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This article first appeared in The Edge Malaysia Weekly, on December 26, 2016 - January 1, 2017.


OVER the past two years, both Blumont Global Ltd and LionGold Corp Ltdhave been on an acquisition spree. The two companies bought stakes in a number of resource-based companies, some privately owned but many of which are listed on the Australian Stock Exchange (ASX).

LionGold adopted its gold strategy in March last year, following a change in major shareholders in 2011. It was the first Main Board-listed gold company on the Singapore Exchange. 

Its first big push into the gold mining sector came in October 2011, when the company made a general offer for Australian-listed Signature Metals. This turned out to be one of its largest investments to date, totalling some S$66 million, including a loan facility of up to US$11 million extended to Signature in July last year. 

It currently has a 76.9% stake in Signature. Its other major investment was another Australian-listed gold miner, Castlemaine Goldfields, acquired in April last year. 

The company’s takeover offer for Castlemaine — costing S$84 million — was successful and the latter has since been delisted from ASX. Both the acquisitions were settled via the issuance of LionGold shares at 86.57 Singapore cents (for Signature) and S$1.0738 (for Castlemaine) apiece. 

LionGold followed up with a string of smaller purchases. Some of the listed entities include Citigold Corp, Acadian Mining Corp and Unity Mining while the unlisted companies include Brimstone Resources and Minera Nueva Vista. 

In all, LionGold has spent some S$208 million in acquiring these target companies. The two biggest deals — Signature and Castlemaine — were paid for with the issuance of new LionGold shares.


Misalignment between value of acquisitions and share price

One common observation about all the listed target companies was that LionGold bought into them after their share prices had fallen well below their highs. This mirrors the global decline in commodity prices since the super-cycle peaked in 2011.

Conversely, LionGold’s share price has been trending steadily upwards during this period — its market capitalisation rising from S$636 million at the start of 2012 to S$1.568 billion in end-August 2013. This implies a valuation gain of S$932 million — a magnified increase compared with the invested amount of about S$208 million. 

The acquisitions are not yet value accretive, at least not apparent to the man in the street. Of the three target companies that are still listed today — Signature, Citigold and Unity — their share prices have fallen further, below LionGold’s entry price (see tables).

LionGold reported a net loss of S$8.1 million in its latest financial year ended March 2013. Its operations generated negative cash flow for the year. The company’s net assets stood at S$276.3 million in end-FY2013. 

There appears a similar pattern in Blumont’s share price, which had climbed sharply since the start of this year. This was usually attributed to the positive sentiment generated by a string of acquisitions — starting with Hudson Minerals in December last year to the latest proposed takeover of Australian-listed Cokal Ltd. 

Blumont’s target companies are also resource-based, albeit more diversified in terms of output, which includes iron ore, coal, uranium, gold and copper.

Most of the investments represent small stakes in mining companies listed on ASX. Its investments to date totalled an estimated S$65 million, including the acquisition of Hudson Minerals, which is pending completion. 

The share prices of Blumont’s target companies (those that are listed) show a mixed bag of performances, half of them are currently higher while the other half have fallen below Blumont’s entry prices. 

Meanwhile, Blumont reported a net profit of S$8.69 million in 1H2013, thanks to S$11.3 million in fair value gains on its financial assets. Its revenue totalled just S$1.678 million for the first six months of this year. The company had net cash of S$1.371 million and net assets of S$110.9 million in end-June 2013.

Suffice to say, the overall value generated by its underlying assets does not justify the appreciation of Blumont’s own market capitalisation. 

Blumont’s market capitalisation surgedfrom a mere S$24 million in January 2012 to S$3.129 billion in end-August 2013. On Oct 3, its market capitalisation stood at S$5.218 billion. The market capitalisation gains were astounding and seldom seen even during market bull runs of the past.

As a comparison, the market capitalisation of Blumont and LionGold at the Oct 3 close were S$5.22 billion (RM13.1 billion) and S$1.42 billion (RM3.55 billion) respectively.Blumont’s market capitalisation was almost as big as that of profitable companies with strong cash flow like TV giant Astro Malaysia’s RM15.2 billion (S$6.1 billion) and SIA Engineering’s S$5.65 billion (RM14.1billion).

The share price patterns for Blumont and LionGold that drove both to such lofty levels beg an interesting question  — is there such a misalignment in terms of valuations between investors in the Australian and Singaporean exchanges? 

While capital markets and the dissemination of information may not be completely efficient, the vast disparity in valuations does suggest some other factors are at play, other than fundamentals of the companies. Perhaps there was some collective action to drive up the share prices? 


Email reply from Uri Landesman, president of Platinum Partners, to questions posed on its deal with Asiasons Capital and Black Elk Energy:

How did the deal with Asiasons and Black Elk come about? Who initiated the partnership and why was Asiasons chosen?

Landesman: We were introduced to Asiasons and were immediately taken with their impressive management team. Particularly Datuk Mohammed Azlan and Datuk Jared Lim Chih Li. We felt this was a team we could build a strong partnership with that would enable Black Elk Energy to grow and prosper.


Can you share more details on Black Elk and how was the valuation for Black Elk arrived at? 

Black Elk Energy has independent reserve reports from leading outside reserve evaluators that state a reserve base of US$1 billion in proven reserves and US$2 billlion in probable and possible reserves. We were selling a share of our Black Elk holdings to Asiasons at a discount because we believe that the partnership would eventually add value to our current holdings because of the more rapid growth that would be achievable with Asiasons’ participation.


Is there anything about the Asiasons-Black Elk deal that you would like to put on record? Is it still something that is being pursued or is Platinum talking to other parties following Asiason’s depressed share price?

We believe in the management team of Asiasons and would very much like to partner with them in the future. We feel that they have been unfairly dragged into the volatility of some of the other Singaporean stocks. We believe that investors will soon evaluate Asiasons on its core holdings and strengths, which would suggest a higher price for their shares. If this in fact transpires, we remain highly interested in concluding a transaction with them.


Do you know Soh Chee Wen, Patrick Lim Hong Koon, Datuk Wira Dani Daim, Lim Kuan Yew, Neo Kim Hock, Idris Abdullah Das Murthy and/or Tan Sri Lee Kim Yew? Are any of them invested in Platinum Partners?

We do not identify individual investors.


Has Platinum Partners Value Arbitrage Fund LP injected the US$50 million into Black Elk, as indicated in a capital program signed in March 2013?

We are strong financial sponsors of Black Elk and have both received and invested money at various times.



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