00:00:00
Speaker 1: This is Business Weekend with Ross Greenwood.
00:00:06
Speaker 2: Hi there and welcome to Business Weekend. I'm Ross Greenwood.
00:00:09
Speaker 3: It's great to have your company today. Coming up on the program, Firmus was touted as the second biggest stock market float in Australian history. But its valuation of $ 44 billion was simply too rich for local investors. And late this week, the float was pulled. So how did some of the world's biggest bankers get it so wrong? And where to now for the emerging data centre business?
00:00:33
Speaker 1: We were all told, and it was widely reported, The book was covered and there was indications of interest well in excess of what they were asking for.
00:00:42
Speaker 3: Firmus was also due to front the parliamentary inquiry into artificial intelligence, but pulled out as its float went wrong. But one of the most senior executives from OpenAI came to Australia to explain how one of its bots infiltrated sensitive government information.
00:00:58
Speaker 2: Including Medicare's. We'll speak with the inquiry chair, Joe Briskey.
00:01:03
Speaker 3: And Greenland has been in the sights of US President Donald Trump since he came back into power two years ago. In truth, what he's really after is perhaps the biggest critical minerals deposit in the world. The Tanbury's deposit is owned by Aussie miner Critical Metals and has just been approved for development by Greenland's government.
00:01:22
Speaker 2: We speak with its chairman, Tony Sage.
00:01:25
Speaker 4: It's been delicate negotiations given the rhetoric that Trump had put on.
00:01:33
Speaker 3: Plus, with interest rates rising and business conditions dropping through the floor, it's inevitable that more businesses will fail.
00:01:40
Speaker 2: The man who.
00:01:41
Speaker 3: Presides over insolvencies is the Chief Executive of the Australian Financial Security Authority, Tim Beresford, who's with us today. So all that and plenty more coming up on today's program. But the biggest story of the week, without doubt, is the failed share market float of that data centre business, Firmus. Now it might be heading to NASDAQ to try and raise the funds. But the questions, they keep on coming. Were the founders of Firmus too greedy? Was $ 44 billion as a valuation too high? Is Australia too small for a float of this size? How investment bankers and brokers misjudged the investors' appetite? Was the ASX simply overeager not to lose the Firmus float? And would the IPO have got away on the NASDAQ exchange in America, which seems where Firmus is destined to try and raise that cash?
00:02:32
Speaker 2: Edward Boyd starts our coverage.
00:02:34
Speaker 5: The data centre company Firmus Technologies was founded in 2019 by Oliver Curtis, Tim Rosenfield and Jonathan Levy. Curtis, a former stockbroker, was jailed for insider trading about a decade ago. He's the linchpin of the family operation and married to former PR maven Roxy Jasenko. Behind him, though, is his father, Nick Curtis, a renowned mining executive. Nick was the founder of Rare Earths miner Linus and Sino Gold. He was the chairman of Northern Minerals. He owns 5.6% of Firmus. Tim Rosenfield's Oliver Curtis's cousin. Jonathan Levy was previously married to his sister. Initially, Firmus was set up to mine cryptocurrencies, including Bitcoins. But as the AI boom emerged, it pivoted to build what it describes as some of the most energy efficient data centres in the world.
00:03:27
Speaker 4: And we've proven that we can do this globally in different markets with different contractors.
00:03:31
Speaker 2: With different labour forces. Here in Singapore, we've got two deployments.
00:03:36
Speaker 6: One's in an existing data centre and the other's in a basement of another data centre.
00:03:40
Speaker 5: Firmus' immersion-cooled data centre design pumps a non-conductive cooling fluid through the servers to reduce heat. It claims this process uses less electricity, which means a Firmus data center can produce more megawatts of power for less. Unlike a regular data center company like NextDC, which simply provides a space for tech companies to host their own server hardware, Firmus describes itself as an AI factory builder and operator, where it operates the full stack of AI infrastructure required. Firmus signed up the world's most valuable companies, the chipmaker NVIDIA, and OpenAI as foundation clients. NVIDIA is also a major shareholder in Firmus with 7.2% and a major supplier, providing thousands of GPU semiconductors for its hypercubes. This form of circular financing is known as an AI funding loop, where big tech companies buy a stake in a small startup. The startup then uses this money to buy products from the tech company. As of September, Firmus has two operational sites, one in Singapore, the other in Australia with five more under development.
00:04:51
Speaker 7: Firmus hasn't actually completed a full data centre yet. And all the revenue is all, and all the projected revenue is all about them completing data centres. So there's massive execution risk given it's a relatively new player in this area and more established players are obviously there. So to give it multiples that are similar to established players just doesn't seem to stack up in this environment at least.
00:05:12
Speaker 5: But Firmus has been the most hyped IPO in Australia this year. with management clearly trying to capitalise on the data centre and artificial intelligence trend. Last year, it was valued at about $ 2 billion, thanks to a $ 330 million US dollar funding round backed by Nvidia. By April this year, it was worth almost $ 7 billion, and then it reached about $ 15. 5 billion in August, thanks to a $ 2 billion US dollar cash injection led by Blackstone and Nvidia again. And now in October, investment banks were seeking to list the company with an astonishing value of $ 43. 7 billion.
00:05:49
Speaker 6: Hype is what the company and its bankers want to manufacture because it gets the highest possible valuation. And in the long run, There's reason to be hopeful that this is a business that will deliver returns to investors. But as always in these situations, there will be the risk that the valuation is a little bit too rich, that the business may not deliver the return on investment that investors are looking for, perhaps in the timeframes that they're looking for.
00:06:13
Speaker 5: This lofty valuation became a major sticking point with investors this week, who realised the company was more hype than substance. This forced Firmus to pull its IPO plans on Friday morning and pursue funding on the private markets. The Firmus flop has also hit the valuations of ASX-listed Mars Group, Regal Investment Fund and Wham Capital and Wham Active, which all own stakes.
00:06:38
Speaker 8: Only investors seem to be supporting it. Are the investors already invested in this company? And for any new investors, as far as I know, are somewhat skeptical of such large valuations. So I've never seen any IPO having investors have such extreme views on this. And quite frankly, I've never seen an IPO that has been done in such fashion.
00:07:06
Speaker 5: The float would have made Curtis and Rosenfield billionaires and Levy a multi-millionaire. Investment banks have also lost millions in fees and pulling the IPO is a major blow for the ASX, which desperately needs to attract capital back to Australian shores. It even cut the listing fees ahead of the firm's float from about $ 18 million down to just $ 8 million. Perhaps one of the big warning signs that the firm's float was on shaky ground was that it was a no-show at the parliamentary inquiry into AI this week. It pulled out on Thursday morning, the day it was due to give evidence. A day later, the float was dead.
00:07:44
Speaker 3: But questions about the valuation of Firmus didn't just emerge at the last minute. They were there for many to see much, much earlier. Now, as Ed says, the business had a valuation.
00:07:55
Speaker 2: Of just $ 2.
00:07:56
Speaker 3: Billion at the start of last year, but that ratcheted up to close on $ 44 billion. Now, people, of course, questioned this. One who originally did question the company's valuation... is Michael Frazes from Frazes Capital Partners, who joins me now. Michael, many thanks for your time. At what point did you start getting wind that maybe they were just asking a bit too much for Firmus?
00:08:20
Speaker 1: Look, it's a bit of a challenge always. I mean, the EBIT number that was broadly shared and reported on was two years ahead, assumed success, assumed financing that wasn't locked in. And the fine print around that was not pretty, you know, an excluded number of corporate costs, sales and marketing, things like that, not to mention interest, which is one of the major costs involved. in highly capital intensive companies like this. And as you mentioned, this was a company that was valued a tiny fraction of the amount they were asking for only recently. So it was always going to be a big ask and they definitely reached pretty high up in terms of their expectations.
00:08:58
Speaker 3: And even the cap raising that they had just in August, right, the business at that stage was valued around $ 22 billion, give or take, to suddenly see in the space of really six weeks it doubled from there. That seemed to be a stretch, a stretch for the markets, a stretch of valuations. And certainly that was where, again, the question mark started to be raised.
00:09:20
Speaker 2: Yeah, definitely.
00:09:20
Speaker 1: It's quite possible at a lower valuation where the amount of cash and equity that they're raising, fully funded cash equity was a larger part of the market cap. Maybe it would have actually got away, but there was a huge amount of value ascribed to future execution, future deals, which would require more financing than they were even able to, than would have been available even if they did get the IPO away. So there was a lot of, there was skepticism, but you've got to remember, we were all told, and it was widely reported that the book was covered and there was indications of interest well in excess of what they were asking for. So to some extent it was a surprise because that's what we're told and that's what the market was expecting. But it seems like that demand was actually there.
00:10:01
Speaker 2: So, Michael, one other aspect of this, did it trouble you at all?
00:10:04
Speaker 3: Did a lot of the capital raising, it seemed like the capital wasn't necessarily going largely into the business. It was actually going into the original owners of the company, into the vendors, as it were, because generally if this money were going into the business, you'd go, all right, they don't necessarily need to come back for more capital. In the short term, some fund managers I've spoken to were terribly troubled that in 12 or 18 months' time that firmers would be back to the market seeking to raise more capital.
00:10:33
Speaker 1: They'll almost certainly have to go back to the market. That's, like, one of the advantages of listing, I guess. But I think the real issue was less that money was going out because a lot of the money was going to be funding some of these projects. It was more that a huge amount of the shares would be available to trade. So you think of that over $ 40 billion valuation or something like more than half of it was not escrowed or locked up. And so there's a good chance, you know, if you're a fund manager or you're a private investor and you're sitting on these huge gains... Some people were holding from, you know, many years back when it was a small Bitcoin miner. The general assumption was there'll be a huge amount of selling on market from existing shareholders. And even the escrow around founders was kind of limited. You know, there was small print in the small print. in the documents that said that the founders were able to sell using derivatives to take off some of their exposure and take a loan against derivatives with some banks and cash out almost immediately some of their shares. So it was less that the money was going, that they were raising the IPO was going to insiders. It was more that so many existing shareholders would have been able to sell on the market. And ultimately, if you're trying to convince people to put money in, We're not, you can't convince a fund to put in if they think it's going to trade at or below the price. You know, you really have to think there's upside and the value, it's actually worth a lot more. And the insiders are going to be supportive and holding and if anything, buying. If instead there's a wave of selling anticipated and the valuation is extremely stretched and assumes a number of things go right in a row, that makes it really hard, makes it really hard to see the upside. And again, it comes back to that price point and how they valued it and how the whole process was done. Look, it made it really difficult.
