Dear Chatham Rock Phosphate shareholder or stakeholder,
This announcement has just been released by NZX. The financial statements are attached to this email and will also be available online at NZX and on our website.
Chief Executive Officer
Chatham Rock Phosphate Limited
Cell: +64 21 558 185
Final announcement for the year to 31 March 2015
The results for the year to 31 March 2015 show an audited loss of $27.3 million (2014 loss of 1.42 million) including write-offs arising from the decline of the marine consent application.
The two main components related to the loss were $18.7 million of exploration costs written off and $6 million of costs related to the marine consent process.
While we don’t consider this historic investment wasted by any means, the write-offs reflect both accounting standards and the post-decision decline in the listed market value of Chatham Rock Phosphate.
We remain confident this project has extraordinary merits and deserves to succeed. Given the ongoing support of our shareholders, and assuming an enabling approach by government authorities we believe it will prove to be a significant project of national benefit as well as rewarding your loyalty and faith.
As we have already announced, we are also evaluating a range of diversification options relating to overseas projects. We consider this prudent given the failure, to date, of New Zealand government agencies to tangibly support the development of a marine mining industry.
Your directors are currently disputing approximately $834,000 of excessive costs levied against the company by the Environmental Protection Authority (EPA) in relation to the marine consent application process.
The board is also considering all options to obtain a partial refund of the mining permit fee. The directors have commenced discussions with New Zealand Petroleum and Minerals seeking a 90 per cent refund of the $475,000 annual mining permit fee, paid in full, in respect of the period to 30 June 2014.
CRP will be seeking to have its mining permit fees and work programme obligations put on hold until the marine consent issues can be resolved. It is ludicrous CRP should be expected to pay mining permit fees for a project it is unable to advance without the relevant marine consent.
The EPA decision
CRP would not have proceeded with a marine consent application unless it believed there was a realistic chance of having it granted.
Our application, the culmination of several years of work, can be updated and resubmitted relatively easily once we have gained the required confidence the permitting landscape has changed. This can happen either with legislative change or by revised administrative procedures at the Environmental Protection Authority (EPA) – preferably both.
Our earlier application was both comprehensive and sound, with the initial key areas of contention resolved during the expert caucusing and the hearing.
The Decision Making Committee’s (DMC) consent decline displayed lack of relevant expertise, in particular the inability to contextualise the impacts of our operation within either the Exclusive Economic Zone or the Chatham Rise. This legislation is clearly not achieving its purpose to promote the sustainable management of the natural resources of the Exclusive Economic Zone and the Continental Shelf.
The EEZ Act is flawed, as is the manner in which the EPA has interpreted it.
Without changes to the law or administrative procedures there is very little likelihood investors – including those operating in both the minerals and oil and gas sector – will consider investing in any future New Zealand projects. That is evident from the almost complete lack of financial support from international investors for our just-completed share issue.
Having been on the receiving end of a very expensive decision to decline, we believe the law can function more fairly and effectively for all parties. These include:
1. The Act needs to clarify the purpose of the Act, so it is enabling of resource development, as was its intention, rather than having a sole protection focus. There are inconsistencies between the objectives of the EPA as an organisation (protection) and the EEZ Act purpose (management), but it is the purpose of the legislation that must prevail. The Act’s purpose is a management rather than a protection role.
2. The appeal provisions are unworkable and should go or be radically changed. It is futile for an appeal on points of law to go to the High Court and then back to the original decision makers who are unlikely to be willing to change their minds.
3. The Act needs to put risk and uncertainty into its proper context, consider the materiality of the risk, and look at changes to information principles, which are inappropriate when applied to the 4 million km2 EEZ. Changes also need to remove the "uncertainty refuge" and not allow multiple counting of precaution.
4. The Act needs to be clear about applying adaptive management principles as they work in the real world – this is by learning (and adapting) by doing as an integral part of a project.
5. There needs to be a clearer definition of "existing interests".
6. The Act needs to allow for the environmental and strategic benefits of a project to be evaluated alongside economic benefits and these in turn need to be properly balanced against environmental effects that cannot be managed or mitigated.
7. As part of the revision of relevant legislation, the Benthic Protection Areas need to be abolished and absorbed into broader marine protection areas and the need for other statutory approvals, such as under the Wildlife Act should be rendered unnecessary if marine consent is granted.
CRP has initiated discussions with the EPA’s board and management. They relate to:
· The organisation adopting an enabling rather than protection-focused culture with regard to managing the EEZ legislation.
