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FALDI ISMAIL…introducing the new CEO of KGC

Ridwan Lowther interviews Faldi Ismail. Ridwan writes...

Faldi was born in and grew up in Cape Town, the legislative capital of South Africa as the National Parliament is sited there. Faldi is the baby of the Ismail family with 3 elder brothers and 3 elder sisters. Faldi's father Abdool Lateef was an International Helper for many years and now lives in New Zealand. Faldi's mother, Maryam is the most extraordinary chef as anyone who has tasted her food will confirm.

Faldi has established two very successful companies in Perth, Western Australia – Otsana Capital - www.otsana.com - and Blue Horse Corporate - www.bluehorse.com.au

Faldi and family

 Ridwan: Where were you born and where did you grow up?

Faldi:  I was born in South Africa on Republic day, the 31st May, and was in the paper for being one of the first born on that day. My family left South Africa when I was about 7 or 8 years old to head to New Zealand.  My dad wasn’t happy with the direction South Africa was going in at the time and thought it would be a better life for the family in New Zealand.  I stayed in New Zealand for another 7-8 years completing my primary and part high school there. We mainly lived in Auckland; it was a bit of a shock moving from Cape Town to Auckland. There were a lot of islanders and Maoris in my area and school. We were teased quite a bit because of our Indian background. I remember running home from school most of the time because they used to ask me what my shoe size was and then the moment they ask you that question you know they are making sure you have their shoe size on. So you arrive home in a sweat everyday because you have sprinted home to keep your shoes.

One of my older brothers Salim met a girl in Perth and got married here so we all came down for the wedding from New Zealand. My other brother Zak and I really liked Perth so we decided to come and live here by ourselves – I was 15 and still at high school. So when I was 15 I made the decision to leave my Mum and Dad in Auckland and live with my elder brothers in Perth. It taught me to be independent early in life – make new friends again, be self disciplined in studying and getting myself through school.

I first met my wife Roumelia when I was 16 and we stayed together since – young love! I finished school and wanted to do a Bachelor Degree in Business. I wanted to go to a private college and had to pay $5000 for the first year but didn’t have the money. So I worked in MacDonalds and a food distribution company where I unloaded container loads of biscuits!  It was owned by a Jewish family that took me in and encouraged me. I got the money and did the first year but then moved in the second year to Edith Cowan University in Perth. I finished my degree and did a double major in accounting and finance. 

I was working at the Royal Freshwater Bay Yacht Club while I was at University and immediately afterwards. It has a fairly affluent membership – I was doing all the accounts and function coordinating also the food and beverage management.

I got married in 1998, we had been together since I was 16 so it was a long courtship. While all our friends were out socialising we decided to tie the knot. At 24 we had our first child.

Ridwan: So how did you get from the yacht club to starting Otsana?

Faldi While I was working at the yacht club I met quite a few successful businessmen there and made some good impressions I guess and some good contacts. I was offered a job with a mid-tier chartered accounting firm based in Perth, where I worked as a corporate tax consultant for 4 years with that particular firm. That company merged and became Pitcher Partners which specialise in tax consulting, business recovery, and bankruptcy. I went in to the corporate restructuring division which focused purely on companies in administration, companies that weren’t doing well on the stock exchange. We worked out restructuring solutions and how to retire the debt these companies had, how to deal with the creditors. We turned something that was not worth anything into something that created value for the existing and new stakeholders.

After a while I felt there was an opportunity to sit on the other side of the fence, after having got an in depth understanding of how the restructuring process works. These were mainly ASX listed companies but also some private companies. Obviously you need a good understanding of the ASX regulations and the whole administration process that companies go through.  So I resigned from that company and did my very first recapitalisation and restructure for a company called Environmental Solutions International Limited. I setup a private company based on a model of sharing fairly generously the upside with investors and key partners we wanted to do the deal with. So it wasn’t based on my company getting all the upside or 100% all the time.

