CMR 0.00% 15.0¢ compass resources limited

draft letter

  1. 12 Posts.
    It may be too late but here is my quickly written draft letter that i am going to send out. Others are free to copy, modify etc.


    I write concerning the former ASX listed company COMPASS RESOURCES LIMITED
    ACN 010 536 820 (CMR) (Subject to Deed of Company Arrangement) (Receivers and Managers Appointed).

    I am a small, longtime shareholder of this company who has become very frustrated and disillusioned by events which have transpired and the disinterest shown by the regulators, administrators and others to take up the cause of small investors such as myself.

    I should begin with a brief history of this company and recent events.

    Compass Resources NL is an Australian minerals exploration and development company with interests in base metals, gold and uranium projects.
    Core activities are focussed on the Rum Jungle mineral field in the Northern Territory of Australia. Compass controls the greater part of prospective leasing in this area.
    CMRs Browns Oxide Project was awarded the Major Project Facilitation (MPF status by the Australian Government earlier this decade and was expected to commence production in 2007 generating export revenue of about $100 million a year. This oxide project was the forerunner for a much bigger Sulphide project which has an in ground value in the order of $15 billion. CMR also hold significant Uranium asset in this region.
    CMR has a joint venture agreement with Hunan Nonferrous Metals Corporation Limited (HNC) to pursue the Oxide and Sulphide projects.
    The Company went into voluntary administration early 2009 after a dispute arose with HNC and the company ran out of cash.
    There were significant delays, cost blowouts and mistakes which resulted in the oxide project not succeeding. There has been much questioning by shareholders about what went wrong with the project and why we were not adequately informed about the true state of affairs. Indeed, to this day we have not been told what actually went wrong, why it went wrong, and who is responsible.

    Many shareholders including myself have made claims to the Administrators (Ferrier Hodgson) detailing our formal proof of debts. This was to enable us to be treated as creditors and have a say in the companys future. All these claims have been rejected without any thorough forensic investigation of our claims taking place. I have attached a document produced by Ferrier Hodgson which summarises shareholder claims and gives the Administrators response to each of these claims. Most of these responses are lacking detail and clearly indicate that little if any investigation was undertaken.

    The administrators are now proposing a Variation of Deed of Company Arrangement, whereby Compass will be restructured, be 95% foreign owned and small investors such as myself will be the big losers. Australia will lose assets of major national significance and future generations will not benefit from the wealth these generate. The small investors who helped originally build up this company, and provided the capital during the long years of exploration are left with nothing. This just seems wrong, especially when those who contributed to the companies demise are not even investigated.

    I have also attached a copy of my claim to the administrators to illustrate the real financial loss I have experienced. I had such confidence in CMR (based on statements made by our directors) that I invested much of my young disabled sons savings to enable him to share in the future prosperity the Compass assets would generate. This was to help him become self-sufficient and reduce the possible burden he may become to our welfare system.

    Can you please investigate the story of Compass Resources and encourage ASIC and other relevant bodies/persons to do the same, because the voices of many small shareholders are being ignored.

    Kind regards,

    Claim details

    What was the information relied upon and how

    On the 2nd July 2007 AspectHuntley, the respected Stock Research Company, released a very positive report with a Buy recommendation for CMR stating an intrinsic valuation of $7.40 per share.
    Based on this report, during the month of July I accumulated 7800 shares over five separate transactions dated 20/07/07, 27/07/07, 31/07/07 and 31/07/07.
    On the 9th August 2007 Compass released a Substantial Global Road-Show Investor Presentation which painted an even more positive picture of the company generally, including the Oxide Project.
    This presentation attributed a value of the Sulphide Project alone of between $6.40 and $21.93 per share.
    Based on this report I purchased a further 10000 shares on 13th August 2007 bringing the total number of shares acquired during this period to 17800.

    Specific sections of the Huntley report I relied upon include;

    Of our marginally higher $7.40ps CMR valuation, the Oxide project comprises $1.52ps and the Suphide project $3.25ps, albeit we still halve the Sulphide project value to reflect its early stage. This conservatively assumes 50% probability of success. Long term assumptions of US $1.75/lb copper, US $15/lb cobalt, an A$/US$ exchange rate of ).76 and a 10% discount rate remain. We upgrade nickel from US$5.00/lb to US $7.00/lb. Using spot prices markedly increases the valuation to over $12ps, again including only half the sulphides.


    The Oxide project remains on track for the revised October start with capital cost estimated at $83m together with $21m working capital.

    Three weeks later on the 30th August 2007 the company made first mention of the Oxide delays and cost overruns. There was very little detail provided and therefore I assumed this was a minor setback.

    I considered selling my Compass shares on a number of occasions over subsequent months however each announcement released by the company was scant on detail, leading me to believe Oxide production was imminent. I was also reluctant to sell given the share price was dropping and I was already incurring a paper loss.

    Given the scale and nature of the ongoing problems that have occurred with the Oxide project, I consider it unreasonable to believe that the Directors and Management were not aware of the problems with the Oxides at the time they provided positive reports to both Huntley Analysts and the Market.

    Listing rule 3.1 from the ASX requires an entity, once it becomes aware of any information
    concerning it that a reasonable person would expect to have a material effect on the price or value of the entitys securities, to immediately tell ASX that information.
    The definition of aware in Chapter 19 of the listing rules states that:

    an entity becomes aware of information if a director or executive director (in the case of a trust, director or executive officer of the responsible entity or management company) has, or ought reasonably to have, come into possession of the information in the course of the performance of their duties as a director or executive officer of that entity.

    Furthermore, paragraph 17 of Guidance Note 8 states:

    Once a director or executive officer becomes aware of information, he or she must immediately consider whether that information should be given to ASX. An entity cannot delay giving information to ASX pending formal sign-off or adoption by the board, for example.

    Had the full detail of the Oxide problems been reported appropriately, I would have sold my complete holding of CMR.
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.