00:12:13
Speaker 3: So the other thing I did was look at something like NextDC, you know, $ 8 billion capitalisation, not $ 44 billion, with 12 data centres and big expansion plans to double that, as compared with, or 17 rather, data centres, as compared with something like, you know, Firmus with two data centres and an aggressive.
00:12:32
Speaker 2: growth strategy.
00:12:33
Speaker 3: Did you make those types of comparisons when you were trying to work this out?
00:12:38
Speaker 2: I mean, absolutely.
00:12:39
Speaker 1: I mean, one of the ways to look at this was project equity. You know, this is project equity that's used to finance, to take on a huge amount of debt and finance construction of data centres. The difference between that equity that they're and the ultimate valuation, which was huge, right? Maybe they raised $ 3 billion and were asking for another $ 7 billion, so roughly $ 10 billion. To come on the markets at over $ 40 billion, that's a lot of excess value. That's a lot of value that is hard to justify. And again, I think they just pushed that too far. And the comparison with existing data centers and operators is a very good one because despite all the attempts to brand it as AI factories and something new and something you haven't seen this is something that isn't new this is a very old business model this is buying commodity equipment and leasing it back onto the market and really it should be valued like that in our opinion.
00:13:29
Speaker 3: And so do you sense that it might have been easier had Firmus gone to NASDAQ and tried to sort this capital and sort the deal in the United States as compared with doing this in Australia, that maybe there was a bit more scepticism about the business here as compared with perhaps in the United States?
00:13:48
Speaker 1: Yeah, I mean, again, the message that was put out to the market that has been widely reported was it was more or less oversubscribed. There was indications of demand in excess of the offer price. That was basically before it was opened up in Australia. So we actually thought the international, the market was told there was international support in excess of the IPO amount, which should have got the deal done on the ASX, regardless of what the Australian fund managers and the Australian private investors regardless of what their participation was. So I don't think it was the ASX or NASDAQ that really made the difference here. I think it was actually the numbers. And when people looked and actually read the fine print, which wasn't widely available, by the way, it was very hard to get your hands on prospectus if you weren't a fund manager and part.
00:14:33
Speaker 2: Of the process.
00:14:33
Speaker 1: It was really once you looked at the numbers that that's where the deal ran into trouble. And it was marketed widely overseas as well. So it wasn't just purely an Australian thing.
00:14:42
Speaker 3: I'll tell you what, Michael Frazes from Frazes Capital Partners, one who did question that valuation on Firmus, and of course that float did not get off the ground, is with me. And Michael, I appreciate your time today.
00:14:54
Speaker 1: Thanks so much. Really appreciate it.
00:14:57
Speaker 3: Well, as Ed says, Firmus was a last-minute withdrawal from the federal joint parliamentary inquiry into artificial intelligence. The speed of AI's emergence means lawmakers have to move equally as quickly to ensure that regulatory and national security.
00:15:11
Speaker 2: Impacts are considered... while.
00:15:13
Speaker 3: Trying to maximise the economic benefits of AI. And the importance of this inquiry was illustrated when OpenAI, one of the world's biggest players, sent one of its most senior leaders, Jason Kwon, its chief strategy officer, to explain just how one of its AI agents, Infiltrated Services Australia, to access information, including sensitive Medicare information. Now, that appearance, as much as anything else, was about trust. Here's Quan on the steps of the New South Wales Parliament House offering up this apology.
00:15:45
Speaker 9: Again, I'd like to reiterate that we're sorry for what's happened and we're here to talk about how we're going to do better for Australia. And it's an important time for AI capabilities and it's on us to improve what we do.
00:15:55
Speaker 2: And so we look forward to working with the committee today.
00:15:59
Speaker 3: Now, the chair of that federal parliamentary inquiry is the ALP's Jo Briskey. I spoke with her on Friday after the hearing is concluded.
00:16:07
Speaker 10: They asked to be rescheduled for a later date and that's what the secretary is working with them to finalise that date. We still want to hear from Firmus and we expect to be able to do so.
00:16:19
Speaker 11: At one of our future hearing dates.
00:16:22
Speaker 3: So the other aspect of this is open AI, and in particular the appearance of Jason Kwan. Quite clearly the security breach in that bot getting inside Services Australia is serious. Your committee wanted to hear from them about that and why that happened. Were you at all surprised by what you heard from Jason Kwan?
00:16:44
Speaker 11: Look, yeah, you're right.
00:16:45
Speaker 10: We wanted to have OpenAI front the committee, answer the questions of parliamentarians on behalf of Australians. It wasn't just about what happened and how it happened and, in particular, why it took so long for OpenAI to let us know what had happened. But more importantly, what they had changed since, what they had learnt, what are they doing differently now in order to make sure it doesn't happen again?
00:17:11
Speaker 11: That was the question I had of Mr Kwan. And I heard from them. They have learnt.
00:17:18
Speaker 10: They again apologised to the Australian people, which I think is right. And they talked through how they are making changes now. to their safety requirements when coming to testing models and also their processes by which they will report incidences in a much timelier manner than they did in the Medicare instance.
00:17:41
Speaker 3: I think you've broken it up pretty well there, because there are two situations that I see as serious here. First is the breach of security, that its bot took it upon itself to go and grab that information, to scrape that information from Services Australia, some of which was innocuous, other which was more sensitive. And that raises questions of foreign interests in particular, foreign AI interests, being able to do that to some of our most sensitive data.
00:18:07
Speaker 10: Look, it is important to remind the public that there wasn't any sensitive or personal private data accessed by this rogue agent of OpenAI.
00:18:20
Speaker 11: However, it does present, as you say, a.
00:18:23
Speaker 10: Really important element where we have moved from the theoretical into the real now in terms of these bots, these agents. doing what they want, going ahead and doing something they haven't been asked to do by a human. So we've got to make sure that we are getting the settings right to ensure that we can better protect ourselves. I know there is a lot of work happening right now across the government to ensure that our security systems, our cyber security are protected. up to scratch and that's important because this is a new frontier, this is a new element here that we are dealing with and we are making sure that we are getting on top of that, ahead of that and in fact needing to have access to the frontier AI in order to defend ourselves against frontier AI.
00:19:11
Speaker 2: Because there's a.
00:19:11
Speaker 3: Point that you make, and that is that OpenAI or Google or, say, for example, Anthropic, large organisations with a corporate reputation to protect, might very well come and front your committee and comply with all of those ideas. But there are more nefarious operators who are going to also have these AI bots, which may not be reporting so willingly. which may also be trying to deliberately scrape security information. So this is why it becomes important to set these protocols at a national level.
00:19:46
Speaker 11: Yeah, that's exactly right. And that is why it is really important.
00:19:50
Speaker 10: I see this inquiry as helping to elevate those conversations and the issues that we need to be dealing with as policymakers, as a parliament, to ensure that we have these settings in place to be the best prepared that we can be to take on some of the more nefarious actors that are in this space who have potential access to the same technology.
00:20:13
Speaker 11: That is why taking.
00:20:14
Speaker 10: This opportunity for Australians to be able to have a seat at the table, to be able to have access to the frontier of this technology is so important for Australians, obviously for cyber security and our defences, but also importantly for us to play a role in shaping the global response.
00:20:34
Speaker 11: To artificial intelligence.
00:20:35
Speaker 10: And so that's been something that I have seen absolutely elevated over the course of this week's inquiries, the public hearings that we've been holding as part of this committee's work.
00:20:44
Speaker 3: OK, the other aspect of it that was really important was that when this breach occurred and OpenAI discovered this breach, it didn't quite know how to report the breach to our government, to the lawmakers here in Australia. That also seemed to be at least a gap in our communications, a gap in our law that was missing, because quite clearly, in many cases, these large organisations are going to discover about these breaches well before we will.
00:21:16
Speaker 11: Yeah, it did, absolutely. You're right.
00:21:18
Speaker 10: This is one of the areas I think we can see some greater standards. In fact, I asked the same question of Anthropic as well, in terms of what is their internal processes for notifying when incidences like this occur. There isn't a standard process for that, and that's an opportunity.
00:21:36
Speaker 11: For Australia to lead.
00:21:38
Speaker 10: In this space, to make sure we can look at how we do mandatory reporting of incidences to help create a greater standard around this technology, especially as we see more and more the capabilities perhaps outpace the alignment and the safety measures that these companies potentially have in place. It also puts an onus back onto those companies to ensure that they are designing and keeping ahead and safety and risk management in mind. And that's the role that Australia can play at the moment.
00:22:13
Speaker 3: And, Jo, I know it's partly what your committee that you're chairing is trying to come to grips with, but Donald Trump, for example, is saying there should be almost no regulation, that the industry should regulate the guardrails around this artificial intelligence and the way it reports, the way the bots behave.
00:22:30
Speaker 2: What's your own sense?
00:22:30
Speaker 3: What's the sense do you get inside your own party as to whether Australia agrees with that approach or whether there should be genuine guardrails around the information that these companies can access and the way in which that's used?
00:22:46
Speaker 10: Look, I think this is why it is so critical for Australians that we actually get to shape our own response. It is important that we have the opportunity... to shape our own future, to respond in our own way, to shape AI in our interests rather than let it shape us. That includes from other jurisdictions right across the globe. That is why if we had the ability to bring these frontier models here, these frontier labs here and had them training on our shores, we've got greater control over how they operate, how they are setting the safety standards that better meet Australians' expectations when it comes to risk management and safety management of this incredible.
00:23:29
Speaker 11: Technology that can.
00:23:32
Speaker 10: you know, can have significant risks, but as well as, you know, take the opportunities as well.
00:23:38
Speaker 3: So I was going to say that also because there's one issue here, and I spoke to a number of artificial intelligence and data centre companies here in Australia this week, and there was a view amongst some that really many of these data centres, many of our most sensitive information should be actually keeping, staying onshore. As soon as it goes offshore, we lose control even from a legal standpoint over that information. And I want to get a sense of what you learned this week from this committee, from hearing from all these AI companies and the data centre companies about how and where the most sensitive data we have, our defence data, our security data, where it should live here overseas.
00:24:18
Speaker 2: What's your own sense?
