A Peculiar Pattern of
Issue 134, August 2015
There is risk-free money to be made in sapphire mining licenses.
Last April, a private Australian company, Gregcarbil Pty Ltd, was granted two mining licenses in Queensland's gemstone district: ML70419 and ML70447. The license area covers an abandoned sapphire deposit and after legal action involving cattle farmers, the price Gregcarbil paid for the land's surface rights was A$203,000.
The payments however were staggered over four years, so the cash Gregcarbil paid upfront was only A$43,000. That too was comfortably covered by an option it had already sold over the licenses for A$120,000, three years before they were even granted.
And within two months of the licenses being approved, Gregcarbil sold them both for a further A$1.8m ($1.7m), including A$1.2m in cash and 18m shares, tradable on the London Stock Exchange. It was a risk-free trade that Goldman Sachs would be proud of, if on a smaller scale.
The buyer was Richland Resources. Well known to investors in London, the company previously owned the world's largest tanzanite mine at the foot of Mount Kilimanjaro. It is led by chairman Ed Nealon, the driving force behind Aquarius Platinum, and director Nicholas Sibley, a former executive chairman at Barclays' investment banking division.
But who is Gregcarbil and how did it land such a favourable deal with Richland Resources?
Announcing the acquisition, Richland described Gregcarbil as “a special purpose vehicle setup especially for the purpose of holding the mining leases”, without giving further details. But that is not how Gregcarbil (pronounced Greg-carble) presented itself to the Queensland government in its application process.
Instead, it had pledged to redevelop the property and rehabilitate its abandoned pits, without disclosing that it had already agreed to sell them. The site overlaps an endangered ecosystem and was previously mined by a listed Australian company, Australis Mining Corp., which failed after it was ordered to cease mining in 2006, having exceeded its disturbance area.
Again, Richland's filings give a less detailed account, saying “Australis experienced inter alia working capital shortfalls during the ramp up phase, which resulted in the company being placed into voluntary administration.”
There is no mention of unresolved legal issues surrounding Australis' breach of its license, nor of the legal action between Gregcarbil and local farmers, including a compensation liability that Richland now carries. Nor are there any further details about the owners behind Gregcarbil.
Caring for Kangaroos
The company that had boxed Richland into a risk-free transaction was run by three locals, including a mother, who spends her spare time talking to tourists and caring for kangaroos. On top of A$1.2m in cash, a local firm had emerged from the Richland deal with more than 8 per cent of Richland's stock. Had they got lucky, were they simply more astute than Richland's board, or was there more to it?
Richland has a history of dealing with opaque companies: it countered a hostile takeover in 2008 by issuing 84m shares to a loop of companies beginning in South Africa, its retail division operates out of Hong Kong and Richland itself is registered to Clarendon House, Bermuda.
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