Arriums, page-9

Just read the prospectus for the $754 million capital raising in October 2014. Starting on page 39 are and going on for a few pages are the Key Risks of taking up the rights entitlement.

None mentions in specific detail if they price of iron drops below the break evern price of US$73 per tonne, that and the Southern Iron Ore Mine has to be closed (bought from WPG in November 2011, and haulage contracts renegotiated in June/July 2012 for tonnages moved but not the length of the contract - apparently it extends out to June 2017) what those ongoing costs are and for how long i.e. when they expire.

While there a vague comments about the risks of a lower iron ore price I could nothing by way of detail as to the large amount of shareholder money that is required if Southern Iron has to be closed and for how long.

There is a chance that this is inadequate disclosure in a rights issue - should investors not have been told if it has to close if Iron Price price drops below US$73 per tonne, that another $60 to $70 million per year has to be paid out to haulage contractors due to the fixed term nature of the contract (and its expiry).

Iron Ore price at the time of capital raising was around US$84 per tonne, if it dropped below US$73 per tonne for a sustained period of time, they must have known SI would have to be closed - pity they did not disclose to shareholders the potential costs of this as we do not get to see those contracts.

As things turned out, SI was clsoed only 3 months later and the sharholders were up for a large ongoing costs in doing so - the details of which were not disclosed in the prospectus for the rights issue.

In the early pages there is the smiling dumb chairman Peter Smedley explaining why the board needs the money - for debt reduction in a newer low price iron ore environment. He even goes on to explain why it is a good investment for investors but no mention of Southern Irons ongoing closure costs (if it has to be closed in future) which ran into well over A$100 million. And this dunce was part of the decision to buy WPG in November 2011.

Make no mistake, he claimed it was needed to reduce debt but little detail about the large amount of shareholder money that was needed on an ongoing basis if SI had to be closed - and it was a very material amount too. And only 3 months later SI was closed. Disgrace. And this same Chairmen bought WPG and his management team did not review and where appropriate amend the length of term of the contracts WPG had with signed with Genesee and Wyoming - the rail haualge company.

There may be a case here for inadequate disclosure to an investor prior to making a decision to invest funds at 48 cents. If so, imagine the size of the class action lawsuit - $754 million plus other shareholders who did not invest but were not told these matters at the time - had this been done so, they may have cut their losses and sold out at 38 or 40 cents per share. Potential litigation of non-disclosure if proven in court would be huge.

Only problem is, where would shareholders get the money from - directors insurance?????

We can't waitt to see the KM report into Arrium.

Time will tell.