In a world where, as David Llewellyn-Smith wrote here earlier this week, even Fortescue Mining is considered a minnow, spare a thought for the baby miners. Including Sherwin Iron, which operates a small mine in the Northern Territory’s Roper Valley.
Sherwin faces the same three tsunamic forces — demand and supply imbalance, easing Chinese fixed investment growth and an out-of-whack steel supply cycle – that Llewellyn-Smith identifies as foretelling a generational crisis in Australian iron ore production that he says will see iron ore juniors — like Sherwin — “wiped off the map.”
But Sherwin has problems beyond it’s exposure to these global-scale forces. Sherwin came late to the iron ore party, signing a “Project Facilitation Agreement” with the NT government in April 2013 that saw Sherwin’s tenement accorded NT government “major project” status.
On any scale — other than the NT’s — the Sherwin mine is better described as modest than major. The first shipment of 70,000 tonnes of “bulk sample” ore was sent to China in October 2013 and to date it has shipped a total of 200,000 tonnes. Another 200,000 tonnes is stockpiled and further production is understood to be contingent upon finalisation of regulatory and government approvals.
A falling market and small-scale production are not the only problems Sherwin faces.
Late last month the NT Environment Protection Authority (the EPA) released it’s Assessment Report of Sherwin’s Environmental impact assessment process. The EPA was scathing of Sherwin’s environmental assessment, noting:
The poor quality of data collection and preparation of conceptual environmental management documentation is a concern for the NT EPA. The difference between a well-planned and well-prepared project and the Sherwin Creek Iron Ore Project is considerable as demonstrated in the documentation submitted to the NT EPA during this EIA process … there is significant concern that the low standard of the environmental assessment undertaken by the Proponent will flow through to the larger Roper River Iron Ore Project or its individual components.
The NT EPA was particularly critical of the authorisation by the NT government of Sherwin’s bulk sampling approval, concerned that approval, “without informing the EPA” was:
… inappropriate and in contravention of the principles of ESD [ecologically sustainable development]. These decisions can create precedents with lasting effects for the quality of environmental management on mine sites when Government continues to be challenged by legacy mines requiring costly remediation. It is in the NT Government’s best interests to ensure that this is not repeated in the future.
Another issue of concern to both the EPA is the haulage of Sherwin’s ore along the very long 575 kilometre run from the mine to Darwin’s East Arm Port. Of particular concern was the impact of numerous 4-trailer road-train journeys along the narrow Roper Highway from the mine site to the Stuart Highway.
As this recent ABC News report noted:
Tight turns, blind corners, convoys of road trains, and nowhere to pull over. These are some of the dangers locals have to deal with on the Roper Highway in East Arnhem land. And with increased mining transport proposed for the region the problem will only get worse.
This issue was echoed in the EPA Assessment Report, which referred to the “key concerns of many respondents to the EIS … the safety of road users with the proliferation of heavy vehicle traffic on the Roper Highway as a result of the Proponent’s preferred transport option.”
Sherwin’s troubles don’t stop at poor planning and approval issues or the effect of turmoil in China’s steel industry.
Since April this year four Sherwin Directors have resigned, including three in the past two weeks. And June has been a turbulent month for the company for other reasons, with a share price that has dropped from just over $0.07c in early June to less than $0.05 at the close of trading yesterday. The last few trading days have seen falls of six to over twelve per cent, admittedly on low volumes.
But the most serious issue appears to be the internal struggle between the “NT’s only billionaire” Jerry Ren and smaller shareholders.
Ren controls approximately 78% of Sherwin, either directly through his own holdings or those of companies he controls, Citizen International Investments Pte Ltd (incorporated in Singapore) and Citizen International Investments Limited.
On 30 May 2014 Ren proposed a number of actions relating to the reconstitution of Sherwin’s board that included the immediate appointment of he and two nominees to the board (Ren was appointed as Managing Director in August 2011 and resigned in August 2013). Ren also sought the removal of Barry Coulter (previously an NT politician) as Executive Chairman and his re-appointment as Deputy Chair and limitations on the activities of long-term Director Rodney Illingworth, including prohibiting Illingworth from speaking to Sherwin’s lender.
Ren also sought an audit of Sherwin’s accounts and new limits on expenditure to be subject to the Chair’s approval. If the Board did not approve Ren’s proposal, he would immediately call a shareholders meeting.
The Board considered the proposal and rejected it. In the ASX Announcement detailing Ren’s proposal, Executive Chairman Rodney Illingworth gave notice of the company’s intent to conduct a Rights Issue and a Share Purchase Plan which together would more than double Sherwin’s current share issue to a total of 1, 536 million shares.
On 9 June Sherwin announced that Ren had written a letter demanding the immediate withdrawal and cancelation of the 6 June Rights Issue and Share Purchase Plan. In consideration of the “need to complete approvals and to develop the extensive infrastructure required” and to repay debt, the Board refused Ren’s demand.
Later that day the Board announced that Ren had served a notice requesting the company hold a general meeting of members of the company seeking resolutions that included the (re)appointment of Jerry Ren as Director and the removal of Executive Chairman Rodney Illingworth and two other Directors.
The flurry of activity continued with the resignation of another Director on 10 June 2014 followed by the appointment of a replacement on Friday 13th June.
The General Meeting called by Jerry Ren on 9 June must – on my calculations – be held before the end of August 2014.
The closing date for acceptance of applications by existing shareholders for the Share Purchase Plan is 30 June 2014.
Overnight Sherwin announced details of its Security Purchase Plan and its Non-Renounceable Pro-Rata Issue Offer documentation.