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I attended the South Boulder AGM this morning. Before I comment I should state my position. I’m a recent investor in this company – I was mainly interested in adding to my holdings in Independence (IGO). At 70c it seemed a cheap way of adding to my long held IGO investment.

I mention this so that where I’m critical you know where I’m coming from. I should also add that I like to attend AGMs of companies I’ve invested in to get a “feel” for the way the business is being administered.
I’ll miss out all the detail on recent drill reports as they’re well documented. The following is simply my impressions of how the company sees its future. A word of warning, I like to go armed with questions of detail just to see how the front table reacts.

The Meeting
I’d not met either the chairman, Terry Grammer not the M.D. Lorry Hughes before. I’ve done a brief search on Terry and he obviously has an impressive record as a miner. This comes across in his role as chairman. He’s not comfortable addressing a meeting and muttered his way through the business while sitting down, reading hesitantly from a piece of paper. He’s a big man with…………(I’m trying to remember the word to describe his appearance)- ah! Hirsute that’s it! Huge curly beard and a wild mop of hair. Not the usual chairman’s appearance that you see these days. I have no doubt he brings great on-ground knowledge but I left with the feeling that investors asking questions don’t rate high in his estimation.
Lorry gave us the reduced presentation that he had prepared in readiness for what I think I heard correctly - ‘The Mines and Money’ conference next week.
Quite frankly, I think they were surprised by the number attending today’s meeting (between 20 and 30) and I had the impression they’ve not been faced with a questioning group of shareholders before. I began asking questions of the potash story during is presentation (it seemed an informal enough session to be able to do this). After some time taken with explanations of questions posed suddenly Lorry rushed through to the rest of the prepared slides and closed the meeting. I’m now certain they had only hired the room for an hour and being delayed at this AGM wasn’t part of their agenda.
I think Lorry Hughes presents himself well. He’s obviously well prepared to ‘sell’ the potash story and I’ll give some insight in a moment. The nickel project was barely touched. I said that I, and then others, began asking questions of the potash project and when this subject was suddenly left he rushed (and I mean ‘rushed’) through the nickel project with some strange comments indicating that there’s not been much communication between STB and IGO. Terry made a couple of dismissive comments about IGO’s intentions “we’ll be happy if they walk” was an example. Lorry did give some excuses for the lack of progress at Duketon. IGO have only received their mining lease last Thursday. They’ve had problems with the Laverton Council getting permits for the housing for a work force. Aborigine approvals etc.
I’ll get back to you on this after I’ve been to the IGO meeting on Wednesday. I must say I was astounded at the negative comments. Like many others, I believe that IGO has not only a record of exploration success without peer but if ever a company could be labelled with one word, Integrity is the one best suited to Independence Group. But….let me check this out. Lorry did repeat the statement that he believes that the Duketon project is the most exciting greenfields nickel find in Australia. “Nobody has disputed this claim”.

And to Potash. Our MD certainly knows the onsite detail. I gained the impression that he’s visited Eritrea regularly (speaking with his father after the meeting he claimed that Lorry’s family hardly see him). This project that he said that STB picked up for $1,000 is certainly going to be a company maker. So excited are they that the nickel side of things is now “a sideshow”. You’ve heard all the stories about it being a large shallow resource. Numbers are out there of what might be the true size however I was taken with one statement that Lorry made “This project is so big that I’m expecting BHP Billiton to take an interest in what we find”. His reasoning is that the project they are mounting in Canada has such a long start up time (think accountants becoming uncomfortable with no income) that this was the reason why they made a take over bid for MAA. What I didn’t realise is that MAA was originally developed by the Canadian Govt (I’m not sure whether State or Provincial) because they were the only ones with the necessary capital to develop such a deep resource.
You can read the other detail of drill results. I’d looked up info about neighbouring concessions. Allana (Canadians) have a timeline on the internet site – producing by Q1 2012. Lorry doubts they’ll make it but he can’t see STB producing before 1015 “at the earliest”. “ This will be the world’s first open cast potash mine – coal mining processes is the best analogy”.
He has engaged Ercosplan http://www.ercosplan.com/ as consultants. As the meeting progressed I came to the conclusion that this is WAY bigger that a small company like STB can cope with. They’re going to need between “a half a billion to three quarters of a billion development funds”. This must lead to a joint venture.

Now I’ve given you all the good stuff. This is when I began to challenge the front table on questions of Sovereign Risk.
If you’ve got a moment Google Eritrean politics. I’ve followed this country for a couple of decades. I think that the best aspects of its conflict with neighbours Ethiopia (and holders of large potash deposits close to STB’s concession) is Australia’s own Thomas Keneally’s ‘To Asmara’. Since those times the international goodwill has gone desperately down hill.

The chairman was VERY forceful in saying all those reports on the internet are media hype. I won’t go into our argument but I can understand him trying to put my question down – this sort of talk does nothing for the share price. My point that I was trying to make was the similar situation that applied to Laos in the 1990’s. That country’s communist and unsophisticated approach to international affairs was enough to worry Oxiana and Pan Aust shareholders. Those two Australian companies proved to the Laotian Govt that miners can be community developers as well as exporters for the well fare of the nation. They have transformed largely slash and burn societies into communities that have sophisticated aspirations.
Does STB think they can replicate a similar change of political thought in Eritrea? If this is to be a project of regional importance (Lorry’s words) how will the Govt react? What import does the Eritrean Govt want with a project of this size?

I don’t think investors have asked these questions and I got a steady glare from the chairman. In short this is what I hear. The Eritrean Govt is entitled to a 10% input from the outset. By the time of a feasibility study the Govt has the right to buy in another 30% at the market rate. My question was “given the international condemnation of the present administration how the heck would they raise that money?” “Would they in fact just say ‘we’ll pay out of future earnings’”. I again got a poor reception from the chairman and something of a fob off from the M.D. I don’t believe they’re thinking that far ahead.

Interestingly, if you look at the Allana site you’ll see that they’ve brought the Chinese on board. Think what you may on that.

Just to be annoying (chairman’s thoughts) but to see how the top table reacted I tried this question. “On both the Allana site and the South Boulder site you’ve both got diagrams exporting through a Red Sea port of Mersa Fatma. I’ve take a look at that place name on Google Earth and located a few huts but no jetty. I’ve also read on the Eritrean Govt site how they’ve proudly declared all their Red Sea coast line a marine park.” The chairman barked that it used to be a port where salt was exported. Take a look for yourselves.
I know I was just being a serial nuisance but I’ve been going to AGM’s for long enough to see how they stick info on presentations without due diligence.

Summary. The potash story looks to be real and huge. I got an admission that the share price has changed from 60% nickel 40% potash to a reverse of those figures. My own opinion is that this has turned out to be a monster that the company is struggling to come to terms with. I think that they will be privately relieved if someone comes in with a juicy take over submission.
As to the nickel picture, I’ll come back to you after the Wednesday IGO meeting.

Did you note that I’ve not mentioned the GOLD. Neither did they. I think the management team are seriously distracted.

Regards, James