by Jim Richards
After reconciling my budget with my cash, I worked out I had enough money to go at this for ten months, unpaid, full time, flat out. If I failed to float the company in that time, I would have my answer and could go back to the rigs.
What was the next thing to do? I didn’t know but, given I was a geologist, I did what geologists do: I wrote a report. Sooner or later I would have to sell the project to someone, so I decided to write up the best geological report I could on my diamond project, making it look as prospective and sexy as possible.
The whole report took about a month to create. I included all of the historical exploration data I had sourced from the Mines Department, descriptions of the geology of the area, and the exploration concept stating why there could be a diamond pipe hiding in the area, how to find it and how much it would cost to try. Good-quality maps and diagrams incurred a substantial drafting cost, but I figured it was worth it. I now had a glossy marketing document in the form of a quality geological report.
I already had the number of a particular stockbroker whom I had met at the Perth diamond conference the previous year. He had raised money for diamond companies in the past and he clearly knew the score. So I gave him a call at his office and set up a meeting.
Putting on my only suit, I walked down to St Georges Terrace in Perth, where some of the most powerful resource companies in the world had their offices. I was excited and proud that I was no longer just a geologist; now I was an actual company promoter. (Although, with the benefit of hindsight, this could be construed as a demotion.)
I was ushered into the stockbroking company’s boardroom. It had views over the blue expanse of the Swan River. It looked like the kind of place where money lives.
My acquaintance came in looking ruffled and harried. I launched into my presentation, but after five minutes the broker interrupted me.
‘Hurry up, mate, I don’t have all fucking day.’
I stumbled on before the broker cut me off mid-flow.
‘Right, thanks, Jim. Now what do you reckon about Kimberley Diamond Company?’
‘Well, grades a bit low, stripping ratios a bit ugly. If you do the numbers, I don’t reckon they’re making any money,’ I said confidently.
‘You fucking WHAT!?! Listen, pal, if you ever repeat that shit to another broker, I will personally sue your frigging arse off.’ He stormed out, leaving me alone and gazing out over the Swan.
Back on the street, feeling crumpled, I surmised the guy had asked me in purely to find out the dirt that was going around on KDC.
He must have had a lot of his and his clients’ money tied up in the stock. He wouldn’t have been happy to hear someone sinking the story that he and the company’s executives were so actively promoting.
After that fiasco, I figured I might do a bit better over in Sydney where the real financial muscle lay. My initial foray hadn’t been a total failure: if I could piss somebody off that much I must have been believable. There should be a yin to his yang; I just had to meet the yin.
I prepared myself for what I now understood to be a roadshow. You go to a city and present your story to as many stockbrokers and financial institutions as possible to gain backing for your float. Basically, you have to sell yourself and your project.
For the roadshow, I only had a budget of A$900. So I flew into Sydney on the red-eye, grabbed a shower at the airport, got the bus into town and put my overnight bag into a locker. I was ready for action.
First meeting: the guy tried to sell me a research note for my project for A$10,000.
Second meeting: I met the head of a stockbroking company. He said he loved my idea and he could introduce me to a very useful person – providing I paid a 5 per cent introduction fee.
Third meeting: three suits walked in and cut straight to the point: they wanted to know all about KDC. I was a bit more cautious this time after my experience in Perth, and it rapidly became apparent to me that these guys were not at all interested in my project. I dead-batted the KDC stuff and the meeting fizzled out. I wasn’t going to succeed by slagging off everyone else around town.
On my way out I grabbed the research notes the company published on various ASX-listed companies. Sure enough, KDC was among them; this group was involved in their fundraising in Sydney. I began to connect the dots.
Later that afternoon I got access to a firm that specialised in resource floats. They seemed genuine, and as I waited for the meeting I read a prospectus from the last float they had done. It was most informative and I slipped it into my briefcase. This meeting went well and we all appeared to be talking the same language. I answered questions and finished my spiel.
‘So, Jim, sounds interesting, what’s the deal?’ asked the senior broker.
Somehow I felt I had gotten to first base. My problem was that I didn’t know what second base was. An awkward silence ensued.
‘You know, what’s the proposed structure?’
‘Oh, the structure,’ I repeated nervously.
‘Yes, mate, it looks appealing, and it’s close to KDC, who are running hot right now. We might be able to help get the float away, but the bottom line is, what’s in it for us?’ the broker said pointedly.
Now call me thick, but in my isolated enthusiasm for the technical merits of my project, I hadn’t actually considered the corporate side. Indeed, I didn’t even know how to create a structure for a deal. I’d thought somebody else would help sort that out. It dawned on me that, actually, this was my gig. I called the shots and I constructed the deal.
‘Er, yes, well, umm, the deal. What do you suggest?’ I offered weakly.
That was a bad move. I saw an eye roll, and they gave each other furtive glances.
‘Jim, we like the project, and technically you look strong, but you do appear to be a bit light on corporate experience. Good luck, mate, and come back when you get some muscle on the board.’
