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Asia-Pacific Strategic Investments: A Potential Mining Conglomerate?
Despite new Mainboard admission rules for mineral, oil and gas companies imposed by the Singapore Exchange last September to curb speculative firms, Asia-Pacific Strategic Investments (APS) seems confident that they have found a gold mine.
Presently, APS is a leading provider of bereavement care services in Malaysia. It provides funeral and disposition services, burial plots and columbaria and burial niches.
The Deal
APS will acquire Coeur Gold Armenia (CGA) for $500 million via a reverse takeover (RTO). The former will issue 1.35 billion new shares to GR Business Holdings, the parent company of CGA, at $0.371 apiece.
GR Business Holdings has two shareholders: China Global Energy & Resources (51 percent) and George Richmond (49 percent). Following the deal, GR Business Holdings will own a majority stake in APS.
Apart from direct investment in the mining and energy sector, China Global Energy & Resources engages in private equity funds and commodity trading.
Richmond boasts an extensive track record within the mining sector, having run two of the largest gold mines in Armenia and Georgia.
CGA holds 80-percent stakes in both Vayk Gold and Vardani Zartong, which in turn own mining exploration rights in Azatek Mine and Sofi Bina Mine respectively. Both the mines are located within Armenia. The mines are estimated to contain between 18 tonnes and 25 tonnes of gold.
According to Mining Journal, Armenia is a country rich in mineral resources and home to more than 670 mines. The mining sector forms an integral part of the national economy with ore concentrates and metals comprising for half of the country’s exports.
As part of the due diligence process, Wardell Armstrong International, an international mining consultant, has been engaged to produce the reports of reserves, resources or exploration results and valuation reports on the two CGA mines.
The results are expected to be ready by September.
Management expects that the pilot production for the mines will commence within three months’ upon completion of the RTO with cash flow from the mines expected to begin rolling into the company’s coffers by year end.
Upon successful completion of the reverse takeover, APS will seek out new acquisition targets of gold and silver mines within Armenia and extending its reach into Central Asia and South East Asia.
Investment Merits
• Gold is well used for both commercial and financial reasons
• Stable worldwide demand with 1Q14 (1,074.5 tonnes) above the five-year average (1,060.5 tonnes)
• Strong financial backer (China Global Energy & Resources), technical expertise (Richmond) and environment (Armenia)
1Q14 Gold Demand Overview
Investment Risks
• Susceptible to fluctuating commodity prices
• CGA may not be able to find profitable future acquisitions
• Possibility of the RTO not succeeding
SI Research Takeaway
While the prospects of striking gold with an investment appeals to all investors, one must be cautious of potential missteps along the way. In the case of an RTO, a possible risk is a deal break.
CGA had previously sought to undergo an RTO with Albedo, another Singapore-listed entity, but the proposal did not materialise.
I would be weary of such a possibility reoccurring but may warm to the investment idea upon a successful RTO.
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