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Investor CentralLionGold Corp Ltd - Where did LionGold's S$6 mln investment in Mornington Offshore end up?
2/10/2013 – When LionGold Chief Operating Officer Matthew Gill speaks at the Sydney Mining Club this morning (October 3, 2013), he will likely be touting the company's position as Southeast Asia's largest gold mining company.
He will probably reflect on the seven gold mining interests the company has acquired since March last year, of which two are in production.
And he might even say a few words about the pending acquisition of Canada's Acadian Mining from Joseph Gutnick-controlled interests, and whether shareholders’ approval is required (see our earlier report).
But members of the audience might also like to quiz him about the millions of dollars written off on the first gold mine the company bought back in 2011, before he was appointed in September 2012.
LionGold (then known as The Think Environmental Co Ltd) bought a 70% stake in Mornington Offshore Inc (MOI) on February 22, 2011.
MOI was a company incorporated in the British Virgin Islands and the owner of Emas Mali S.A., a company incorporated in the Republic of Mali.
It held two mining exploration licences over the areas of Dougoufin and Kolassokoro in Mali.
MOI itself was a wholly-owned subsidiary of Avalon Ventures Corporation, a company incorporated in the Marshall Islands.
LionGold bought a 70% stake in MOI from Avalon, with Avalon retaining the rest (refer page 1 of February 22 announcement).
However, LionGold didn't identify who was the real beneficiary of Avalon Ventures Corporation. This might be important, as we'll discuss later.
To pay for that 70% stake in MOI, LionGold agreed to a US$30 mln cash payment to Avalon over the period of exploration at the mines (refer page 4 of February 22 announcement).
It also issued US$5 mln worth of 9,481,857 new shares to Avalon (refer page 2 of February 22 announcement) to reimburse the expenses incurred in obtaining two Mining Licenses in Mali (refer page 3 of February 22 announcement).
But just over a year later, in the financial year ended March 31, 2012, LionGold wrote off its S$6,063,000 goodwill recognised on its investment in MOI.
According to page 71 of LionGold's 2013 annual report, it recognised S$6,063,000 goodwill out of S$7,965,000 it paid to acquire a 70% stake in MOI.
Other than the goodwill, during FY2012, LionGold had written-off S$1,973,000 start-up cost incurred by MOI (refer page 2 of the announcement).
That works out to be an impairment of S$8,036,000, slightly more than LionGold’s original investment of S$7,965,000 for that 70% stake in MOI.
In other words, it wouldn’t be wrong to say that LionGold had impaired all of its investment in MOI.
The announcement termed it 'impairment', but it had the same practical effect as writing it off.
To date, it does not appear to have written that value back.
Whether impaired or written off, LionGold gave this reason:
"In the Circular dated 14 Feb'12, the Company mentioned that it would prioritize its resources in Ghana where it will be able to achieve gold production within a shorter time frame. In addition, there is current civil unrest in Mali where EMSA and its subsidiary EMAS Keikoro S.A ("EKSA") have gold mining interests. Due to the foregoing events, the Company does not expect meaningful progress in Mali and the Company has decided to impair its investment in MOI".
"…prioritize its resources in Ghana…"?
But immediately the next point in the same announcement said it was writing off its S$5,755,000 investments there.
LionGold marked S$5,755,000 "impairment on available for sale financial asset and other receivable" (see page 2 of the announcement).
But as you can see on page 73 of LionGold's 2012 annual report, LionGold actually wrote-off 100% of its investment in Ghana (held through ASWA).
It still called it 'impairment', but wrote that this investment and related receivables "are deemed to be not recoverable".
LionGold had bought a 51% stake in African Stellar West Africa Ltd (ASWA) in 2011, which had mining concession in Ghana (refer page 2 of the announcement).
So, in short, LionGold's US$5 mln investment in MOI was written off within a year to focus on Ghana, which itself was being written off.
LionGold still owns 76.86% of ASX-listed Signature Metals, which in turn owns 70% of Owere Mines in Ghana. It bought this stake a month after impairing ASWA.
And the vendor?
Well, Avalon made huge gains in cash and shares, by selling what turned out to be a dud investment to LionGold at very expensive valuations.
Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.
1. Why did it buy a 70% stake in MOI at such expensive valuations?
LionGold bought a 70% stake in MOI from Avalon at a very high a price.
This is evident from the SGD$6,063,000 goodwill recognised on the acquisition.
That's about one-seventh of the total purchase price, and 98% of the USD$5 mln investment which it made in MOI.