I had blown it. All that effort, and when I finally had someone interested I demonstrated what a total bunny I really was. Dammit.
I sat in a café to mope. When that failed to help, I drew upon some Para guidance given to me by my old company commander who used to dress up good advice as an insult: ‘When you’ve screwed up, keep trying, because perseverance will always overcome mediocrity.’
I looked down at my briefcase and saw the float prospectus I had picked up earlier. If they wanted a structure, why not give them one that had already worked? I leafed through the glossy pages.
All stock-market floats are by law documented in a prospectus, a polished booklet of around eighty pages that includes all of the legal, ownership, management, geological and other details of the upcoming float. It is part marketing document and part legal instrument.
The prospectus I had picked up was for a gold company to raise A$3 million from the public; a small float similar to what I was pursuing. So there and then, I just copied and modified that same structure onto a spreadsheet and inserted it as a page at the end of my presentation.
From this structure, I would get 6 million shares valued at 20 cents per share in any new listed company. That was A$1.2 million worth of stock, which was the value I put on my diamond project. (Twenty cents per share is the usual listing price in Australia.) I then rang two of my mates from Perth and they were amenable to being included on a proposed board of directors. I was ready to go.
That evening I ended up in a backpacker hostel, where I was greeted by various friendly young travellers as if I was some kind of corporate titan – proving that everything in life is relative.
The next morning, with a proposed deal structure and board of directors included in my presentation, things went a lot better. By the end of the day I still didn’t have a backer, but I felt that I was getting closer.
Back in Perth, I subsequently linked up with two other groups that were vainly attempting to float or do some kind of financial deal with their own diamond projects, also in the Kimberley region. Compared to myself, these groups were much more experience
d in the finance and corporate world, so it was proposed that we join forces to do a combined float: three losers make a winner. It wasn’t sold in those terms, exactly, but that was the idea.
While negotiating with these new groups, I realised my hard work had not been in vain, as the presentation materials for my project looked good and I was more confident in promoting myself and my deal. I stuck to the 6 million shares I wanted in any new listed company in return for my project, and that was exactly what I got. Ozwest would become a subsidiary of the listed company.
I was pleased with this deal, but I needed to be cautious before signing. Large and unforeseen tax liabilities can be triggered based upon paper profits (capital gains) when the listing occurs. Good people have been bankrupted for such oversights because you cannot sell your shares for two years after listing, but the tax liability can be due in months. The more reflective Jim Richards received expert tax advice and structured the deal so as not to incur any tax liability at listing. A younger Jim Richards may well have screwed that one up.
I did not know the guys I was getting into business with, but felt I needed to progress, so it was time to take a risk on that one.
It was still not easy, and considerable effort was put into roadshows and promotion, but the extra weight and experience of the other groups gave us the critical mass to attract more and bigger investors. We offered some of the more influential financiers an attractive seed investment deal, in which they could buy company stock at initially 6 cents and then 10 cents. They went for it, and this money, A$390,000, went into preparing the float prospectus.
The pulling together of this prospectus was a blur of lawyers, accountants and reports, but after all of my efforts to get to this point, it was a real buzz. After about ten weeks, the document was ready and I lodged it with the relevant authorities.
We all worked hard to sell the stock, and the influence of the initial seed investors paid off. We raised the money required to list, A$10 million, and in return 50 million shares in the company were issued (at 20 cents per share) to our new shareholders.
We became an ASX listed company in December 2004, with A$10 million cash in the bank. I was the chief executive officer and I owned 6 per cent of the stock and another 4 per cent in options in the company. Not a bad achievement for a busted-arse gold prospector who’d started out with nothing in Guyana.
It felt good, too: a new corporate world was opening up in which anything seemed possible. I was no longer running around on my own, trying to make things work. Now I was part of a larger team, with financial and human resources at our disposal and well positioned for success.
Even so, I had traded one type of hazardous jungle for another. I was now entering the volatile world of the Perth junior mining scene, in which skill, courage, experience, hard work and fluky luck all come together to throw up big winners and total losers. Less commonly, lies, treachery and deception could also play out.
This new adventure also signalled the end of my gold rush days. I could no longer see myself as a lone operator or contracting gun for hire. I was now a company man, with all of its attendant responsibilities and benefits, not least of which was getting paid every month.
Running this new company was a challenge. I was responsible for all of the field operations and exploration, reporting to a board of directors of which I was one. We had some success and discovered several new kimberlites and lamproites (including at my Ellendale project), but they unfortunately did not contain any diamonds.
In our first year, I regularly flew to and from various projects and spent some weeks supervising the trial mining of the Aries kimberlite pipe in the central Kimberley district of Western Australia. We lived in a safari-style tented camp and it was a glorious spot, teeming with native animals including kangaroos, goannas, possums and echidnas – a strange egg-laying mammal covered in spines. We even had a freshwater crocodile living in the old mine pit, which made us think twice about taking a dip. Our tents had their own hazards: one worker received a painful redback spider bite, and prior to getting into bed you always checked that there wasn’t a highly venomous king brown snake waiting for you.
