The observations of an investor in developing countries
Concerned Investor | Solomon Star
GRML was wrong all a long…
The abandonment by Gold Ridge Mining Ltd (GRML) of their investment in Solomon Islands comes as no surprise to most critical observers.
St Barbara, the owners of GRML, came into the Solomons two years or so ago, with an ill-conceived concept of how to operate in a developing nation.
Long gone are the colonial days where governments and communities are not treated as equals. From the start, this misconception resulted in them mismanaging their shareholder’s money, the entire mining process and their stakeholders including local employees and those in the community.
The management style of St Barbara (SBM) and GRML show their lack of ability and understanding with regard to developing countries and they tried to manage as they would have in Australia. Report after report including those from Ernst Young and Price Waterhouse show the Australian mining model is the worst run and most expensive in the western world.
Based on this, the poor results from GRML should never have surprised anyone. The Australian mining model continually mismanages its value chain and as a consequence has never been able to manage it or devote sufficient time and effort into understanding its many parts and their interdependence on each other. As with any chain, it is only as strong as its weakest link and simply ignoring or undervaluing an underperforming link lets the whole chain down.
GRML was producing gold at nearly double their selling price! Admittedly SBM did remove the cause of one of their problems by replacing their MD, but the new one has little more experience in these matters and shows no aptitude for this task. The ‘expat management’ sent to Solomon Islands was considered to be abnormally incompetent by many observers. Was the new team picked solely to undertake the restoration work and finalise matters before the obvious planned withdrawal from Solomon Islands? The lack of conviction with which SBM and GRML undertook work pre and post flooding leads one to believe that a commercial decision was made that the insured value of the Gold Ridge Mine project was worth more than the value attributed to it by the Directors of SBM. GRML was in trouble long before the floods in April this year. The floods became a very convenient excuse for them to withdraw from a calamitous operation. Any well run operation would never have abandoned their operations as GRML had… there was an ulterior motive all along.
As an investor in the Solomon Islands as well as other developing countries, we consider the Solomon Islands to be a good safe investment with little or no more sovereign risk than countries such as Australia. The Solomon Islands government and the various ministries have shown a great deal of competence and ease in dealing with them. In fact after years of mismanagement, we only now consider that Australia is less of a sovereign risk and that is only due to the current party that is in power.
It is quite preposterous that the directors of SMB should authorise the release of a document insinuating that the situation in Solomon Islands is dangerous and they had ‘safely’ removed all their expat employees (SBM recent report on their website). This press release has only been made to allow them to claim under their relevant insurances and save face with their shareholders, at the cost of Solomon Islands. Unfortunately SBM has followed the path of other publically listed companies where bad information is slowly given to market and its shareholders whilst good information is almost instantaneous. Nothing has been said about the dangerous conditions that GRML management left the pit prior to first withdrawal, their failure to secure the site, their failure to maintain their settling dams. All we hear in the press is GRML is working to resolve issues with the Government of SI and how unsafe it is. All problems are caused by others, never by the management of SBM or GRML. Admittedly the GR land owners chairman also pushed the company way too far.
When will these so called business leaders understand that they are responsible, put their hands up and let people who actually know what they are doing get in and fix the problem. The problem was not one of process and equipment but a pure managerial competence issue on the side of SBM. It will not be an easy fix as the amount of “silly” money that GRML threw around will need to be reviewed so that both the project and all its stakeholders have a long-term future there. Therefore it must be fair to all parties and the expectations of all concerned must be one of compromise so that all stakeholders benefit from the resources mined at the project.