Following a deadlock in negotiations between Jervois and China Rail Resources in late October, many large and small Jervois shareholders are calling for a restructuring of the Board. The largest single shareholder in Jervois, Mr Noman Seckold , has agreed to nominate for election as Executive Chairman. 

Mr Seckold brings almost forty years of experience in the mining industry as the co-promoter and developer of a number of mining companies in Australia, Canada and Mexico.  He remains the largest shareholders of one of the largest silver producers in the world, the Canadian based Couer D'Alene and is also chair of Nickel Mines Limited.

The shareholder group seeks change for the following reasons:

- A new Board is likely to be  a better position to secure funding partners when an upturn occurs 

- Recent conflict at Board level parallels previous conflict between management and dissenting directors

- Need to resolve protrated technical issues and focus the company on its major asset, the Young project

- Conflict of interest between broader shareholder interests and company staffing policy.

Background 

Jervois differs from many small minerals companies who tend to spread their interests across a range of metals and mning regions. The Jervois assets are simple.  It holds three large leases near the town of Young in NSW which contain some 1.3 million tonnes of nickel with associated credits of cobalt and iron ore. In addition it holds the world's largest single scandium deposit further to the north at Nyngan.  The nickel deposit is of a similar grade to BHP-Billiton's Raventhorpe with a similar resource. Like many laterites it is of relatively low grade, but the size, available infrastructure and ease of extraction mean many of the capital and operating costs are correspondingly reduced.

Laterites do present one difficulty: while actual mining is cheap and simple, the leaching of the metal from the weathered, rock and clay known generically as "laterite" can absorb massive amounts of acid solvent. When nickel prices are high this cost can be absorbed, but when they slump, margins erode. Some laterite processors have tried high temperature and high pressure acid leaching which makes efficient use of the acid, but creates its own technical difficulties as the losses incurred by Minara and BHP testify.  For a number of years Jervois has sought an alternative route: a process based on the recycling of acid at lower temperatures and atmospheric pressure.  Several times the company has announced success or near success only to see further technical issues emerge.

Potential Chinese funds

After one of these announcements was made in 2006, a China funding specialist Double Link Group Australia with links to Mr Richard Campbell approached Jervois Mining with an offer to source Chinese funding in return for a fee based on an initial funding for a feasibility study and then a share and cash fee for the funding of an $700-800m processing plant.  Guang Ye, a Guangdong company involved in power and mining, was contacted in China and subsquently took a dozen officers to Young where interest was expressed in a joint venture.  Some time later it withdrew. Double Link then engaged with Yunan Jiaming, a Yunan based minerals company which proposed that China Rail Resources, a division of one of the world's largest engineering groups, China Rail, would supply funding for a process developed by Jiaming.

In March of 2008 a co-operative or 'Frame Agreement" was drawn up in Beijing with director and company solicitor M Garrick Higgins present. The agreement which outlined a joint venture between the three companies. In return for transferring its Young leases to a joint venture company, Jervois would be free funded for 20% of the capex and profits. China Rail through its subsidiary China Rail Resources (CRR) subsequently tranferred a refundable US$1m to Jervois as a token of good faith with the promise of further funds once a feasibility study has been conducted.  CRR made plans to send 14 officers to Young in mid October, but as the signing date approached (October 31) its Vice President, Mr Zhoa requested more time for the feasibility study to be finalised as no funds could be released by Beijing without it. 

When Mr Zhao arrived with Dr Cao of Jiaming, Mr Pursell indicated that Jervois was only willing to grant an extension to CRR on payment of US$2m.  Discussions over three days were largely held by Mr Pursell alone or with Mr Alan Pursell, a Project Manager, also attending. Mr Pursell made it clear that Jervois would not change its position while CRR insisted that it was unable to provide any additional funding in the absence of a certified feasibility study.  Initially CRR threatened legal action as a means of enforcing its right to be granted an extension under the terms of the agreement. This was withdrawn, but a final request for a meeting some days later was declined by Mr Pursell. A subsequent communciation by Mr Pursell to CRR suggested the time had come to "put up or shut up" that in his opinion the deal was "dead" and that CRR had never sincerely intended to sign the agreement. Without the authority of the Board Mr Pursell made an offer to sell the leases to CRR. Mr Zhao subsequently communicated via Double Link that he found Mr Pursell's remarks insulting and offensive. 

 Other matters

In the absence of CRR funding following these events, the Jervois Board turned its attention to its cash position and a subsequent request for a refund of the US$1m.  As two directors were new following the resignations of geologist Mr Anthony Jannick and company solictor, Mr Garrick Higgins, it fell to Ms Melanie Leydin, the company secretary and former auditor of the company, to assess the cash position in detail. 

One difficulty was that frank Board discussion was compromised as corporate staff included four Pursell family members out of a total of five. Alan Pursell was employed in late 2007 and Helen Foster, in October 2008. Mrs Foster had worked for the company previously, but took up a full time position at Young.   The on-going losses at the Bullabulling gold operation west of Kalgoorlie made this situation all the more difficult and pressing.  This activity had come to Jervois in 2002 as part of a funding arrangement and had been discussed over several years as attempts were made to bring it to profitability. For various reasons this proved difficult with Bullabulling incurring consistent negative cash-flow.

