What really happened at Alliance Mining?

[miningmx.com] — I FEEL for the shareholders in Alliance Mining.

I’m not sympathising with them because Alliance, a former AltX darling, has applied for liquidation. I feel sorry for shareholders because I fear they will never really know what transpired at Alliance.

Since the release in mid-June of reviewed (not audited) results to end-February 2009 shareholders have – aside from a brief note suggesting that figures for the last two financial years were hopelessly over-stated – been kept largely in the dark as to Alliance’s fiscal status.

That sucks. I can’t stand it when a company clams up as soon as it runs into trouble. As I’ve argued before, it seems to be standard practice for directors to make a patronising assumption that the less shareholders know about a company’s troubles the better.

You don’t believe me? Then ask shareholders in Rentsure, Saambou, Global Villages, Exxoteq or Tigon to explain exactly what transpired at their respective companies.

Quite frankly, I am rather astounded at developments at Alliance.

According to a SENS announcement – dated April 9 – directors of Alliance resolved to apply to the South Gauteng High Court for liquidation of the company.

Okay… but which directors exactly? Two days before the announcement the acting CEO and acting CFO as well as two non-executive directors resigned with immediate effect.

When I phoned Alliance’s offices to ask to speak to the relevant director or directors, it was apparent no one of authority was at the Alliance HQ. A staff member duly referred me to a well-known legal eagle.

I’m not going to name the legal eagle at this stage, because I was unable to make contact with the person in question. But hopefully I will have some clarity on his role at Alliance fairly soon.

Naturally the involvement of a top legal mind might prompt some thoughts around an opportunistic party buying out the best bits of Alliance… but let’s not jump the gun here.

The Alliance liquidation application was brought because “it became apparent to the directors that the company will not be able to meet its obligations in the normal course of business”.

The phrases “normal course of business” and “obligations” are most interesting. Alliance has previously advised that its financial statements for the years ended February 2008 and 2009 are unreliable after the frightening spectre of overstated figures was raised.

Still the reference to “normal course of business” suggests Alliance (and its array of operating subsidiaries) are still “in business”.

Of course, without recourse to an annual report covering the period ending February 2009 or the publication of interim results to end August 2009, shareholders are clueless about Alliance’s ongoing businesses or its “obligations”.

Reviewed numbers for the period ending February 2009 certainly suggest Alliance held a robust balance sheet with tangible assets comfortably covering liabilities.

Hell, the directors (or should I say ex-directors) at Alliance even saw fit to distribute around R65m in dividends over the last two financial years.

The only hint that all was not well at Alliance was that the company – and folks, this is such an important point – was not converting its stated operating profits into cash very effectively.

In fact, a rather flashy presentation – which appears to have been made in September 2009 – confirms this. The presentation shows that the cash conversion ratio dropped from an already weak 23% in 2008 to just 16% in 2009. That means less than 20% of the stated profits were converted into the all important commodity, cash.

Over-active imaginations

But why should shareholders have fretted as the presentation by former CEO Alwyn Steenkamp and former financial director Connie van Nieuwkerk (also formerly the FD at another AltX blow-out, African Dawn) intimated the staunched cash flow was merely a technicality.

They noted that the factors impacting on free cash flow included the “dynamic nature of our inventory, as well as fluctuating debtor’s days”.

Dynamic? The only thing dynamic about Alliance appears to be directors’ over-active imagination. In mid-2009 directors were still spouting about how the group and its subsidiaries had survived the economic downturn with “healthy order books” and “substantial contract cover”.

And what about this choice quote (taken from the comment on the year to end-February 2009 results): “The strong balance sheet and conservative gearing approach of the group to the present date provides the platform for the group to continue to seek investment opportunities to ensure continued growth.”

With auditors suggesting Alliance might have shown no profits in 2008 and 2009 instead of the R141m and R81m reflected respectively for those years, the comments may well be construed as purposefully misleading.

Paying a dividend – and a large dividend as well – when the company was barely breaking may even bring up the touchy matter of reckless trading.

Whatever the case, Alliance shareholders need clarity and quickly too.

If shareholders are not successful in petitioning whoever is in charge of Alliance for the release of updated financial/trading information, then I trust a decent post mortem will be done in a Commission of Enquiry.