an open letter to kbl

The pace in which this share purchase plan and accompanying GM is being put in to play is astonishing. It’s about the fastest I have ever witnessed. That and the voting wavers from ASX make one very curious as to why the great hurry. Frankly, the shareholders need more detailed operational information from the Board before risking more money on non-performing shares.

The supposed reason for the hurry is stated by Chairman Wall as follows: “The SPP funding will, subject to the quantum of funding raised, enable the Company to continue funding its 75% share of the costs of the Sorby Hills Feasibility Study, to start drilling the SOZ and ESOZ copper-gold Resources at the underground Mineral Hill Mine in preparation for detailed mine planning and to otherwise supplement its working capital”.

To press the point another announcement headed “Novel Share Purchase Plan” on 3rd of July CEO Trangie Johnston clarifies the features of the unusual 50/50 offer. All of this has the appearance of desperation. It sounds very much like the Board has too much on their plate and is trying to finance too many projects at the one time. How about trying to get the pathetic KBL share price from the 4’s to say the 10’s by finally starting to make a profit through Mineral Hill. With all the great assay results for Red Terror we all expected the Board to concentrate on exploiting the find to make KBL profitable.

It was only back on 24th May that an announcement arrived titled "Operations and Strategy Update". We read in that announcement that Mineral Hill was not yet cash flow positive and planned targets were not yet achieved. Changes were afoot such as staff reduction from 99 to 54 resulting in a work place reduction of 16% and an 18% cost saving implemented. Even more overall site cost reduction was stated as being implemented mid July to achieve a reduction of 34% coming in July. And yet more cost reductions being achieved by changing shift arrangements resulting in ore through put dropping from 25000 tonnes to 17000 tonnes (28% reduction). All this while Copper and Gold production not being expected to be reduced significantly due to higher mining grades coming for Red Terror.

The update also mentioned proposed reductions in the Director’s Remunerations. One would hope so. For example, the 2012 Published figures for Exec Chairman Jim Wall totaled $660000 included a cash bonus of $281000.00. A number of shareholders I have spoken to are asking why any bonus money should be freely given to directors at all while ever the Company runs as a loss.

Also this 24th May Operations and Strategy Update lacks clarity and shows indecision in respect to what the Board are intending to actually do with Mineral Hill and Sorby Hill. Their Review of Corporate Strategy and Funding section of the 24th May announcement indicated the Board are thinking aloud about selling parts of the company. Possible liquidation of one of the two major parts of KBL may in fact be an advantage.

As of the 12th July the original cost of KBL shares and KBLGA notes which my family controls, ads up to over $900,000. Their actual value on the ASX at that date is about $570000. That is a paper loss of $330000. I have been a strong supporter of KBL since they began operations as well as their preceding company CBH. However. The current situation keeps me awake at night.

Our family will not currently be prepared to write a couple of $15000, cheques for our two Companies to participate in this SPP without the Board enlightening the shareholders as follows.

Firstly, in view of the Mineral Hill related changes described in the Operations and Strategy Update, the shareholders before voting and buying shares need to be informed as to what is the current status, performance and profitability wise of Mineral Hill in view of the improvements mentioned therein.

Secondly. In KBL’s case, how much advantage has the drop in the AUD had on the selling price of KBL Copper and Gold. Conversely: In KBL’s case, how much advantage has been lost with the reduction on Copper and Gold world prices.

Thirdly, The now greatly enlarged resource base at Mineral Hill could make it KBL’s Flagship. The very large Sorby Hill recourse sounds attractive but mine development costs are now too expensive. The Board, I believe should not at this time let their aspirations run away with their financial capabilities. Please think again about Sorby Hill Feasibility to KBL. Is it really necessary?