In the context of the dramatic fall in nickel prices at this time, cash-flow became a particular concern to Ms Leydin. She served on seven  mining company Boards and all were cutting costs rapidly to survive the downturn. Mr Pursell said Bullabulling should be sold when the opportunity arose, but that Jervois also had a valuable asset - its large shareholder base. Ms Leydin and Campbell at this point grew concerned that the cost structure of the company and its unsusual staffing policies were in conflict with a speedy reduction of overheads.  Lehman Brothers had collapsed in September, insolvent Merrill Lynch had been absorbed hurriedly by Bank of America and all across the OECD worrld manufacturing, trade and mining were contracting rapidly. Another share issue would mean that Jervois had raised funds 11 times in 15 years with a consequent capital structure of over two billion ordinary shares plus options.

Campbell argued against a further issue on the grounds that it was a far from ideal time, would lower the share price and would dilute small shareholders who now either had insufficient funds to respond or insufficient confidence in the company and the management.  He also suggested that professional investors may be very reluctant to raise the funds as they would not be able to "get out" as they made their "turn". 

When the two dissenting directors took soundings from a number of large Jervois shareholders and brokers associated with past placements, their views were endorsed. When it was further revealed that at least one specialist investment company would not invest while Mr Pursell remained MD, misgivings grew.  Following Ms Leydin's concerns about cash-flow, and on the morning of the AGM, Ms Leydin was asked to resign her position as Company Secretary. The grounds advanced Mr Pursell were that she had taken several calls from Mr Higgins during the discussions with CRR. When she protested that she had volunteered this information merely as a procedural formality and had conveyed nothing to Mr Higgins, Mr Pursell raised additional grounds for the cesssation of the services of Leydin Freyer, an association going back 15 years.   

Mr Campbell saw this action as unfair and characterised it to Mr Pursell as "somewhat brutal".  He then contacted a number of the larger shareholder to inform them that matters were amiss. Over time the company had become so associated with Mr Pursell that some important distinctions had blurred.  Mr Campbell felt it his duty to inform the third director, Dr Jansen, of his concerns. This action was supported by the largest individual shareholder, Mr Norman Seckold who had previously been offered the chairmanship of the company but had declined for the time being.  The view put was that there was a strong and growing body of opinion among some large and small shareholders that, in view of the weak performance of Jervois over recent years, the necessity of cash preservation, the possibility that CRR would re-engage with Jervois if Mr Pursell resigned and irregularities such as the questionable removal of the Company Secretary, it would be in the best interests of shareholders for Mr Pursell to assume a consultancy role and stand down from day to day management. This was a public business and even an outward appearance that private and public interests had blurred created immediate governance and ethical problems for the Board.  Strong as Mr Pursell's mining experience had been Mr Seckold's actual achievements were stronger. He had promoted and managed not one but half a dozen mining companies and produced significant wealth for shareholders in the process. 

As Dr Jansen did not observe the confidentiality requested there was an immediate break-down in relations between Mr Campbell and Mr Pursell to the point that Mr Pursell denied him access to his place of work in an endeavour to force his resignation as  a director. A resignation was also demanded from Ms Leydin and she was denied access to company accounts.  Both actions may have been contraventions of the Corporations Code.

On legal advice Ms Leydin and Mr Campbell then challenged Mr Pursell's customary chairmanship of Board meetings. An ex parte application was made to the Federal Court and subsequently upheld by Justice Middleton who ruled that decisions taken while the Board was split 2:2 were invalid. Mr Derek Foster was appointed a director unlawfully and in the following week a Professor Collerson was announced as a new director.  Dr Collerson is an expert on the distribution of diamonds.  The implication of this appointment is that Jervois will give high priority to diamond exploration. This may come as a surprise to shareholderswho thought they had linvested in a nickel development company with a well understood and well defined deposit.

Ms Leydin subsequently took the view that in the absence of access to the company accounts she was not in a position to judge the cash position accurately and resigned as the year closed.  

In this situation Mr Seckold as a member with more than 5% of the ordinary shares will call an EGM to give shareholers a chance to voice their own views.  This coincides with the group known as "Jervoisvision09" who are gathering the requisite 100 shareholder names in support of the director's requisition. This group has been critical of Mr Pursell's management over an extended period.

Undertandably many long-standing shareholders will be surprised and perhaps saddened by these events. However, the intention of the change group is not to fous on Mr Pursell or his family. He has undoubtedly put much effort into the company and the Young Project. However, ultimately Jervois shareholders own Jervois, not any one individual. Under our legal system companies are not governed by military rules. They are representative democractic structures as can be seen by dozens of sections of the Corporations Code. Jervois shareholders should expect their representaives to be uncompromised by either real or apparent conflicts of interest. Most would also expect adheremce to the principles of Corporations Code as well as the capacity to deal diplomatically and skilfully with potential funding partners. In short getting to the deal is one thing: actually securing it is another.