Australian Mines falsely inflated its value, ASIC alleges
In 2018, cobalt was the hottest metal on the market as prices surged to record heights. But the regulator claims one ASX hopeful stepped across the thin line between hype and deception.
The corporate watchdog has launched civil action against ASX-listed Australian Mines and managing director Benjamin Bell over allegations the company falsely claimed to have a $5bn offtake contract backing its Sconi base metals project in Queensland, tied to guaranteed funding to build the mine.
The Australian Securities and Investments Commission said on Tuesday it had launched action in the Federal Court alleging the company, and Mr Bell, had breached continuous disclosure obligations in 2018 by falsely claiming the company had won funding for Sconi from South Korean battery-maker SK Innovation, as a condition of a $5bn offtake agreement covering the mine’s output.
Both of those claims were false or misleading, according to ASIC, with no funding commitment in place and serious holes in the $5bn offtake claim.
“ASIC alleges that when Mr Bell presented at mining investment conferences in Hong Kong and London between April and May 2018, he falsely claimed that Australian Mines had secured funding from SK Innovation for its construction of a plant for the Sconi Project, expected to cost $500 million or more, when in fact no one had offered or agreed such funding,” ASIC said in a statement.
ASIC also alleges the presentations falsely claimed that the “value of the offtake agreement was $5 billion when the terms of the agreement included a potential buyer’s discount of 15 per cent”.
Australian Mines called a halt to trading in its shares on Tuesday, ahead of ASIC’s release of details of the civil action.
The company said it intends to defend the proceedings.
At the time of the presentations, Australian Mines was pitching Sconi as one of Australia’s biggest future producers of cobalt, a critical ingredient in the batteries that power electric cars, at a time temporary global shortages meant the price of cobalt was touching record levels of just under $US95,000 a tonne.
The company told investors in February 2018 Sconi could eventually produce up to 12,000 tonnes of the battery-making material, along with 60,000 tonnes of nickel.
Australia’s biggest source of cobalt is Glencore’s Murrin Murrin nickel mine, which produces about 4,000 tonnes of cobalt a year. By mid-2019 the price of cobalt had plunged to levels below $US30,000 a tonne.
In its statement of claim ASIC says Australian Mines included the $5bn valuation on the offtake agreement in a presentation to a junior resources conference in Perth in late February 2018, which said the “market value of product in initial term is $5bn if fully executed at current LME-linked pricing“.
Within days the Australian Securities Exchange had forced the company to retract the presentation on the grounds the valuation was a breach of the JORC reporting code for exploration companies, which bans the use of so-called “in ground” valuations of commodities.
But ASIC alleges Mr Bell repeated the $5bn claim at conferences in Hong Kong in late April, and in London in mid-May – despite the company having previously accepted it should not have used the figure.
The corporate watchdog also claims Mr Bell told the delegates at the investment conference in London that SK Innovation had committed to funding construction of Sconi as a condition of the offtake deal – a statement ASIC says is not supported by the actual agreement signed between the two companies.
“At the date of the representations Australian Mines had not secured finance for the construction of the plant, and SK Innovation had not committed to funding construction of the plant,” ASIC says in its statement of claim.
“It was not a condition of the offtake agreement that SK Innovation commit to funding construction of the plant, and SK Innovation did not have any other obligation to fund construction of the plant.”
In June 2018 Australian Mines was again forced by the ASX to retract the comments made by Mr Bell at the London and Hong Kong conferences, with the company telling shareholders it acknowledged it did not have a “reasonable basis” for the claims.
ASIC is seeking fines for both Australian Mines and Mr Bell, and has asked the court to ban Mr Bell from being a manager or director of a company.
In its March quarter activities report, released to the market on April 29, Australian Mines told shareholders it was “negotiating with a range of potential project financiers, that includes various export credit agencies, green energy funds, commercial banks, mezzanine financiers and international banks.”
“The company’s target is to secure financing of the Sconi Project during the 2022 calendar year,” the company said.
Australian Mines shares last traded at 15.7c.