00:24:21
Speaker 10: I think what we've learned this week absolutely is the importance of our own sovereign capability when it comes to artificial intelligence.
00:24:28
Speaker 11: And you hit Now, in terms of.
00:24:30
Speaker 10: Some of our most sensitive and important data, we absolutely need to make sure that we maintain control over that. And that is why having the opportunity to build up our own sovereign capability, leverage off the frontier labs wanting to come here and invest here, bring their training here, I think is really, really important for us to ensure that we take that opportunity forward. That being said, there is a lot of work that we've also heard through this committee around how do we get the settings right to enable that. We've talked to copyright holders and creatives and the importance of ensuring that we get the best outcome for them as well as part of this process.
00:25:10
Speaker 11: But when it comes to sovereign.
00:25:12
Speaker 10: Capability and building up our own Australian AI ecosystem here online, on Australian shores, under Australian jurisdiction. We have an opportunity, an incredible opportunity in front of Australians right now in order to shape that for us. And I'm really keen to make sure that we take that opportunity.
00:25:31
Speaker 3: And taking the full circle on our conversation back to Firmus, that's the disappointing part that you didn't speak to them because quite clearly they are one of those who would be able to help shape that future of our information staying right here in Australia.
00:25:47
Speaker 10: Look, as I said, we expect to be able to have Firmus reschedule their appearance.
00:25:53
Speaker 11: Before the committee.
00:25:55
Speaker 10: As you say, it's important for us to be able to, for parliamentarians of the committee, to ask some questions of Firmus.
00:26:00
Speaker 11: To learn from their experiences.
00:26:03
Speaker 10: And I do anticipate and expect that we'll be able to reschedule that appearance of Firmus for another date when we hold public hearings again. We are holding public hearings again next week and... The following week, back again, both Sydney and Melbourne, because this is such an incredibly important issue, one of the most, you know, probably one of the most critical issues facing Australians right now. And so it's really important that we get those experts, whether it's Firmus, whether it's the hyperscalers, whether it's the creatives, whether it's the workers.
00:26:37
Speaker 11: And their unions and employer groups.
00:26:39
Speaker 10: AI touches almost every element of our society, of our community, and it's going to shape where we go next. And so it's really important that we have everyone who has a stake in this to come and chat to the committee and answer our questions.
00:26:55
Speaker 3: The chair of the Joint Parliamentary Inquiry into Artificial Intelligence is Jo Briske.
00:27:00
Speaker 2: And, Jo, I appreciate your time on the program today.
00:27:04
Speaker 11: Great to be with you.
00:27:06
Speaker 2: Well, after the break earlier this year.
00:27:07
Speaker 3: We told you an astonishing story about Donald Trump, Greenland, an Aussie miner called Critical Metals and its mining deposit called Tanbury's, which could be the biggest critical minerals mine in the world. Sandbreeze has just been given the green light by Greenland. Up next, we'll speak with its chairman, Tony Sage. Thanks for being with us here on Business Weekend. Well, earlier this year, we told you an astonishing story about how an Australian company was right in the middle of Donald Trump's aspiration to take over the country of Greenland. That company, Critical Metals Corp, is sitting on what could be one of the biggest rare earths deposits on the planet, Tanbury's in Greenland. And it's easy to get the idea that what Donald Trump might really be after is this very ready and prospective deposit. Tanbreeze was discovered many decades ago, but it was acquired by Critical Metals and its chairman, Tony Sage, who's a renowned Perth-based miner, just a few years ago. This week, though, there was a major change for the Tanbreeze project and for Critical Metals. The Greenland government formally approved the project with a licence out until 2050. The chairman of Critical Metals is Tony Sage, and I spoke with him earlier this week.
00:28:25
Speaker 4: Yeah, look, years and years of work, Ross, from the previous owner as well, Greg Barnes, who took it to a level. But he ran out of cash and we came along. And, look, it's a difficult one getting a mine approved in Greenland. You've got to tick all the boxes. You've got to get your mining approvals. You've got to get your environmental approvals approved. that's a picture of something that we're doing building at the moment where it's going to house our pilot plant but we've proved to the Greenland government number one we've got the expertise number two we've got the money to progress, and we've got the support of the local people, which is the most important. We already employ 140 locals in the project. Most of them are on that site. They're building the core shack, our offices, et cetera, et cetera. But on the mine site itself, we've built a massive camp already.
00:29:21
Speaker 12: We purchased a cruise ship, believe it or not.
00:29:24
Speaker 4: The local community doesn't really want 300 strange single men living in the town. So we bought a cruise ship. The cruise ship will park 250 metres away from the mine itself. And that will house all of our construction crew over the next two years. So we've taken heed of the local community's requirements, and I think that's a big plus in us achieving the goal of getting the mining licence out to 2050, as you've mentioned.
00:29:53
Speaker 3: OK, so I want to go to the politics of this and the politics of Donald Trump and Greenland. One of the barriers that you had was really his aspiration to take the whole of Greenland over.
00:30:03
Speaker 2: But the deal's been done there, which probably is in.
00:30:05
Speaker 3: Some ways eased the pressure off the Greenland government to give this project approval.
00:30:12
Speaker 12: Yeah, 100%.
00:30:13
Speaker 4: I mean, I think that was a big impetus. I mean, we've had this mining application in for the last six months. And it has been held up. And until this deal was done, I think it did unlock the deal for us. And it does help that we're an Australian company as well. During that interim period, if we were a US-based.
00:30:35
Speaker 12: Company, I think the process would have taken.
00:30:38
Speaker 11: A lot longer.
00:30:39
Speaker 4: But, yeah, a fantastic deal for us, fantastic deal for Greenlanders. I mean, they don't have to spend a cent, nor does Denmark, on security, defence. There's going to be hundreds and hundreds of millions of dollars being poured in by the US government in building these three or four facilities to naval bases and expanding the air base.
00:31:02
Speaker 12: But the beauty for.
00:31:03
Speaker 4: Us is one of the bases is 40 kilometres away from our mine site. So there's going to be a lot of synergies with the US government and ourselves in transport, using that facility as a transport hub.
00:31:18
Speaker 3: So this licence that you've got that goes out to 2050, so we're talking 24 years or so from now, but it gives you the right to extract 19 of these critical minerals. Which of those 19 will you concentrate most on and which gives you the better leverage into this mine?
00:31:38
Speaker 4: Look, the biggest shortage and the most that China produces is a little metal called hafnium. Hethium is used in the nuclear industry, but it can be used in many other industries, including A.I., and including supercomputers.
00:31:58
Speaker 12: So, hathenium is one that we really want to concentrate on.
00:32:01
Speaker 4: Only 75 tonnes of hathenium is produced in the world at the moment, and 98% of that comes from China. Just to give you an example, it goes for $ 13 million a tonne. If you compare that to iron ore, $ 100 a tonne, you'll see how rare this particular... But we also will be producing niobium, gallium... and terbium as well, which are also very, very much needed in the national defence area of the United States and of NATO.
00:32:34
Speaker 3: So is part of the deal, because I know you've spent some time in Washington, a lot of time in Washington, negotiating with the US government as well, is a part of the idea that as you start to produce and as you start the process, that a lot of that metal is earmarked for the United States under the deal that's been done between America and Greenland?
00:32:56
Speaker 12: Yes, 100% correct.
00:32:58
Speaker 4: Already 35% of our product is going direct to refineries in the US. 50% is going to the Romanian facility, which is going to be producing most of the metals. We're going to actually go to the next level. We will own 50% of that as well, critical metals. The material that's going to the US, it will be refined. We don't own, but the the profitability of the Romanian processing facility will be huge and massive. But they've done a deal that of those metals that come out, some of that goes to the U.S. And there's a roundtable in Romania the first week of November, which I'll be attending with members of the U.S. government as well as the Romanian government. But that's 50% of our raw. And we did that for an obvious reason.
00:33:49
Speaker 12: The EU has now earmarked.
00:33:51
Speaker 4: Well over € 3 billion for rare earths, and we will be applying for a lot of that. And to do that, we needed a refinery base based in an EU country, and Romania was the best option for us.
00:34:06
Speaker 3: So does the fact that the Greenland government has given you this licence, does it now give you an ability to write the offtake agreements, the pre-sales agreements that you require? Because obviously there's going to be extra funding you'll need and any sort of offtake agreements are going to help you do that.
00:34:23
Speaker 12: Yeah, yeah, 100%.
00:34:25
Speaker 4: The deal we did with the Romanian government has got EU approval.
00:34:30
Speaker 12: The Romanian government's already gone to Brussels. to tell them about the deal.
00:34:34
Speaker 4: I think they'll be participating in the roundtable early November with us, the US government.
00:34:41
Speaker 12: So, yeah, it's.
00:34:42
Speaker 4: Been a very, very important, but delicate. I mean, it's been delicate negotiations, given the rhetoric that Trump had put on the world, really, by saying he's going to annex Greenland. So there was a lot of trepidation. But now that that agreement is signed, Everyone's happy. You've seen the NATO come out endorsing the deal. You've seen the Denmark government endorsing the deal. And most important, you've seen the Greenland government endorse the deal.
00:35:10
Speaker 12: So that really helps everyone, not only us.
00:35:12
Speaker 4: There are other players in Greenland, not as well advanced as Tambry's, obviously, but there are still other companies that are drilling for and hoping to find large amounts of rare earths. as well as our Tambry's deposit. But there's also a lot of oil and gas there. There's a lot of uranium there as well. So hopefully that deal may open up the other avenues for those companies as well.
00:35:40
Speaker 12: But at this stage, it's basically for critical metals.
00:35:43
Speaker 3: And, Tony, the interesting part about this is, you know, this deposit, as you sort of discussed with me last time, was discovered, you know, sort of almost 130 years ago, 140 years ago, but the reality was it lay dormant for so many years until really, as you pointed out, one individual pretty much picked it up and proved it up, but then funded it themselves and then ran.
00:36:05
Speaker 2: Out of cash.
00:36:05
Speaker 3: So it's just the history of this is as much interesting as the actual here and now and what comes.
00:36:12
Speaker 4: Yeah, look, 1804 when it was first taken off Greenland, ended up in Denmark, then it ended up in the London Geological Society. And in 1959, it was when it first was discovered that these were rare earths. And they went back, they took a lot more samples. But it wasn't until Greg Barnes, the local geologist from Perth, went there and really spent.
00:36:37
Speaker 12: A small fortune.