There had been reports of Gouldian finches in the area, and the Mines Department imposed a number of restrictions on us regarding this endangered and protected bird. As required, we scrupulously recorded any sightings and ensured those areas were avoided. At the end of the field season, I went to the ‘local’ town of Derby (300 kilometres away). Outside the hardware store was a large cage with about thirty Gouldian finches in it – all for sale.
We sampled various areas of kimberlite and recovered around 30 carats of fine-looking, clear diamonds. Hand-picking these stones was as exhilarating as it had been in Guyana, and it was good to be finding diamonds again. However, the grade of the kimberlite proved too low to be economic and the project ended up a bust.
All this work took significant amounts of time and money. By our second year, half of the money raised had already been spent and the exuberant optimism of our diamond exploration business ebbed away. And on the capricious capital markets, diamonds fell out of favour. We still had a good company, with some money, a stock exchange listing and management expertise, but we needed to find another, sexier project.
Meanwhile, thanks to rapid growth in China, the price of iron ore was soaring. Perth was suddenly besieged by investors looking for iron ore companies to deal with. So we moved with the times and, through good fortune and connections, acquired some prospective iron ore tenements in the Pilbara region of Western Australia, home to Australia’s iron ore mining industry. Yes, I liked diamonds, but I also liked money, so this change of direction was welcome.
It was my job to discover an iron ore deposit on this ground. To assist me, I was ably supported by an experienced geologist and an excellent administrator, Lisa Wells. She also knew, or knew of, almost everyone associated with hard-rock geology in Perth, including Mal Kneeshaw, arguably the best iron ore geologist in Australia. Mal was the former manager of exploration for BHP Iron Ore, one of the largest iron ore mining companies in the world. He had literally written the book on Pilbara iron ore deposits: it’s called The Blue Book.
When Lisa told me about Mal, I instantly saw the potential, and he came into the office and we reviewed our ground together.
I had liked the ground when we acquired it. It ticked all the boxes for prospectivity. It was adjacent to the world-class mines of BHP at Mining Area C, which Mal had helped develop. This is known, somewhat unscientifically, as ‘nearology’ in the trade. The geology of the tenements also included the iron-rich Marra Mamba Formation and, crucially, there was plenty of cover, where any potential bonanza had been hidden from the view of prying geologists in the past.
This large area of cover was a double-edged sword. We had limited funds left from the float and couldn’t drill it all. Mal Kneeshaw came to the rescue, indicating an area where the Marra Mamba Formation was under sand cover and dipped over the edge of a dome-like geological structure.
‘The Marra Mamba can fold up on the edges of these domes, a bit like a blanket falling from a bed,’ Mal explained, his hands making a vertical wavy motion. ‘This is how you can get repeats of the iron-rich formation which thickens up,’ his palms separated quickly. ‘The igneous intrusive in the middle of the dome provides the heat to cook the Marra Mamba and drive off the silica,’ – a shooing motion – ‘leaving you with a high-grade iron deposit.’ He finished with his palms up: QED.
We had a target.
It was critical to know where to drill, not only for the obvious geological reasons, but also because the Aboriginal people who had native title rights over the area wanted to ensure our disturbances would not wreck any of their sacred sites, which was fair enough.
So to ensure no sites were disturbed, we linked up with four Aboriginal traditional owners from the Bunjima people and conducted a two-day heritage clearance survey over Mal’s target area. The most senior of the Aboriginal traditional own
ers (all men) was Ian Black. He was so weatherworn that it was hard to tell his age. Ian was knowledgeable about the connection of the Bunjima people to his country and held the respect of the younger men, who deferred to him.
At the beginning of day one, we all walked to the first area that the company proposed to drill. It was flat, nondescript scrub and I did not imagine we would find anything of interest from the Aboriginal point of view.
Using a GPS, I navigated to the spot where the first drill hole was due to go.
‘OK, fellas, this is the first hole. We’d like to clear an area 20 metres all around from where I’m standing,’ I said to Ian and his team.
They fanned out, with their eyes scanning the ground.
‘Look, Ian, spearhead,’ one of them shouted out.
‘Flint knife,’ said another.
‘Grinding stone,’ said the third.
Ian himself had found an axe head.
I ran from discovery to discovery. It was unbelievable; there were artefacts everywhere. The arrowhead was made from flint, a beautiful exquisite piece of craftsmanship. How anyone could have made this from just napping rocks together baffles me to this day.
Finding these amazing objects was a revelation to me, but the Bunjima fellas did not looked surprised at all.
‘Ian, did you expect to find all this stuff?’ I asked.
‘Oh yes, anywhere close to a creek is where our ancestors lived. Over forty thousand years, the objects just build up,’ he said.
Even to a geologist that was a long time. But there was no denying the sheer quantity of human-made material. However, despite the exhilaration of finding these ancient artefacts, I was also alarmed, because these discoveries could potentially threaten our drilling program.
‘So, Ian, can we drill here?’ I asked nervously.