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GATA''s enemies can snipe but they''ll never, ever argue the EVIDENCE
Gwalia 'knew' of gold woes
By John Paceas
The West Australian, Perth
Tuesday, September 7, 2004
http://www.thewest.com.au/20040907/business/tw-business-home-
sto129269.html
Failed miner Sons of Gwalia last night said it had
received a preliminary report on its gold resources
more than a month before it was forced into
administration last week.
The shock revelation comes as investors ponder
a potential multi-million claim for sharemarket
losses in the weeks leading up to Gwalia's $800
million collapse and suspension from trade.
Responding to a probe by the Australian Stock
Exchange, Gwalia said a preliminary resources
review was handed to the board on July 22, five
weeks before it called in administrators on
August 29.
However, Gwalia underlined that the results of the
initial report were preliminary and hinged on
further data from its WA mines.
A separate external report on August 12
subsequently indicated a "preliminary view" that
plans and forecasts for the Marvel Loch mine were
uneconomic based on known resources at that
date.
Gwalia said it was then aware that "a material
deterioration" of reserves and resources was
possible, but that it needed to undertake further
work before modifying its resource base.
Nonetheless, Gwalia conceded it had then begun
contacting its lenders and hedging banks to seek
an "enforcement standstill" of its financial
obligations for six months.
The company also said a statement of its gold
reserves and resources had been prepared by
August 26 for presentation at a board meeting
slated for the following Monday, but that it
remained incomplete.
The statement had still not been signed off by a
so-called competent person as required by law.
Gwalia last night said it did not become aware
that its lenders would consider the reserves
shortfall as a "material adverse change" in its
financial position until August 28.
It therefore believed it had complied with its
continuous disclosure obligations. A spokesman
for the stock exchange was last night unable to
comment on whether Gwalia's reply, lodged after
5.30 p.m. Perth time, would end its probe.
However, Gwalia's statement could have big
implications for possible legal action by investors
who bought shares before the collapse, potentially
dating back as far as October 2003.
Listed litigation funder IMF Australia yesterday
said it had been hired by several Australian and
U.S. shareholders to weigh up all avenues to
recoup their money.
IMF managing director Hugh McLernon said the
key to any claim would be whether the market had
been kept fully informed of Gwalia's financial
position, and exactly when the company had
discovered a likely substantial shortfall in its gold
reserves and resources.
"If there is a material shortfall, then the market has
been ill-informed ever since October 2003, when the
statement was that there were 3.2 million ounces in
reserves," McLernon said. "Anyone who purchased
shares in that period (would have) an action against
the company -- and that is potentially a very large
claim."
More than $580 million in Gwalia shares were traded
between October 8 last year, when the miner released
its last reserves statement, and the time
administrators were appointed.
McLernon said Gwalia's initial retention of Ferrier
Hodgson on August 6 would face particular scrutiny
as an item that may have been material to investors.
About $30 million in shares traded after that date.
On Friday, administrators said Gwalia's debts may
top $800 million. But a sale of the gold business and
restructure of Gwalia's big tantalum division could
deliver a substantial return.
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