When it rains and you’re penniless, it really pours!

BOARD MEMBER APPOINTED TO UK PLC STILL RECOVERING FROM A MULTI-MILLION POUND FRAUD AND CLINGING ON TO A ZINC AND LEAD TAILINGS PROCESSING BUSINESS OPPORTUNITY IN ZAMBIA

My involvement

At the request of the recently appointed incumbent chairman I joined the board of a London-based company which remains pre-revenue but had a fundable small-scale project in Zambia to process lead and zinc from the tailings stockpile at a de-commissioned mine. The initial challenge was to survive the aftershocks of a multi-million pound balance sheet fraud committed by the former chairman, and against that background to design, construct and commission the plant to produce lead, zinc and other minerals by processing the stockpiled tailings.

My role includes keeping a watchful eye and supporting the chairman/CEO as necessary, overseeing the company’s legal relationships with third parties and working with external law firms as appropriate. As the only board member independent of the executive management, prior to de-listing my role also involved liaising with the company’s Nomad on a regular basis.

The board identified the weaknesses exhibited by a co-director, who carried the critical responsibility for overseeing the design, construction and commissioning of the small-scale leach processing plant. The plant became unviable due to its small size and throughput rate as the result of the escalation in price of the leaching agent, sulphuric acid. The co-director departed and the board took measures to fill the lacuna. This was achieved through a commercial deal with a more substantial mining business, effectively a joint venture arrangement aimed at securing the company’s viability by way of a free carry in the range 11 – 12.5% of the project earnings. The greater strength in depth and knowledge of the JV partner significantly reduces the company’s risk and, subject to production commencing and the free carry materialising should achieve its aim.

In the course of negotiating the JV arrangements, the company’s mineral processing licence was revoked by the responsible government body, alleging failure to comply with the licence conditions. As it turned out, the revocation had a potentially terminal impact for the company which had to be managed, vis-à-vis the market regulator and the shareholder-base. The board reacted to the revocation by utilising its own local resource to prepare a detailed appeal submission and by engaging a well-connected and respected consultant to present the submission to the government department. The appeal was successful and the licence was restored.

My input was to negotiate the terms of the consultant engaged to secure the return of the licence, and to manage the regulatory impact of licence revocation. I took the initiative to pre-empt escalation by preparing a detailed independent NED’s report on the background to the revocation. That report was submitted to the Nomad and no further questions followed. 

Outcome

The role is ongoing with twists and turns, but the company now has the prospect of being significantly de-risked and on a clear path to self-sustaining financial viability through the JV partnership and, in parallel, the acquisition of interests in explorations projects. The company is actively preparing a submission to re-list its shares on the back of a new placing. The company is stepping up its efforts to communicate effectively and frequently with its investors, who are based entirely or predominantly in the UK. The company only has three directors, only one of whom is executive. Consequently, I am drawn in as necessary to support the executive director, very much as if I were part of the executive team, and I communicate directly with investors in that regard.