Sent: 18-05-2011 09:32:03
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Don't Ask Don't Tell: The dumbing down of corporate communications
By obscuring their commitments to development milestones mining companies can duck their responsibilities to investors.
A weekly ATC email in November 2007 noted the increasing tendency for PowerPoint presentations to become the preferred means of market communication for mining companies at the expense of more detailed comments on critical aspects of business development plans.
At one level, the more widespread availability of PowerPoint presentations has been an important advance in shareholder democracy insofar as analysts and potential investors unable to attend meetings in person can get access to any physical materials given to those attending.
That said, PowerPoint presentations have never been a suitable medium for conveying nuanced descriptions of business activities. The slideshow is typically no more than a set of abbreviated notes or a backdrop to a more detailed business description.
As the communications culture evolves away from the use of full sentences (such as "We intend to begin production in the first quarter of 2013"), clear management commitments are less likely. Often, the slideshow content is open to interpretation when there is no accompanying text about what included statistics, charts and diagrams are supposed to mean.
This dumbing down of corporate communications gives companies more wiggle room than if they had issued a considered statement of intent or lodged presentation transcripts. It means less pressure for periodic explanations of how they are tracking against their previous commitments.
The development timetable for mining companies is a critical input into an assessment of value. Whether development is going to begin in 2011 or 2013, for example, should have a meaningful impact on how much an investor pays for a stock.
As things stand, companies can surreptitiously push out a series of autoshape arrows on PowerPoint charts without any further explicit acknowledgment that their timetables are slipping or without any reference to what commitments they had given in the past.
PowerPoint does not deserve all the blame. Sometimes, companies simply treat timelines with contempt.
In April 2009, in an ASX announcement, Terramin Australia said explicitly "we are aiming at start-up in late 2011" referring to its Tala Hamza zinc mine in Algeria. It eventually released the details of a definitive feasibility study (DFS) in October 2010 showing that construction of a mine with an anticipated life of 15 years would take 57 months suggesting no significant production before 2017.
Just this month, however, the company advised the market that "Terramin will present the DFS findings on a mine with an initial life of 15 years to 2027" to its development partners. Yes, using the same DFS, the company appears to have cut the construction time from 57 months to as little as seven months.
Far from this good news rejuvenating investor enthusiasm, the share price fell another 10% after having already fallen by 57% since the feasibility study was first released.
However slipshod, careless and cavalier Terramin Australia might have been in dealing with its milestones publicly, Cape Alumina has plumbed new depths. This is a company seeking to mine bauxite near Weipa in Queensland. It released a PowerPoint presentation last week which included a diagrammatic representation of "the proposed development timeline" for its Bauxite Hills mining project depicting a June 2014 production start and 21 categories of milestones leading to that point.
Such thorough disclosure was potentially a boon for any analyst trying to assess how much one should pay for an investment in the company. There was one problem: on the diagram was a note saying "This timeline is for illustration purposes only and has not been approved by the Board of Cape Alumina Limited".
So, how much weight should an investor put on the information in the slideshow if the diagram purporting to summarise everything the company is doing for the next four years is only an "illustration"? Did the CEO simply google "timelines" and download one from "www.timelines.com"? What standing does the ASX release have in the context of trying to assess how much an investor should pay for the company?
The directors of Cape Alumina seem to have found a way to blatantly titillate investors without actually having any commitment to what is being presented. They have an alibi if they never do what is "illustrated". To any upset investors, they will simply say "we told you it was only an illustration". Pretty smart.
Unfortunately, such an approach rips the guts out of the protections normally afforded investors. Duplicated across the market, investors could never again have confidence in the material they are given through the stock exchange.
If using this ploy to tilt the balance against investors becomes acceptable behaviour, checking whether company PowerPoint autoshapes have been nudged to communicate a change in milestone commitments will not be enough.
We will also be forced to ask whether directors are aware of what is being said on their behalf to solicit investor interest before we even start to judge whether they are capable of delivering on the illustrations being presented.
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