This wasn’t an easy step. I was married and we had a young baby.  We were used to the double income, then I was the only income provider. So to quit my job and start this – no income for a really long time – it took a year to get any sort of income – was a leap of faith. We don’t live lavishly but we managed to get by and it forced us to be careful with what we had. I used to find other work to subsidise our income, like doing tax returns for people and companies, on weekends and outside work hours.

Ridwan: Otsana Capital appears to be doing well. What does the company do?

Faldi:  I refined what I was doing and decided to expand. So I rebranded my company calling it Otsana Capital. Otsana is Basque for a "she wolf". So I am hoping my she-wolf will be my material magnet! Like Romulus & Remus! There are about 6 or 7 in the team at the moment.

Otsana Capital specialises in IPO’s (Initial Public Offerings), corporate restructuring and recapitalisation of ASX-listed companies. My team has specialist skills in mergers, acquisitions, capital raisings and listing ASX companies. We have just bought our own offices in West Perth close to the city centre.

Otsana didn’t just happen overnight, it required a jump in to the unknown and taking some risk which is hard with a young family.

My aim with Otsana is to create a $100m private independent investment fund over the next 5 years to do our own projects that we think are important and starting enterprises.

We select our clients based on their need for our specialized services. In most circumstances, we do not run companies that we recapitalise. Our clients want to deal with us because we recognize that people are important, we generously share the value we create, we are open and transparent, believe trust is paramount and aim to deliver massive value.

So far we have established a firm foundation for the business. We are adding and refining our business processes continually. We have an office building in Outram St in West Perth and have some capital behind us. We have put together a motivated core team with the same mind set.

Right now we are highly focused on doing a high volume of fast recapitalizations and handing over restructured companies immediately. We only undertake deals we have a controlling interest in. We identify lots of new projects to add value to the recapitalisations concentrating on the resources sector. We focus on developing strong relationships that give us access to investors and new projects.

So to summarise we specialise in a niche – recapitalisations and the reconstruction of listed companies. We also do a lot of capital raisings and IPO’s (initial public offerings). We take companies through the stock market listing process. We have a very broad network of investors who support and follow us

A fundamental principle we follow is that in every deal we donate to a charity or “noble cause” from a share allocation, that’s at the foundation of our business model. Everyone in our team embraces and subscribes to this commitment.

Ridwan: What would be an example of this?

Faldi:  For example one of the transactions we did we allocated some shares for the BCU School in Rungan Sari. So I was fortunate enough to be able to purchase the Siregar house for the school to give them a more permanent base. We also helped a little with a bus that they badly needed. I believe strongly in what the school is doing and think it is a great contribution to our Subud presence in Central Kalimantan. We have also worked with YUM. In my most recent deal the shares sent an under 13 soccer squad to the UK to a soccer clinic or champions tour.

The BCU School in Rungan Sari

Ridwan: How did you become involved with Kalimantan?

Faldi: Of course I have heard about it since the 80’s in Bapak’s talks. My brothers and family went to Kalimantan and came back with exciting stories. A light went off inside and drew me towards it. When Rahman got involved in Kalimantan he would contact me a lot to discuss what was happening, we would communicate and share ideas. At a certain point he asked me to join the Board and I remember his proposal very well. He said “It is a great company with fantastic people, great concessions, great prospects BUT we can’t pay you and we don’t have any money in the bank”. What a great proposition when you’ve got a couple of kids and are trying to work out where the next dollar is going to come from!

But the people involved and the work that they were doing is second to none with a lot deeper meaning than the commercial aspects and I definitely wanted to be part of that. So I became a non-executive director of KGC and KIC while Rahman was CEO.

Ridwan: Just before continuing with that, I saw the “complex” you are building in Rungan Sari!

