Like anyone I/we like to read good news stories rather than thealternative. However, it’s also important to get ‘balanced’ news.
On onehand we are really excited by the growingly world-class resource at Walford Creek.
However,on the other we, we are very concerned about the way this is being run and thetrue motives of management.
Let’slet the facts speak for themselves.
Buriedin the annual accounts released 27/9/18 is the following salary and benefitsinformation on what the Directors gave themselves last year:
PaulHarris (Non-executive chairman) $417,350. This is a 178% increase over 2017 anddoesn’t include any benefits paid to him by OCP in his previously announcedconsultancy with them).
Non-ExecutiveDirector, Steve Lonergan $333,250
(or, a227% increase over 2017)
Non-ExecutiveDirector, Ivan Wong, $275,000
(or, a 402%increase over 2017)
MD,Hamish Collins, $681,446
(or, a70% increase over 2017)
In ouropinion, these benefits of $1.7m for a 4 person mainly non- executive Board iswell beyond peer company norms, is not reasonable and in fact, is totallyexcessive, especially for a company not making any profits whatsoever.
On page26 is a table listing the Director’s remuneration which adds together salary +cash bonus + consultancy fee + leave + super + share-based payments to arriveat the above totals.
Thenote immediately below the table explains “the remuneration disclosed aboverepresents the cost to the Group for the services provided by Directors”.
Anyoneinterested should have a look at the note from Steve Lonergan, Director andCompany Secretary, at the start of the 2018 Annual Report (11/10/18) wherein heattempts to distance the Board from the 2,500,000 shares each they awardedthemselves.
Hetries to argue that the Board’s remuneration did not increase during 2017-18.Perhaps Steve should have a look at page 26 of his own annual report whichmakes it very clear that Directors benefits have increased exponentially as perour analysis above.
IMO togive non – executive Directors of an exploration company over $1 million is acomplete joke.
However,of more concern is the relationship that these same Board Directors have withOCP (the largest shareholder and creditor).
We havelong felt that the Board are effectively puppets being controlled by OCP.
Again,let’s look at the facts.
TheBoard Chairman, accepted a consultancy arrangement from OCP.
Thiscertainly set off the alarm bells.
So, wedug further and came up with a really startling fact.
Howmany SHs realised that the terms of the loan extension to OCP agreed andrecommended by the Board amount to an interest rate of something like 29%interest per year? Seriously?
Ofperhaps even greater concern is the way this information was presented toshareholders.
On8/5/17 there was an ASX ann “OCP Loan Extension Agreed” which reported thatAeon’s debt to OCP of $27.68 million (plus capitalised interest) would beextended for 2 years from 17/12/17 to 17/12/19.
Inconsideration for this extension, the Board agreed to give OCP, 85 millionwarrants at 16 cents.
Noother substantive detail is provided.
Then,on 11/8/17, in a Notice of Meeting document which ran to 170 pages there isprovided some analysis of these arrangements by Grant Thornton who valued thewarrants between $8m and $10m (say $9m).
Buriedin this document elsewhere is the revelation that the interest rate applicableto this arrangement is an additional 12% capitalised quarterly.
Therefore,this is in addition to the payment by Aeon to OCP of the 85 million warrants!
However,nowhere (that we have ever been able to find) is there a proper explanation orattempt to include or to analyse the total payments (i.e. 12% interest PLUS 85mwarrants) which the Board agreed to give OCP in order to give shareholders theopportunity to consider the deal properly as is our right.
Ourinvestigations show that a 12% interest rate is around fair market value.Capitalised quarterly pushes the interest rate towards 13% which is a bithigher than market rates.
However,the additional payment of the 85m warrants makes the whole arrangementextortionate in our view.
TheThornton valuation of these warrants (in the 170 page report) at $9m equates toan interest rate of about 16% PLUS the 12.73% interest rate gives a totaleffective interest rate of around 29% p/a for the two-year loan extension!
