DRILLING NEWS Hard Decision For Directors

Press, Volume CIX, Issue 32220, 12 February 1970, Page 17

DRILLING NEWS Hard Decision For Directors

New Zealand Press Association

AUCKLAND. February 10.

It would be irresponsible in most circumstances for directors of a prospecting company to announce the results of a first drill hole, according to Sir Colin Syme, the chairman of the Broken Hill Proprietary Company, Ltd.

He said this at the third annual dinner of the Legal Research Foundation, in the University of Auckland, where he was speaking on the duties and responsibilities of directors in relation to their market transactions in the shares of their companies. •‘.As a matter of business ethics, although not neces sarily as a matter of law 1 think that a director should not buy or sell shares in his company if his action is likely to cause detriment to the company.” he said. "A director must not use to his advantage, or to the advantage of others, any information acquired by him as a director, if the information is likely to affect the market and is not generally available to people dealing on the market "In my view these are two separate and distinct inhibitions,” he said. “A director may for his own private reasons wish to buy or sell shares in his company at a time or under circumstances when the company may be adversely affected by any such action.” Grey Areas Sir Colin Syme said that in seeking to apply rules of conduct there were difficulties and grey areas. “A topical example of what I have referred to as a ‘grey’ area is provided by the company which is engaged in mineral exploration. "It is exploring an area which its geologists considered to be prospective, and it puts down a diamond drill hole which intersects a zone of good mineralisation." he said. “The odds are that subsequent drill holes will fail to establish a commercial 6 eld and that the prospective area will after considerable expenditure be abandoned. "But the result of the first drill hole is encouraging and it may turn but to be the initial step in establishing a mine of great importance. “At the stage when all that is known is the result of the first drill hole, in most circumstances it would be irresponsible for the directors to announce the results of it. "People familiar with mineral exploration would not attach importance to the results of one drill hole and, being surprised that it should be announced, might well draw unwarranted inferences. "People with little knowledge of the subject would be likely to attach too much importance to the announcement whatever cautionarywords were included in it. What To Do? “But what is a director to do if he wants to buy shares

iin the period between the drilling of the first hole and the drilling of the subsequent holes which will prove or disprove the value of the deposit? “It is easy to say that this is a period during which he should refrain from buying, but this may be a period of , many months. “Further, if it is a company which is engaged in a vigorous and continuous exploration campaign, there will hardly ever be a time when its geologists, being optimistic people, do not have under examination some prospect of which they have high hopes. “It is a question of what is material and important at the time the share transaction takes place, but directors must realise that people are likely to answer this question in the light of what is afterwards discovered,” he said. Tell Colleagues “In cases of doubt, I suggest that a sound procedure for a director to follow is to inform his fellow directors of his intended purchase and to proceed with it only if in the judgment of all of them it is not unfair to existing and prospective shareholders that he should do so. “The same procedure could of course be applied in the case of an intended sale." Sir Colin Syme said he believed that a revision of the New Zealand Companies' Act was being considered, and he suggested that this might be a useful subject for study by the foundation. The first award of Sir Henry Kelliher Gold Medal was made to Mr J. L. Robson, the Secretary for Justice, for outstanding law reform in New Zealand. The presentation was made by Professor J. F. Northey. the dean of the law faculty at Auckland University. Fashion Hold. Rate 15 p.c. (N.Z Press Association • AUCKLAND, Feb. 11. Fashion Holdings, Ltd, of Auckland, lifted the earning rate of its shareholders' funds from 12.6 per cent to 15 per cent for the year to November 30. As announced, the consolidated net profit rose 818.269. or 22.7 per cent, to 898,837. Tax was up 510.300 to 892,209 and depreciation rose to 823,213. The steady 15 per cent dividend will take 857,300. The earnings on capital rises from 21.1 per cent to i 25.9 per cent, and shareholders’ funds are $43,248 higher at $683,164, including steadycapital of $382,000.