00:36:38
Speaker 4: I mean, he spent about $ 50 million Australian dollars of his own money developing it, and he ran out of money in 2020. I was fortunate enough that I knew him on another deal. Then I helped him out a little bit then, and then we took over in the subsequent years.
00:36:54
Speaker 3: Tony Sarge, it's an astonishing story. We've been fortunate to document it a couple of times. You've got your approval from the Greenland government. I appreciate your time on the program today.
00:37:04
Speaker 12: Thanks very much, Ross.
00:37:06
Speaker 2: Coming up after the break, with interest.
00:37:08
Speaker 3: Rates rising, home prices falling and business conditions deteriorating, it's almost inevitable to say that business failures must and will increase.
00:37:16
Speaker 2: So after the break, we speak with the man who presides over the insolvency.
00:37:20
Speaker 3: Industry, Inspector General for Bankruptcy in Australia, Tim Beresford.
00:37:31
Speaker 2: It's great to be with you here on Business Weekend.
00:37:33
Speaker 3: Well, in the June quarter this year, personal insolvencies were 13.1% higher than they were in the same three months last year.
00:37:41
Speaker 2: In the financial year.
00:37:42
Speaker 3: More than 14,000 businesses collapsed in Australia. And look, you don't have to be an economist or a scientist to realise that since then, with home prices falling and interest rates and unemployment rising, things are getting worse and not better. Even now, there are reports of more businesses, especially in retail, in fashion and in building and construction, that are under serious pressure, perhaps likely to collapse. The man who presides over Australia's bankruptcies and insolvencies is Tim Beresford. He's the chief executive at the Australian Financial Security Authority. but he's also the Inspector-General in Bankruptcy, and he joins me now. Tim, it's always good to chat to you, but I guess these are sobering times, aren't they, when we have to talk to you, because it does mean that there is pressure in our community, pressure in our businesses, even pressure inside households, as insolvency rates start to rise.
00:38:32
Speaker 13: Yeah, look, they certainly are rising, Ross, and as you pointed out in the intro, they are rising last year by about 10%, and this year we expect by about 12% to 13%. But it's worth putting that in context. And the context is, is they're rising from a very low base. So you and I will remember COVID-19. You know, that was some of the lowest levels of insolvency the country's ever experienced.
00:38:55
Speaker 2: And that was partly because the government at that time protected... Moratoriums.
00:38:58
Speaker 13: Completely cash on people's balance sheets, all the things that you and I know really well. So we're coming back from a remarkably low base and we should and have anticipated a rise in insolvencies.
00:39:11
Speaker 2: As you point out, the rate and the.
00:39:13
Speaker 13: Speed at which they will rise is driven by some of the macroeconomic indicators you've just mentioned.
00:39:19
Speaker 2: Unemployment is one.
00:39:20
Speaker 13: But it's worth just pointing out that the 10-year average is more like 25,000 and we're moving back to 15,200 this year and probably about 17,200 the next year.
00:39:30
Speaker 12: Year.
00:39:30
Speaker 13: So rising, yes, but rising back to what is more seen as the typical long-term average.
00:39:36
Speaker 3: OK, so that is the perspective of it. So historically, we've come from very low levels.
00:39:41
Speaker 2: Yes.
00:39:42
Speaker 3: There's another factor of this, and that is any insolvency or bankruptcy has to have some sort.
00:39:48
Speaker 2: Of an administrator... A.
00:39:50
Speaker 3: Liquidator, a receiver, a bankruptcy trustee has got to be involved. Those people also have standards. Those people have to actually comply with the laws that you administer. Are you happy with the laws and are you happy with the behaviour of those people in the industry?
00:40:08
Speaker 13: The vast bulk of people in the industry behave absolutely appropriately and apply the right professional judgment that you would expect from a bankruptcy trustee. There are cases where some are making and taking shortcuts. And in those cases, we have our eye on them. But to answer your question in the broad, yes, overwhelmingly, the vast bulk of bankruptcy trustees do behave appropriately and model the professional standards you expect of professionals.
00:40:39
Speaker 3: So from that point of view, do you need any review of the laws in which you administer? Do you have the powers that you need to ensure that bankruptcies are not just serving the person who has gone broke, but also serving the people, importantly, that erode money, be they businesses, contractors, be they banks, be it the tax office, because these are also, if you like, the victims of organisations or individuals going broke.
00:41:06
Speaker 2: You're spot on.
00:41:07
Speaker 13: You've got to get the balance right between the debtor and a debtor getting a fresh start and the creditor actually getting paid what they're due, or at least a percentage of what they're due in terms of what is fair and reasonable. Look, as you point out, there is a Productivity Commission review underway right at the moment looking at insolvency and the framework. We've actually contributed to that and we'll look to continue to contribute to that. So we're quite, we welcome the productivity review and welcome the opportunity to contribute to that piece of work.
00:41:39
Speaker 2: As you would know, productivity reviews.
00:41:41
Speaker 13: Take, you know, 12 odd months and off the back of that, those recommendations will go to government. So There is actually live consideration of how we can and where it makes sense to improve to get that balance right. between the creditor and the debtor.
00:41:56
Speaker 3: Because here in Australia, the stigma of bankruptcy, the stigma of insolvency appears to be much greater than it is, particularly in the United States, where people kind of can go broke and can come back and recover. I just wonder whether we really culturally have changed or whether you sense we've changed at all from the days where, really, if you'd gone bankrupt, you really had a black mark against your name for life.
00:42:22
Speaker 13: Look, I think the real big shift, and it certainly happened after the Hayne Royal Commission, is that we saw a very different approach from creditors, not just the banks. Yes, the banks, but not just the banks, about trying to look for solutions before putting people into bankruptcy. I think that has yielded really positive results. You and I are both old enough to remember the global financial crisis. well before the Hayne Royal Commission. Back then, insolvencies were up at 37,000, 38,000. We have not had numbers like that since the Hayne Royal Commission. So Hayne and preceding Hayne, you've seen creditor behaviour change to look for solutions with debtors. That was a real positive outcome because now those that are going into insolvency are genuinely, there is no other option.
00:43:14
Speaker 3: OK, because then that goes back to the practitioners in the industry and the speed with which a person who might have financial difficulties or a business can get to one of those professionals.
00:43:24
Speaker 4: Correct.
00:43:24
Speaker 3: Then ultimately the solutions may well be a scheme of arrangement rather than simply going into receivership or going into liquidation, which are almost, if you like, the nuclear options when a person is actually having cash flow problems.
00:43:39
Speaker 11: Yeah.
00:43:39
Speaker 13: So we always say, speak to a professional and speak to them early. You know, you're a businessman and you've got that gut feeling things aren't quite going right. Speak to your accountant, speak to your professional advisor. Your accountant will typically refer you to a bankruptcy trustee and they can bring to you options about what makes sense for your business, where it is and how it's travelling.
00:44:01
Speaker 2: So We are always of the.
00:44:03
Speaker 13: View, speak to professionals who can give you the right advice and the right guidance when you are in a spot of difficulty. And if you do it earlier, often we say, that will lead to a better outcome than burying your head in the sand and just sitting with the problem and not addressing it or speaking to professionals.
00:44:19
Speaker 3: There's one issue, and we sometimes talk to the Chief Executive of AUSTRAC, who talks to us really about the anti-money laundering that they administer. Now, one issue that you have to be conscious of as well, which does cross into their area... is the phoenixing of companies. In other words, people deliberately tank companies to get out of their debt obligations to then simply resurface in the future.
00:44:41
Speaker 2: Does that sit also in your space or does that sit somewhere else in the whole financial structure?
00:44:46
Speaker 13: So on the company side, that's ASIC's piece, but on the personal side, that's our piece. But in terms of that phoenixing arrangement, look, you're absolutely right. There are actors out there, and as you pointed out, Brendan from AUSTRAC, is looking at a lot of these behaviours. We work closely with our colleagues at AUSTRAC, indeed the ATO, and indeed ASIC, to actually really share information amongst ourselves to actually really look at some of these operators.
00:45:13
Speaker 3: And is that line of communication better than it was going back 10, 15 years, do you sense?
00:45:17
Speaker 13: Oh, look, there's a really open dialogue amongst those four regulators I've just touched on, and there's a regular engagement that we have on the issues you've just mentioned, as well as a range of other issues. Because at the end of the day, We're all here to actually make the system work better. And sometimes there'll be my information that AUSTRAC has that can be supportive to ASIC or equally to the ATO that would be supportive of us. So it's really about working together for the betterment of the system.
00:45:44
Speaker 3: Can I just finish off and talk about some of those areas that are under genuine stress?
00:45:48
Speaker 5: Yep.
00:45:48
Speaker 3: But from a corporate point of view right now, so this is business, you know, sort of, if you like, insolvencies. It looks to me as though it's, as I said in the intro, Retail, it's fashion and it's construction.
00:45:59
Speaker 2: These seem to.
00:46:00
Speaker 3: Be interest rate sensitive sectors. They seem to be sensitive to cost pressures and consumer demand. Is that where you sense that there is more insolvency in our community today than in other areas?
00:46:11
Speaker 13: Yeah, look, if you just take one of those three, which is construction, in addition to what you've just said, they have very fragile supply chains. So if one thing breaks in that supply chain, often it has a ripple effect through the rest of the supply chain. And as a result, when one construction entity actually collapses or falls over, it impacts sole traders, it impacts sparkies, it impacts a whole range of just people who are inside that value chain, inside that supply chain. Not only that, but also organisations which also have fragile supply chains like transport and logistics. You know, often the truckie is very reliant on that next particular deal. But if the petrol price goes up and that makes it unsustainable, that can cause quite quickly challenges for that truckie or that logistics company.
00:47:02
Speaker 2: I'll tell you what, it's an astonishing area.
00:47:03
Speaker 3: We'll get you in from time to time and talk about this because it's worth talking about it, as you say, ahead of time so that people and businesses know their stresses.
00:47:11
Speaker 2: Tim Beresford, our Inspector-General of Bankruptcies, I appreciate your time. Thanks, Ross.
00:47:17
Speaker 3: And that is it for today's program. Up next, all the latest news right here on News 24. Business Weekend returns next Sunday, but of course you can keep up to date with all the latest business and economic news with our daily program, Business Now, full 30pm Eastern Daylight Time and via our website, news24. com. au. Thanks for your company today. I'm Ross Greenwood. We'll see you next week.
