquidation (including David’s fees) with a net $66 million before he’s square. Actually it’s worse than that because Wilson has spent $6 million on legals fighting John, so his total spend has been $22 million.

Wilson has now decided to hedge his bet by buying into Carpentaria. He recently spent more than $3 million buying 14.3 percent of Carpentaria, acting through Silvergate Capital. The ASX notice was filed by Silvergate’s director Edward McCormack. Edward is the husband of Janet, who received the $973,000 commission from Wilson. Edward is also the chap whom Xiaojing Wang installed on May 14 as chief executive of Altius, but Pierpont’s sources say there is no connection between Xiaojing and Wilson.

So Wilson has now spent nearly $26 million buying minority stakes in Bonython and Carpentaria and still doesn’t actually have control of anything. He must be wishing that Tony had blocked him from investing in Australian resource companies two years ago. We mightn’t be able to beat the Chinese in the Olympics medal count, but we can bash them on the bourse all right.

Finally, readers should note that Bonython Metals Group has no connection with the fine old South Australian family of the same name.

Pip! Pip!
Pierpont
(www.pierpont.com.au)