Faldi: Because there are so many Ismails in the extended family! But I like the design that Daniela and Bachrun have done for us and they are a true example of following through with their guidance and have committed their lives to be in Kalimantan. There is no special plan – we are building a couple of apartments and a house. My intention there was to provide some accommodation for people when they come up to Kalimantan to do volunteer work for Subud projects; hopefully it will assist with that whole process making it easier for volunteers.

Ridwan: Recently you took over from Rahman Connelly as CEO of Kalimantan Gold Corp? What is KGC up to at the moment?

Faldi  I stepped in to Rahman’s CEO role after he had completed the successful negotiations of the joint ventures with Freeport on the copper porphyry and with Tigers Realm on the gold project in East Kalimantan. On taking over there was a lot work to be done restructuring our subsidiary companies for the joint ventures and to develop our business systems and processes.  In terms of where we are up to we have almost completed the two joint ventures restructures and the project preparations and mobilisation are progressing extremely well.

Having been exposed to the joint venture partners for a while in an operational context we could not ask for a better team to work with. They add a tremendous amount of technical, logistical expertise to our projects. They are very accommodating in terms of accepting our philosophy in working in Kalimantan particularly the way we have managed the community involvement and sourcing local staff from Kalimantan. We have been criticized by our investors in the past for spending money on community development and not enough on exploration, this is now bearing fruit and we are recognised as a leader in this area.

As you know the processes you have to go through in Indonesia to get the permitting required includes getting Forestry permission before you can drill. We are well advanced with our Forestry permits but we haven’t got them as quickly as we hoped even though we have pulled out all the stops and had our senior geologist in the Forestry department every day for last 6 months.  The permit for the Jelai prospect in East Kalimantan came through in early November.

Ridwan: ....and what are your plans for KGC once you are mobilised and drilling?

Faldi:  Once we have started drilling I plan to start work on rationalising our stock market listings and creating more value for the shares by securing a pipeline of strong projects. This will require us to recapitalise and reinvigorate our AIM listing. Of course we are refreshing the strategy and mission and redesigning the board to suit our new direction and build our team in Kalimantan.

Having the two joint ventures in place and operational will give the company a very sound foundation.  We won’t be in a position to do any other projects until we raise more money even so we have been looking at other projects trying to find something suitable that matches our selection criteria. This is complicated by the Forestry and Mining Ministries two year moratoriums. So we are looking for new project acquisitions but we are not ready to embark on these yet.

One of the other aspects that we need to address immediately is the liquidity of KGC stock on TSX and AIM but more specifically on TSX. I myself as a shareholder have been deeply frustrated with the process required for transferring and transacting shares, I can only imagine what unsophisticated shareholders are going through that are not experienced in this area. When I took on the CEO role I made it very clear that it is a priority for me to fix this and I am evaluating a number of options which may entail an ASX listing but our strategy is still being finalised on this and no final decisions have been made.

The vision that I have and the KGC team share is that we are creating an engine to produce future cash flow to pursue other opportunities in Kalimantan, Indonesia or other countries. On the back of a successful mining operation we want to create a strong presence for Subud and show people how we operate as a community and attract them to the way we do business.

Ridwan: How do you see your current KGC management team?

Faldi: One of the major reasons I accepted the CEO role in Kalimantan Gold was the people involved. I have been involved with quite a number of ASX listed companies dealing with their Board members and dealing with KGC Board members is truly a different experience. When I was asked to join the Board the number one criteria was the people involved.

We need to add, to bring in new talent and a new skill-set as the company evolves to the next level but I couldn’t do this job without the team in Indonesia’s involvement, without their commitment to Indonesia and Kalimantan. Mansur has been instrumental since the start of Kalimantan Gold 30 years ago. He has been through all the company’s ups and downs, he has been offered high paying jobs by other companies. He has sacrificed that and given it all up, I think because of his commitment to Bapak. I don’t know many people who have followed through for so long with their commitment like this regardless of the prospects. This duration, 30 years,  in the resource sector is very rare.

