Silicon valley, a financial minefield

Friday, 17 June 2016

Half way between Invercargill and Gore is a gently rolling, forested tract of land known as Pebbly Hill.

The land is owned by a forestry company, but underground lies a vast deposit of silica that businessmen half a world away would like to get their hands on, but so far, efforts to mine it have been frustrated.

Smelted into silicon for computer chips and solar panels, the deposit could be worth billions, according to those behind a proposal to exploit it, but it will also cost up to $6 billion to extract the mineral and build a refinery.

Fifteen years after the project was first mooted, and four years after the directors announced they would raise capital through an NZX listing, not a stone has been turned and investors' money has dried up.

READ MORE: Mining industry offers industry growth opportunities but also poses risks

Now, several investors are angry that nothing has come of the project and are upset with the way it has been managed.

Driving the venture from South Africa is Andrew Cecil, a former rugby-playing Welshman in his 70s who is linked to gold and oil projects in Liberia.

Cecil's Amalia Gold Corp, based in Johannesburg, struck a deal with Liberian President Charles Taylor in the late 90s to exclusively develop the country's mineral resources, but it went broke.

Cecil's interest in New Zealand goes back 20 years to when Kiwi Tony Baker walked into the Amalia Gold offices and said he was looking for investment in a gold mining project in Southland.

Baker was a director of Aurum Reef Resources which had a gold mining permit for Pebbly Hill. The Africans jumped on board, and there was talk of a $2.4 million injection, but the money never arrived. 

'When they got out here, they set up this new company called Commonwealth Resources,' Baker says.

Some Aurum Reef directors and shareholders went with the Africans, the company went into liquidation and Baker spent the next 20 years rebuilding a new company.

It turned out there was no gold at Pebbly Hill, but there was something else that was potentially valuable - silica. A subsidiary company of Commonwealth Resources was formed, Silicon Metal Industries (SMI), to develop the proposal and an exploration permit obtained from NZ Petroleum and Minerals.

The man who was appointed to run the New Zealand operation was Michael Hawarden. A former deputy chairman of the South African mining conglomerate JCI, Hawarden had retired to Christchurch and was a director of Solid Energy.

Hawarden could not be reached for this article and left the board in 2012.

Graeme Walker, an Invercargill air traffic controller who had invested in some of the African companies, was also appointed a director.

The directors of SMI went public with their plans in the early 2000s and began raising money from investors, mostly in Hong Kong and South Africa, but nothing much happened for several years.

'We went through great difficulties - obviously New Zealand is not a country that is welcoming to mineral development,' Cecil said.

When the National Government came to power things ramped up, and in 2011 a proposal was put forward for a public float and two new companies were formed for this purpose, Millennium Mineral Corp and a subsidiary, Cornerstone Mineral Corp.

Shareholders in Commonwealth Resources and SMI were offered shares in the new entities, but the listing never happened. The two original companies were wound up and shareholders say they were left with nothing.

Meanwhile, the silica project had struck a major problem.

It appeared there had been an error during an iwi land transfer deal decades earlier and the mineral rights at Pebbly Hill weren't owned by the state at all, but the University of Otago.

SMI had been paying about $8000 annually for an exploration permit for more than 10 years to the wrong entity. 

The directors chose to negotiate an exploration deal with the university. Sources say royalty payments of $125,000 have to be made every six months.

The university would not respond to questions about the payments.

After the deal was struck, Cecil and his finance man, Peter Trickey, argued over the way forward, Trickey claims.

'I said to Andrew 'you've got to prepare a prospectus and do a bankable feasibility study ', which would cost more than $4m,' Trickey said. 

Cecil said he thought the feasibility study could be carried out later.

Trickey walked away in 2013. He said he believed only about $600,000 was raised in his time.

The money went into a Dunedin law firm's trust account and was spent on the exploration permit, legal fees, travel expenses and other costs, he said.

Mervin Hannay, who invested in various Cecil companies and also worked for him to prepare a stock exchange listing in South Africa, said company databases suggest $6.3m was raised from investors in the New Zealand companies, paid into bank accounts in New Zealand, Hong Kong, Switzerland and South Africa.

Of that, $1.2m came from New Zealand investors, he said.

A South Africa-based director of SMI, Kevin Watson, said it would be difficult to determine how much was raised because accounts were not published. 

Watson said one of the lynch pins of the fundraising effort, Alan Curtin has recently died. further complicating matters.

Investors have been sharing information online in an effort to find answers.

Len MacLeod of Hong Kong summed up the situation in an email last year. 

​'A number of shareholders have either died, or are in ill health, or retired…with nothing to show for our years of financial contribution.'

Walker resigned as a director last year and also emailed shareholders.

'I feel very strongly that it is most unlikely our investments will ever come to anything tangible,' he wrote, adding that he was 'extremely angry and upset' by what he regarded as a lack of governance and accountability from the management team in South Africa.

He wrote that without a significant financial injection from the South African management team - who he claimed had been promising the money by 'the end of the week' for the better part of a year - the project was 'doomed to failure'

Craig Copland of Otago, who along with his late father Ken became involved with Cecil during their time working in the mining sector in South Africa, said he was unhappy with the fact it took a decade to discover who owned the rights to the silica.

'Once you've got your shares and you've invested all your time, your money and your effort, you really don't want to see it disappear. And so by that stage you're just another passenger on this massive bus, hoping someone might give you back some money some time.' 

But Cecil meanwhile remains upbeat about what he calls 'a very important project for New Zealand' and claims there will be another attempt to list the Cornerstone company, once further research work is carried out.

He says allegations about his business background which has included an investigation into several of his previous companies by the Department of Trade and Industry, come from business rivals who want to take over the project. 'There was no action taken because there was nothing to act upon,' said Cecil.

'The stories are there to try and make it difficult for us to list, try to make it difficult for us to raise the money.

'It's one of the biggest and best projects in the world. It's quite simple, we are here to stay.'

Separately, mining organisation Stratarra's chief executive, Chris Baker said there was additional burden in mining silica because there was no shortage of the mineral. 'It is one of the most common elements in the earth's crust,' said Baker.

'With a silica deposit there are marketing issues, which are additional to the usual challenges of mining. The quality of the silica is important and a customer or customers who want that particular quality often need to be identified to win investment. it is hard to get into the market. You need someone who is a user of the silica to do a deal with you.'

Baker added that waiting many years for anything to happen was not unusual because of these issues.