Territory says $24.5m in loans 'not material'Jamie Freed...

Territory says $24.5m in loans 'not material'
Jamie Freed
September 12, 2008
TERRITORY Resources has insisted its $24.5 million in loans to failed goldminer Monarch Gold were not material - even though the amount comprised nearly half of the iron ore miner's annual cash flow.

The claim, made in response to a query from the stock exchange, could come under scrutiny from the corporate regulator.

At the time Territory made the loans, the Perth mining identity Michael Kiernan was a director of both companies, as was one of his long-time associates, David Humann.

An administrator of Monarch, Chris Munday of Pitcher Partners, said his firm was examining directors' duties and the relationship between Territory and Monarch as part of its investigations into the goldminer's collapse.

He said Pitcher had not yet found any specific cause for concern, but its investigations would not be concluded for another six weeks.

The Australian Securities Exchange queried Territory last month about its March quarterly report, which disclosed that it had made $19 million in loans to other unnamed entities. In response, Territory disclosed $15 million of the funds had been lent to Monarch, in six tranches ranging from $1 million to $5 million each over the three-month period.

Territory said it had not released information about the loans to the market at the time of the transactions because "the board considered that the loans were not material in the context of Territory Resources and were not arrangements that a reasonable person would expect to have a material effect on the price or value of Territory Resources securities."

An ASX corporate relations adviser, Roula Rodopolous, said the word material was "quite subjective". Territory's explanation could be subject to further scrutiny by the ASX or the corporate regulator.

During the March quarter, in which Territory made $19 million of loans to other entities, it received only $21.4 million in cash from the sale of iron ore and had an operating cash flow of just $1.7 million.

In a second query released yesterday, Territory revealed its exposure to Monarch - not counting its purchase of a 19.9 per cent stake in the goldminer - had grown to $24.5 million before the miner's collapse in July. Territory reported $54.2 million of cash flow in the year ended June 30.

Territory provided a $6.5 million convertible loan to Monarch, which was drawn down three tranches in May and June. It also provided $2.96 million to Monarch to be lodged as an environmental bond over its Davyhurst project. Territory thought it had security over Monarch's Minjar gold asset in return for some of the loans, but that claim is in doubt because the security was lodged over Monarch as a whole rather than the specific holding company in control of Minjar.