- Joined
- 1 January 2005
- Posts
- 78
- Reactions
- 0
An email I sent to the ASX the other day, in response to an email I had received from them to my earlier complaint...
I feel the role of the ASX in relation to the CSM scheme of arrangement appears to be one of a toothless tiger. That is not a slight on the people or the company itself, but rather that there is a large hole through which the director and CEO of any company can avoid giving timely and accurate information. The ASX takes the position that their jurisdiction is limited, and that the timely disclosure rules are "superseded by the requirements of the Corporations Act and the onus of the independent expert's to form a view on the adequacy and reasonableness of the offer". Unfortunately, the fact that independent "experts have relied on information from the directors" rather than undertake sufficient investigations themselves, means there exists the opportunity for directors/CEOs to unreasonably influence the outcome of the "independent" report. This influence could come from omission of information rather than any deliberate lying. This presents an opportunity for unethical directors/CEOs who stand to gain personally from such an omission. I stress that this is a general statement and not necessarily indicative of the actions of the board and CEO of CSM. However, it is clear that they stand to benefit from such a transaction with Pallinghurst going through, and therefore their position is unquestionably compromised. In such situations I feel the ASX should be trying, through all available means, to protect shareholders from any potential unscrupulous dealings.
In the case of CSM, it has historically been a manganese stock, that is, manganese is its main commodity. It was the major contributor to H1 07 EBIT (p5, ASX presentation 23/2/07). However, manganese pricing is 'murky'. The manganese price has gone up from US$2.85 in March this year to US$6.35 per manganese unit (dmtu) CIF on June 14 this year. Given it seems CSM negotiate prices every quarter, this dramatic rise has not yet been put to the market by CSM, possibly because it has not been finalised. Based on a recent article in the AFR on June 15 (Talk of split over $625m ConsMin bid, by Michael Vaughan), I believe they are currently in discussions regarding setting contract prices for next quarter. CEO Mr Baxter stated that "indications were that prices had risen from the first half of 2007", although he did not state the magnitude of the rise. However, a rise similar to what I've just described will clearly have a dramatic effect on the income and profit for CSM, yet the magnitude of this rise has not been adequately disclosed to the market. Can I suggest the ASX ask CSM to state the current manganese market price as quoted by a reputable source, eg Ryan's notes (see Rimtalay's emails for this information) and at the same time get them to state what their contracts have been set at over the past year. I feel this would not force CSM to disclose their "inner workings" regarding contract negotiations, but would allow the 'mum and dad' shareholders to appreciate the marked increase in manganese prices over the current quarter.
To give you a bit of an understanding, below is a comparison of manganese market prices (CIF) and CSM-received prices (FOB) over the past year. Based on the current negotiations, I assume the price in the month preceding each quarter is of most relevance.
July '06-Dec '06: CSM = US$2.10/dmtu, FOB. Mn price May '06 to October '06 = US$2.30-2.45 CIF
Jan '07 -June '07: CSM = ~US$2.5/dmtu, FOB. Mn price mid Nov '06 to end March '07 = US$2.70-2.90 CIF.
This means conversion of CIF to FOB costs about US$0.3-0.4 per dmtu. Even of this increases 100%, it still is only US$0.6-0.8/dmtu.
The current CIF price for June '07 ranges from US$4.90-5.20 at the start of the month to US$6.20-6.50 now. As you can appreciate, the FOB price negotiated in June should be in the range US$4.10 to US$5.70. At the low price of $4.10, this is still 60% above the price received in the last half, all of which essentially becomes profit. After mining costs, this means an increase from about A$9.5M per quarter to A$32M before tax and corporate overheads, even at the low price. Clearly the extra $22M drops to the bottome line after tax, or about $15M NPAT EXTRA in ONE quarter. To put that in perspective, H1 NPAT for ALL operations was only $10.2M. That is why I feel this development is material and requires the ASX to pursue CSM and get them to reveal this manganese pricing information.
