Aura Energy stands accused of disclosure, listing rule breaches
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“10 hours remaining to vote – shareholders unite, 7 of your brothers are standing up in front of the Supreme Court of Victoria tomorrow to uphold the basis of shareholder rights. Support them by your vote,” the tweet exhorted.
The post, by Cycle Bottom on Twitter, is not a campaign against masks or a Black Lives Matter offensive but part of a fight over the bloodied corpse of Aura Energy (ASX:AEE), a resources explorer that has been wracked by an increasingly vicious battle for control over the last year.
Information seen by Stockhead suggests the company could be in breach of at least one listing rule, and it stands accused of not fully disclosing critical funding details to shareholders.
Aura Energy has been suspended from the ASX since May 20 as it seeks to “clarify recent market releases”.
Today the company stands on a precipice: shareholders are voting, for the second time in four months, on proposals to remove the board.
Shareholders led by the holder of the above Twitter account, David O’Neill, and his ASEAN Deep Value Fund are trying to remove a board they say pays itself too much and has massively diluted the share register with an ill-thought convertible note.
The board says they’re trying to take over the company by stealth and has tried every avenue it can to prevent the meeting.
The Lind convertible will default if more than half of the board is changed, and in June the Aura board sought a decision from the Takeovers Panel confirming that board member John Bennett was colluding with major shareholder ASEAN Deep Value Fund and therefore should put a takeover offer on the table.
The Panel declined, saying there was not enough evidence to warrant an investigation.
And this week the Supreme Court of Victoria threw out the board’s request for an injunction to postpone the meeting.
Stockhead has been seeking comment from the Aura board, and at the time of publication is yet to receive a response.
According to documents seen by Stockhead, Aura Energy has a disclosure problem and has issued more shares than it is allowed to.
A company is allowed to issue up to 15 per cent of its share register, as measured at the time of the annual general meeting, and if given permission by shareholders can also issue another 10 per cent.
Shareholders rejected the extra 10 per cent at the AGM in January, but the company has issued shares worth just over 25 per cent of its issued capital since then.
If the company availed itself of the extra 10 per cent offered under temporary COVID19 rules, which it had not mentioned to the market, the shares issued add up to 25.27 per cent, based on the share base at the end of 2019 that was cited in the most recent half year report.
There are also question marks over whether shareholders were told before ratifying a convertible note with New York lender Lind Partners that the company was already in breach of its obligations.
Aura raised $2m from a convertible note with Lind in April last year, which allowed the lender to convert and then sell up to $125,000 worth of stock a month.
In January, shareholders were asked to ratify an alteration that gave Aura another $320,000 or face a dire cash shortage.
However, they found out on March 13 that a clause allowing Lind to convert its entire holding had already been triggered: the lender wasn’t bound by the $125,000 monthly limit if Aura’s market cap fell below $9m for five consecutive days — this happened in November 2019.
Lind converted $1.8m worth of shares in the four months between February and May at ever decreasing prices, as the lender was allowed to cut the fourth decimal point off which blew a 10 per cent discount to up to 30 per cent.
Bennett and O’Neill are also concerned about the last vote, for a meeting supposed to be held on April 14 but which was delayed, due to COVID19, until May 21.
That requisitioned meeting was a combination of two 249D notices: one from ASEAN asking for
Raymond Gin, a resident of New Zealand, O’Neill, and David Roes, a resident of Hong Kong to be elected to the board, and one from Bennett asking for Florian Bauer and Florian Hoertlehner of Panama and South Australian Hendrik Delen to be elected.
Voting closed on April 12 and a new proxy form was not issued to extend that period, both men say.
The total number of shares on issue when voting closed was 1.806bn. Yet the total number of votes in the count when it was released in May was 1.814.
Bennett says 814m new shares were issued to Lind, consultants hired by Aura, among others.
All of the resolutions in the meeting were voted down — hence why another was called for August 14 — and O’Neill and Bennett are both querying whether, and how, shares issued after voting for the April meeting had closed were allowed to be counted.
The conflict between shareholders and board began early in 2019.
O’Neill’s ASEAN became a substantial shareholder in July 2018 to gain exposure to the Mauritanian uranium project Tiris, which he told Stockhead was one of the “three best in the world” in terms of low CAPEX and OPEX.
However, that came with a view that management were not aligned with shareholders in terms of interests.
“We thought they could take on shareholders’ views,” O’Neill told Stockhead.
“As the stock price dropped [by 90 per cent from 2018]… it got more attractive, so that allowed us to increase our stake. And we then increased our voice and increased our communications with the company to attempt to activate positive change.”
Reeve agreed to lower his cash salary from $450,000 to $280,000 late in 2019 but the board refused to accept an offer of funding from ASEAN this year, saying an included royalty fee of $US1 per pound on production from Tiris was too high.
Separately, Bennett was beginning to wonder if the board could deliver on rosy timeline projections for turning its flagship Tiris project into a producing mine.
Bennett launched the first of what would be several 249D notices — a bid to roll all or some of the board — in October to remove Reeve and for him to join the board. He would ultimately withdraw the first resolution, and be voted on in January.
In November 2019, Aura took Bennett to court over $456,000 it said he agreed to pay into a capital raise in February.
Bennett has been communicating with the ASX and with ASIC since around October last year, and since he was elected as a director doing so under whistleblower laws, alleging he’s been frozen out of board communications, breaches of corporate law, appointing new directors and issuing 814m new shares during a delay to a requisitioned meeting, among other problems.
A move to set up a joint venture with TSX-listed Chilean Metals to move ahead on a Mauritanian gold venture has fallen over, with the Canadian company declining to move ahead on the project but allowing a private company owned by its CEO to take it on.