AllBelow are my thoughts on the proposal to issue Options to six...

All

Below are my thoughts on the proposal to issue Options to six of the MWE directors.

I strongly recommend that you do your own research and reach your conclusions as to the action(s) that you should take on the proxy Form.

Should anyone have difficulty reading my notes, please post your email address and I will send you a copy of the .doc document.

Cheers

R1

Greed on a Grand Scale

To fully appreciate the extent to which MWE management has been and plan to continue extracting wealth from the company, the contents of the following documents need to be read and considered together to fully comprehend the magnitude and scope of their rapacious desire and inappropriate expectations:

1. Annual Report for the Year Ended 30 June 2011.
2. Notice of Meeting and Explanatory memorandum and Management Information Circular prepared for the Annual General Meeting to be held on Wednesday, 30 Nov 11. (Abbreviated to NM)
3. Broker report - Rates Mawson a Buy, with a C$3.50 target by FY12/13 http://www.mawsonwest.com.au/IRM/Company/ShowPage.aspx/PDFs/936-11498939/CormarkUpdateSeptember2011

Corporate/management excesses have come under scrutiny around the world with policy, regulatory and codes of conduct now being implemented in an effort to curb and/or control the excesses. Clearly, the messages are slow to arrive in the corridors of the offices in Perth, WA.

Directors

Mark Stowell (Non Executive Chairman)?Anthony Lloyd (Non-Executive Deputy Chairman) Michael Lawlor (Non-Executive Director)?Louis Rozman (Non-Executive Director)?David Frances (Chief Executive)?Jonathan Asquith (Executive Director)?Glenn Zamudio (Executive Director).

I note:” the Bosch Committee finding, chaired by Henry Bosch AO ( The Bosch Committee’s (Australia) Report is designed as a guide to directors, auditors and accountants, and to investors, as to accepted principles of good corporate practice) that the independence of non- executive directors is more likely to be assured when the director:

• is not a substantial shareholder of the company;
• has not been retained as a professional adviser by the company;
• is not a significant supplier or customer of the company;
• has not been employed in any executive capacity by the company within the last few years. “

Annual Report (30 June 2011)

Page 9 – Remuneration Policy. The NM is not compliant with the policy as there are no links to shareholder value, no predetermined targets and no demanding performance hurdles.

Page 9 - ?Non Executive Director Remuneration ?Non Executive Directors’ fees are determined within an aggregate fee pool limit, which is periodically recommended for approval by shareholders. This amount is separate from any specific tasks that the Directors may take on for the Group. As there are none stated in the NM then why are these directors being granted options.
Note (1) that during the year the Group paid $282,289 (2010: $46,240) to an entity associated with Mr Stowell for special services. Is he a supplier or customer of the company? Non Executive Directors are supposed to be independent!

Page 9 - Employment Arrangements and Termination and Change of Control Benefits ?The Company has entered into employment agreements with Mr Frances, Mr Asquith and Mr Zamudio which provide for termination payments of two years’ total salary for Mr Frances and one year’s salary for each of Mr Zamudio and Mr Asquith in the event of a termination of employment due to a corporate takeover or merger. The amounts of such payments would be equal to A$1,341,388.

Page 38 and 39 - Directors’ interests in the shares and options of the Company as at 30 June 2011)

No of shares
2010 Additional shares * No of shares 2011 No of Options 2011 Total Remuneration No of options being sought at AGM
Stowell 2205006 795858 3200865 762500 $466,138 (1) 300000
Lloyd 200000 225000 425000 225000 $70,440 200000
Rozman $40,040 200000
Frances 152500 752500 948752 1187500 $670,376 1000000
Asquith 500000 375000 898862 150000 $312,757 300000
Zamudio 250000 501250 778846 737500 $446,801 500000
• All share numbers calculated post capital reconstruction

Last year the directors were granted as remuneration shares via the share purchase plan, additional remuneration and “other’ means that by 2012/13 and based on the expected MWE SP of $C3.50 (see broker report) will add millions of dollars to the personal wealth of each individual.

Page 40 - On 7 April 2010 approval was received from shareholders to the following allotment of shares to directors at $0.15 cents per share pursuant to the Share Purchase Plan. The purchase of the shares was funded by limited recourse loans. The loan is for a period of five years from the date of allotment.

Note the number of Options (fourth column) already acquired by five of the directors. Stowell has already received an additional 200,000 options since Jan 11.

Page 36 - Directors’ and key management personnel compensation. The aggregate compensation of the Company’s directors and key management personnel has been increased from $1,965,181 in 2010 to $3,737,519 in 2011, an increase of some 90%.

Page 39 - Option expiry dates x 2 were extended for two years No reasons given.