Shareholdersbelieve that these terms were well above normal market rates and were overlyfavourable to OCP and to the detriment of the majority of shareholders.
Significantly,the question must be asked, how can the Aeon Board with a Chairman in theemploy of OCP possibly do a fair arm’s length transaction which represents allshareholders with OCP? In the eyes of the vast majority of shareholders, theseare associated parties and the Board needs to be sanctioned.
It isclear to us that the Board Chairman, Paul Harris in particular has “a materialpersonal interest in the subject matter of judgment”.
Scrutinyof the financial terms by objective observers clearly indicates that the termsof the arrangement were overly favourable to OCP and were well above normalmarket rates.
Therefore,we believe that effectively OCP controls the Board and is now moving towardsmajority ownership.
However,there is strong evidence that this isn’t being done in a transparent manner andseemingly the Board is again involved:
29/8/18Orchard reported in a Form 604 announcement, equity of 30.737% of AML
Then,just a few days after on 4/9/18, AML reported in an ASX Company presentationthat OCP held 32.23% (i.e. a considerable increase of 1.5% or some 8,748,000shares).
Ashareholder then contacted the AML company secretary, Steve Lonergan, askingfor clarification of this important matter and was told that the AML announcedOCP holding of 32.23% was correct and the OCP announced shareholding wasincorrect and that the Company Secretary would get OCP to correct theirreporting.
However,nothing has happened and there have been no further announcements regarding thecorrect OCP shareholding in AML. The shareholder then also sent the CompanySecretary a chasing email which was not responded to.
So now,more than a month later, the market has still not been correctly informed andthe Company Secretary is refusing to answer emails from shareholders (which hasnow become the norm).
Then,more recently, 8/10/18, OCP put out another 604 form witnessing furtheron-market buying of another 6 million shares (between 29/8/818 and 5/10/18).
However,according to this most recent form their shareholding is now 31.745% i.e. stillless than Lonergan said it was on 4/9/18 at 32.23% and despite significantadditional buying since the 4/9/18.
Theseare very serious matters indeed, and, to our mind raise serious questions aboutthe conduct of the company.
Unfortunately,there are many other concerns which we might leave till later save for theissue of constant delays which are impacting the share price right now.
In ourview the assay result reporting has become a complete joke and it is naive toaccept the “it’s the lab’s fault" excuse.
Shareholdershave raised the extremely slow assay reporting problem with the Board for yearsnow.
Eachtime the response was that they were aware of the problem and were working tofix it (and we believed them).
Theysaid that a big part of the problem was that they were shipping the coreshundreds of kms to Mt Isa to be cut before then being shipped to the lab so nowthe cores would be cut on-site (as they used to be).
Then wefind out in a recent ann that the cores are still being shipped to Mt Isa to becut.
Theassay results are far too slow. This destroys forward momentum and gives thelikes of OCP (and Regal) the opportunity to do what they like on market.
Unfortunately,the facts prove a very long history of delays in just about every time line putout by mgmt.
The PEAwas released on 15/7/17 some 2 years after it was first promised.
Environmentalapprovals/permitting to be complete by end 2017 (now in late 2018 still notdone)
BFS byend Q3, 2017 – not done
Firstproduction Q1 2019 (not even remotely likely)
Etc.etc…..
It ishard to escape the conclusion that mgmt/ the Board (unfortunately they appearto be one and the same thing with no real separation or executive overview) arequite happy to drag this whole thing out for as long as possible
Duringthis gravy train ride, they are rewarding themselves excessively and, in ourview, not representing all shareholders as they are required to do.
This isa magnificent resource, but we need to do something about the way it is beingrun.
We haveset up an email address for anyone that wants to keep in touch –AMLSHgroup1@gmail.
We willbe most certainly voting NO to remuneration (Resolution 1) and NO to PaulHarris (Resolution 2).
The SPshould be $1+ right now. Shareholders can no longer afford to just sit on theirhands while the emperor fiddles!
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