Relationships
December 7, 2010
Retail investors will again play a meaningful role in determining Southern Arc's share price. Just not the current group of retail investors. Having loaded up at every opportunity over the past four years, this group is largely filled to the gills with shares, unable to buy more even when interested. This group is not selling, though. Too much, too good, and too soon… is about to unfold for these investors to be lured into the manipulative head games now underway in the market.
While news will certainly be the 'door opener' for SA, I look for institutional investors to provide the next 'demand' side thrust to share price appreciation, followed by a new set of retail investors looking to enjoy a continued ride up. New waves of retail investors will enter the picture with each new milestone. Nature of the beast. Some will be investor types. Some will be traders. Some current holders will become traders. Some will leave the scene altogether. This dynamic is as old as human nature.
Yesterday's news release was not, in my view, designed to bring in new retail investors. The news was not material. The IUP was not issued. No change in Company activity on the ground has been enabled by this event. All that happened is that a holding company had been set up, as necessary to the issuance of the IUP. At the same time, it was not without value. I see yesterday's news as for us and for us alone. By us, I mean those who have placed their trust in management and held on through thick and thin. Believing in the properties and in the prospects for a big win, many among us are fatigued by the process. This news release was a ‘courtesy call’ from John Proust, saying: “I know you’re out there. Hang in. We’re almost there. Progress IS being made.”
It's been more than four years since the previous governor issued a decree that made mining on Lombok illegal. His decree, of course, was also illegal, as he didn't have the authority to issue it. No matter that the man has been imprisoned. The deed was done, placing the upside potential for SA at risk.
Backing up to see the big picture, one is prompted to ask, ‘Why did he issue this decree back in 2006, anyway? And why did it take almost four years to rescind? And why did it take 3 ½ months to announce, once the new spatial plan was in effect?’ Well, these are questions I’ve asked myself many times. Here’s my answer… and mine alone. I figure that there are forces (think Darth Vader here) who have long recognized the value of the West Lombok property. These elements are capable of bringing significant influence to the table. Having rendered mining on Lombok illegal (with no apparent reason – I don’t buy the ‘we need to protect tourism’ argument – I’ve been there – this is not an island-wide issue, by any stretch), the hope was to make the case that SA no longer held tenure on the property. So… swing that laser sabre and SA falls out of the picture. Then, presto, mining is made legal again on Lombok. Darth Vader would then swoop down and a new license is issued. To my way of thinking, this is the most logical explanation for all that has transpired over the past four years.
All the talk of ‘rubber time’ and poorly organized bureaucracy takes me only so far. I can certainly see the influence of these two factors, but they don’t tell the whole story… I think. People are people, no matter where you go. Greed is greed, no matter where you go. The system is worked, no matter where you go. Just as the backrooms on Wall Street run the Fed, the backrooms in Indonesia carry significant influence in making things happen… or making things NOT to happen. This highly speculative scenario is what I see, not what I know. Take it as worth what you paid for it.
As in all matters important, so in the case of Southern Arc. Relationships rule. Let me say that again. Relationships rule. Think of your own success in business and in pleasure (and if you’re like Xaviera Hollander (born in Indonesia, by the way), your business is your pleasure). The number one factor in this success, I would contend, has been the creation, promotion, maintenance, and support of relationships. All the technical skills in the world will take you nowhere if you don’t have anyone on your side. People do not work with people whom they do not like. End of story. Do not underestimate this factor in governing Southern Arc’s successes to date in Indonesia. Do not underestimate the role of this in the fact that the Company still operates in Indonesia. Southern Arc has never lost legal tenure to the West Lombok property, but it’s too easy and too simple to say that this legal right has protected our interest. I don’t buy that for a moment. Laws can be changed, and they do change all the time to suit influential special interests. Do not underestimate the importance of relationships in the sustained legal tenure of West Lombok.
All of this, in my view, is on Hamish Campbell. A rock-kicker by training, he has not backed away from a seemingly insurmountable challenge in a seemingly unrelated field, but a field to which his own area of interest is inextricably tied. He has embraced the task and demonstrated a tenacity to be admired. He has worked to create, promote, maintain, and support relationships at every turn necessary to both protect and advance our interest in Indonesia. When he finally brings home the West Lombok IUP, hopefully before the Christmas break, I suspect he will collapse like the rugby player he once was, having just attained the goal line. Most would have walked away, long ago. He once shared with me his father’s lesson to him: “When you start a job, you finish it.” In no small way, this steadfast attitude has offered comfort and confidence to me as I continue to hold my shares in SA.
For his efforts, he has my hearty thanks. Soon enough, he will also have my congratulations.
As I’ve said many times, the first step in conducting due diligence is a review of the people. Do the people appear to know what they’re doing… and can I trust them? That step alone should remove 80% of all junior resource companies from consideration, if not more.