Page 50 - During the previous year the Company granted limited recourse loans to the value of $1,485,000 to directors and employees to allow them to purchase 9,900,000 shares pursuant to the Company’s Share Purchase Plan, granted 915,000 shares for nil consideration to nominees of two directors as additional remuneration, issued 3,845,000 options exercisable at $0.15 prior to 8 April 2015 to employees and issued 3,000,000 options exercisable at $0.15 prior to 22 October 2011 as part of capital raising costs.

The Notice of Meeting (NM)

Page 1 – Resolution 1 – to increase the pool of director’s fees for non executive directors by 25% from $400,000 to $500,000. On page 7 – the fee increase is required to cover the additional ‘independent’ director (Rozman) and to allow the Board to increase the fees to directors.

Pages 1-4. Resolutions 2 to 7 – provide financial benefits to 6 directors by way of Options exercisable at C$2.00 on or before 30 Nov 16. Note on Page 8 that 50% may not be exercised prior to May 31, 2013. Of course by then the new mine should be commissioned and fully operational.

Page 8 – Company has received an independent valuation of the financial benefits (does not say by whom or provide a copy) but the benefit to Mr Francis would be $US460,000. Why is this amount not in C or A dollars? If the MWE web site figure of C3.50 is used then 1,000,000 (Francis allocation) would be worth C$3.5m – C2m (cost to exercise) = C$1.5m which is considerable more than the touted benefit.

Page 8 - The non- interested directors ie the other 5 do not have an interest in the outcome of Resolution 2 (Francis). How misleading is that statement. Of course they do as following Resolutions provides similar benefits to each individual. One in, all in.

Page 9 – Reasons for Giving the Financial Benefit. Using Francis as the example, it is to provide an: “ a realistic and meaningful incentive to the director”. He already has nearly 1.2m options, so how much incentive does he need? To provide a real incentive, how about the exercise of the options being made mandatory. That way is the share price is below the Option price then both shareholders and the director(s) equally feel the pain. If all of the Options can be cashed in my 31 May 13 what is the incentive to the year Nov 16? The strike price of C2.00 was related on the current low price of the MWE share. So if the SP is low, it is not a reflection of poor management but if it is high then it is directly due to the excellent performance of management, which, of course, would warrant more bonuses.

Why would there be a discount of 20% applied to the option value because of the non-marketability of the options when the primary purpose is to encourage Francis to stay to provide ‘dedicated and loyal service. The exchange rate used in the valuation was US$ to C$.9509!

Pages 10 to 20. Regurgitates the same non sequitur justifications and conclusions as presented for Francis in the Resolutions for Xamudio, Asquith, Stowell and Lloyd.

Page 27 – Statement of Executive Compensation –“to link executive rewards to Shareholder value”. On 18 Nov, the MWE SP was C$0.79, which is some 60% BELOW the recent IPO price paid by the Canadian shareholders. The Company “is committed to compensating it senior executives in a manner that is market-competitive and consistent with best practice as well as supporting the interests of Shareholders”. This policy encourages a race to the top and disconnects management and company performance from company worth, or value or any sense of what is fair and reasonable.

Page 31 – Employee Share Purchase Plan. Under the Plan, 1,675,000 shares were issued as benefits to the 6 directors at US0.60 per share and then MWE made interest free loans to each of the directors to enable them to acquire the shares totaling US1,005,000.

Page 37 – Ethical Business Conduct. I suspect that the sole reasons for this paragraph is to give the shareholder the warm feeling that everything is ‘ kosker’ and the granting of a large number of shares last year and options this year is not only ‘honest’ but in the best interests of the company.

Page 37 Remuneration Committee. The Company has a Remuneration Committee (Stowell, Lloyd and Rozman) but Stowell is not deemed to be independent because: “of the amount of compensatory fees he has received from the company during the last three years”.

So directors can be non interested, independent but also 'not independent', non executive but assigned executive roles (From the Annual Report , Page 8 - For the purposes of this report, key management personnel (KMP) of the group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the Company, and includes the five executives in the Company…)

Summary

The questions that I have posed to myself are:

• has the NM documentation convinced me that the issue of options to 6 directors is warranted, justified and fair and reasonable to all parties and the answer is NO.
• are the directors already well recompensed for the duties performed and the current performance level of the company as it moves to production and the answer is YES
• did the generous recent issue of shares adequately contribute to the overall remuneration of the directors and the answer is YES
• is the Board being overly and unnecessarily generous in the proposed Options offer to the 6 directors and the answer is YES.

I will be voting NO to all of the Resolutions 1 to 8 to be transacted as business at the AGM on 30 November 2011