Chatham Rock Phosphate

If you can short New Zealand Alternative Market (NZAX) stocks, you should probably look into this company.

Unfortuantely I can’t do short this with Interactive Brokers so I will never have a position in this stock.  However, here are some red flags:

  1. It involves underwater mining.  Underwater mining is a science project that is far away from being commercially viable.
  2. Underwater mining may cause very high environmental damage and will likely be shot down in a developed nation.  I think that NGOs and environmentalists should and will attack this mining project.
  3. There is a lot of high-grade deposits onshore that can be mined with very cheap open pit (or open cast) methods.  I think this will be the reason why underwater mining of phosphate will not be remotely economic.
  4. $229K of the $1,371K of administrative expenses in YE2013 (annual report) were spent on “Travel expenses”.  I suspect that much of this money was spent on expensive hotels, food, etc.  I don’t think that $229K was spent on plane tickets alone.
  5. Administrative expenses were roughly 21% of the company’s expenses in YE2013 ($1,371K / (1371K + 5236K)).  This is on the high side.  The company could be more efficient at containing its expenses.
  6. The CEO, Christopher David Castle, seems to have a dismal track record.  He has been associated with a number of penny stocks, none of which seem to be successful.  His profile on the King Solomon Mines website does not mention any profitable mines that he has been a part of.  I do not think he has very good qualifications to run a mine exploration company.  Investors should not give money to CEOs who have no experience in developing a profitable mine.

There may be an arbitrage situation between Castle’s Aorere Resources (formerly named Widespread Portfolios Limited) and Chatham Rock Phosphate.  It is not an arbitrage situation I would find particularly compelling.

*Disclosure:  Short OMEX, which holds shares in CRP.  No position in CRP.

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