Speaker 1: This is Business Weekend with Ross Greenwood.
00:00:06
Speaker 2: Hi there and welcome to Business Weekend. I'm Ross Greenwood.
00:00:09
Speaker 3: It's great to have your company today. Coming up on the program, Firmus was touted as the second biggest stock market float in Australian history. But its valuation of $ 44 billion was simply too rich for local investors. And late this week, the float was pulled. So how did some of the world's biggest bankers get it so wrong? And where to now for the emerging data centre business?
00:00:33
Speaker 1: We were all told, and it was widely reported, The book was covered and there was indications of interest well in excess of what they were asking for.
00:00:42
Speaker 3: Firmus was also due to front the parliamentary inquiry into artificial intelligence, but pulled out as its float went wrong. But one of the most senior executives from OpenAI came to Australia to explain how one of its bots infiltrated sensitive government information.
00:00:58
Speaker 2: Including Medicare's. We'll speak with the inquiry chair, Joe Briskey.
00:01:03
Speaker 3: And Greenland has been in the sights of US President Donald Trump since he came back into power two years ago. In truth, what he's really after is perhaps the biggest critical minerals deposit in the world. The Tanbury's deposit is owned by Aussie miner Critical Metals and has just been approved for development by Greenland's government.
00:01:22
Speaker 2: We speak with its chairman, Tony Sage.
00:01:25
Speaker 4: It's been delicate negotiations given the rhetoric that Trump had put on.
00:01:33
Speaker 3: Plus, with interest rates rising and business conditions dropping through the floor, it's inevitable that more businesses will fail.
00:01:40
Speaker 2: The man who.
00:01:41
Speaker 3: Presides over insolvencies is the Chief Executive of the Australian Financial Security Authority, Tim Beresford, who's with us today. So all that and plenty more coming up on today's program. But the biggest story of the week, without doubt, is the failed share market float of that data centre business, Firmus. Now it might be heading to NASDAQ to try and raise the funds. But the questions, they keep on coming. Were the founders of Firmus too greedy? Was $ 44 billion as a valuation too high? Is Australia too small for a float of this size? How investment bankers and brokers misjudged the investors' appetite? Was the ASX simply overeager not to lose the Firmus float? And would the IPO have got away on the NASDAQ exchange in America, which seems where Firmus is destined to try and raise that cash?
00:02:32
Speaker 2: Edward Boyd starts our coverage.
00:02:34
Speaker 5: The data centre company Firmus Technologies was founded in 2019 by Oliver Curtis, Tim Rosenfield and Jonathan Levy. Curtis, a former stockbroker, was jailed for insider trading about a decade ago. He's the linchpin of the family operation and married to former PR maven Roxy Jasenko. Behind him, though, is his father, Nick Curtis, a renowned mining executive. Nick was the founder of Rare Earths miner Linus and Sino Gold. He was the chairman of Northern Minerals. He owns 5.6% of Firmus. Tim Rosenfield's Oliver Curtis's cousin. Jonathan Levy was previously married to his sister. Initially, Firmus was set up to mine cryptocurrencies, including Bitcoins. But as the AI boom emerged, it pivoted to build what it describes as some of the most energy efficient data centres in the world.
00:03:27
Speaker 4: And we've proven that we can do this globally in different markets with different contractors.
00:03:31
Speaker 2: With different labour forces. Here in Singapore, we've got two deployments.
00:03:36
Speaker 6: One's in an existing data centre and the other's in a basement of another data centre.
00:03:40
Speaker 5: Firmus' immersion-cooled data centre design pumps a non-conductive cooling fluid through the servers to reduce heat. It claims this process uses less electricity, which means a Firmus data center can produce more megawatts of power for less. Unlike a regular data center company like NextDC, which simply provides a space for tech companies to host their own server hardware, Firmus describes itself as an AI factory builder and operator, where it operates the full stack of AI infrastructure required. Firmus signed up the world's most valuable companies, the chipmaker NVIDIA, and OpenAI as foundation clients. NVIDIA is also a major shareholder in Firmus with 7.2% and a major supplier, providing thousands of GPU semiconductors for its hypercubes. This form of circular financing is known as an AI funding loop, where big tech companies buy a stake in a small startup. The startup then uses this money to buy products from the tech company. As of September, Firmus has two operational sites, one in Singapore, the other in Australia with five more under development.
00:04:51
Speaker 7: Firmus hasn't actually completed a full data centre yet. And all the revenue is all, and all the projected revenue is all about them completing data centres. So there's massive execution risk given it's a relatively new player in this area and more established players are obviously there. So to give it multiples that are similar to established players just doesn't seem to stack up in this environment at least.
00:05:12
Speaker 5: But Firmus has been the most hyped IPO in Australia this year. with management clearly trying to capitalise on the data centre and artificial intelligence trend. Last year, it was valued at about $ 2 billion, thanks to a $ 330 million US dollar funding round backed by Nvidia. By April this year, it was worth almost $ 7 billion, and then it reached about $ 15. 5 billion in August, thanks to a $ 2 billion US dollar cash injection led by Blackstone and Nvidia again. And now in October, investment banks were seeking to list the company with an astonishing value of $ 43. 7 billion.
00:05:49
Speaker 6: Hype is what the company and its bankers want to manufacture because it gets the highest possible valuation. And in the long run, There's reason to be hopeful that this is a business that will deliver returns to investors. But as always in these situations, there will be the risk that the valuation is a little bit too rich, that the business may not deliver the return on investment that investors are looking for, perhaps in the timeframes that they're looking for.
00:06:13
Speaker 5: This lofty valuation became a major sticking point with investors this week, who realised the company was more hype than substance. This forced Firmus to pull its IPO plans on Friday morning and pursue funding on the private markets. The Firmus flop has also hit the valuations of ASX-listed Mars Group, Regal Investment Fund and Wham Capital and Wham Active, which all own stakes.
00:06:38
Speaker 8: Only investors seem to be supporting it. Are the investors already invested in this company? And for any new investors, as far as I know, are somewhat skeptical of such large valuations. So I've never seen any IPO having investors have such extreme views on this. And quite frankly, I've never seen an IPO that has been done in such fashion.
00:07:06
Speaker 5: The float would have made Curtis and Rosenfield billionaires and Levy a multi-millionaire. Investment banks have also lost millions in fees and pulling the IPO is a major blow for the ASX, which desperately needs to attract capital back to Australian shores. It even cut the listing fees ahead of the firm's float from about $ 18 million down to just $ 8 million. Perhaps one of the big warning signs that the firm's float was on shaky ground was that it was a no-show at the parliamentary inquiry into AI this week. It pulled out on Thursday morning, the day it was due to give evidence. A day later, the float was dead.
00:07:44
Speaker 3: But questions about the valuation of Firmus didn't just emerge at the last minute. They were there for many to see much, much earlier. Now, as Ed says, the business had a valuation.
00:07:55
Speaker 2: Of just $ 2.
00:07:56
Speaker 3: Billion at the start of last year, but that ratcheted up to close on $ 44 billion. Now, people, of course, questioned this. One who originally did question the company's valuation... is Michael Frazes from Frazes Capital Partners, who joins me now. Michael, many thanks for your time. At what point did you start getting wind that maybe they were just asking a bit too much for Firmus?
00:08:20
Speaker 1: Look, it's a bit of a challenge always. I mean, the EBIT number that was broadly shared and reported on was two years ahead, assumed success, assumed financing that wasn't locked in. And the fine print around that was not pretty, you know, an excluded number of corporate costs, sales and marketing, things like that, not to mention interest, which is one of the major costs involved. in highly capital intensive companies like this. And as you mentioned, this was a company that was valued a tiny fraction of the amount they were asking for only recently. So it was always going to be a big ask and they definitely reached pretty high up in terms of their expectations.
00:08:58
Speaker 3: And even the cap raising that they had just in August, right, the business at that stage was valued around $ 22 billion, give or take, to suddenly see in the space of really six weeks it doubled from there. That seemed to be a stretch, a stretch for the markets, a stretch of valuations. And certainly that was where, again, the question mark started to be raised.
00:09:20
Speaker 2: Yeah, definitely.
00:09:20
Speaker 1: It's quite possible at a lower valuation where the amount of cash and equity that they're raising, fully funded cash equity was a larger part of the market cap. Maybe it would have actually got away, but there was a huge amount of value ascribed to future execution, future deals, which would require more financing than they were even able to, than would have been available even if they did get the IPO away. So there was a lot of, there was skepticism, but you've got to remember, we were all told, and it was widely reported that the book was covered and there was indications of interest well in excess of what they were asking for. So to some extent it was a surprise because that's what we're told and that's what the market was expecting. But it seems like that demand was actually there.
00:10:01
Speaker 2: So, Michael, one other aspect of this, did it trouble you at all?
00:10:04
Speaker 3: Did a lot of the capital raising, it seemed like the capital wasn't necessarily going largely into the business. It was actually going into the original owners of the company, into the vendors, as it were, because generally if this money were going into the business, you'd go, all right, they don't necessarily need to come back for more capital. In the short term, some fund managers I've spoken to were terribly troubled that in 12 or 18 months' time that firmers would be back to the market seeking to raise more capital.
00:10:33
Speaker 1: They'll almost certainly have to go back to the market. That's, like, one of the advantages of listing, I guess. But I think the real issue was less that money was going out because a lot of the money was going to be funding some of these projects. It was more that a huge amount of the shares would be available to trade. So you think of that over $ 40 billion valuation or something like more than half of it was not escrowed or locked up. And so there's a good chance, you know, if you're a fund manager or you're a private investor and you're sitting on these huge gains... Some people were holding from, you know, many years back when it was a small Bitcoin miner. The general assumption was there'll be a huge amount of selling on market from existing shareholders. And even the escrow around founders was kind of limited. You know, there was small print in the small print. in the documents that said that the founders were able to sell using derivatives to take off some of their exposure and take a loan against derivatives with some banks and cash out almost immediately some of their shares. So it was less that the money was going, that they were raising the IPO was going to insiders. It was more that so many existing shareholders would have been able to sell on the market. And ultimately, if you're trying to convince people to put money in, We're not, you can't convince a fund to put in if they think it's going to trade at or below the price. You know, you really have to think there's upside and the value, it's actually worth a lot more. And the insiders are going to be supportive and holding and if anything, buying. If instead there's a wave of selling anticipated and the valuation is extremely stretched and assumes a number of things go right in a row, that makes it really hard, makes it really hard to see the upside. And again, it comes back to that price point and how they valued it and how the whole process was done. Look, it made it really difficult.
