auditors caution in 2006 report

A while ago I was considering buying MIS so as to participate in the rights issue at $1.46. I was initially attracted to MIS because of its potential to be a significant iron ore exporter. Further it has the benefit of Sinosteel as a jv partner.

However, after researching the 2006 annual report I became somewhat concerned as to the future of MIS. In particular the auditors Ernst & Young noted at page 77 of the 2006 report as follows:

"Inherent Uncertainty Regarding Continuation as a Going Concern

Without qualification to the opinion expressed above, attention is drawn to the following matter.
As a result of the matter disclosed in Note 1 'Going Concern' to the financial statements, there is significant uncertainty whether the company and the consolidated entity will be able to continue as going concerns and, therefore, whether the Company and consolidated entity will be able to pay their debts as and when they fall due and realise assets and extinguish liabilities in the normal course of business at the amounts stated in the financial report. The financial report of the Company and the consolidated does not include adjustments relating to the recoverability or classification of recorded asset amounts, or to the amounts or classifications of liabilities, that might be necessary should the company and the consolidated entity not be able to continue as going concerns."

It seems that the rights issue which will be worth $38 million and the placement of 20 million shares on 14 May 2007 may have saved the day. But for how long?

MIS does have the advantage of the Sinosteel contributions which are quite significant. They are also exporting previously mined fines. So there is some cash flow. But the auditor's caution was enough for me to remain cautious with repect to MIS.

Finally I was not particularly impressed with management. So, on balance, I felt it may be more prudent to stay out of MIS. Maybe if the auditors give MIS a clean bill of health in the 2007 report I may be interested. Also I would be concerned at further dilution of shareholder funds by possibly further issues of equity. But thats a risk with all the small miners.

Certainly I did not get the benefit of the sp rise that MIS enjoyed but my preferred iron ore investment in MMX has done well too.