SULPHUR AND GUANO

Sun (Auckland), Volume 1, Issue 18, 12 April 1927, Page 13

SULPHUR AND GUANO

WHITE ISLAND PRODUCTS LTD. CAPITALISING A VOLCANO A STUDY IN HIGH FINANCE White Island is described in the guide books as a conical island in the Bay of Plenty, formed by the summit of a volcanic mountain which sticks out of the sea to the height of over 1000 feet. It is the safety valve of the thei-mal regions, and there is nothing like it on earth. There is a wonderful crater of very great activity which produces thrills aplenty for tourists. But it is not with the scenery that we are immediately concerned. White Island is noted for its sulphur and gypsum deposits, and the various attempts to capitalise the volcano and get a commercial return from its discharges seem to us to deserve a little more attention than they have hitherto received.

In August last, a beautifully illustrated booklet was issued in Auckland about White Island. It bore the title “Prospectus of ‘White Island Products Ltd.’,” a company to be registered under the Companies’ Act. The proposed directors were Oliver Nicholson, Geo. Henry Wilson, two retired Indian Army officers named Mercer and Miles, and two farmers, H. B. Williams, and C. E. Macmillan, M.P. The document contained no valuation of the property to be acquired; no claim that White Island ever had made a profit; no estimate or report of prices or quantities which would establish a tangible value for the company’s products; no statement of any liabilities being taken over, and no information about the vendor company in Vancouver, except that it had a “nominal capital of £100,000.” White Island was sold by it as a going concern for 120,000 fully-paid-up shares of £1 each.

THE SUN has made some inquiries into the history of the various transactions affecting White Island, and the story is rather interesting. Many people have passed remarks on the ease with which a coach-and-horses can be driven through the New Zealand Companies’ Act, but when a sufficiently imaginative person operates at the same time upon the company laws of New Zealand, British Columbia, and the State of Oregon, U.S.A., the resulting performance is positively exhilarating. FOUR OWNERS IN FOUR YEARS The property of White Island passed in 1923-26 through four different stages. In the first, it was held by the White Island Sulphur Company, Ltd.; in the second, by A. A. Mercer, late major in the Indian Army; in the third, by the White Island Agricultural Chemical Company, Ltd.; and inthe fourth, by the Auckland heir of these forefathers, namely, White Island Products, Ltd. This latter company obtained £25,162 from the New Zealand public. A study of these four ownerships in detail gives any earnest inquirer an education in high finance. The original proprietor of the island was the White Island Sulphur Company, Ltd., a British Columbia concern in which Mercer was a shareholder, and to which he had lent £IO,OOO. In 1923 he received a trailsfer of the island from the company in consideration of his discharging that debt and further debts of the company to the extent of £I,OOO. At that date the island would seem to have cost him about £20,000, allowing for any money he may have put into the original company. In 1925 things began to move more rapidly. THE SUN has been able to obtain a copy certified by the Registrar of Companies at Victoria, 8.C., and dated June 24, 1925, of a “Statement in Lieu of Prospectus,” filed by the White Island Agricultural Chemical Co., Ltd., the third owner of the island. It states that since May, 1923, Mercer had spent £14,000 on the property. That would seem to show the island had cost him about. £34,000 to June, 1925, but there is no independent version of any of these figures.

The “nominal capital” of this new Vancouver company was £IOO,OOO as stated in the latest Auckland prospectus. But one of the many omissions* in that artistic production was the fact that only £lO6 was paid in cash, comprising 53 shares of 10 dollars each. White Island itself had suddenly more than doubled in value, for the company bought it from Mercer at the price of £86,594, payable as to £12,000 in cash and £74,894 in shares, being 37,447 shares of £2 each. Mercer was the sole shareholder apart from the other holders of the 53 shares issued for cash. He thus remained virtually the proprietor of the property, which by the payment of that £12,000 then appeared to have cost him about £22,000 net. A RETICENT PROSPECTUS Since the company appears to have had no resources other than the £lO6 and White Island, it apparently became necessary to borrow money to pay Mercer the £12,000, being the cash, portion of the purchase price. This was done by the sale of “gold notes,” which we mention again below. This “Statement in Lieu of Prospectus” contains quite a lot of information in a highly condensed form. The company contemplated “immediate excavation, shipment, and sale of 43,000 tons of guano deposit, for which purposes the requisite plant will cost an inconsiderable sum." The italics are ours.

Having subscribed £lO6 in cash, the promoters naturally needed further funds. The directors of the concern were Messrs. Mercer and Miles, a banker and a bond dealer, and one Arthur Coburn, of Vancouver, who was also the company’s secretary, and later its liquidator. THE SUN’S agents in Vancouver advise us that they “seemed to have difficulty in getting information freely” from Coburn —wf h is not altogether surprising. Incidentally, the letter of THE SUN’S agents in ar.2ouver contains the following paragraph: “No annual reports have been filed by the company since its incorporation. The Registrar advises us, however, that an annual report was submitted for filing a short time ago, but as the required balance-sheet was not included, it was returned.”

