Saturday, 24 May 2014

Shree staggers

Winter is a wild and woolly time down the West Coast of Tasmania.

Even bleaker for those not getting paid as expected.

Shree Minerals announcement to ASX was a carefully worded attempt not to scare the horses too much.

Shree stated : “While the company believes recent iron ore price declines are not reflective of medium term fundamentals and expects demand to continue to grow in the Asian markets, it is taking steps to optimise costs in the prevailing market conditions.”

Essentially what they’re saying is they’ll be able to pay their way if prices pick up.

Other than announcing they’d struck gold with another source of funds that’s all they could have said.

Apart from shareholders, working capital has been provided by Frost Global who have agreed to advance working capital to be repaid at the rate of US$500,000 each time Frost Global receives a shipload of ore

The last thing Shree, or Frost Global would want right now is an insolvency administration taken over by the creditors.

At the end of March Frost Global was owed $2.3 million after receiving $1.6 million in the March quarter following the first shipment of ore.

It’s not known how much they received from proceeds of the second shipment.

Company liquidators always check payments to creditors within six months of the date of liquidation. If voidable preferences are detected the liquidator may ask for the money back, to pay his fees and distribute the remains, if any, to all creditors equally.

From Frost’s viewpoint it is much better for Shree to limp along while Frost tries to claw back what is owed.

So long as Shree can continue to claim a reasonable basis exists to conclude repayment of debts will be possible when they fall due.

Media reports have suggested a 3 month mine closure as time is needed to clear the ore that has been mined and crushed.

At the end of March, there was 42,000 tonnes on hand, enough for the third boatload at the end of this month.

Which means that given a reasonable quarter’s production, there may well be 90,000 tonnes of ore on hand at the mine by June, none of it carted to Burnie as yet, because there’s no room as the May shipment is yet to be loaded.

Creditor repayments can only occur when ore is delivered overseas and assessed for quality.

With mining operations much faster than sales, creditors must be growing.

The shipping company will want paying before it set sails for Burnie. If Shree doesn’t have the ready cash maybe Frost Global will pay. But will the trucking guys cart the stuff to Burnie if there’s a chance they won’t get paid, seeing as though they’re probably owed heaps already. Will Tas Ports accept the trucks or have they deferred fees as the government has done with royalties? Perhaps they all might have to contract with Frost instead?

One saving grace is that the mid year financials as at 31st December 2013 revealed $900,000 in a security deposit to cover future rehab expenses. 

Meanwhile the eight km section of the road north of the Kannunnah Bridge over the Arthur River administered by Forestry Tasmania is unlikely to survive the winter especially in view of Minister Hidding’s unreported decision to allow B doubles to help speed the cartage of ore to Burnie.

It appears an impoverished Tasmanian government may well have to assist an insolvent Forestry Tasmania repair a road which gives them no return for damage caused by a cash strapped tin-pot miner trying to ship ore for the immediate benefit of a wealthy Singaporean commodity trader.

It’s great to see Tassie open for business.

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