egm

Jervois shareholders will need to weigh up the following issues when voting for a change of Board at the pending EGM.

1)The current cash-burn and capacity and willingness of management to reduce costs during what may be a long and severe recession.

2)The impact of a possible fund raising as the alternative to cost reductions.

3) Questions of corporate governance and management practice

4) The potential to attract new funding partners or re-engage with China Rail Resources following recent negotiations.

5) The capacities of any incoming Board.

Discussion:

As a matter of policy directors will need to weigh up whether it is desirable to seek funding via a placement or a general rights issue or to attempt to avoid a fund raising if at all possible. Considerations will include the already large number of shares on issue and the reality that an issue at these levels will seriously inlflate the share issue and reduce Jervois to the status of sub 1c shares or sub.05c. This would make the company even more prey to day trading and will reduce the company's standing in the eyes of potential partners. While there may be no logical connection between a share price and the assets behind the price, it is a matter of market reality that prices in cents create a negative, even derisory image among some professionals.

Even apart from the expansion of the share issue the practical question is whether general shareholders would contribute at a time of financial constraint. By extension their advisers may not have support in view of the weak market for metals and perhaps because there was uncertainty about whether the company had a time frame for the development of its leaching process and funding for Young. Given the protracted R&D time lines to this point and the relatively frequent modifications over the last 5-6 years, support will be limited.

While a placement to a professional investor might be achieved, this may be at the risk that that this party sells out at the first available occasion. Can this process continue in perpetuity? Probably not.

Questions of governance will also weigh on the minds of candidate directors particularly in view of the standards now required by ASIC and the ASX. Some matters concern mandatory requirements; others are in the category of "best practice".

A number of matters have been canvassed in recent legal communications:
- statutory appointments not formally verified by the Board
- the character and circumstances surrounding the removal of Company Secretary
- economic duress applied to one director to force his resignation


Putting aside questionable and even potentially unlawful actions, there are more fundamental questions about whether the prosecution of negotations was optimal in view of the deteriorating economic climate, the slump in metals prices and the practical difficulty being faced by all small mining companies (and many large) in attracting funding.

Did Jervois have the luxury of not being prepared to move from a pre-set position or was a more co-operative approach called for in the circumstances? These are subjective matters and open to intepretation but it in the nature of negotiations that there might have been several alternative outcomes. Making no concessions was one option; another was to engage with CRR as diplomatically as possible without compromising the position of the company. Some may have thought that it would be inconceivable to grant an extension of time without adequate recompense while others might have thought it was desirable or even essential to remain on good terms with CRR while still differing on minor or substantive issues. Two of your directors took the latter view although they were not given the option of presenting that view.

This issue is given greater force in view of the protracted nature of the Jevois nickel story. While there is absolutely no question that the development of a robust, low cost acid leaching process was a precondition for Young and all similar laterites (as BHP has discovered at Ravensthorpe) the strategic issue was to engage a party who expressed confidence that it held the key to economic leaching of nickel laterites. This was what CRR and Jiaming claimed and the agreement struck with CRR and Jiaming was on this basis. It was said at the time that this put Jervois in a position of zero risk. If the Jiaming process turned out to be less efficient in practice than it was in the laboratory, the leases would be of nil value to CRR without an alternative process. CRR might still remain involved or have all the more reason to stay a partner.

This makes management's subsequent communications with CRR and Jiaming even more puzzling. Some ten days later Mr Pursell communicated to CRR via Jiaming that he had never believed either company had a serious intent to sign the Frame Agreement. This ensured that any chance for on-going relations between Mr Pursell and CRR was lost.

It was communicated to one director very clearly by CRR that such phrases as "the agreement is dead" were offensive and unacceptable and lead to a communication in which CRR said it would no longer deal with Jervois while Mr Pursell was in control. In this context Mr Pursell's subsequent offer to sell the three leases to CRR was either inconsistent or an intemperate way of saying "goodriddance." Whether this was the intent or not it was taken that way. It was certainly "ultra vires" as this offer was not put before the Board.

Notwithstanding all of the above it must be acknowledged that Jervois is certainly closer to its long term objective of developing a low cost nickel recovery process which should be viable at times of weak nickel prices. This was a necessary precondition given both the scale of the resource and the grade. While easy to work and with an excellent location with substantial cobalt credits, it is a similar grade to Ravensthorpe and so requires careful planning. It is also important to note that Jervois also holds these leases without debt and also holds the Nyngan leases with their potentially lucrative returns from scandium. All up this was an attractive package for any company seeking long term, low risk supply.

It is relevant for shareholders to know that China Rail Resources has expressed in writing a wish to re-engage with Jervois if Mr Pursell steps down. There can be no guarantees that this will occur. CRR may change direction for policy or other reasons, but the length of CRR's stay in Australia and plans to establish an office in Sydney give support. An offer to commit funds if a new Board requires additional capital can be taken as a generous and conciliatory gesture.

The task of any new Board should to make every effort to reinstate cordial relations with CRR and Jiaming and simultaneously do what every small mining company is doing: conserve funds at all haste following the financial and melt-down. Survival is the first objective.

Finally the experience of Mr Norman Sekhold, Peter Nightingale and their associates in establishing and developing mining companies in Australia, Canada and Mexico should be of considerable value to the company. Mr Seckold is director of a number of listed companies and Chairman of the unlisted Nickel Mines Limited. As the company's largest shareholder he has a direct interest in any outcome mid or long term. It is also relevant that by dint of his shareholding and experience he was previously invited by Jervois to take the Chairman's position.

Clearly it is unfortunate that this conflict has arisen, but there are some issues where compromise is virtually impossible. If a managing director requires unswerving loyalty from his Board on the pain of dismissal, the very essence of corporate governance is being ignore or abused. Boards are policy forums, not executive sub-committees. No matter how inexpert, misguided, inexperienced or addled a director may be, proper procedures must be followed as a matter of law. Nor should members focus solely on the personalities concerned. We are dealing with what appear to be irreconcilable views about the management of companies. Abuse of any individual in a public forum does not advance the interests of Jervois Mining. One would also like to believe that another approach lifts the value of the company in the interests of Mr Pursell, his family and all other shareholders.

Hopefully fellow shareholders will carefully consider these matters prior to the EGM on the 10th of February.

Disclosure: The writer and associates hold shares in Jervois Mining.