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Watchdog to check magnesium plant
By CNN's Geoff Hiscock, Asia Business Editor
SYDNEY, Australia (CNN) -- Australia's corporate watchdog has launched an investigation into the failure of a planned $1.1 billion magnesium project on the Australian east coast. The Australian Securities and Investments Commission (ASIC) said Wednesday it would look at the level of disclosure by Australian Magnesium Corporation (AMC), which has spent almost Aust. $800 million ($530 million) so far in trying to build the light metal plant near the Queensland city of Rockhampton. Known as the Stanwell Magnesium Project, the plant was mothballed by AMC earlier this month after it was unable to find new backers. The plant was supposed to begin producing magnesium in 2005, with the output going to the automotive industry. But construction cost over-runs, a fallout with the prime contractor, and a refusal by key stakeholders to pump more money into the project forced AMC into the mothball option, with the loss of 120 jobs. (Full story) A shakeup of AMC's board and management on June 13 saw CEO Rod Sharp go, along with four other directors. Chairman Roland Williams will step down in November. Shares in AMC plunged more than 50 percent to just 9.4 cents when they began trading Tuesday for the first time since early June. That followed the revelation by new CEO Chris Rawlings that the entire carrying value of the project could be written off. The shares are unchanged on Wednesday. Up to 15,000 AMC shareholders who subscribed at 80 cents a share in late 2001 have seen the value of their holdings fall almost 90 percent. Many are retail investors attracted by a deal under which the Queensland state government backed a three-year distribution payment scheme of 8 percent a year. ASIC said Wednesday that from the outset it was clear that the AMC venture carried "significant risk". It said this was disclosed in the company's October 2001 prospectus which stated "there can be no assurance that construction will be completed and the Stanwell plant commissioned on time and within the capital cost estimate". Even so, ASIC said it was appropriate to fully investigate the adequacy of the initial prospectus disclosure and of the company's recent market disclosures. AMC's key stakeholders include 28 percent shareholder Newmont Mining Corp of the U.S., the Australian federal and Queensland state governments, and the main builder, Leighton Contractors. In April, AMC said talks with Leighton over a final construction price had broken down. It then began a search for a new backer, but was unsuccessful. In mid-June it won a standstill agreement with stakeholders to develop a new business plan that might allow the project to proceed on a reduced basis. But investors and market analysts are not confident the plant will be completed. AMC originally aimed to produce 90,000 tonnes a year of magnesium at Stanwell, banking in part on a A$2 billion 10-year sales contract with U.S. automaker Ford.
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