Mr. McVeigh said Salt Lake may be insolvent earlier than Oct. 20.
“Based on the availability of cash to pay the debts, SO4 was likely to be insolvent as of October 5, 2021,” he said in his report.
“I therefore believe that there may be an insolvent trade claim against the directors under Section 588G of the Corporations Act.”
Mr. McVeigh also expressed concern about a $28 million capital increase in Salt Lake that was executed in May 2021 that was to fund the latest Lake Way takeoff, with first production promised “within weeks” of the increase.
He said the investor presentation that accompanied the $28 million increase included a chart showing the expected increase in production for the coming year.
Mr. McVeigh also said the chart was “potentially misleading and deceptive” and investors may not have participated in the fundraiser if they had been “informed” about the state of the Salt Lake project.
“A review of internal documents revealed that information indicating SO4 would not be able to meet the above production targets existed as early as March 2021,” he wrote.
“For SO4, two components were critical to achieving planned production: an operational processing plant and [potassium] salt supply to feed that plant.
“SO4 encountered installation issues during the commissioning phase; this matter was widely disclosed to the market. The bigger and less visible problem, however, was the lack of salt supply for the plant.”
The briny water the company pumped out of the ground generally had to be kept in surface ponds for 12 months before the potassium salt was ready to harvest, Mr McVeigh said.
“It seems to me that the harvest time schedules in the harvest plan have been optimistic and perhaps unrealistic. Depending on the pond, harvest times in the harvest plan ranged from just four months to 11 months. These timeframes seem inadequate,” he said.
“In my opinion, based on the books and data available to me, the directors did not properly inform themselves about the true position of SO4 in the run-up to the capital increase in May 2021.
“Had they done so, they would have discovered significant delays in the project and the unfeasibility of the plan presented to the market.
“More frequent board meetings, with timely, meaningful and understandable information, including progress against plan and objectives, would have helped directors keep themselves informed of SO4’s position and take appropriate action to carry out their duties.
“In my view, due to the misleading statements issued during the May 2021 capital increase, coupled with the apparent lack of diligence and diligence on the part of the directors, SO4 was headed for insolvency.
“SO4 may have violated ASX List Rule 3.1 and Section 674 of the Act at the time of the May 2021 capital increase.”
The Salt Lake Potash collapse was particularly distressing for Chairman Ian Middlemas, as a second ASX publicly traded company he chaired had acquired more than 44 million shares of Salt Lake stock in the years prior to the collapse.
That company was Equatorial Resources, which hoped to develop an African iron ore project around the time it surprised the market with an investment in Salt Lake.
Equatorial disclosed in its annual report that it still owned 44,222,233 shares of Salt Lake, but the value of that stake had written off to zero, at $15.25 million.
Claims to be challenged
Mr. McVeigh’s suggestion that the Salt Lake directors had not fully cooperated was applied to all directors except former CEO Tony Swiericzuk.
In his report, Mr McVeigh said Mr Middlemas had responded to his findings on Sept. 19 and indicated that he intended to challenge the claims.
“The directors deny any breach of obligations and will vigorously defend against any insolvent commercial claim brought against them and will attempt to rely on the defenses set forth above,” he said.
Defenses available to directors accused of insolvent trading include that they reasonably expected the company to remain solvent, relied on another competent person for solvency information, or took all reasonable steps to prevent it from company incurs the debt.
According to Mr McVeigh’s report, Mr Middlemas said he believed an injection of external financing was still possible and “probably would be available well after October 5”.
Regarding any unwillingness to cooperate, Mr. Middlemas confirmed the meeting with Mr. McVeigh on February 17 of this year, and asked Mr. McVeigh to put his questions to him in writing. Mr Middlemas said that he replied to Mr McVeigh’s questions by asking for clarifications on the questions raised and had not received clarification from Mr McVeigh. Mr Middlemas also denied that he had breached any legal obligation arising from his dealings with Mr McVeigh and said that “verification work was carried out prior to the capital increase in May 2021”.
If Salt Lake and its industry peers had delivered their projects on schedule, Australia would have gone from zero to five sulfate-potassium mines in the four years to 2025.
But the nascent sector is struggling with technical difficulties.
Shares in Potassium Lakes are down 76 percent in the past year as the Beyondie sulfate or potash project hasn’t produced as much salt as expected.
That forced the company to shut down the operation in late August and early September for four weeks of improvement work, and the company is again trying to raise funds.
In August, Kalium Lakes said it had produced a total of 1,700 tons of commercially marketable potassium sulfate.
The situation is far from the vision that Kalium Lakes offered investors in August 2021, saying it would produce 120,000 tons per year by the last three months of 2022.
The rate of 120,000 tons per year has now been pushed back to the September quarter of 2024 and Kalium Lakes hopes to produce 80,000 tons per year by March 2023.
One factor that has rubbed salt in the wounds of investors who expected Potash Lakes and Salt Lake Potash to be reliable producers by now is the fact that potassium prices have risen this year in response to the war in Ukraine and the blackout. list of potash places. from Russia and Belarus.
Other potash aspirants BCI Minerals and Australian Potash have lost 37 percent and 63 percent respectively of their share price in the past year.
Shares in Agrimin have outperformed, losing less than 3 percent of their value in the past year.