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Rod Oram: Money trawl for a ‘no brainer’

Rod Oram takes a closer look at Chris Castle's latest attempt to raise another $10 million to apply to dredge for phosphate on the Chatham Rise at a depth 350 metres deeper than ever mined before

Chris Castle, a promoter of many ventures with highly mixed results over the 35 years or so since he left Brierley Investments, is seeking to raise a further $10 million to help save his latest big idea – seabed mining on the Chatham Rise, one of the most productive fisheries in New Zealand waters.

His offer of shares in Chatham Rock Phosphate, listed on the NZAX, is due to close next Friday. While the outcome will be crucial to his current investors, the import goes far beyond to how we responsibly manage and use our Exclusive Economic Zone, the fourth largest national oceanic resource in the world.

Seabed dredging for minerals is a technology in its infancy, and one that’s controversial, particularly where the seabed has high ecosystem values. Research into its impacts is also in its very early days. NIWA, for example, has only just begun its first experiments to mimic and measure the impact of dredging on the Chatham Rise. While NIWA will have some early evidence to contribute to the Environmental Protection Authority’s decision-making on marine consent applications, the full value will only come after the project is completed in 2021.

Castle founded a precursor to CRP in 2004 to explore the idea of dredging the seabed for phosphorous rock nodules to be used as a farm fertiliser onshore. The entity became the current company in 2007. It is registered in British Columbia and is listed in Canada and Germany in addition to the NZAX. Some 35 percent of its equity is held by directors and management, and the balance by 1950 or so external shareholders.

Over the years, Castle has raised some $40 million for CRP, with the company’s market cap peaking at around $50 million in mid-2013. But when it failed in early 2015 at its first attempt to get a marine consent for its Chatham Rise proposal from the EPA, the value crashed. It is currently worth $4.7 million, close to its shareholders equity at its March 2018 year end.

KPMG, its auditors, noted in those accounts: “The ability to continue to operate long-term is dependent on raising further funding to pursue the Group’s corporate goals. These events or conditions indicate that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern.”

Money for an application

Castle has raised C$870,000 so far for CRP over the past 12 months. But he needs more money to meet his ambitious plans for another application to the EPA. He hopes to make it as soon as late next year at a cost of $6 million, he estimates.

In May, Castle gave a presentation on the potential he sees for CRP to Minerals Forum 2018 in Queenstown. This was the first of a new style of industry gathering promoted by the government agency in charge of regulating petroleum and mineral exploration, and Straterra, an NZ mining sector association.

“Chatham Rise: 23m tonnes of phosphate valued at $5 billion – it’s been there for seven million years waiting for us to come and get it,” was the core of his pitch.

His six bullet points on “Why we’re such an attractive investment opportunity” were:

- Highly profitable ($75m pretax pa)

- No capital investment as contract mined and no processing

- Strategic commodity (phosphate is scarce, low cadmium)

- Environmental benefits (food safety, carbon emissions, soil profile, water quality)

- Ethical source of phosphate

- Directors and management own 35 percent

In conclusion, he said the company was potentially valued at $500 million, drawing a parallel with A2 Milk which “struggled to gain acceptance for a decade” before its technology and business model were accepted and it became a major success for investors.

A no brainer?

“So, where to from here? What do you think? Surely a no brainer.”

The following month he was showcasing his company at Fieldays, seeking to encourage more farmers to invest in it.

Many of Castle’s claims for the project are bold, and some are highly contentious. But the EPA’s 2015 decision to decline CRP’s first application was particularly robust. Much of the area CRP wants to dredge on the Chatham Rise is closed to trawling and dredging by fishing companies to protect the seabed and the ecosystems it helps support. The EPA concluded that the effects of the dredging could not be avoided, mitigated or remedied.

Nor was the EPA’s Decision Making Committee persuaded the economic benefits of the seabed mining were as significant as had been argued by CRP, or that the benefits were sufficient to offset the damage to the ecosystem.

350 metres deeper than ever mined

Moreover, it transpired in the hearings that Boskalis, the Dutch company CRP said it would contract, had only deployed the dredging techniques it would use down to 150m whereas the Chatham Rise waters in question were as deep as 500m.

Castle responded to many of these issues in an interview with me this week.

He said the Decision Making Committee “didn’t understand much of what was put in front of them …. in our next application we’ll explain things better.” In addition, he believed the EPA’s processes had improved over the past few years.

On economic feasibility, he said: “We’d sell the phosphate at US$160 a tonne but our mining costs are $90 a tonne less than that. We’ll make more margin than A2 Milk.” After selling initially in bulk through selected trade agents, CRP in time could develop retail sales through the likes of “Alibaba, Trade Me and Amazon” to capture far higher margins.

By comparison with the fishing industry, “my analysis shows that bottom trawling yields only $9000 per square kilometre. Our yield, even before the price goes up, will be roughly 1000 times that”.

He says phosphate is only the first product from the dredging. An even bigger opportunity could be rare earths, the vital, trace minerals used in electronics and other fields.

Money for scientists and consultants

What had CRP spent $40 million on over the past 10 years? “We employ quite a lot of experienced scientists and consultants.” In its 2014 EPA hearing, “almost everyone in the room had a PhD.”

As for KPMG’s note in CPR’s accounts as to the risks of it failing to raise enough money to keep going, Castle said: “They’ve put that in for the past decade or so. We have steadily raised money since 2010. I have 10 distinctly different avenues to pursue.”

“We need very little to remain viable … enough to pay accountants and lawyers. It won’t be a huge amount. It’s an opportunity for Mums and Dads who are shareholders to participate,” after raising money from placings with larger shareholders.

So far, Castle has proved adept at trawling for money. Trawling for phosphate nodules is proving far harder.

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