Accounting rules are absurd says Chatham

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The directors of Chatham Rock Phosphate have slammed the international accounting rules that mean 10 percent of its mining project is worth four times more than the other 90 percent.

In announcing the financial results for the year to March 31, managing director Chris Castle said the International Financial Reporting Standards do not permit the revaluation of mineral properties.

This meant the company has included the 10 percent of the Chatham Rock Phosphate project it bought from sister company Widespread Portfolios in its books for the independently valued price of $3.4 million.  However despite two independent valuations showing the project to be worth $34 million, the other 90 percent held by CRP could only be included in the accounts at $883,000 – the capitalised exploration and project costs.

“This folly results in an absurd hybrid valuation of the project in our books of $4.283 million and in our view significantly distorts our financial statements, an outcome that IFRS was presumably intended to avoid,” Mr Castle said.

He said on the basis of independent valuations from Simmons Corporate Finance and McDouall Stuart, which formed the basis of the transaction to buy 10 percent of the project, the board resolved to revalue the project to $34 million and prepared draft year-end financial statements on this basis.

However auditors informed the directors that IFRS would not permit the revaluation of mineral properties. 

“It’s an issue a number of Australasian mining companies have encountered since the inception of IFRS. Due to this nonsense we now hold in our financial statements 10 percent of the project at acquisition cost of $3.4 million and the other 90% at the capitalised exploration and project costs of $883,000.

The company announced a net loss of $614,000 ($198,000) for the year to March 31, as a result of increased spending on the Chatham Rise rock phosphate project and substantial one-off costs relating to the year-end company reconstruction.

CRP raised just over $1 million from shareholders with about 16 million 10c options still to be exercised by 30 June.

IPO progress

The company is progressing an initial public offering on the Toronto Stock Exchange to finance a detailed work programme to progress towards a mining licence application within 18 months.

A required technical (43 101) report was submitted last week to the TSX and has already been provisionally approved. It has since been circulated to the Toronto investment banks and presentations are being made to them tomorrow.   Drafting of a prospectus has started.
Project benefits

In the report the company detailed the key economic, environmental and market benefits of the project for New Zealand. 

The economic benefits include


  • Import substitution of up to $300 million annually
  • Possible exports to near markets
  • Reduced commodity risk for fertiliser manufacturers and farmers
  • Reduced foreign exchange risk for fertiliser manufacturers and farmers
  • Development of a new industry
  • Generation of additional income tax, GST and royalty income for the local economy
  • Security of supply (most rock phosphate is imported from potentially unstable regimes in North Africa and the Middle East) 

The environmental benefits include

  • Local product is significantly lower in cadmium and uranium than imported product
  • Much lower carbon footprint than imported product
  • If applied as a direct application fertiliser CRP has less run off than super-phosphate, is applied once every three years, and is a more effective, slower acting product
  • Extraction will affect only 1/1000th of the Chatham Rise total area and will be intermittent
  • Extraction will occur in accordance with International Marine Mining environmental guidelines

The market benefits include

  • Much cheaper source than Morocco
  • 25+ years security of supply
  • Known extraction costs will allow fixed price contracts over several years, which will benefit fertiliser companies, farmers and agriculture outputs generally as fertiliser pricing will be less of a lottery.

Further information:
Chris Castle on 03 525 9170, 021 55 81 85 or email chris@widespread.co.nz