Bardolf Paul moved to Rungan Sari in 2003 to run YTS with total commitment. He built his house there in 2007 and even though his family is based in Vancouver he works tirelessly away from the family to build YTS. There has been many times when Bardolf received no salary but continued.

Of course, you, Ridwan, recently joined the team. You have  already demonstrated your commitment; on a telephone call you packed up your bags, sold your house and moved your whole family from Brisbane to Jakarta and Palangka Raya. You were looking for something different and wanted to do something in Kalimantan and when you got the call from me just moved straight away. It takes a lot of courage to do that with all the family commitments you have at the moment.

Ridwan:  KGC’s remuneration and stock options have come in for some criticism recently. Are they justified by the tasks being performed?

Faldi: (Long laugh.....) You sound like Tim Sebastian from Hardtalk! I am sure Mansur won’t mind me using him as an example because his contribution has been heroic. Recently there was a period when he was paid $1,000/month. Remember he has a family with three grown girls living as an expatriate in Indonesia. Really these comments come from people who haven’t experienced any suffering or made any similar contribution.

KGC is a company with very low cash reserves. Staff costs are a significant expense. We have been lucky to attract staff that believe deeply in what we are doing. Because of our cash reserves we have had to try to find other ways to compensate staff. One of these is by using stock options. Stock-based compensation is a non-cash item. Our most recent grant of options was in April 2011 and before that it was 2008[1]. Of all the stock options that we have issued they have only been exercised once in 2007, meaning they all expired worthless. So it is a very efficient way for the company to remunerate project participants.

At some point in the future it would be much fairer to our team for us to move away from the use of options and pay them market based salaries instead of underpaying them and asking them to participate in the corporate risk.

Do you know that not only our management team like Mansur and Bardolf took these drastic salary cuts. The local staff, who are not Subud members, voluntarily went on 75% of their salary...we still owe them salaries for this period! We would not have survived without their contributions.

Ridwan: Another criticism has been that you have bought shares and profited from the secondary market?  That your motivation is for personal gain?

Faldi: (Even longer laugh.....) Absolutely but what is important is what you do with the money once you have made it. Well I am yet to profit from KGC shares. I’ve never heard of any other listed company’s board members being criticized for buying shares in their company. For example Glencore CEO just bought $54m of his company and Fortescue Metals chairman bought $100m in his company for executives.

Also you must remember that this is my expertise and the basis for Otsana’s success. Really wonderful opportunities arrive on my desk every day. These opportunities give me significantly greater short-term returns because they are on the primary market. I make my income on the primary market; the secondary market is a different beast. As CEO it provides a lot of confidence to the market if the CEO invests in the KGC stock at critical low points. I see this as a very positive endorsement of KGC’s value and belief in the company’s future.

Ridwan:  How long does KGC have left before the concession expires?

Faldi I assume you are talking about the Gunung Mas project, Bapak’s Thumb? This is what is called a 6th generation Contract of Work. A CoW has 5 phases; general survey; exploration; feasibility study; construction; and production. The general survey period is 1 year; exploration 3 years but extendable for 2 years; feasibility is generally 1+1; mine construction 3 years and mine production 30 extendable for 20 years.

When we are delayed due to a government requirement such as a Forestry Permit, as we are now, we apply for a suspension from the Ministry of Mines which stops the clock as it has now. We are currently in the fourth month of the second year of exploration.

Our gold prospect in East Kalimantan is an Exploration IUP which is normally issued for 8 years. Technically you can get 10 year extensions.

But this is not the issue for us, the real issue is getting our Forestry Permits which is the reason we are in suspension.

Ridwan: What is the issue with the Forestry Permits?

Faldi We applied two years ago for an extension to our existing Forestry permits. Actually, legally we don’t need them as our CoW gives us the right to enter our concession.: So why don’t you just start drilling?

Because subsequent to our CoW being issued new laws were established requiring a Forestry Permit. So even though we still have the legal right to enter, that is subsequent laws don’t apply to us, our team on the ground would be arrested and put in jail.

