With APG, expenditure on research activities is called an expense – and these costs appear in the Profit and Loss statement in the year it occurs.
However, expenditure on commercial development activities is called an Intangible Asset – and the money spent on actually building something real is simply added to the Intangible Asset total.
In 2009, APG completed the 3,000 TPA ERMS SR Demonstration Plant to produce high purity Synrutile. The costs of building this plant now had the Intangible Asset total = $16.0m
It is unclear how much Synrutile was actually produced – but when I asked a director why no money had ever been received for this Synrutile, he replied “it was all given away as free samples”.
APG claimed technical success for the ERMS SR Demonstration Plant – but decided to change direction and the build Newcastle Iron Recovery Plant (NIRP).
The NIRP would be a profitable demonstration plant producing 18,000 tonnes of iron and 21,000 tonnes of strong HCL and was due for completion in 2013.
In the 2013 Annual report the chairman reported “ The plant is approaching completion of construction and initial commissioning has commenced ...”
The costs of building this plant now had the Intangible Asset total = $32.3m
At the end of 2014, one and half years later, the directors report that:
“the NIRP is now 85% complete, and 95% of the equipment, including all major equipment items, has been delivered and is stored on site”
The costs of building this plant now had the Intangible Asset total = $35m
With the profitable NIRP close to completion (maybe ??), the directors decided to change direction again – by adding Zinc to the recovery mix and the Newcastle Zinc Iron Recovery Plant (NZIRP)was born.
Now in late 2018, the major production goal that APG is having so much problems with, is the production of a mere 500kg of reduced iron/zinc oxide pellets to give to the steel industry as free samples.
In the current 2018 Annual report there is no mention of the 3,000 TPA ERMS SR Demonstration Plant , there is no mention of the NIRP that was to profitably produce 18,000 tonnes of iron and 21,000 tonnes of strong HCL per year.
In the last 2 years the APG board has impaired (written off) over $33m in value for the ERMS SR plant and the NIRP.
These plants that were to provide a golden future for APG shareholders and cost over $35m to build - the board has decided are now only worth $2m in recoverable value.
In the recent 2018 report the value of these plants is shown by Intangible Asset total = $2.0m
To be fair, what has been impaired (written off) can be unimpaired(written back up in value). It is possible that if APG obtained a huge amount of money, the board could unimpair the NIRP and complete its construction.
I think it is much more possible that APG does not receive money and the plant stays written off.
So what does a cash strapped company do if it has no money and has a huge amount of unproductive impaired plant just laying around ????
APG itself says without “sale of surplus assets” it may not be able to continue as a going concern.
Don’t be surprised if next financial year manage APG manages to contain costs or even make a profit.
You can do this by spending huge amounts of money to create an intangible asset worth $35m, then through the magic of accounting you impair the value of the intangible asset down to $2m. Then if you sell the intangible asset for $6m you have made a $4m profit.
Wilcox
PS – hope APG shareholders can still smile
The chairman writes in the 2018 Annual report : “ I thank shareholders for their patience while the careful commercial progress of Austpac technologies continues.”
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