LionGold Corp Ltd - Where can we find these assets and cash?

5/2/2014 – The crash in the stock price of LionGold on October 4 2013, has had an impact on its financials.

While the authorities are investigating the matter, LionGold claims its business as usual, except for a big fair value loss on its investments in other companies with which it shares directors and shareholders.

It reported Q2 FY14 earnings on November 12:

Revenue: +52.2% to S$45.7 mln
Net Profit / (Loss): (S$48.7 mln) vs (S$1.5 mln)
Fair value gain/(loss) on financial assets: (S$49 mln) vs S$1 mln
Cash flow from operations: (S$0.4 mln) vs S$16.4 mln
Dividend: Nil
Order book: Not disclosed

While the Q2 earnings period ended on September 30, the Board of Directors of LionGold decided to value the financial assets as on November 8.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Where are S$5.6 mln worth of 'property, plant and equipment' on its books?

In its Q2 FY14 earnings (page 6), LionGold claims its 'property, plant and equipment' dropped to S$53.7 mln on September 30 compared to S$60.2 mln on March 31.

During the six months period, it made the following changes to 'property, plant and equipment': charged depreciation of S$4.9 mln, wrote-off assets worth S$59,000, bought new assets worth S$4.4 mln and sold assets for S$1.5 mln at a gain of S$1.1 mln (refer pages 8 & 9 of the Q2 earnings report).

So taking into account all of the above changes, the 'property, plant and equipment' of LionGold works out to be S$59.3 mln as on September 30.

That's S$5.6 mln more than the closing balance on September 30 as per the balance sheet of LionGold on page 6 of its Q2 earnings report.

Likewise, the numbers for 'mining properties' of the company don't add up for us.

Question

2. Where are S$700,000 worth of 'mining properties'?

According to the Q2 earnings report (page 6), LionGold had S$9.3 mln worth of 'mining properties' on March 31 which has now dropped to S$7.2 mln on September 30.

During the six months period, LionGold amortised S$6.8 mln and added S$5.4 mln to its 'mining properties' (refer pages 8 & 9 of the Q2 earnings report).

Accordingly, the balance of 'mining properties' on September 30 should have been S$7.9 mln.

That's S$0.7 mln more than closing balance as per Q2 balance sheet (page 6).

Question

3. Where did it record a S$12.6 mln 'exploration and evaluation expenditure'?

LionGold's 'exploration and evaluation expenditure' dropped to S$140.4 mln on September 30 from S$141.2 mln on March 31 (page 6 of Q2 earnings report).

But during the six months period, LionGold spent S$11.8 mln on 'exploration and evaluation expenditure' (page 9 of Q2 earnings report).

So in the absence of any impairment charge, LionGold's 'exploration and evaluation expenditure' should have been S$153 mln on September 30.

Now that's S$12.6 mln more than the closing balance on September 30 as per Q2 earnings report (page 6).

Question

4. Has LionGold's acceptance of shares, instead of cash, for assets sold backfired on minority shareholders?

LionGold Corp claims to have amassed its entire portfolio of 'financial assets' (current assets) by way of marketable securities it received in consideration for the disposals of its interests in Industrial Power Technology Pte Ltd, Think Greenergy Ltd and Think Environmental Ltd (page 15 of Q2 earnings report).

According to LionGold's 2013 annual report (page 107), it acquired S$31.6 mln worth of financial assets (current) during FY13.

All of these quoted securities came to it from Mr Wan Nizamuddin Bin Wan Sulaiman (who acquired LionGold's 21% stake in Think Environmental Ltd (TE) for S$8.6 mln, and 21% of Think Greenergy Ltd (TGE) for S$16 mln) and SGX-listed Annica Holdings Ltd (which bought LionGold's 60% stake in Industrial Power Technology Pte Ltd for S$10 mln).

Investor Central had first reported on both the above deals on April 3 and October 21.

As already highlighted in our October 21 story, LionGold and Mr Wan Sulaiman agreed the entire consideration would be paid in cash.

But as it turned out later, LionGold accepted a large part of the consideration in the form of a 3.44% stake in SGX-listed Innopac Holdings Ltd.

Innopac Holdings Ltd's stock price subsequently crashed from 26 cents to 3 cents.

LionGold's conduct in the case of disposal of a 60% stake in Industrial Power Technology Pte Ltd to SGX-listed Annica Holdings Ltd wasn't very different than that with Mr Sulaiman.

While it was agreed that Annica Holdings Ltd would pay S$10 mln consideration in cash, LionGold later accepted S$10 mln worth of quoted securities instead.

Apparently, these quoted securities were shares in other listed companies in the network.

Interestingly, in an SGX filing on December 28, 2012, Annica Holdings Ltd claimed the entire S$10 mln consideration was paid in cash to LionGold.

In another announcement on the same day, Annica Holdings Ltd claimed to have paid the entire cash proceeds of S$4 mln it raised from a placement issue to LionGold.

However, in its 2012 annual report (page 58), Annica Holdings Ltd claims to have paid just S$7.5 mln 'non-cash consideration' for acquiring the 60% stake in Industrial Power Technology Pte Ltd.

So many contradictions in an apparently simple deal make us curious.

But whatever happened, the shareholders of LionGold are the ones at the losing end.

First, LionGold never received the cash for the assets it sold.

And now LionGold seems to have lost most of the money after its 'financial assets', which it received in lieu of cash, crashed on October 4.

