Golden West Target For Board Coup

Sydney Morning Herald

Monday July 28, 2008

Jamie Freed

IN A mining industry filled with colourful exploration companies, it is hard to come close to the intrigue that consistently circles the West Australian iron ore explorer Golden West Resources.

Having been listed less than four years ago, it has been linked to an Australian Federal Police inquiry involving the Melbourne underworld identity Mick Gatto and his associates; it has been criticised for generous options packages for directors and several sudden board changes; and it has had a large swag of shares caught up in the Opes Prime collapse.

One of the few constants has been the involvement of its founder and major shareholder, the Kalgoorlie prospector John Doutch, who also has a major holding in the multi-commodity explorer Fairstar Resources.

But Doutch has remained a behind-the-scenes influence, having not held a board seat on either company since they listed on the stock exchange.

Since Fairstar - Golden West's unsuccessful suitor - lost much of its holding in its target after the collapse of Opes Prime, the WA iron ore miner Portman Mining has picked up 19.9 per cent of Golden West and is attempting a board coup. Portman, a highly profitable miner, is 85 per cent owned by the US iron ore miner Cleveland-Cliffs.

In light of the most recent stoush between Golden West and Portman, The Drum has examined some of the resolutions put forward for a meeting in Perth on August 29.

Aggressive

In March, Golden West's executive chairman, Con Markopoulos, said the company's $32 million in cash reserves could "fully fund an aggressive exploration program" for the next 12 to 18 months. It wants eventually to ship 10 million tonnes of high-grade ore a year from Wiluna West.

"The current board are of the view that no further capital is required at this time to progress the company's short- and medium-term work," he told shareholders.

Four months later - during which time Portman bought 22 million Golden West shares - the board has had a change of heart.

It is seeking approval to issue 25 million shares and 25 million options at the August meeting. Golden West said it was receiving expressions of interest from potential strategic investors and customers and the strong environment for iron ore meant it wanted to accelerate its exploration and development program. Citing the volatility of the equity markets, it said it wanted to have approvals in place for near-term funding.

On Friday, Portman argued it would be more appropriate for Golden West to consider a rights issue so existing investors could participate in any capital raising without diluting their stakes. Golden West has previously issued discounted shares to "sophisticated investors" from Kalgoorlie and Esperance.

Missing piece

In another resolution, the Golden West board is seeking permission to buy two mining leases from Doutch for about $12.5 million in cash and shares. The Joyners Find tenements make up a small missing piece in the middle of Golden West's own exploration tenements. Golden West has paid Doutch a deposit of $820,000, which is non-refundable if the purchase is not approved by shareholders.

This is not the first time Doutch has tried to flog the Joyners Find tenements. He attempted a similar sale to Golden West in 2006, but the deal fell over.

Later that year, Doutch tried to sell the tenements to Fairstar for $500,000, plus 5 million shares and 10 million options. That deal fell over in March last year. Fairstar never gave a reason for the cancellation of the sale, but The Drum understands an independent expert had been commissioned by Fairstar and his report was never released publicly.

This time , Al Maynard & Associates said the Doutch tenements were worth $10.15 million as a stand-alone deal, but $18.2 million to Golden West. But Portman believes the firm's evaluation did not provide enough information about the valuation and there is no reason why Doutch should receive a non-refundable cash deposit.

Replace

Finally, the make-up of the Golden West board is in dispute. Portman is seeking to remove Markopoulos and the exploration director Mick Wilson from the board and replace them with its own managing director, Richard Mehan, and an independent director, Paul Piercy.

Doutch has never held a board seat at Golden West. But it is worth noting Markopoulos resigned from the board of Classic Minerals a few months back to focus on his role at Golden West. Australian Securities and Investment Commission documents show Classic, which is preparing for a float, was originally called Broad Resources.

Doutch is not on the board of Classic, but the company's three shareholders are Doutch, his brother, Malcolm, and a former Fairstar director, Ken Allen.

Doutch may not be on the company boards, but those close to them say he is a strong influence. At the upcoming meeting, shareholders will have a choice: Portman or Doutch. Each camp has a different plan for the Wiluna West project. The outcome will prove interesting.

jfreed@smh.com.au

© 2008 Sydney Morning Herald

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