On many occasions, people have suggested that I’m looking through rose coloured glasses when I talk about the people of Southern Arc. I drink the Kool-Aid, so to speak. What these accusers don’t know is that I have created, promoted, maintained, and supported relationships with Company personnel as a means by which to protect my own investment. When I have a question, there’s an ear open to hear it. When I see what I think may be in error, I’m comfortable in saying so, knowing that the answer will either prove me wrong, or that the Company will seriously consider an alternative, yet constructive, point of view. Bring solutions, not complaints, I say.
In my own business, I say often to clients, ‘engagement is everything’. Until and unless you are engaged, nothing happens. Nothing can happen. In turn, you cannot be engaged without relationships. I am fully engaged in my investment in Southern Arc. This requires that I pay special attention to a myriad of relationships. The study of relationships here includes consideration of:
- the Company and retail investors
- the Company and institutional investors
- the Company and three levels of Indonesian government
- interplay amongst the three levels of Indonesian government
- John Proust and his colleagues (officers and directors). Know a man by the company he keeps.
- the markets, both for metals and in general
- … and so on.
Here’s one I include that most people have never before experienced (I have not) and yet has played a meaningful role in both my investment in Southern Arc and, I would contend, in the success of the Company, to date. Relationships among retail shareholders. Created, promoted, maintained, and supported, these relationships have for many, myself included, served to provide an unprecedented level of engagement in this investment. The result of this engagement, has been a very well informed group of retail shareholders. I suspect this has been otherwise unseen at this level in the junior resource market. Moreover, I’ve watched a transformation in this group over the past 3 ½ years. More and more people are engaging. More and more are willing to do the work necessary to better understand the Company, the geology, the politics, the opportunities, and the risks. This upward shift in engagement has no down side, and I will agitate for it to the end. As long as people do not suffer from groupthink, and as long as there are enough grumpy old men still in the game, this engagement can only be a good thing.
At the recent AGM session in Toronto, I looked around the room of perhaps 45-50 people, 90% of whom I had already met (and don’t underestimate the joy in that). By far, the majority of these people are self-employed. Think about that. People who have stepped out to start and run their own businesses. Critical thinkers, every one. Students of relationships, all. No coincidence there, I think.
For a good number of us, our investment in Southern Arc has been a good trial run. While this investment may yield retirement for many, I don’t see this group falling into a lounge chair… for long, anyway. We (a small group of us) are already thinking ahead to how we may step up our game, post-SA. We’ve learned a great deal, and have a great deal more to learn. Stop learning, and you’re dead, I say. We know that there are many more opportunities to be found whereby we can play an active and engaged role in how our invested dollars work for us… and mean to empower ourselves as a group/team as we seize these opportunities. In the end, we’ll have to wait and see how that turns out. Interested? Be ready to work, or be left behind.
Turning back to yesterday’s news release, what did it say? For me, it said a couple of things. First, the Company was able to set up a holding company in near record time in Indonesia. Google it and learn that the average time to set up a company there is 60 days. Southern Arc achieved it in a matter of about three weeks. Second, the thread that ties these last three steps together is the West Lombok Regent. He was signatory to the Deed of Establishment of the holding company necessary to the issuance of the IUP. He will be a central player in this Thursday’s discussions with Southern Arc on the Joint Venture Agreement. He is also the person who will issue the IUP. No other level of government remains in the picture from here to the issuance of the IUP. Almost there. All but there. Dare I say, imminent (lol)?
Modeled after the Taliwang IUP, the West Lombok regency will hold 10% of this project. This fact stands huge in favour of success. In partnering from the outset with local government, Southern Arc protects its interest in this project in ways easily understood with a mere sideways glance to the Newmont experience at Batu Hijau on the neighbouring island of Sumbawa. Bureaucratic stumbling blocks fall away when you’re on the same page, the same team, with shared objectives for the project. The Grasberg experience with locals should be one never shared by Southern Arc on Lombok. The people of Lombok will be key beneficiaries of the Company’s success in this project. Aligned motivators make for smoothened paths. Relationship. Relationship. Relationship.
Yesterday’s news release was more about relationships than about anything else, in my view. Could the Company have waited a few more days, or a couple of weeks, as the case may be, reporting on the issuance of the IUP? Sure, but John Proust has demonstrated with this release that his eyes have not left the retail shareholder base. This release was for us. Period. Mr. Proust recognizes that these are the people who have stuck by him on the roller coaster ride and that these are the people who will call on him for answers on a go-forward basis.
Creating, promoting, maintaining, and supporting this relationship with retail investors will serve him (and us) well, if and when someone makes a play for Southern Arc. 49.8% of outstanding shares were represented at the recent AGM. Sustaining a dialogue with this group (and those unable to attend) in the event of a takeover bid can only be a good thing for shareholder value. Just imagine such a bid coming in. No matter what the offer, the first thing every one of us is going to do is to turn to John Proust and say, “Well, John, what do you think?” Access, dialogue, engagement, relationship, and trust will enable Southern Arc to address whatever comes its way.
This is true of all matters important, is it not?
Best,
Kevin Graham