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:
- It involves underwater mining. Underwater mining is a science project that is far away from being commercially viable.
- 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.
- 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.
- $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.
- 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.
- 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.