Skip to navigationSkip to contentSkip to footerHelp using this website - Accessibility statement
Advertisement

Investigator raises alarm over Salt Lake Potash collapse

Peter KerResources reporter

The company that wanted to blaze a trail for a new potash industry in Australia may have traded insolvent for two weeks and withheld important information from investors when raising funds, according to a report into the collapse of Salt Lake Potash.

The findings were made by special purpose administrator Dermott McVeigh, who added that his investigations into Salt Lake Potash were “hindered” by a lack of co-operation by most directors of the failed company.

Salt Lake Potash’s Lake Way project was supposed to evaporate briny water extracted from beneath an outback salt lake. 

Salt Lake looked set to become Australia’s first sulphate of potash producer when it signalled it would begin production at its Lake Way project before the end of June 2021.

But the plan to make a premium crop nutrient by evaporating briny water extracted from beneath an outback salt lake went awry when the processing equipment did not perform as planned and lower than expected amounts of potassium were extracted from the briny water.

Salt Lake, otherwise known as SO4, was eventually placed in voluntary administration on October 20, 2021; the federal government’s Clean Energy Finance Corporation was a creditor after lending $US47 million of taxpayers’ funds to the company.

Advertisement

Mr McVeigh said Salt Lake may have been insolvent earlier than October 20.

“Based on the availability of cash to pay the debts, SO4 was likely insolvent from 5 October 2021 onward,” he said in his report.

“I therefore consider that there may be an insolvent trading claim against the directors pursuant to section 588G of the Corporations Act.”

‘Misleading’ graph

Mr McVeigh also raised concern about a $28 million equity raising Salt Lake conducted in May 2021, which was supposed to fund the final ramp up of Lake Way, with first production promised “within weeks” of the raising.

He said the investor presentation that accompanied that $28 million raising contained a graph showing the expected ramp-up of production for the year ahead.

Advertisement

Mr McVeigh also said the graph was “potentially misleading and deceptive” and investors may not have participated in the fundraising had they been “properly informed” about the state of Salt Lake’s project.

“A review of internal documents revealed that information indicating SO4 would be unable to achieve the above production targets existed as early as March 2021,” he wrote.

“For SO4 to achieve the planned production two components were critical: an operational processing plant and [potassium] salt stock to feed that plant.

“SO4 experienced difficulties with the plant during the commissioning phase; this issue was disclosed at length to the market. The larger and less visible problem, however, was the lack of salt feed stock for the plant.”

The briny water the company pumped from underground generally needed to be held in surface ponds for 12 months before the potassium salt was ready to harvest, Mr McVeigh said.

“It appears to me that harvest time frames in the harvest plan may have been optimistic and perhaps unrealistic. Depending on the pond, harvesting time frames in the harvest plan ranged from as little as four months to 11 months. These time frames appear inadequate,” he said.

Advertisement

“In my opinion, based on the books and records available to me the directors failed to properly inform themselves of the true position of SO4 in the lead up to the May 2021 capital raise.

“Had they done so, they would have uncovered significant delays to the project and the unfeasibility of the plan presented to the market.

“More frequent board meetings, with timely, meaningful and understandable information, including progress against plan and targets, would have assisted directors in keeping themselves informed of SO4’s position and take appropriate action to discharge their duties.

“In my opinion, because of the misleading statements issued during the May 2021 capital raise, combined with the apparent lack of due care and diligence of the directors, SO4 was on a trajectory to insolvency.

“SO4 may have contravened ASX listing rule 3.1 and section 674 of the Act at the time of the May 2021 capital raise.”

The collapse of Salt Lake Potash was particularly inconvenient for chairman Ian Middlemas, given a second ASX listed company he chairs had acquired more than 44 million shares in Salt Lake in the years before its collapse.

Advertisement

That company was Equatorial Resources, which was hoping to develop an African iron ore project around the time it surprised the market with an investment in Salt Lake.

Equatorial disclosed in its annual report that it still held 44,222,233 shares in Salt Lake but had written down the value of that stake to nil, from $15.25 million.

Claims to be challenged

Mr McVeigh’s suggestion that directors of Salt Lake had not fully co-operated was applied to all directors except former chief executive Tony Swiericzuk.

In his report, Mr McVeigh said Mr Middlemas had responded to his findings on September 19 and signalled an intention to challenge the claims.

“The directors deny any breaches of obligation and would vigorously defend any insolvent trading claim brought against them and would seek to rely on the defences as outlined in above,” he said.

Advertisement

Defences available to directors accused of insolvent trading include that they reasonably expected the company to remain solvent, relied on another competent person for information as to solvency, or took all reasonable steps to prevent the company incurring the debt.

According to Mr McVeigh’s report, Mr Middlemas said he believed an injection of external funding was still possible and “likely available well after October 5”.

As to any unwillingness to co-operate, Mr Middlemas confirmed meeting with Mr McVeigh on February 17 this year, and asked Mr McVeigh to put his questions to him in writing. Mr Middlemas said he responded to Mr McVeigh’s questions by seeking clarification as to the questions asked, and received no clarification from Mr McVeigh. Mr Middlemas also denied having breached any statutory obligation arising out of his dealings with Mr McVeigh and said, “verification works were undertaken prior to the May 2021 capital raise”.

Had Salt Lake and its industry peers delivered their projects to schedule, Australia would have gone from zero to five sulphate of potash “mines” in the four years to 2025.

But the nascent sector has struggled with technical problems.

Shares in Kalium Lakes have declined 76 per cent over the past year as its Beyondie sulphate of potash project has failed to produce as much salt as was expected.

Advertisement

That forced the company to shut down the operation for four weeks of improvement works over late August and early September, and the company is trying to raise funds again.

In August, Kalium Lakes said it had produced a grand total of 1700 tonnes of commercially saleable sulphate of potash.

The situation is a far cry from the vision Kalium Lakes offered investors in August 2021, saying it would be producing at a rate of 120,000 tonnes per year by the final three months of 2022.

The 120,000-tonne-per-year rate has now been pushed back to the September quarter of 2024 and Kalium Lakes hopes to be producing at a rate of 80,000 tonnes per year by March 2023.

One factor that has rubbed salt into the wounds of investors who expected the likes of Kalium Lakes and Salt Lake Potash to be reliable producers by now, is the fact that potash prices have surged this year in response to war in Ukraine and the blacklisting of potash from Russia and Belarus.

Other potash aspirants BCI Minerals and Australian Potash have lost 37 per cent and 63 per cent of their share price value over the past year respectively.

Shares in Agrimin have been the best performed, losing less than 3 per cent of their value over the past year.

Peter Ker covers resource companies for The Australian Financial Review, based in Melbourne. Connect with Peter on Twitter. Email Peter at [email protected]

Read More

  • Insolvency
  • Salt Lake Potash
  • Potash

Latest In Mining

Fetching latest articles

Most Viewed In Companies