The company then issued, in June. 1925, a loan of £25,000 in “secured serial gold notes,” to obtain some

much-needed cash. This note issue was subscribed and paid for by the banker and bond dealer who had joined the board and who hail from the City of Portland, State of Oregon, U.S.A. The?/- got a discount of £1,250 for their services. The note issue was secured by a trust deed executed by the company and was unconditionally guaranteed by Mercer and Miles. The proceeds of this issue were to pay off the first mortgage on the property, being £12,000,- apparently the same amount as that payable to Mercer as part of the purchase price; expenses of issue, £1,000; discount, £1,250; and plant, etc., £10,750. A further note of optimism is lent to this very comprehensive scheme by the anticipation that “proceeds of sale of guano (will be) sufficient to retire the present note issue of £25,000 and allow ample working expenses for that purpose until later development which is not yet mapped out.”

So that late in 1925 the position was as follows. White* Island was held by a Vancouver company with a nominal capital of £IOO,OOO, £lO6 having been paid up in cash. The island had cost Mercer supposedly about £22,000 and he held shares to the nominal value of £75,000, of which he transferred £12,000 worth to Miles. SCENE SHIFTS TO AUCKLAND By early in 1926 anticipations had evidently not been realised and it was necessary to “map out further development.” The scene was shifted to Auckland and the promoters sought and found support from several men of financial weight and authority, who assisted them in forming the fourth proprietor of the island—White Island Products, Ltd. The result of their labours was the local prospectus dated July 27, 1926. Apparently the profits of the vendor company from the sale J of sulphur and guano were not sufficient to support the company or retire the note issue and Mercer send Miles had to face their guarantee. White Island had in about a year again increased in value, this time to the extent of more than 50 per cent. The subscribed capital of £75,000 in the Vancouver company was exchanged for 120,000 fully-paid shares of £1 each in the Auckland company. The position then was that Mercer and Miles had a volcanic property which had cost them about £22,000, on which they had borrowed £25,000 and for which they received £120,000 in fully paid shares from the New Zealand company. The new company issued 100,000 contributing shares and provided for the very moderate minimum subscription of 20,000.

In contrast to the earlier position, when “the requisite plant would cost an inconsiderable sum,” the promoters now wanted £IOO,OOO at most, or £20,000 at least:

(a) To increase the works at Tauranga. (b) To erect a sulphur refinery at White Island. (c) To improve the tramways. (d) To construct conveyors, etc., and (e) To purchase two auxiliary scows or suitable steamers. For these laudable objects the company offered 50,000 shares in New Zealand and stated that it would offer 25,000 in Great Britain and 25,000 more in Canada. THE SUN has no information as to the response made in those countries, no return in that connection having been filed. In New Zealand the response from business and financial people seems to have been singularly small and only 25,162 shares were subscribed, as on a return dated December 31, 1926, and filed in the Companies’ Office at Auckland on February 2, 1927. The majority of these were from small subscribers resident in country districts who include a number of clerks, some Civil servants, a couple of dentists, many small farmers, several married women, a nurse, a woman school teacher and at least one widow.

By that date Mercer had effaced himself and his seat on the board w r as taken by an Auckland retired man who had purchased 500 shares. As to the 120.000 shares issued to the vendors, THE SUN’S agent in Vancouver “understands from Coburu that they are not being sold in New Zealand, but that they would be sold here or elsewhere if an offer were received.” That information was given on or about March 8, 1927. It is interesting to note that a return dated January 19, 1927, and filed locally on February 4, 1927, shows that 30,000 of these shares had been transferred to persons chiefij T in the State of Oregon and that the remaining 90,000 w r ere in the name of Coburn, thus completing the total effacement of Mercer, late Indian Army. Presumably part of the proceeds of the sale of these 30,000 shares was used to retire the serial gold notes and thus to release Mercer and Miles from their guarantee. That note issue was discharged by release dated November 15, 1926. and filed in Victoria, 8.C., on March 3, 1927. FUTURE PROSPECTS? The questions which naturally arise as to the result of the inquiries which THE SUN has been privileged to make are quite numerous. What have the local shareholders in White Island Products, Ltd., got, and what are they going to get? The prospectus stated only that a business with a nominal capital of £IOO,OOO was being sold for 120,000 shares. The obvious inference drawn from this statement, supported by considerable reputations and received by the average small investor whose financial knowledge is nil,

could only be that something worth about £IOO,OOO was being sold for 120,000 shares. The actual facts would seem to be that a property which, as detailed above, had cost £22,000, which had not been a revenueproducing asset and on which £25,000 had been borrowed, was sold to the New Zealand company for £120,000, subject to the vendors agreeing to give possession of White Island “free of all charges and encumbrances.” The effect of this incorporation was apparently to give the vendors’ shares sufficient value to enable them to be sold at a considerable distance from White Island, thus assisting in the raising of funds to discharge the “gold note” issue. If that position had been at all evident from the prospectus, how many shares would have been sold?