Moreover, we couldn't find any reference to an independent valuation.
Therefore that makes us wonder the basis on which LionGold agreed to such expensive valuations.
That also raises another pertinent question:
2. Who is the ultimate beneficiary of Avalon Ventures Corporation?
Although we couldn't find any disclosures by LionGold, ASX-listed White Rock Minerals Ltd said in an announcement on January 15, 2013 that Avalon Ventures Corporation had emerged as a substantial shareholder of the company.
And signing on behalf of Avalon Ventures Corporation was Malaysian businessman Gary Tan Boon Kiat.
On February 6, 2013, in a circular to its shareholders, White Rock Minerals Ltd described Avalon Ventures Corporation as follows:
"The shareholders of Avalon are Tan Boon Kiat, who owns 90% of Avalon, and is the sole director of the company, and Ismail Cisse who owns 10% of Avalon. Mr Tan is a Malaysian citizen, who currently runs a company called Citral (M) Sdn Bhd in Kuala Lumpur. Mr Cisse is a former advisor to the President of Mali in relation to Malaysian investments and is the current director general of Emas Mali S.A, a gold exploration company incorporated in Republic of Mali".
The following Handshakes' map reveals Tan Boon Kiat's relation to other SGX-listed companies:
Gary Tan Boon Kiat was one of the Innopac shareholders who bought 22 mln shares (a 12.51% stake) in Merlin Diamonds on March 8, 2013, two weeks before an announcement on March 21, 2013 of the takeover of Merlin by Innopac.
He is the owner of Citral (M) Sdn Bhd, but according to the Handshakes' database, Lim Kuan Yew and Dato' Idrins Bin Abdullah@ Das Murthy were also Directors in the past.
Both these individuals hold shares and/or Directorship in other companies in the network.
The following Handshakes' map reveals Lim Kuan Yew's relation to other companies in the network:
And the following map reveals Dato’ Idris Bin Abdullah@Das Murthy’s relation to the network companies:
What is the relevance to LionGold?
Well, according to a report in The Edge Singapore on June 6, 2011:
"The majority stake in Mornington Offshore purchased by Think Environmental [now LionGold, ed.] was held by Malaysian Businessman Tan Boon Keat, who obtained the mining concessions in Mali via a friend, Ismail Baba Cisse. Tan, who had taken up shares in Think Environmental during one of its previous placements, then broached the idea of injecting Mornington Offshore into the listed company through Think Environmental's Executive Director Wong Choy Yin, whom he knows."
Reporter Leu Siew Ying also made this remarkable comment when she wrote:
"Peter Chen, Chief Operating Officer at The Think Environmental Co, seems an unlikely proponent for cutting-edge mining techniques. Dressed in a long-sleeved white shirt and grey tie, with an almost flawless complexion, he appears to have spent more time in air-conditioned offices than the numerous mining sites around the world that he claims to be constantly visiting."
The report also says: "Peter Chen was instrumental in convincing the board of Think Environmental in December [2010] to move away from its core business of converting waste to energy and pay US$35 million for a 70% stake in Mornington Offshore, a company that claims to own potentially lucrative gold-mining assets in the African nation of Mali".
"Chen had been hired by Mornington Offshore to conduct due diligence on its gold-mining prospects", adds the report.
A common path search into Handshakes' database shows there was a chance that Chen and Tan knew each other:
Peter Chen Hing Woon and Tan Boon Kiat were substantial shareholders of ITE Electric Company Ltd in 2008.
Tan Boon Kiat has been a shareholder of Blumont Group Ltd since 2007.
On December 21, 2012, Peter Chen sold Hudson Minerals Holdings Pte Ltd to Blumont Group Ltd.
Peter Chen has also been a shareholder of Blumont Group since 2011, and is a Director of Dimensi Cita Sdn Bhd.
It was Dimensi Cita Sdn Bhd which sold Enigma Venture to Innopac Holdings Ltd in 2011.
Later, CNA Venture proved to be just another bad acquisition which had to be written-off (refer to Investor Central's earlier story).
Tan Boon Kiat has been a shareholder of Innopac Holdings Ltd since 2010.
Also, both, Peter Chen and Tan Boon Kiat are jointly interested in Innopac via Blumont's acquisition of Innopac's shares in early 2012.
So all up, it appears as though Chen and Tan knew each other when Tan sold 70% of MOI to the company of which Chen was Chief Operating Officer.
(Total:5 questions)
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