00:12:13
Speaker 3: So the other thing I did was look at something like NextDC, you know, $ 8 billion capitalisation, not $ 44 billion, with 12 data centres and big expansion plans to double that, as compared with, or 17 rather, data centres, as compared with something like, you know, Firmus with two data centres and an aggressive.
00:12:32
Speaker 2: growth strategy.
00:12:33
Speaker 3: Did you make those types of comparisons when you were trying to work this out?
00:12:38
Speaker 2: I mean, absolutely.
00:12:39
Speaker 1: I mean, one of the ways to look at this was project equity. You know, this is project equity that's used to finance, to take on a huge amount of debt and finance construction of data centres. The difference between that equity that they're and the ultimate valuation, which was huge, right? Maybe they raised $ 3 billion and were asking for another $ 7 billion, so roughly $ 10 billion. To come on the markets at over $ 40 billion, that's a lot of excess value. That's a lot of value that is hard to justify. And again, I think they just pushed that too far. And the comparison with existing data centers and operators is a very good one because despite all the attempts to brand it as AI factories and something new and something you haven't seen this is something that isn't new this is a very old business model this is buying commodity equipment and leasing it back onto the market and really it should be valued like that in our opinion.
00:13:29
Speaker 3: And so do you sense that it might have been easier had Firmus gone to NASDAQ and tried to sort this capital and sort the deal in the United States as compared with doing this in Australia, that maybe there was a bit more scepticism about the business here as compared with perhaps in the United States?
00:13:48
Speaker 1: Yeah, I mean, again, the message that was put out to the market that has been widely reported was it was more or less oversubscribed. There was indications of demand in excess of the offer price. That was basically before it was opened up in Australia. So we actually thought the international, the market was told there was international support in excess of the IPO amount, which should have got the deal done on the ASX, regardless of what the Australian fund managers and the Australian private investors regardless of what their participation was. So I don't think it was the ASX or NASDAQ that really made the difference here. I think it was actually the numbers. And when people looked and actually read the fine print, which wasn't widely available, by the way, it was very hard to get your hands on prospectus if you weren't a fund manager and part.
00:14:33
Speaker 2: Of the process.
00:14:33
Speaker 1: It was really once you looked at the numbers that that's where the deal ran into trouble. And it was marketed widely overseas as well. So it wasn't just purely an Australian thing.
00:14:42
Speaker 3: I'll tell you what, Michael Frazes from Frazes Capital Partners, one who did question that valuation on Firmus, and of course that float did not get off the ground, is with me. And Michael, I appreciate your time today.
00:14:54
Speaker 1: Thanks so much. Really appreciate it.
00:14:57
Speaker 3: Well, as Ed says, Firmus was a last-minute withdrawal from the federal joint parliamentary inquiry into artificial intelligence. The speed of AI's emergence means lawmakers have to move equally as quickly to ensure that regulatory and national security.
00:15:11
Speaker 2: Impacts are considered... while.
00:15:13
Speaker 3: Trying to maximise the economic benefits of AI. And the importance of this inquiry was illustrated when OpenAI, one of the world's biggest players, sent one of its most senior leaders, Jason Kwon, its chief strategy officer, to explain just how one of its AI agents, Infiltrated Services Australia, to access information, including sensitive Medicare information. Now, that appearance, as much as anything else, was about trust. Here's Quan on the steps of the New South Wales Parliament House offering up this apology.
00:15:45
Speaker 9: Again, I'd like to reiterate that we're sorry for what's happened and we're here to talk about how we're going to do better for Australia. And it's an important time for AI capabilities and it's on us to improve what we do.
00:15:55
Speaker 2: And so we look forward to working with the committee today.
00:15:59
Speaker 3: Now, the chair of that federal parliamentary inquiry is the ALP's Jo Briskey. I spoke with her on Friday after the hearing is concluded.
00:16:07
Speaker 10: They asked to be rescheduled for a later date and that's what the secretary is working with them to finalise that date. We still want to hear from Firmus and we expect to be able to do so.
00:16:19
Speaker 11: At one of our future hearing dates.
00:16:22
Speaker 3: So the other aspect of this is open AI, and in particular the appearance of Jason Kwan. Quite clearly the security breach in that bot getting inside Services Australia is serious. Your committee wanted to hear from them about that and why that happened. Were you at all surprised by what you heard from Jason Kwan?
00:16:44
Speaker 11: Look, yeah, you're right.
00:16:45
Speaker 10: We wanted to have OpenAI front the committee, answer the questions of parliamentarians on behalf of Australians. It wasn't just about what happened and how it happened and, in particular, why it took so long for OpenAI to let us know what had happened. But more importantly, what they had changed since, what they had learnt, what are they doing differently now in order to make sure it doesn't happen again?
00:17:11
Speaker 11: That was the question I had of Mr Kwan. And I heard from them. They have learnt.
00:17:18
Speaker 10: They again apologised to the Australian people, which I think is right. And they talked through how they are making changes now. to their safety requirements when coming to testing models and also their processes by which they will report incidences in a much timelier manner than they did in the Medicare instance.
00:17:41
Speaker 3: I think you've broken it up pretty well there, because there are two situations that I see as serious here. First is the breach of security, that its bot took it upon itself to go and grab that information, to scrape that information from Services Australia, some of which was innocuous, other which was more sensitive. And that raises questions of foreign interests in particular, foreign AI interests, being able to do that to some of our most sensitive data.
00:18:07
Speaker 10: Look, it is important to remind the public that there wasn't any sensitive or personal private data accessed by this rogue agent of OpenAI.
00:18:20
Speaker 11: However, it does present, as you say, a.
00:18:23
Speaker 10: Really important element where we have moved from the theoretical into the real now in terms of these bots, these agents. doing what they want, going ahead and doing something they haven't been asked to do by a human. So we've got to make sure that we are getting the settings right to ensure that we can better protect ourselves. I know there is a lot of work happening right now across the government to ensure that our security systems, our cyber security are protected. up to scratch and that's important because this is a new frontier, this is a new element here that we are dealing with and we are making sure that we are getting on top of that, ahead of that and in fact needing to have access to the frontier AI in order to defend ourselves against frontier AI.
00:19:11
Speaker 2: Because there's a.
00:19:11
Speaker 3: Point that you make, and that is that OpenAI or Google or, say, for example, Anthropic, large organisations with a corporate reputation to protect, might very well come and front your committee and comply with all of those ideas. But there are more nefarious operators who are going to also have these AI bots, which may not be reporting so willingly. which may also be trying to deliberately scrape security information. So this is why it becomes important to set these protocols at a national level.
00:19:46
Speaker 11: Yeah, that's exactly right. And that is why it is really important.
00:19:50
Speaker 10: I see this inquiry as helping to elevate those conversations and the issues that we need to be dealing with as policymakers, as a parliament, to ensure that we have these settings in place to be the best prepared that we can be to take on some of the more nefarious actors that are in this space who have potential access to the same technology.
00:20:13
Speaker 11: That is why taking.
00:20:14
Speaker 10: This opportunity for Australians to be able to have a seat at the table, to be able to have access to the frontier of this technology is so important for Australians, obviously for cyber security and our defences, but also importantly for us to play a role in shaping the global response.
00:20:34
Speaker 11: To artificial intelligence.
00:20:35
Speaker 10: And so that's been something that I have seen absolutely elevated over the course of this week's inquiries, the public hearings that we've been holding as part of this committee's work.
00:20:44
Speaker 3: OK, the other aspect of it that was really important was that when this breach occurred and OpenAI discovered this breach, it didn't quite know how to report the breach to our government, to the lawmakers here in Australia. That also seemed to be at least a gap in our communications, a gap in our law that was missing, because quite clearly, in many cases, these large organisations are going to discover about these breaches well before we will.
00:21:16
Speaker 11: Yeah, it did, absolutely. You're right.
00:21:18
Speaker 10: This is one of the areas I think we can see some greater standards. In fact, I asked the same question of Anthropic as well, in terms of what is their internal processes for notifying when incidences like this occur. There isn't a standard process for that, and that's an opportunity.
00:21:36
Speaker 11: For Australia to lead.
00:21:38
Speaker 10: In this space, to make sure we can look at how we do mandatory reporting of incidences to help create a greater standard around this technology, especially as we see more and more the capabilities perhaps outpace the alignment and the safety measures that these companies potentially have in place. It also puts an onus back onto those companies to ensure that they are designing and keeping ahead and safety and risk management in mind. And that's the role that Australia can play at the moment.
00:22:13
Speaker 3: And, Jo, I know it's partly what your committee that you're chairing is trying to come to grips with, but Donald Trump, for example, is saying there should be almost no regulation, that the industry should regulate the guardrails around this artificial intelligence and the way it reports, the way the bots behave.
00:22:30
Speaker 2: What's your own sense?
00:22:30
Speaker 3: What's the sense do you get inside your own party as to whether Australia agrees with that approach or whether there should be genuine guardrails around the information that these companies can access and the way in which that's used?
00:22:46
Speaker 10: Look, I think this is why it is so critical for Australians that we actually get to shape our own response. It is important that we have the opportunity... to shape our own future, to respond in our own way, to shape AI in our interests rather than let it shape us. That includes from other jurisdictions right across the globe. That is why if we had the ability to bring these frontier models here, these frontier labs here and had them training on our shores, we've got greater control over how they operate, how they are setting the safety standards that better meet Australians' expectations when it comes to risk management and safety management of this incredible.
00:23:29
Speaker 11: Technology that can.
00:23:32
Speaker 10: you know, can have significant risks, but as well as, you know, take the opportunities as well.
00:23:38
Speaker 3: So I was going to say that also because there's one issue here, and I spoke to a number of artificial intelligence and data centre companies here in Australia this week, and there was a view amongst some that really many of these data centres, many of our most sensitive information should be actually keeping, staying onshore. As soon as it goes offshore, we lose control even from a legal standpoint over that information. And I want to get a sense of what you learned this week from this committee, from hearing from all these AI companies and the data centre companies about how and where the most sensitive data we have, our defence data, our security data, where it should live here overseas.
00:24:18
Speaker 2: What's your own sense?
