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Malaysian gold strike

Publication Date : 03-09-2012


Recently, an article in the Sydney Morning Herald highlighted the maverick moves of a US-based fund manager, Andres Weiss, of making a killing by merely following the aggressive acquisitions of gold mining companies by one Singapore Exchange (SGX) listed company called LionGold Corp Ltd.

Since last October, Weiss Asset Management has bought into LionGold takeover targets Signature Metals Ltd and Castlemaine Gold Ltd, both listed on the Australian stock exchange (ASX) in classic arbitrage plays, the paper reported.

(Arbitrage plays refer to situations where investors take positions in target companies in takeovers, betting that the announced deal will come to fruition, thereby gaining from the small premium of the takeover price versus the market price.)

What made that article even more interesting is that LionGold was described as a Malaysian-backed company.

Checks with LionGold revealed that its executive chairman and group Chief Executive Officer is Nik Ibrahim Kamil, who is famed for his tenure at the helm of KFC Holdings Bhd for a period of around two years from 2006 and also as the former managing director of the NSTP group.

The other Malaysian element of LionGold is that its single largest shareholder, with a 10 per cent stake, is SGX-listed Asiasons Capital Group Ltd, a private equity fund founded by Malaysians Jared Lim, Mohammed Azlan Hashim and chartered accountant Ng Teck Wah back in 2007.

LionGold's growth story is an impressive one. It now boasts a market capitalisation of around $1 billion (US$800 million) and is touted by some as being among the fastest growing gold mining companies in the world.

It has also attracted the likes of Nomura Holdings Inc, Macquarie Bank Ltd and the Market Vectors Junior Gold Miners Exchange Trade Fund (ETF) to emerge as substantial shareholders. (The ETF belongs to New York-based asset manager Van Eck Global which had launched the ETF in 2009 aimed at giving investors there exposure to small and mid-cap gold mining companies.)

Through its aggressive M&A strategy, LionGold now has control over three producing gold mines and a few more mines that are close to the production stage.

In an interview with StarBiz, Nik Ibrahim said that LionGold “is touching production figures of nearly 6,000 ounces (of gold) per month, and growing.”

He added: “We control directly or indirectly nearly 15 million ounces of JORC compliant gold resources.”

(JORC is the established code for the reporting of exploration results, prepared by the Joint Ore Reserves Committee or JORC of Australia.)

LionGold's modus operandi, it seems, it to take advantage of cash-strapped, small and mid-sized listed gold miners, that are trading at a fraction of their true value, in markets such as ASX.

“We saw this aberration in the market. While the price of gold was high, the equity prices of a number of gold mining companies were falling,” he said, adding that LionGold then did a close study of such companies, many of which had spent millions in exploration and drilling and which already had proven JORC compliant resources and reserves.

But due to the fall out from the Lehman's crisis and the subsequent bearish markets in the Western world, these companies ended up cash-strapped as investors shunned them and ended up trading at a fraction of their net worth.

Asiasons' Lim added: “We positioned LionGold in a once-in-a-lifetime opportunity. Asiasons steered LionGold into an “aggregator” and “accelerator” model and leveraged on our corporate finance expertise to identify undervalued mines, with significant potential, to acquire. We have financial strength to provide the necessary capital to the mines, an attractive and liquid platform to be able to attract shareholders to swap shares with LionGold and the operational acumen to be able to accelerate the production of the acquired mines.”

LionGold's modus operandi in many of its recent M&As has been to acquire a placement of new shares from the target company, thereby ensuring a fresh injection of capital into these companies.

After being satisfied with the value of these companies, LionGold would then proceed to make an offer to buy out the rest of the shareholders in the target company, paying them mostly in LionGold shares.

“Our pitch was that we are a “consolidater” of junior miners and we have a plant to inject capital, new management and technologies into the target companies. Just as important, is the fact that the SGX-listed LionGold is highly liquid stock and its share price has been appreciating. The ASX-listed targets though, were just the opposite. So the appeal to investors (of target companies) is immense,” said Nik Ibrahim.

This model had been used to acquire 76 per cent in Signature Metals (which in turn owns a 70 per cent interest in the Konogo Gold project in Ghana) and 98 per cent of Castlemaine (that owns the state-of-the-art Ballarat Mine in Central Victoria, Australia).

LionGold has also taken a 10 per cent stake in ASX-listed Citigold Corp, that has 11 million ounces of JORC compliant gold resources and its mine in Queensland, Australia, is touted as Australia's “highest grade gold field”.

Through other M&As involving ASX-listed entities, LionGold has secured control over gold mines in Tasmania and Bolivia and recently started the process to acquire 60 per cent of the Papua New Guinea operations of another ASX-listed gold miner.

No wonder then that LionGold has been getting more media attention in Australia than Malaysia or even Singapore. The Aussies and fund managers like Weiss are likely to be watching LionGold even closer now.

Nik Ibrahim said LionGold was still in its acquisitive phase. “But the time will come soon when LionGold's M&As will slow down in order to focus on rationalising the assets we've already consumed,” he said.


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