In case it assists others with deciding how they will vote at the AGM, Ithought I would share how I am voting on a couple of resolutions that I believeare important and the reasons why I am voting that way.
I will also say that at times like this I believe AGM voting by allshareholders is important and each shareholder should decide how they wish tovote for their own reasons.It is because that I believe this to be important that I thought I would share my reasons.
I will be voting AGAINST resolution #1 – Adoption ofRemuneration Report
I will be voting FOR resolutions #5, #6, #9, #10, #12 –which relate to the issue of shares.
Reasons for voting AGAINST the RemunerationReport
For those who are not aware, a few years ago legislation was changed to giveshareholders more power over the pay of company directors and executives byestablishing the “two strikes” rule.The rule means that boards face being spilled if theysuffer shareholder votes of more than 25 per cent against their executive payproposals at two consecutive company annual general meetings.
The reason why I believe that voting against the remuneration report isimportant this year, is because:
1.I am not happy with the performance ofmanagement over the last year (see reasons below) and voting against sends amessage to the directors that shareholders are not happy with their performance;
2.It will give shareholders the opportunityto decide if we should vote against the remuneration report next year (causingtwo strikes) and potentially create a board spill (noting this would only beused if management do not improve their performance).
I have set out below some reasons why I believe that management’s performancewarrants a vote against the remuneration report.
After the successful raising of $35M to complete the BFS, it is fair tosay (and I have heard management say) “I/We have one job, and that is tocomplete the BFS”.I also heard management say on more than one occasion “We have a plan, and we aresticking to it”.
We now find ourselves in a situation where HIO needs to raise morecapital and we have not got a completed BFS.Therefore, they did not do the one job they had.I feel one of two things happened.They stuck to their plan without taking into account of the changing circumstances around them.Or, they deviated from their plan without properly considering the risks of adverse consequences and having a plan B ready.
I am not saying that everything that management did was poor.We managed to acquire the remaining 6% JV interest from Starlight at a cost of $10M and I was really happy with this.However, by the end of March 2022, management knew that needed an extra $22.4M for the purchase of Starlight’s interest and to complete the BFS on 10Mtpa and 20Mtpa.While it is often easier toraise capital when the share price is increasing, management failed to take theopportunity to raise additional capital during April 2022 during the periodwhen the share price was performing strongly and ensure that they had funds to meet their commitments.
There has already been a lot said about the LDA deal, so I will notcomment further on that.
On 16 June 2022 the Board announced that they were dropping the 10Mtpaoption and focusing solely on the 20Mtpa option.In my view, the 10Mtpa option was a lower risk option because it used existing rail and ports and would have required less capital to start up. The 20Mtpa option, whilst potentially a higher return option, was also a higher risk option as constructions costs would be higher and all of the infrastructure from mine to shipping would need to be designed, permitted and constructed.
I do not think that putting all our options in the higher risk higher returnoption was prudent at a time when:
1.CPIwas increasing globally (Australia’s CPI was 5.1% for March 2022 and US wasover 7%)
2.Interestrates were increasing globally (the Reserve Bank of Australia increased ratesby 0.25% in May and 0.50% in June and more were expected, the US startedincreases of 0.75% in June)
3.Stockmarkets were becoming more volatile (the ASX dropped 8% in the first half ofJune),
4.Covidwas continuing to cause supply disruptions across many industries
5.Thewar in the Ukraine had been going for almost four months with flow on effectsbeing felt across many industries.
If management had raised capital shortly after committing to additionalexpenditure of $22.4M (likely at 40 to 50 cents per share) and had funds tocontinue both the 10Mtpa and 20Mtpa options, we would not be in the position weare in now.
Reasons for voting FOR ratifying the shareissues
By way of general background, ASX companies are often restricted on issuingmore than 15% of their issued shares without shareholder approval.Therefore, resolutions 5, 6, 9, and 10 are seeking shareholder approval for shares that have been or are to be issued. This will effectively reset the company’s capacity to issue shares and allow the company to issue up to 15% of its issued capital.Resolution 12 is seeking approval to issue a further 10%, giving the company the ability to issue up to 25% of its issued capital.
Given that we are in a position where we need to raise further capitalin the coming months, I think that it is important to give management thefreedom to raise the capital in the way that they think is best.Whilst I have some concerns with this given my comments above about management performance, I hope that management can look back over the last 12 months and think about what they could have done differently so they don’t make the same mistakes twice.
I know that many of us are unhappy about the LDA deal.However, we cannot change what has been done. If we chose to vote against the ratifying the share issues to LDA, that will not change the company’s obligations to issue the shares to LDA.It will only impact on the company’s ability to issue further shares in the future because we won’t reset the full 15% referred to above.