00:24:21
Speaker 10: I think what we've learned this week absolutely is the importance of our own sovereign capability when it comes to artificial intelligence.
00:24:28
Speaker 11: And you hit Now, in terms of.
00:24:30
Speaker 10: Some of our most sensitive and important data, we absolutely need to make sure that we maintain control over that. And that is why having the opportunity to build up our own sovereign capability, leverage off the frontier labs wanting to come here and invest here, bring their training here, I think is really, really important for us to ensure that we take that opportunity forward. That being said, there is a lot of work that we've also heard through this committee around how do we get the settings right to enable that. We've talked to copyright holders and creatives and the importance of ensuring that we get the best outcome for them as well as part of this process.
00:25:10
Speaker 11: But when it comes to sovereign.
00:25:12
Speaker 10: Capability and building up our own Australian AI ecosystem here online, on Australian shores, under Australian jurisdiction. We have an opportunity, an incredible opportunity in front of Australians right now in order to shape that for us. And I'm really keen to make sure that we take that opportunity.
00:25:31
Speaker 3: And taking the full circle on our conversation back to Firmus, that's the disappointing part that you didn't speak to them because quite clearly they are one of those who would be able to help shape that future of our information staying right here in Australia.
00:25:47
Speaker 10: Look, as I said, we expect to be able to have Firmus reschedule their appearance.
00:25:53
Speaker 11: Before the committee.
00:25:55
Speaker 10: As you say, it's important for us to be able to, for parliamentarians of the committee, to ask some questions of Firmus.
00:26:00
Speaker 11: To learn from their experiences.
00:26:03
Speaker 10: And I do anticipate and expect that we'll be able to reschedule that appearance of Firmus for another date when we hold public hearings again. We are holding public hearings again next week and... The following week, back again, both Sydney and Melbourne, because this is such an incredibly important issue, one of the most, you know, probably one of the most critical issues facing Australians right now. And so it's really important that we get those experts, whether it's Firmus, whether it's the hyperscalers, whether it's the creatives, whether it's the workers.
00:26:37
Speaker 11: And their unions and employer groups.
00:26:39
Speaker 10: AI touches almost every element of our society, of our community, and it's going to shape where we go next. And so it's really important that we have everyone who has a stake in this to come and chat to the committee and answer our questions.
00:26:55
Speaker 3: The chair of the Joint Parliamentary Inquiry into Artificial Intelligence is Jo Briske.
00:27:00
Speaker 2: And, Jo, I appreciate your time on the program today.
00:27:04
Speaker 11: Great to be with you.
00:27:06
Speaker 2: Well, after the break earlier this year.
00:27:07
Speaker 3: We told you an astonishing story about Donald Trump, Greenland, an Aussie miner called Critical Metals and its mining deposit called Tanbury's, which could be the biggest critical minerals mine in the world. Sandbreeze has just been given the green light by Greenland. Up next, we'll speak with its chairman, Tony Sage. Thanks for being with us here on Business Weekend. Well, earlier this year, we told you an astonishing story about how an Australian company was right in the middle of Donald Trump's aspiration to take over the country of Greenland. That company, Critical Metals Corp, is sitting on what could be one of the biggest rare earths deposits on the planet, Tanbury's in Greenland. And it's easy to get the idea that what Donald Trump might really be after is this very ready and prospective deposit. Tanbreeze was discovered many decades ago, but it was acquired by Critical Metals and its chairman, Tony Sage, who's a renowned Perth-based miner, just a few years ago. This week, though, there was a major change for the Tanbreeze project and for Critical Metals. The Greenland government formally approved the project with a licence out until 2050. The chairman of Critical Metals is Tony Sage, and I spoke with him earlier this week.
00:28:25
Speaker 4: Yeah, look, years and years of work, Ross, from the previous owner as well, Greg Barnes, who took it to a level. But he ran out of cash and we came along. And, look, it's a difficult one getting a mine approved in Greenland. You've got to tick all the boxes. You've got to get your mining approvals. You've got to get your environmental approvals approved. that's a picture of something that we're doing building at the moment where it's going to house our pilot plant but we've proved to the Greenland government number one we've got the expertise number two we've got the money to progress, and we've got the support of the local people, which is the most important. We already employ 140 locals in the project. Most of them are on that site. They're building the core shack, our offices, et cetera, et cetera. But on the mine site itself, we've built a massive camp already.
00:29:21
Speaker 12: We purchased a cruise ship, believe it or not.
00:29:24
Speaker 4: The local community doesn't really want 300 strange single men living in the town. So we bought a cruise ship. The cruise ship will park 250 metres away from the mine itself. And that will house all of our construction crew over the next two years. So we've taken heed of the local community's requirements, and I think that's a big plus in us achieving the goal of getting the mining licence out to 2050, as you've mentioned.
00:29:53
Speaker 3: OK, so I want to go to the politics of this and the politics of Donald Trump and Greenland. One of the barriers that you had was really his aspiration to take the whole of Greenland over.
00:30:03
Speaker 2: But the deal's been done there, which probably is in.
00:30:05
Speaker 3: Some ways eased the pressure off the Greenland government to give this project approval.
00:30:12
Speaker 12: Yeah, 100%.
00:30:13
Speaker 4: I mean, I think that was a big impetus. I mean, we've had this mining application in for the last six months. And it has been held up. And until this deal was done, I think it did unlock the deal for us. And it does help that we're an Australian company as well. During that interim period, if we were a US-based.
00:30:35
Speaker 12: Company, I think the process would have taken.
00:30:38
Speaker 11: A lot longer.
00:30:39
Speaker 4: But, yeah, a fantastic deal for us, fantastic deal for Greenlanders. I mean, they don't have to spend a cent, nor does Denmark, on security, defence. There's going to be hundreds and hundreds of millions of dollars being poured in by the US government in building these three or four facilities to naval bases and expanding the air base.
00:31:02
Speaker 12: But the beauty for.
00:31:03
Speaker 4: Us is one of the bases is 40 kilometres away from our mine site. So there's going to be a lot of synergies with the US government and ourselves in transport, using that facility as a transport hub.
00:31:18
Speaker 3: So this licence that you've got that goes out to 2050, so we're talking 24 years or so from now, but it gives you the right to extract 19 of these critical minerals. Which of those 19 will you concentrate most on and which gives you the better leverage into this mine?
00:31:38
Speaker 4: Look, the biggest shortage and the most that China produces is a little metal called hafnium. Hethium is used in the nuclear industry, but it can be used in many other industries, including A.I., and including supercomputers.
00:31:58
Speaker 12: So, hathenium is one that we really want to concentrate on.
00:32:01
Speaker 4: Only 75 tonnes of hathenium is produced in the world at the moment, and 98% of that comes from China. Just to give you an example, it goes for $ 13 million a tonne. If you compare that to iron ore, $ 100 a tonne, you'll see how rare this particular... But we also will be producing niobium, gallium... and terbium as well, which are also very, very much needed in the national defence area of the United States and of NATO.
00:32:34
Speaker 3: So is part of the deal, because I know you've spent some time in Washington, a lot of time in Washington, negotiating with the US government as well, is a part of the idea that as you start to produce and as you start the process, that a lot of that metal is earmarked for the United States under the deal that's been done between America and Greenland?
00:32:56
Speaker 12: Yes, 100% correct.
00:32:58
Speaker 4: Already 35% of our product is going direct to refineries in the US. 50% is going to the Romanian facility, which is going to be producing most of the metals. We're going to actually go to the next level. We will own 50% of that as well, critical metals. The material that's going to the US, it will be refined. We don't own, but the the profitability of the Romanian processing facility will be huge and massive. But they've done a deal that of those metals that come out, some of that goes to the U.S. And there's a roundtable in Romania the first week of November, which I'll be attending with members of the U.S. government as well as the Romanian government. But that's 50% of our raw. And we did that for an obvious reason.
00:33:49
Speaker 12: The EU has now earmarked.
00:33:51
Speaker 4: Well over € 3 billion for rare earths, and we will be applying for a lot of that. And to do that, we needed a refinery base based in an EU country, and Romania was the best option for us.
00:34:06
Speaker 3: So does the fact that the Greenland government has given you this licence, does it now give you an ability to write the offtake agreements, the pre-sales agreements that you require? Because obviously there's going to be extra funding you'll need and any sort of offtake agreements are going to help you do that.
00:34:23
Speaker 12: Yeah, yeah, 100%.
00:34:25
Speaker 4: The deal we did with the Romanian government has got EU approval.
00:34:30
Speaker 12: The Romanian government's already gone to Brussels. to tell them about the deal.
00:34:34
Speaker 4: I think they'll be participating in the roundtable early November with us, the US government.
00:34:41
Speaker 12: So, yeah, it's.
00:34:42
Speaker 4: Been a very, very important, but delicate. I mean, it's been delicate negotiations, given the rhetoric that Trump had put on the world, really, by saying he's going to annex Greenland. So there was a lot of trepidation. But now that that agreement is signed, Everyone's happy. You've seen the NATO come out endorsing the deal. You've seen the Denmark government endorsing the deal. And most important, you've seen the Greenland government endorse the deal.
00:35:10
Speaker 12: So that really helps everyone, not only us.
00:35:12
Speaker 4: There are other players in Greenland, not as well advanced as Tambry's, obviously, but there are still other companies that are drilling for and hoping to find large amounts of rare earths. as well as our Tambry's deposit. But there's also a lot of oil and gas there. There's a lot of uranium there as well. So hopefully that deal may open up the other avenues for those companies as well.
00:35:40
Speaker 12: But at this stage, it's basically for critical metals.
00:35:43
Speaker 3: And, Tony, the interesting part about this is, you know, this deposit, as you sort of discussed with me last time, was discovered, you know, sort of almost 130 years ago, 140 years ago, but the reality was it lay dormant for so many years until really, as you pointed out, one individual pretty much picked it up and proved it up, but then funded it themselves and then ran.
00:36:05
Speaker 2: Out of cash.
00:36:05
Speaker 3: So it's just the history of this is as much interesting as the actual here and now and what comes.
00:36:12
Speaker 4: Yeah, look, 1804 when it was first taken off Greenland, ended up in Denmark, then it ended up in the London Geological Society. And in 1959, it was when it first was discovered that these were rare earths. And they went back, they took a lot more samples. But it wasn't until Greg Barnes, the local geologist from Perth, went there and really spent.
00:36:37
Speaker 12: A small fortune.
