Having received the missive from Mrs Ran Xu of Lomon Billions...

Having received the missive from Mrs Ran Xu of Lomon Billions (LB) Group, reviewing the IMA commentary and having some time on my hands due to involuntary COVID19 isolation I decided to look into the matter in some detail, and an interesting tale emerges…

It appears that leverage is being applied by LB Group via Oriental Zirconic (OZ) and Murray Zircon (MZ) to take control of the Image board. The LB group (market cap $5.12B) Chairman and President is Chinese billionaire Gang Xu (current worth US$1.5B, according to Forbes), who also chairs OZ (market cap $2.3B). You wonder also if erstwhile correspondent and nominee IMA director Mrs Ran Xu and Mr Gang Xu, both of LB group, are related? husband & wife? father & daughter?

It’s interesting to see the effect of intercompany leverage which allows an individual to gain control of a company despite not even being a substantial shareholder, which is reminiscent of the era of swashbuckling ‘80’s aussie entrepreneurs’, Bond, Skase, Elliot, Holmes a’Court et al.

Gang Xu controls LB group as President and Chairman and holds 7.2% of LB, LB group owns 23.6% of OZ, which Gang Xu also chairs, which in turn owns 67% of MZ, which owns 23% of Image. So by my calculation Gang Xu and the LB group, while holding the equivalent of only .025% and 3.5% respectively of IMA equity, have leveraged themselves into a position to attempt to take control of the IMA board, and thereby not only control of the HMC product offtake but also all of the reserves, assets and future cashflows of Image! Maybe this is why IMA have been on a cash spending spree of late with Sheffield Resources and buybacks, trying to take some of the sugar away that is attracting the ants perchance?

The other interesting aspect is the apparent resistance to the LB pusch from current OZ and MZ directors. In addition to the legal correspondence received (28th Feb IMA announcement) regarding lack of MZ board resolutions authorizing the issuing of the 203D and 249D notices from MZ director Mr Songhui Xu (yet another Xu…) MZ’s current representative on IMA’s board include current MZ chairman Mr Chaodian Chen, who is also the founder, Deputy President (to Chairman Gang Xu of all people) and second largest shareholder of OZ. And he is being removed supposedly at the instigation of MZ!!! Added to this is the call to remove current MD Patrick Mutz, who was the former CEO of MZ, and it just gets weirder and weirder.

Looking at the substance of Ran Xu’s letter, the main issue of concern she raises are that IMA failed to take advantage of the strong zircon spot prices in China in 1H/2021, which despite increased sales volumes, led to a decline in EDITDA to A$29.3m in 1H/2021. This assertion was basically dismissed by the TZ Minerals consultant report included with the Notice of Meeting. She also argues that the Image board has “‘no direct contact with consumers” of the end Zircon and ilmenite products and therefore “no direct access to market insights in the company’s target markets” This statement may come a surprise to the directors she is attempting to replace, Chaodian Chen, who as noted earlier is the founder and VP of OZ and Chairman of MZ, and Patrick Mutz & current IMA chair Robert Besley, each with 40 +years experience in the mining sector.

As to the experience of the LB/MZ board nominees, Mrs Ran Xu herself is variously described as ‘Assistant President- LB Group’ and ‘Associate President for Strategy of LB Group’ but fails to mention any particular qualifications, employment history or experience. This is pure speculation but just possibly her major attribute is being a relative of Mr Xu? Mr Choahua Huang is described as the COO of OZ and a VP of the Chinese zirconium and titanium industry association, who in comparison to Mr Chen whom he is nominated to displace, would appear to be less experienced and qualified. Mr Graham Hewson “had over 25 years experience at Tronix”, which according to his LinkedIn profile included stints as a GM at Tronix in W.A. and a VP at Cristal in Switzerland, and is currently self employed as a Business Consultant. At least he appears to have the advantage of residing in Perth rather than the PRC, so it should make it easier to attend board meetings.

Of the other IMA board members “who have been asked to remain on the board” Mr Peter Thomas with his experience as former IMA chair and founding chair at Sandfire Resources in W.A. would appear to be a keeper, Mr Huangcheng Li with his 15% holding of IMA would be a stayer anyway, but Mr Aaron Chong Veoy Soo with his law practice based in Malaysian would not appear to bring much in the way of industry expertise as a director of an Australian based sand miner.

My reading of the publicly available information would indicate that this is an attempt by a minority shareholder in Mr Gang Xu of LB group, possibly after a falling out with Mr Chaodian Chen, to leverage his influence on his corporate underlings to wrestle control of the board on Image Resources in order to control not only the offtake of HMC concentrate, but also the assets and cashflows of Image. Given MZ’s 23% holding, Huangcheng Li's (via Vestpro) 15% holding, and various merchant bank nominee holdings totalling around 14%, LB Group may well be on the cusp of controlling sufficient votes to overturn the current IMA board.

If the vote were to go against the current board, IMO with the issue of lack of a MZ board resolution authorizing the 203D and 249D notices and a clear demonstration of practical control of an Australian listed public company passing to a foreign individual/entity, there would be plenty of scope for an ASIC/ASX investigation and FIRB review into the matter.