I look forward to your response on this matter.
I feel the role of the ASX in relation to the CSM scheme of arrangement appears to be one of a toothless tiger. That is not a slight on the people or the company itself, but rather that there is a large hole through which the director and CEO of any company can avoid giving timely and accurate information. The ASX takes the position that their jurisdiction is limited, and that the timely disclosure rules are "superseded by the requirements of the Corporations Act and the onus of the independent expert's to form a view on the adequacy and reasonableness of the offer". Unfortunately, the fact that independent "experts have relied on information from the directors" rather than undertake sufficient investigations themselves, means there exists the opportunity for directors/CEOs to unreasonably influence the outcome of the "independent" report. This influence could come from omission of information rather than any deliberate lying. This presents an opportunity for unethical directors/CEOs who stand to gain personally from such an omission. I stress that this is a general statement and not necessarily indicative of the actions of the board and CEO of CSM. However, it is clear that they stand to benefit from such a transaction with Pallinghurst going through, and therefore their position is unquestionably compromised. In such situations I feel the ASX should be trying, through all available means, to protect shareholders from any potential unscrupulous dealings.
In the case of CSM, it has historically been a manganese stock, that is, manganese is its main commodity. It was the major contributor to H1 07 EBIT (p5, ASX presentation 23/2/07). However, manganese pricing is 'murky'. The manganese price has gone up from US$2.85 in March this year to US$6.35 per manganese unit (dmtu) CIF on June 14 this year. Given it seems CSM negotiate prices every quarter, this dramatic rise has not yet been put to the market by CSM, possibly because it has not been finalised. Based on a recent article in the AFR on June 15 (Talk of split over $625m ConsMin bid, by Michael Vaughan), I believe they are currently in discussions regarding setting contract prices for next quarter. CEO Mr Baxter stated that "indications were that prices had risen from the first half of 2007", although he did not state the magnitude of the rise. However, a rise similar to what I've just described will clearly have a dramatic effect on the income and profit for CSM, yet the magnitude of this rise has not been adequately disclosed to the market. Can I suggest the ASX ask CSM to state the current manganese market price as quoted by a reputable source, eg Ryan's notes (see Rimtalay's emails for this information) and at the same time get them to state what their contracts have been set at over the past year. I feel this would not force CSM to disclose their "inner workings" regarding contract negotiations, but would allow the 'mum and dad' shareholders to appreciate the marked increase in manganese prices over the current quarter.
To give you a bit of an understanding, below is a comparison of manganese market prices (CIF) and CSM-received prices (FOB) over the past year. Based on the current negotiations, I assume the price in the month preceding each quarter is of most relevance.
July '06-Dec '06: CSM = US$2.10/dmtu, FOB. Mn price May '06 to October '06 = US$2.30-2.45 CIF
Jan '07 -June '07: CSM = ~US$2.5/dmtu, FOB. Mn price mid Nov '06 to end March '07 = US$2.70-2.90 CIF.
This means conversion of CIF to FOB costs about US$0.3-0.4 per dmtu. Even of this increases 100%, it still is only US$0.6-0.8/dmtu.
The current CIF price for June '07 ranges from US$4.90-5.20 at the start of the month to US$6.20-6.50 now. As you can appreciate, the FOB price negotiated in June should be in the range US$4.10 to US$5.70. At the low price of $4.10, this is still 60% above the price received in the last half, all of which essentially becomes profit. After mining costs, this means an increase from about A$9.5M per quarter to A$32M before tax and corporate overheads, even at the low price. Clearly the extra $22M drops to the bottome line after tax, or about $15M NPAT EXTRA in ONE quarter. To put that in perspective, H1 NPAT for ALL operations was only $10.2M. That is why I feel this development is material and requires the ASX to pursue CSM and get them to reveal this manganese pricing information.
I look forward to your response on this matter.