· Changing the decision-making committee model so it has permanently available people with competence in relevant science, finance and economics.
· Enabling a more iterative/interim decision-making process that is not binary and allows for areas of concern or confusion to be clarified. The focus should be on finding a way to permit activities with appropriate safeguards rather than setting an impossibly high bar.
· Reviewing the level of involvement by submitters who have opinions rather than providing expert evidence.
· If applicants reapply, they should not need to re-present areas already in agreement. Nor should applicants be expected to pay for such rework.
We have paid $6 million in costs directly associated with our application to the EPA alone, and shareholders have now invested more than $33 million in this project.
We understand the need for user pays but the costs charged to CRP were exorbitant. We have told the Government, and the EPA, that the EPA must minimise costs for applicants and stop waste and extravagant spending. CRP is concerned it has paid extremely high costs for the EPA to learn a new regime and work through teething issues. This is not acceptable. The Government should be funding the EPA learning curve, not applicants.
Going forward, assuming we resubmit our application, we do not expect to pay twice for the errors of an unprepared organisation and inadequate legislation and processes. The learning curve needs to be shared among the parties and we believe we have already paid significantly more than our fair share.
The way forward
CRP’s board has spent the past three months evaluating the marine consent decision to determine the most appropriate path forward, as part of assessing our overall business strategy. As part of the reassessment process, the directors have dramatically scaled down operations until such time as a resubmission of the marine consent application is deemed appropriate.
Regardless of the future of CRP’s Chatham Rise project, the board has determined CRP will evolve from its single project focus into a more diversified company, principally involving other phosphate projects, both on and offshore. Accordingly our 2012 exploration licence applications off shore Namibia are being followed up on. Further, due diligence is being undertaken in respect of a number of phosphate assets based both on and offshore in Australasia, North Africa, Southern Africa, Canada, USA and South East Asia. They range from green-field exploration projects, to those in development and near-to-production. Other marine mining opportunities involving other commodities will also be evaluated by our team.
The main drivers for this evolution in our strategy is not only the desire to reduce investor risk, but also to take advantage of (and therefore retain) the significant institutional knowledge and expertise within our management team and our partner organisations. This knowledge spans marine and environmental science, the development of offshore mining projects, and extensive knowledge of the phosphate market, both locally and internationally.
We also consider that CRP’s ability to finance the eventual resubmission of the marine consent application will be enhanced if both existing shareholders and potential new investors don’t face the same binary EPA-decision risk as in the past.
The acquisition and development of these new projects within CRP would be significantly easier if CRP was listed on a more recognised and liquid overseas stock exchange. The Toronto stock exchange is the most logical one as it is a leading exchange for mining stocks and also has a major fertilizer component.
Directors considered various options for the most cost effective way of listing and identified a reverse takeover of an existing TSX.V listed stock as most effective. That process has started and our identified “partner” Antipodes Gold, is currently undertaking due diligence on CRP.
Outcome of the rights issue
CRP has just issued 102,205,156 ordinary shares to existing shareholders at an issue price of 0.6 cents per share.
The offer raised approximately $613,000, which will be used to fund CRP’s continued operations and for costs related to the proposed merger with Antipodes Gold. CRP is in discussions with a number of qualified investors with a view to placing the shortfall from the recent rights issue to raise funds of approximately $760,000.
The issue was particularly well supported by New Zealand based shareholders, for which the board is grateful. However the almost universal lack of support from our major overseas shareholders is concerning both to CRP and a very clear indication that many international investors no longer consider the resources sector in New Zealand a viable investment destination. The damage caused by the EPA’s decision to decline our marine consent application has much wider sovereign risk related consequences than just its impact on CRP.
While the past year has involved a significant setback, it’s worth revisiting the fundamentals of our plan to extract phosphate from the seabed more than 250 km from the nearest point of land. We’ve always believed the critical factors for this project are:
1. Can the resource be defined?
2. Can it be mined?
3. Can the product be sold?
4. Can the project be permitted?
We can put a confident tick along the first three questions. We have also received half of the final permitting question through gaining a mining permit.
Our focus over the coming year is to ensure we can be in a position to confidently reapply for a marine consent, to complete the final tick in the box.
At the same time we intend to ensure CRP positions itself for a robust future with a variety of international options, given how poorly the New Zealand permitting regime has so far served its purpose.
Chris Castle Linda Sanders
Managing Director Director
To read the full financial statement - click here