We got attention in the AFR. Not for the right reasons.
Headline article too ...
Have you heard the one about the Tasmanian iron ore miner, Melbourne's most exclusive residential property market, the former AFL footballer and the diversification strategy that has been labelled "bizarre" by angry shareholders?
Welcome to the world of ASX-listed Grange Resources, the Chinese-dominated miner that has stunned investors with a plan to diversify into luxury residential property development.
Grange dropped its
bombshell on February 27 when it revealed it was seeking property development opportunities as part of a strategy to diversify its earnings beyond the lucrative Savage River mine in Tasmania.
Savage River delivered a $60.7 million profit to Grange in 2017 despite major interruptions from a wall slide, and many shareholders believed the time was ripe at last month's financial results for a round of significant shareholder returns given the company was sitting on a cash war chest of $168 million.
Grange paid out $5.78 million in final dividends, but disappointed several investors by not announcing a share buyback.
Instead it revealed the new property investment joint venture with ROC Built; a company run by
former Geelong AFL footballer Will Slade.
Grange has refused to tell shareholders how much of its $168 million cash war chest will be spent on the property investments, but a spokesman for the miner's board insisted to
The Australian Financial Review it would be a comparatively small amount.
"For the time being we don't have concrete numbers, we are looking at very small scale projects and it would not take up a lot of our capital," he said, stressing that mining remained the company's priority.
There is no the intention to put all the cash into property."
Grange and ROC are believed to be close to settlement on their first property purchase, and the spokesman confirmed targets had been identified in the Melbourne council of Stonnington, which includes some of Australia's most expensive suburbs, including Toorak, South Yarra, Armadale, Malvern and Kooyong.
"We have identified and committed to a couple of projects which are of similar size with the projects that our [joint venture] team have had experience delivering in the past. We will continue to update the market with more information," he said.
The Grange spokesman said the property venture would focus on "small scale, high end, niche market, boutique apartments" aimed at baby-boomers who wanted to downsize from family homes.
The Australian Financial Review has spoken to multiple Grange shareholders who are concerned about the sudden shift into an unrelated sector that appears to be beyond the company's core expertise.
Angry shareholders
Nero Resource Fund managing director Russell Delroy said Grange should be returning excess cash to shareholders through share buybacks or other means rather than moving into an entirely new domain.
"The directors need to explain to shareholders very clearly what rationale would justify deploying capital into a property investment when their stock is clearly the cheapest production asset on the ASX," he said.
"How can they justify going and investing in anything outside of their own business, their capital would be better deployed buying their own shares."
Another concerned Grange shareholder, Miguel Koerts, said it was "pretty unclear what the strategy here is".
"I understand that they sitting on a lot of cash and they want some returns, but I do not know if real estate is the way. Especially if they do not tell the amount of money [they] plan to invest," he said in an email to
The Australian Financial Review.
"Why don't they pay more dividend to the shareholders or do a buy back. If they will activate Southdown [the company's stalled magnetite development project in Western Australia] they probably need the money to invest."
One unhappy shareholder who declined to be named has a background in activist investing and is believed to be mulling an activist campaign if Grange does not pay more respect to the views of minority shareholders.
But not all shareholders were unhappy with the plan to diversify into property development.
"I am not worried or angry at all, I think the new management is doing fine," said Jaap Velleman.
"If you take the $250 million market capitalisation and spent that on real estate development that same $250 million is $1 billion when the development is ready."
Ironically, Savage River's iron ore has rarely been in more demand; the pellets and concentrate produced by the mine have been in short supply globally since BHP's Samarco operation was disrupted by a dam failure in 2015.
The 65 per cent iron content in Savage River's product is also
well suited to China's growing demand for high grade iron ore.
The Melbourne property market has enjoyed strong growth in recent years, but
recent statistics show prices have started to fall.
Tight control
Many frustrated minority shareholders believe Grange is run like a subsidiary of its major shareholder, Chinese steel mill Shagang, which owns 46.76 per cent of the company according to Bloomberg.
Shagang has previously been deemed an associate of Grange's second and fourth biggest shareholders and, combined, the three companies control 58.43 per cent of Grange.
Under ASX and ASIC rules, Grange does not need shareholder approval before starting the new venture, and the company said there was no plan to offer shareholders a vote on the property scheme at this year's annual meeting.
"We have checked with the listing rules and within our constitution as well, and pre-approval by shareholders is not required at this time," said the Grange spokesman.
"We think the concerned shareholders need to put this into perspective, and to be patient and give the management team and our board time to demonstrate what we think is the right decision and the right strategy for the company.
"The board are looking at the optimal way to utilise the cash and earn a high return which down the road would enable us to sustain and reinvest in the Tasmanian mines or possibly the Southdown mine."
The spokesman said the strategy had "no connection at all" to
recent crackdowns on foreign investment in Australia's residential property market.
The spokesman rejected the suggestion that property speculation and development was outside the company's core competency, pointing to chief executive Honglin Zhao's experience in project management and Mr Slade's experience in property development.
"As property is a new area for the board, by leveraging our project capability and entering this investment via a [joint venture partner] with deep experience in this sector, together with our thorough due diligence and risk management capability, we are well placed in making this investment," said the spokesman.
"We have done a lot of studies into the investment opportunities and we see good potential in the small-scale, high-end residential apartments sector in well sought-after suburbs. This is underpinned by the demographic and economic make-up of the Melbourne population.
"As we see Baby Boomers down-size their homes, while wanting to keep the lifestyles in the suburbs that they are comfortable living in, we see great growth potential in this sector."
According to
Grange filings, Mr Zhao has spent more than 40 years in the steel industry, mostly with Shagang.
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