Question

5. Where is the S$2.5 mln cash from the sale of 38 Kallang Place?

Annica Holdings Ltd had also agreed to acquire from LionGold a property at 38 Kallang Place in Singapore, for S$2.5 mln in cash.

As the sale was not completed in FY13, LionGold classified the property as 'assets held for sale' in its balance sheet on March 31, 2013 (pages 64 & 115 of the 2013 annual report).

The sale was finally completed on July 15.

But to our surprise, LionGold didn't record any cash inflow from disposal of 'assets held for sale' in its H1 FY14 cash flow statement, even as the asset no longer appears on the balance sheet on September 30 (pages 6 & 9 of Q2 earnings report).

Moreover, LionGold didn't record any gain on disposal of 'assets held for sale', even though the property was to be sold for S$2.5 mln against the book value of S$1.4 mln.

So, why did it not record a S$1.1 mln gain on disposal of 'assets held for sale' during H1 FY14?

Did LionGold agree to sell the property at book value, instead of the earlier agreed price of S$2.5 mln?

Or, did it forget to account for the gain in its income statement and cash flow statement for H1 FY14?

Question

6. Why did it repay S$4 mln long-term loan within a quarter of borrowing it?

According to page 7 & 9 of LionGold's Q1 earnings report, it borrowed S$4 mln in non-current loans during the first quarter of FY14.

However, according to its Q2 earnings report (pages 7 & 9), LionGold repaid S$7.2 mln worth of loans during Q2, including S$6.7 mln non-current loans.

The S$6.7 mln non-current loans repaid during Q2 included S$4 mln loan LionGold borrowed in Q1.

Therefore that makes us wonder why LionGold repaid long-term loans especially as the S$4 mln loan was only taken out a couple of months earlier.

Who was the lender of the S$4 mln loan?

Question

7. Where is the S$2 mln in cash from the sale of escrow shares?

According to the Q2 earnings report (page 9), LionGold received S$2.2 mln cash proceeds from sale of escrow shares.

The escrow shares relate to LionGold's acquisition of Vista Gold Antigua Corp from ASX-listed Republic Gold Ltd.

In essence, Republic Gold transferred 25% of LionGold's newly-issued shares to an Escrow Agent for 36 months.

Investor Central first reported on the deal on October 16.

In an announcement on June 14, 2013, Republic Gold informed its shareholders that it had ordered the Escrow Agent to sell 2 mln shares of LionGold.

But surprisingly, Republic Gold said it did so on the instructions of LionGold.

To settle the acquisition of Vista Gold Antigua Corp, Republic Gold paid the entire sale proceeds of those 2 mln shares to LionGold.

Unfortunately, we can't find an announcement where LionGold disclosed this development to its shareholders.

In essence, LionGold issued 2 mln new shares to Republic Gold, locked them in an escrow account, and sold them in the market to earn cash.

Now, companies issue new shares for cash all the time, but this route is a little more circuitous than usual.

Maybe LionGold would argue that it had expenses, for which the 2 mln share proceeds were used.

But then, what's even more curious is that LionGold's Q1 earnings report (ending June 30, 2013) didn't highlight such cash flow from Republic Gold.

Therefore that makes us wonder if the shares were not sold before June 30.

But now that LionGold's H1 FY14 cash flow statement records the cash inflow from the sale of escrow shares, it seems the shares were sold after June 30 – more than two weeks after Republic Gold announced it had done so.

The Q2 earnings report doesn't highlight where in the income statement or the balance sheet LionGold recorded the sale of escrow shares.

We are scratching our heads to figure it out.

(Total number of questions in the full story: 32)

We have sent these questions to the company (IR@liongoldcorp.com), Joseph Jett ( jettcapital@gmail.com),, Ms Ng Su Ling (lynne@dhklaw.com.sg) and Ms Quah Su Ling (corp@ipco.com.sg) to invite them for an on-camera interview, and/or seek their written response.

The email to Ms Quah Su Ling, at corp@ipco.com.sg, bounced back.

Sofar, we have not had a reply from the others (which is why you are seeing this message).

While our purpose is to ask the questions which the man on the street would ask, and to help the everyday investor make informed investments, please note that:

Our articles and presentations ('our contents') are not investment advice nor should they be construed as investment advice or any recommendation of any kind; nor meant to cast allegations or insinuations of any kind against any individuals or entities. Before acting on the material in our contents, you should either seek independent advice tailored to your particular circumstances and intentions or rely on your own judgement.

Our articles and presentations express our observations, opinions and theoretical analysis based on the facts that we have gathered or have been provided to us. While we endeavour to ensure that our contents are accurate and are presented in good faith, we cannot and do not warrant the accuracy, adequacy or completeness of the material or that the material is suitable for its intended use; and we disclaim any such warranties express or implied that may be presumed by any party; neither do we take responsibility for the views of companies or other stakeholders or observers or sources quoted or hyperlinked in our contents. While every precaution has been taken in the preparation of our contents, we (and our principals) shall not be liable for any losses or damage or inconveniences due allegedly to errors or omissions in any facts or due allegedly to reliance on our contents in any way whatsoever; nor for any damage to any computer hardware, date information or materials allegedly caused by our contents.

All expressions of opinion and observations in our contents are subject to change without notice and we do not undertake a duty to update and supplement our contents or the information contained herein in the event we obtain any further or more complete information.

©2014 Investor Central® - a service of Hong Bao Media