Article from SMH by Alexandra CainCompass shareholders 1,...

Article from SMH by Alexandra Cain

Compass shareholders 1, creditors 0
June 22, 2010 - 1:28PM

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Perhaps unsurprisingly, the four resolutions on which Compass Resources shareholders voted last week were defeated. Quick recap: among other things, shareholders were being asked to give away 95 per cent of the company to two creditors in exchange for getting the company back on its feet. See last weeks blog for more info.

While on the face of it this looks like highway robbery by the two creditors involved, YA Group and Coffee House (controlled by former chairman Gordon Toll), Im now not so sure it was such a bad deal.

The main alternative is for the company to go broke, resulting in a fire sale of assets (largely a chunk of the Northern Territory replete with various minerals and resources and a yet-to-work browns oxide plant that should be capable of producing copper and cobalt).

In the event the company fails its likely Compasss joint venture partner HNC will pick up the assets for next to nothing.

If the company goes under shareholders get zip, as opposed to a much diluted stake which might value their shares at 2.5 cents per share under the deal proposed at last weeks meeting.

Some shareholders see going broke as the best solution because it means YA Global and Coffee House (who have put roughly $70 million into Compass) cant get their hands on the companys assets. But surely some return is better than none?

Certainly, groups such as shareholder activist group Friends of Compass believe YA Global is predatory and opportunistic. This is because it was issued with millions of shares in exchange for providing debt capital to Compass, shares which were promptly dumped on the market, resulting in the freefall of the share price. The inference is that this action rendered the shares near worthless, allowing YA Global to pick up the company for a song.

But at the moment, YA Globals offer is the only one on the table; its the only way shareholders will see any of their money back. YA Global now has 60 days to come back with a better offer for shareholders. But whos to say it wont withdraw that offer? YA Global could well walk away, especially given the proposed resources super tax, which hadnt been announced when YA Global's original offer was put forward.

There are suggestions a South Australian firm was prepared to make an offer for the company, but its understood that company doesnt have available funds to purchase the assets. Which doesnt sound like a great offer to me.

Some shareholders are also gunning for a rights or options issue in which they can participate to recapitalise the company, which would certainly help in terms of non-dilution of minority shareholders holdings.

Its worth noting that if Friends of Compass hadnt organised some resistance the proposals may well have succeeded through apathy and a general feeling of powerlessness among small shareholders against the might of the big guys.

But Friends of Compass did get somewhere at least YA Global has agreed to go away and consider coming up with a more palatable offer. In a David versus Goliath battle, at least David got one shot in.