00:36:38
Speaker 4: I mean, he spent about $ 50 million Australian dollars of his own money developing it, and he ran out of money in 2020. I was fortunate enough that I knew him on another deal. Then I helped him out a little bit then, and then we took over in the subsequent years.
00:36:54
Speaker 3: Tony Sarge, it's an astonishing story. We've been fortunate to document it a couple of times. You've got your approval from the Greenland government. I appreciate your time on the program today.
00:37:04
Speaker 12: Thanks very much, Ross.
00:37:06
Speaker 2: Coming up after the break, with interest.
00:37:08
Speaker 3: Rates rising, home prices falling and business conditions deteriorating, it's almost inevitable to say that business failures must and will increase.
00:37:16
Speaker 2: So after the break, we speak with the man who presides over the insolvency.
00:37:20
Speaker 3: Industry, Inspector General for Bankruptcy in Australia, Tim Beresford.
00:37:31
Speaker 2: It's great to be with you here on Business Weekend.
00:37:33
Speaker 3: Well, in the June quarter this year, personal insolvencies were 13.1% higher than they were in the same three months last year.
00:37:41
Speaker 2: In the financial year.
00:37:42
Speaker 3: More than 14,000 businesses collapsed in Australia. And look, you don't have to be an economist or a scientist to realise that since then, with home prices falling and interest rates and unemployment rising, things are getting worse and not better. Even now, there are reports of more businesses, especially in retail, in fashion and in building and construction, that are under serious pressure, perhaps likely to collapse. The man who presides over Australia's bankruptcies and insolvencies is Tim Beresford. He's the chief executive at the Australian Financial Security Authority. but he's also the Inspector-General in Bankruptcy, and he joins me now. Tim, it's always good to chat to you, but I guess these are sobering times, aren't they, when we have to talk to you, because it does mean that there is pressure in our community, pressure in our businesses, even pressure inside households, as insolvency rates start to rise.
00:38:32
Speaker 13: Yeah, look, they certainly are rising, Ross, and as you pointed out in the intro, they are rising last year by about 10%, and this year we expect by about 12% to 13%. But it's worth putting that in context. And the context is, is they're rising from a very low base. So you and I will remember COVID-19. You know, that was some of the lowest levels of insolvency the country's ever experienced.
00:38:55
Speaker 2: And that was partly because the government at that time protected... Moratoriums.
00:38:58
Speaker 13: Completely cash on people's balance sheets, all the things that you and I know really well. So we're coming back from a remarkably low base and we should and have anticipated a rise in insolvencies.
00:39:11
Speaker 2: As you point out, the rate and the.
00:39:13
Speaker 13: Speed at which they will rise is driven by some of the macroeconomic indicators you've just mentioned.
00:39:19
Speaker 2: Unemployment is one.
00:39:20
Speaker 13: But it's worth just pointing out that the 10-year average is more like 25,000 and we're moving back to 15,200 this year and probably about 17,200 the next year.
00:39:30
Speaker 12: Year.
00:39:30
Speaker 13: So rising, yes, but rising back to what is more seen as the typical long-term average.
00:39:36
Speaker 3: OK, so that is the perspective of it. So historically, we've come from very low levels.
00:39:41
Speaker 2: Yes.
00:39:42
Speaker 3: There's another factor of this, and that is any insolvency or bankruptcy has to have some sort.
00:39:48
Speaker 2: Of an administrator... A.
00:39:50
Speaker 3: Liquidator, a receiver, a bankruptcy trustee has got to be involved. Those people also have standards. Those people have to actually comply with the laws that you administer. Are you happy with the laws and are you happy with the behaviour of those people in the industry?
00:40:08
Speaker 13: The vast bulk of people in the industry behave absolutely appropriately and apply the right professional judgment that you would expect from a bankruptcy trustee. There are cases where some are making and taking shortcuts. And in those cases, we have our eye on them. But to answer your question in the broad, yes, overwhelmingly, the vast bulk of bankruptcy trustees do behave appropriately and model the professional standards you expect of professionals.
00:40:39
Speaker 3: So from that point of view, do you need any review of the laws in which you administer? Do you have the powers that you need to ensure that bankruptcies are not just serving the person who has gone broke, but also serving the people, importantly, that erode money, be they businesses, contractors, be they banks, be it the tax office, because these are also, if you like, the victims of organisations or individuals going broke.
00:41:06
Speaker 2: You're spot on.
00:41:07
Speaker 13: You've got to get the balance right between the debtor and a debtor getting a fresh start and the creditor actually getting paid what they're due, or at least a percentage of what they're due in terms of what is fair and reasonable. Look, as you point out, there is a Productivity Commission review underway right at the moment looking at insolvency and the framework. We've actually contributed to that and we'll look to continue to contribute to that. So we're quite, we welcome the productivity review and welcome the opportunity to contribute to that piece of work.
00:41:39
Speaker 2: As you would know, productivity reviews.
00:41:41
Speaker 13: Take, you know, 12 odd months and off the back of that, those recommendations will go to government. So There is actually live consideration of how we can and where it makes sense to improve to get that balance right. between the creditor and the debtor.
00:41:56
Speaker 3: Because here in Australia, the stigma of bankruptcy, the stigma of insolvency appears to be much greater than it is, particularly in the United States, where people kind of can go broke and can come back and recover. I just wonder whether we really culturally have changed or whether you sense we've changed at all from the days where, really, if you'd gone bankrupt, you really had a black mark against your name for life.
00:42:22
Speaker 13: Look, I think the real big shift, and it certainly happened after the Hayne Royal Commission, is that we saw a very different approach from creditors, not just the banks. Yes, the banks, but not just the banks, about trying to look for solutions before putting people into bankruptcy. I think that has yielded really positive results. You and I are both old enough to remember the global financial crisis. well before the Hayne Royal Commission. Back then, insolvencies were up at 37,000, 38,000. We have not had numbers like that since the Hayne Royal Commission. So Hayne and preceding Hayne, you've seen creditor behaviour change to look for solutions with debtors. That was a real positive outcome because now those that are going into insolvency are genuinely, there is no other option.
00:43:14
Speaker 3: OK, because then that goes back to the practitioners in the industry and the speed with which a person who might have financial difficulties or a business can get to one of those professionals.
00:43:24
Speaker 4: Correct.
00:43:24
Speaker 3: Then ultimately the solutions may well be a scheme of arrangement rather than simply going into receivership or going into liquidation, which are almost, if you like, the nuclear options when a person is actually having cash flow problems.
00:43:39
Speaker 11: Yeah.
00:43:39
Speaker 13: So we always say, speak to a professional and speak to them early. You know, you're a businessman and you've got that gut feeling things aren't quite going right. Speak to your accountant, speak to your professional advisor. Your accountant will typically refer you to a bankruptcy trustee and they can bring to you options about what makes sense for your business, where it is and how it's travelling.
00:44:01
Speaker 2: So We are always of the.
00:44:03
Speaker 13: View, speak to professionals who can give you the right advice and the right guidance when you are in a spot of difficulty. And if you do it earlier, often we say, that will lead to a better outcome than burying your head in the sand and just sitting with the problem and not addressing it or speaking to professionals.
00:44:19
Speaker 3: There's one issue, and we sometimes talk to the Chief Executive of AUSTRAC, who talks to us really about the anti-money laundering that they administer. Now, one issue that you have to be conscious of as well, which does cross into their area... is the phoenixing of companies. In other words, people deliberately tank companies to get out of their debt obligations to then simply resurface in the future.
00:44:41
Speaker 2: Does that sit also in your space or does that sit somewhere else in the whole financial structure?
00:44:46
Speaker 13: So on the company side, that's ASIC's piece, but on the personal side, that's our piece. But in terms of that phoenixing arrangement, look, you're absolutely right. There are actors out there, and as you pointed out, Brendan from AUSTRAC, is looking at a lot of these behaviours. We work closely with our colleagues at AUSTRAC, indeed the ATO, and indeed ASIC, to actually really share information amongst ourselves to actually really look at some of these operators.
00:45:13
Speaker 3: And is that line of communication better than it was going back 10, 15 years, do you sense?
00:45:17
Speaker 13: Oh, look, there's a really open dialogue amongst those four regulators I've just touched on, and there's a regular engagement that we have on the issues you've just mentioned, as well as a range of other issues. Because at the end of the day, We're all here to actually make the system work better. And sometimes there'll be my information that AUSTRAC has that can be supportive to ASIC or equally to the ATO that would be supportive of us. So it's really about working together for the betterment of the system.
00:45:44
Speaker 3: Can I just finish off and talk about some of those areas that are under genuine stress?
00:45:48
Speaker 5: Yep.
00:45:48
Speaker 3: But from a corporate point of view right now, so this is business, you know, sort of, if you like, insolvencies. It looks to me as though it's, as I said in the intro, Retail, it's fashion and it's construction.
00:45:59
Speaker 2: These seem to.
00:46:00
Speaker 3: Be interest rate sensitive sectors. They seem to be sensitive to cost pressures and consumer demand. Is that where you sense that there is more insolvency in our community today than in other areas?
00:46:11
Speaker 13: Yeah, look, if you just take one of those three, which is construction, in addition to what you've just said, they have very fragile supply chains. So if one thing breaks in that supply chain, often it has a ripple effect through the rest of the supply chain. And as a result, when one construction entity actually collapses or falls over, it impacts sole traders, it impacts sparkies, it impacts a whole range of just people who are inside that value chain, inside that supply chain. Not only that, but also organisations which also have fragile supply chains like transport and logistics. You know, often the truckie is very reliant on that next particular deal. But if the petrol price goes up and that makes it unsustainable, that can cause quite quickly challenges for that truckie or that logistics company.
00:47:02
Speaker 2: I'll tell you what, it's an astonishing area.
00:47:03
Speaker 3: We'll get you in from time to time and talk about this because it's worth talking about it, as you say, ahead of time so that people and businesses know their stresses.
00:47:11
Speaker 2: Tim Beresford, our Inspector-General of Bankruptcies, I appreciate your time. Thanks, Ross.
00:47:17
Speaker 3: And that is it for today's program. Up next, all the latest news right here on News 24. Business Weekend returns next Sunday, but of course you can keep up to date with all the latest business and economic news with our daily program, Business Now, full 30pm Eastern Daylight Time and via our website, news24. com. au. Thanks for your company today. I'm Ross Greenwood. We'll see you next week.
