Regulators are looking into Flinders Mines’ plans to undertake a share buyback using borrowed cash from the iron ore miner’s biggest shareholder.

In mid-December Flinders revealed that it wanted to delist, and in preparation for that would buy shares back using a loan from TIO (NZ) Ltd, which owns 55.6 per cent of Flinders.

The loan would be repaid by way of a non-renounceable pro-rata rights issue that would be done following the buy-back.

The Takeovers Panel is now investigating concerns raised by Brendon Dunstan, who is acting with or on behalf of a number of shareholders, that the proposed deal would allow TIO NX to gain further control of Flinders and would be a breach of the Corporations Act.

Mr Dunstan also argued in his application to the panel that Flinders’ shareholders had not been given enough time and information to consider the company’s proposals.

He also alleged the substantial shareholder notices lodged by The Todd Group, the indirect parent company of TIO NZ, were defective.

The Takeovers Panel says Mr Dunstan is seeking orders to prevent Flinders from going ahead with the delisting and buyback or provide more information, including an independent expert’s report, and exclude TIO NZ from voting on any of the proposed transactions.

The Panel has not yet decided whether it will conduct proceedings over the matter.

Flinders had been facing challenges in bringing its Pilbara Iron Ore Project (PIOP) in Western Australia into production.

Steep discounts for lower grade iron ore had forced it to look for ways to upgrade the product it would eventually sell.

But that was going to incur significant costs, and Flinders’ progress in 2019 would be subject to the availability of funding, the company said.

Flinders decided delisting was the best way forward due to the “lack of capital support from public markets and low levels of trading liquidity”.

“The board of Flinders does not believe it is in the best interests of shareholders to continue incurring the costs and administrative burden associated with a listing that is ineffective,” chairman Neil Warburton said when the delisting was announced.

“It has extremely low liquidity and has proven inadequate in raising capital from public markets, particularly against the backdrop of significant future funding required to develop the PIOP.”

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