Iceberg Research

Questions to Noble's management ahead of its April 17th AGM

April 16, 2015

Here are our main questions for Noble’s annual general meeting held on April 17th.

1) After our second report, Noble promised more transparency. Strangely, after our 31-page third report was released, the company quickly adopted a bunker mentality. Noble has never written a rebuttal to this report. As a public company, they should explain why they refute our conclusions. Clearly, something in our third report caused a strong reaction. We see one reason: what we wrote on the repos. We explained that Noble may disguise inventories repo transactions (short term financing) into sale and purchase with a fictional option to buy back. This subject may seem technical but legally this could have major consequences for the company and members of senior management. If it is demonstrated that in reality Noble is committed to buy its inventories back every time, what is written on the annual report would be very serious misrepresentation, not merely aggressive accounting (e.g. Yancoal or MTM). Can Noble’s Board of directors and senior management formally confirm in writing that in practice, Noble is not committed to buy its inventories back? Can Noble give the details of these transactions, and the names of the banks engaged in these transactions to the regulators so that they can verify Noble’s representations?

2) Yancoal: Noble recognised a $200m impairment on December 31st and claimed this was not the consequence of our reports. Two weeks earlier, Noble had published a no material adverse change statement. When asked by the Business Times why there had been no profit warning, Noble claimed that they reviewed a certain number of assumptions including the forward curve, and production schedule. The forward curve of a commodity moves every day, not only on December 31st. Production projections of a miner are not revised dramatically overnight. Noble is also fully aware that Yancoal’s has been facing structural issues for quite a long time (low coal price, heavy debt, expensive take-or pay contracts). The explanation given by Noble is not credible. The big concern is that the $7.4b positive mark-to-market (“MTM”) on its balance sheet are valued based on the same methodology used for Yancoal (e.g. forward curve). Why should Noble’s shareholders believe management for the MTM if this same management lied to them for Yancoal?

3) Even after the $200m impairment, the 13% stake in Yancoal is still valued at $322m on the balance sheet while the stake is worth only $10m. Noble’s valuation would imply a valuation of $2.4b for 100% of Yancoal. The only reason why Yancoal is kept afloat is that Yanzhou pumps money into it. How can a company kept alive by its shareholder be valued at $2.4b? Does management continue to lie to shareholders about the valuation of Yancoal?

4) Can Noble publish the contribution of its MTM to its net profit, information requested by many analysts who are unhappy with the level of disclosure?

5) Noble claims that the company had 12,000 contracts. In reality, the largest MTM of a trader account for most of its exposure. For example, if we take the largest 25 contracts, what proportion of the total MTM do they account for? This information is simple and not confidential.

6) It is very likely that a very large MTM was booked with Sundance Resources in 2014 (dozens of millions), a project of iron ore mine in Africa. The iron ore price is below $50 per tonne and a few mines in Australia are being closed. It is widely expected that Sundance Resources will not be able to raise the required $4.7b to build its mine, railway, and port. Sundance Resources may run out of cash in 2015. Should Noble issue a profit warning now for this MTM?

7) Noble has accumulated contracts with associates called AML and XML. These companies have “operations” in Mongolia. In reality, they have been projects for years and are not operating. Can Noble disclose how much its MTM against AML and XML are?

8) Why is Noble still unwilling to answer this simple question that we have asked a few times: where is brokers financing on the balance sheet? Does Noble hide this financial debt?

9) Noble claimed that the final price for Agri was $1.466b and that “Noble Group does not have significant ongoing commitments to Noble Agri.” Management has clearly misled investors. The 2014 annual report page 147 indicates that a “transitional services agreement” was signed on September 30th. According to this agreement, Noble Group will pay for “risk management, human resources, insurance, internal audit, legal, research, tax and other administrative services” until 31 March 2016. In Q3, salaries subsidies from Noble Group to Noble Agri were $32.5m. Over a period of five quarters, this would represent a substantial liability of $163m. Is $163m not “significant”?

10) A few weeks ago, Noble claimed they did not need to raise new equity. Why is the company seeking authority to issue shares up to 50% of existing capital?

11) EY has been the auditor of Noble for at least 21 years. We think that EY, the auditor of Lehman Brothers and Sino-Forest, should be replaced because it has a huge responsibility in the current situation. Can the appointment of a new auditor restore confidence?

12) In just two years, the head of risks changed five times. Why?

13) Why did the CFO for Hard Commodities and the CFO for Energy resign a few months ago? Hard Commodities and Energy are the two main businesses of Noble after it sold part of its Agri business.

14) Mr. Robert Chan has been an independent director for 19 years and Noble proposed his re-election. Can small shareholders be confident he is truly independent after almost 20 years?

15) Noble does not want to disclose the remuneration of its directors and CEO. From the annual report page 57: “The Board is of the view that detailed disclosure of the remuneration of the Directors, CEO, and key management executives, and of any performance conditions applicable to incentive remuneration programmes, should not be made.” “This would be disadvantageous to the interests of the Company.” The ROE of Noble has been steadily declining. Even if we ignore the accounting issues, the performance of this company has been very poor. Shareholders have the right to know how much Mr. Alireza and the “independent” directors are paid. We do not think that Noble’s competitors are particularly interested in recruiting them considering Noble’s poor performance. Why is this information kept secret?


  1. The more you read the three Iceberg Research reports and the questions to be asked at the AGM, the more it seems that this company (Noble Group) with a revenue of $80billion+ really does need to come clean on some of these matters.
    Just refer to the OECD Corporate Governance Principles, or any of the reputable stock exchange principles of corporate governance, and you will appreciate why. It would seem that just being silent and/or threatening legal action and/or suggesting this is from disgruntled ex-employees does not deal with the real issues.
    If it is true that the same auditor for 21 years and no details on remuneration to directors and senior management then one is entitled to ask just what is going on at this company? That’s quite apart from all the other very concerning questions about the financial state of this company.
    Public companies need to be open with the public if they wish to raise funds from them. A pretty basic and uncontroversial principle I would have thought.
    We look forward to a detailed response from the Noble Group board

  2. It would be relatively easy for Noble to answer these questions. Why their reticence to date gives greater credence to the Iceberg Research reports. Perhaps a report on the AGM and the boards response would be useful to clear the air.
    It is worth noting the actual directors of Noble Group from the 2014 Annual Report so that personal responsibility can be quite rightly attributed to ‘the board’.
    Their individual details are provided in that report
    Executive Directors – Richard Samuel Elman, Yusuf Alireza, William James Randall
    Non-Executive Directors – Milton M Au, Li Rongrong, David Gordon Eldon, Iain Ferguson Bruce, Robert Tze Leung Chan, Irene Yun Lien Lee, Ambassador Burton Levin, Richard Paul Margolis.Christopher Dale Pratt, Alan Howard Smith.

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