Let’s raise equity and buy an island


Shares of G-Resources (1051 HK Equity) dropped sharply in morning trading, plunging to HK$0.198 per share as of 11:44am, a 10% dip from the HK$0.220 open:


This morning’s dip, in addition to pre-market and yesterday’s after-hours trading, into negative territory was expected as the market exchange reflects the prevailing price of the latest matching between bid vs. ask:


And as you can see from the volume of trading (graph below), the process of changing shareholder ownership of G-Resources has begun:


Transfer of shareholding ownership is not difficult but will become increasingly difficult so long as the Securities and Futures Commission get their way in establishing a Dragnet Device.

The backdoor listing of Enhanced Financial Services, from G-Resources has passed the resolution phase. G-Resources held a Special General Meeting yesterday and the resolution was passed with 59% of shareholders voting in favour.

According to the 18 February 2016 announcement, G-Resources still holds HK$135 million in convertible bonds issued by Enhanced Financial Services. Upon conversion, G-Resources will hold 75 per cent of shares in Enhanced Financial Services and as such, the principle business of G-Resources, currently managed by mining executives, will be in financial services.

Note that the HKEX has special listing rules for Mineral Companies, specifically relevant to the company’s management:

18.21 A Competent Person must: –

(1) have a minimum of five years experience relevant to they style of mineralization and type of deposit under consideration or to the type of Petroleum exploration, reverse estimate (as appropriate), and to the activity which the Mineral Company is undertaking;

(2) be professionally qualified, and be a member in good standing of a relevant Recognised Professional Organisation, in a jurisdiction where, in the Exchange’s opinion, the statutory securities regulator has satisfactory arrangements (either by way of the IOSCO Multilateral MOU or other bi-lateral agreement acceptable to the Exchange) with the Commission for mutual assistance and exchange of information for enforcing and securing compliance with the laws and regulations of that jurisdiction and Hong Kong; and

(3) take overall responsibility for the Competent Person’s Report.

BlackRock, the asset management company who stands a cut above the rest in AUM, now stands a cut outside the rest as their holdings will be minoritized as subscriptions and further dilution is almost guaranteed if they do not keep up. Obviously run by a bunch of geeks, BlackRock investment strategist need to recall the good old days when they were stuck as ‘piggy in the middle’.

BlackRock has not just failed to block the sale of G-Resources Martabe Mine, an asset which contributes 99% of company revenue, but the firm’s head of corporate governance, Pru Bennett, who launched the firm’s first criticism of one of their investment holdings, has failed to inform the investing public of the connected party to G-Resources (HK:1051): CST Mining (HK:985).

CST Mining holds a 16.68% (16.63% according to Bloomberg) stake in G-Resources, a stake held through Skytop Technology Limited. CST Mining is the largest shareholder in G-Resources, yet the only shareholders who were required to abstain from voting in the SGM were Mr. Hegarty (Vice-Chairman and Chairman of EMR Capital – the group purchasing the Martabe Mine) and Farallon, who collectively own 1.32% of G-Resources.

G-Resources Shareholding
sg2016030914937.gifCST Mining Shareholdingsg2016030915219.gif

Mr. Chiu Tao, who has returned from bankruptcy proceedings and been censured by the HKEx, is not only the Chairman and CEO of G-Resources but also the Chairman of CST Mining. Hello… anyone out there? It seems those in the corporate finance and enforcement division of the SFC are sitting in their expensive publicly funded offices eating donuts and watching cat videos.

The sale, a very substantial disposal under HKEx rules, now waits on Part 6 Conditions Precedent as set out in the 18 February 2016 announcement:

Completion is conditional upon:

  1. the Buyer or SubCo obtaining the FIRB Approval in relation to the acquisition of the Company Shares (such FIRB Approval having been obtained by the Buyer on 3 December 2015);
  2. the Shareholders approving, at a duly convened general meeting, the Transaction and the entry into and performance of each of the Transaction Documents;
  3. no insolvency event having occurred to and no breaches of any obligations under the Transaction Documents by G-Resources or any of its subsidiaries;
  4. no temporary restraining order, preliminary or permanent injunction or other order which is sought to prevent, challenge or materially delay the acquisition by SubCo of the Company Shares and by the Buyer of FinCo Shares is made or issued by a court of competent jurisdiction in the BVI, Singapore, Hong Kong, Indonesia or Australia in a proceeding or action brought by a Regulatory Authority; and no temporary restraining order, preliminary or permanent injunction, order, request or communication having the same effect or purpose is made or issued by a Regulatory Authority; and
  5. no Material Adverse Change having occurred between 31 December 2014 and the Completion Date.

BlackRock has rightly pointed out the lack of competency G-Resources management, who compromise of mining executives, hold in establishing a move into financial services. These activities, which are regulated by the Securities and Futures Commission, require competent persons to be licensed and registered with the SFC.

Currently, G-Resources has indirect access to the following financial operations: Money Lending (regulated under Money Lenders Ordinance), SFC Type 1 (dealing in securities), SFC Type 6 (advising on Corporate Finance), and SFC Type 9 (asset management), all through Enhanced Financial Services.

For those unfamiliar, the SFC regulates market activities and has a Licensing Booklet for Representatives and Responsible Officers of the firm for which they must adhere to in order for the company to continue conducting SFC regulated activities.

According to their current strategy, G-Resources intends to allocate US$400 million (HK$3.1 billion) from the proceeds following a completed disposal of the Martabe Mine. This cash injection into Enhanced Financial Services will assist them in further applying for licenses covering SFC Type 2 (dealing in futures contracts), Type 4 (advising on securities) and Type 5 (advising on futures contracts).

As I said, keep an eye on these guys.

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