Hong Kong Stock Exchange

G-Resources’gold mine sale plan draws fire from minority shareholders

G-Resources Group’s board is a facing revolt from minority shareholders over plans to sell a performing asset

PUBLISHED : Friday, 11 December, 2015, 6:54pm
UPDATED : Friday, 11 December, 2015, 6:57pm

G-Resources Group’s board has come under fire from minority shareholders for its agreement last month to sell its profitable Indonesian gold mining business to a consortium led by a fund partly owned by its vice chairman.

Emotions were further stirred by the decision to allocate the proceeds to invest in property and financial businesses instead of paying a special dividend or initiating a share buy-back.

But the company’s fragmented shareholding means the sale may go through unless a large number of minority shareholders band together to vote against it, or if a substantial investor raises its stake enough to counter a potential “yes” vote from CST Mining Group, the largest single shareholder in G-Resources Group.

However, any attempt to block the asset sale will come up against the disproportionate influence in the vote wielded by G-Resources chairman Chiu Tao.

Chiu has both a stake in G-Resources, where he controls a 1.19 per cent stake, and CST Mining, where he has a 10 per cent stake. CST Mining is the single largest shareholder in G-Resources.

The proposed mine stake sale could mean minority shareholders who bought G-Resources shares solely for its mining business will either have to sell their shares at its currently depressed value, or end up stuck with the firm’s investments in property and financial businesses.

“The board has little track record and offered few details of its plans for the new businesses and it does not want to pay a special dividend or buy back shares after the mine’s stake sale,” Singapore-based shareholder Thomas Tye told the Post.

“I am worried the sales proceeds will be invested in low-yielding and risky assets ... if I wanted to invest in finance and property I would have done so in more reputable names with a better proven record,” Tye said.

Tye owns around 20 million G-Resources shares, which he bought at an average price of about 26 Hong Kong cents. He is sitting on a paper loss of 38 per cent.

G-Resources early last month signed an agreement to sell its 95 per cent stake in the Martabe gold mine in western Sumatra which began production mid-2012, three years after it was acquired from debt-troubled OZ Minerals of Australia via a competitive sale process with more than one bidder.

The mine made an operating profit of US$55.5 million in the first half of 2015, according to G-Resources’ interim report.

The proposed selling price of US$775 million compares to a net asset value of US$725.8 million, according to G-Resources.

It will be sold to firms owned 61.4 per cent by Australian private-equity group EMR Capital, 20.6 per cent by US-based private-equity manager Farallon, 11 per cent by Indonesian businessman Martua Sitorus and 7 per cent by Indonesian billionaire Robert Hartono and his family.

EMR is chaired by G-Resources deputy chairman Owen Hegarty, who is a “less than 30 per cent shareholder of EMR,” according to G-Resources.

The company said it plans to use the proceeds to invest in “financial products and other security investments.” These include money lending and securities dealing business, and real estate.

The mining business accounted for 99 per cent of G-Resources revenue and 89 per cent of its operating profit for the year’s first six months. Money lending and financial investments made up the rest.

“The company has taken three years to develop the mine and it has started to show results,” said Philip Koh, who own more than 1 million G-Resources shares, purchased at an average cost of around 35 Hong Kong cents. “We have waited for so long to see the mine in operation and suddenly it [will be] gone.”

“This is clearly an interested party transaction. I don’t understand what the board is doing. It is definitely a sad day for minority shareholders.”

G-Resources and Hegarty have not responded to queries by the Post.

The firm earlier said Hegarty is not involved in “any part of the EMR investment decision making or the G-Resources divestment decision making,” adding that he will not be entitled to any payment from the buyer or seller in connection with the asset sale.

He therefore should not considered a connected party in the transaction, which means there is no need for the appointment of an independent financial adviser to advise independent G-Resource shareholders on the sale’s merit, an investment banker and a corporate lawyer told the Post.

G-Resources raised HK$1.18 billion from a rights issue in 2013 to bolster its working capital. In the past few months, G-Resources spent HK$135 million on a money lender that aims to expand into securities dealing, asset management and margin financing, and bought three office units and 10 car parks in Wan Chai for HK$780 million.

G-Resources shares closed Friday at 16 Hong Kong cents, down 48 per cent from this year’s closing high of 31 cents on June 2. The shares traded as high as HK$1.59 in June 2009, a month after the mine’s acquisition was announced.

G-Resources market capitalisation of HK$4.22 billion (US$540 million) is less than the US$775 million proceeds from the mine’s stake sale, and much less than its net asset value of US$1.22 billion.

Tye said it is likely institutional gold funds will have to sell their G-Resources shares if the sale goes through, as they have mandates to only invest in gold stocks.

BlackRock owns around 8.1 per cent of G-Resources, compared to about 7 per cent by the Market Vectors Gold Miners ETF (exchange-traded fund) run by investment firm Van Eck Associates.

The Market Vectors ETF has cut its holding in G-Resources from 1.86 billion shares in late September to 1.75 billion shares as of December 9, which made up 0.8 per cent of the fund.

BlackRock declined to comment on the matter. Van Eck has not responded to the Post’s emailed queries.

Tom Chau, partner and head of international law firm Herbert Smith Freehills’ Beijing office, said besides casting their votes against a “very substantial disposal” that they consider to be unfair, minority shareholders of a listed company can also seek to challenge its board of directors through civil litigation for failing to fulfil their directors’ fiduciary duties to act in the best interest of the company’s shareholders.

They could also express their views to regulators at the Hong Kong’s stock exchange, he added.

If persuaded, the exchange’s regulators could request that more information be disclosed before approving the shareholders’ circular to be issued by the listed firm on the deal, ahead of the shareholders’ vote, he added.

However, as Hong Kong does not allow class action lawsuits, it would be a financial burden for individual investors to litigate a civil case against the listed firms’ directors, Chau said.

G-Resources shareholder Tye said that he has written to the Hong Kong Exchanges & Clearing to voice his concerns. The exchange has replied that it will consider “appropriate action”once it concludes the case.

A shareholders circular is expected to be issued by January 29 on the mine stake sale. A date for the shareholder vote is still pending.