Ridwan: Can KGC still be called a Subud Enterprise if eventually, when the mine construction starts our partners will own 70 to 75%?

Faldi: It depends what you call a Subud Enterprise, there was quite a bit of discussion on this at the WSC meeting in Kalimantan. From an investment perspective Subud members still own about 30%-35% of KGC. MSF still has the large holding donated to it by the company via KIC. We can’t tell the Subud percentage exactly because a lot of shareholdings are held by investors’ brokers which are then registered as a broker holding not in the name of the person. So from this perspective I feel that you can say that Subud has a controlling interest.

KGC has four directors on the Board two of these are Subud members. We would like to add one or  more non-executive Directors at the appropriate time. We have approached three candidates so far and all have said not at this time mainly because it conflicts with their other activities. My primarily concern with the Board is good governance, strong strategy and relevant mining, legal or finance expertise.

The Board requirements and skills are dictated by the strategy of the company. We are currently going through a major restructure of our subsidiaries driven by the requirements of our two joint ventures. As KGC is a junior exploration company we are looking for new assets. We are planning and working on some significant changes to enhance the share value independent of the JV’s. The Board must be structured and skilled to suit the direction we are taking. It is not enough that the person is a Subud member to join the Board, they must have all these qualities. Of course directors of our subsidiaries cannot take any independent action without direction from the board of KGC.

Ridwan: One of our subsidiaries is a foundation Yayasan Tambuhak Sinta. How is this related to the mining?

Faldi: As you know one of the primary reasons the project was started was to help the people of Central Kalimantan. Bapak’s beautiful quote on this was “We are not trying to create an island of wealth in a sea of poverty”. YTS aims to improve the quality of life of Dayak villagers living close to our exploration areas and to make sure everyone benefits from our mining development. YTS has developed a unique approach that ensures communities take charge of their own development.

YTS’s approach and methodology has been field tested for over four years in more than 20 villages in Central and East Kalimantan. It is designed to improve the quality of governance and economic well-being through a participatory process in the village of planning, capacity building, and empowerment.

The Livelihood Interest Groups are groups of about 10-15 people with some common interest in improving an aspect of their livelihoods, so for instance on pig and chicken rearing, rubber production, and hill rice.

The Global Mercury Project[2] is the one that we are extremely proud of; it has made a huge contribution. It has drastically reduced emissions of mercury in many towns and villages using simple and affordable technology. The water-box condenser systems that Sumali designed have now been supplied to around 100 gold shops throughout Central Kalimantan. In addition, his team have distributed about 200 steel retorts to small-scale miners. Since 2007, this effort has prevented over 15,000 kg of atmospheric mercury emissions from taking place. With funding support from the Blacksmith Institute and the UNEP, the team is now also working on sustainable ways to clean-up mercury-contaminated tailings dumps.

Because of our cash crunch YTS was forced to work with other companies, donor agencies and NGOs.  So while KGC funds YTS in several ways - through our donation, typically 5% of our budget and through carrying YTS overhead expenses in KSK like expat staff and the office – YTS raises a lot of funds from other sources; most recently the Ford Foundation. Some of the team feel that at the end of the day YTS will be our biggest contribution to the region not the mining!


[1] Further to interview Faldi provided sources of information on options etc. “A good place to start for information on what is happening in KGC is – www.kalimantan.com

For insider trades in KLG stock go to www.sedi.ca – top right click on access public filings – yellow tab on left choose view summary reports – make the selection of the report you want to view and carry on from there.  All directors and executive officers are required to report their trades in KLG stock (now within 5 days) including option grants and exercises which is all available for the public to view.

[2] For all KLG’s public filings go to www.sedar.com – choose company profiles – choose the letter K in public companies – choose Kalimantan Gold – the face page comes up and you select View this public company’s documents – here you’ll find a history of all our financial statements, news releases and management information circulars.  This latter document reports on executive compensation.”