ASIC's Radar

ASIC warns mining companies to disclose any moves into technology businesses

By Nicolas Perpitch
Updated 30 Jul 2014Wed 30 Jul 2014, 4:54pm

Map: Perth 6000
The corporate watchdog has warned Perth mining companies seeking to transform themselves into technology businesses to fully disclose their intentions to the market and shareholders.
The Australian Securities and Investment Commission (ASIC) has identified emerging trends, mainly among small and mid-sized mining and exploration companies, which it said were similar to problems during the dot-com boom of the early 2000s when firms rushed to cash in on the new technology market.
As the production phase of the mining boom eases, a growing number of companies are looking for new ways to expand or survive.
ASIC has identified 12 companies in WA that have already made the change from mining or industrial companies into technology or bio-technology businesses.
The applications of another six firms were pending and the watchdog believed another 22 to 25 entities are also interested.
However ASIC has intervened to improve the level of disclosure or reporting of three of the 12 companies that had made the change.
ASIC commissioner John Price said in some cases the audited financial reports of the incoming company had not been disclosed, despite a legal requirement to do so.
There were also problems with the full disclosure of new business models.
"Where there is this change of business activity there needs to be a good discussion about what the new business model is going to be," Mr Price said.
"And some of the disclosure we're seeing around this unfortunately is not up to scratch at the moment."
He added that shareholders needed to be given sufficient information about any changes, such as capital raising, which involved their approval.
In those cases the company generally needed an independent expert report on valuation of the firm.
Case-by-case reviews underway

Mr Price said there had been concerns with some expert reports, and ASIC was conducting case-by-case reviews.
"In some cases, what's being offered are quite complicated financial instruments like convertible notes," he said.
"They are quite difficult to value, so people need to be on top of what the right value is for those notes."
There was a focus on ensuring the experts were truly independent "to make sure that the expert is not being unduly influenced by the people retaining them".
If the disclosure involved a prospectus, ASIC had the power to freeze the prospectus and enter in discussions with the company to improve its disclosure.
Problematic independent expert reports could also be remedied through direct negotiations with the experts, who are licensed through ASIC.
ASIC commissioner Cathie Armour urged shareholders to inform themselves of the potential risks when companies changed their business operations.
"We want shareholders to be completely informed about what's going on," she said.
"Understand how the company is changing its business plan, really be alive to risks of the new business and be happy about it.
"The concern we have is they may not be getting the information."