A case of the old maximum at the bottom of the Australian stockmarket – when the going gets tough, the desperate go, well, mining – not for gold or copper or whatever, but in the market itself.
We see it at the end of every boom – miners buy shares in each other, or change direction to become biotech, or tech stocks.
And biotechs and tech stocks and other small industrials try to find a new life as a miner of the current hot commodity – whether it’s gold, copper, iron ore, coal, cobalt, beach sands or even into the discredited tax dodges known as managed investment schemes.
And in that vein, here’s one situation the ASX and ASIC have missed that needs more explanation for shareholders, considerably more explanation.
Late last month (June 25) minnow Timpetra Resources (TPR) released a short statement that said it had decided to invest $4.0 million to acquire a 4% stake in an unnamed mining company’s shares.
"Further investment may be contemplated in the same vehicle as part of a broader strategy, the investment is also under the substantial shareholder threshold of five per cent," the company said in the statement.
That immediately raises the suggestion that Timpetra hasn’t told the larger company of its purchase because it doesn’t want to trigger the automatic disclosure laws at 5%. For that reason it doesn’t want to take its owners, the shareholders into its confidence, which it can’t do.
All very secret squirrel.
No further details were released, and no mention of a meeting of shareholders to approve the deal because the $4 million cash is a major asset for the small company.
Timpetra, which is close to the Ord Minnett broking form, waffled on about how it had been looking over a number of prospects in the past quarter.
"During the quarter the Timpetra had run the rule over a number of gold and copper focussed assets and corporate transactions.
"The deterioration in the small cap gold and copper markets and the difficulty faced by companies looking to raise funds in this sector have positioned the company favourably to make an investment.
"The shares in the investment are frequently traded and in sufficient volume which should ensure the company could exit its investment if appropriate.
"The investee business is profitable and has cash holdings which approximate to 40% per share of the price the company has paid for the shares it has acquired to date."
So what? Timpetra directors have failed the most basic disclosure laws – revealing who the invitee company is and asking shareholders for approval.
That lack of disclosure is obviously due to the fact that Timpetra want’s to keep its purchase secret (Would the larger company laugh at the purchase?) or is the company related to TPR or its directors in some way?
What directors clearly don’t understand, or are ignoring that the $4 million was 60% or more of the company’s best asset – the $6 million or so cash on hand.
Directors all but admitted the impact the investment would have on the company’s assets when they finished the June 5 statement by saying:
"Timpetra has $2.0 million of cash and will be unlikely to pay a dividend in the near term."
So rather than use the cash to try and find an investment that can generate returns for shareholders, they are being stiffed for some unknown investment which could be now worth less than that Timpetra paid for it given the fall in the market since late June.
Clearly the existing prospects the company has are not worth very much, because if they were, the cash would be husbanded for a drilling and or further development work.
The deal hasn’t seen a rush for the company’s shares. They remain stuck on 5.5c for the last few days.
2Y TPR – Timpetra’s Mystery Buy Has No Impact On Share Price
A further worry for shareholders (and it must be said for transparency and disclosure) that as of this morning, the company’s website (http://www.timpetra.com/asx-media-release.html) hasn’t been updated since earlier this year when the December quarter report was released.
Since then there have been a number of statements including the June 25 release on that mystery investment. Is the company trying to minimise disclosure?
Another statement was released on July 3 (and is not on the TPR website). It was a substantial shareholding notice and it revealed a company called Iron Mountain (IRM) had lifted its stake in Timpetra to 19% from 17.96%.
Iron Mountain has been a consistent buyer of Timpetra shares now for months – it has built its stake up from 11.4% last September at the time the annual report was issued, to 19% in this week’s notice.
Earlier this week ASIC released its list of areas that it will be watching in the June 30 annual report season.
As AAP reported:
ASIC said annual reports needed to be clearer about basic information.
“We found instances where disclosures about the ability of entities to continue as a going concern were inadequate,” the ASIC report says.
“In some cases entities were reliant on financial support from their parent but this fact had not been disclosed, even though such information can be important to users of the financial report.”
ASIC has also reminded directors that they ought to focus on the operating and financial review (OFR) section of their annual reports this season, following changes introduced in March.
These sections must provide “meaningful” and “useful” information about the “underlying drivers” of the financial performance of companies, with a focus on the quality rather than the quantity of information, ASIC says.
And what about making sure that tiddlers like Timpetra do the right thing and make full disclosure of all investments, as well as getting the approval of shareholders for what looks like a questionable deal?
