Proposed RTO unlikely to be silver bullet for Dragon Group

Could Armenian miner Coeur Gold Armenia get lucky on its third attempt to list on the Singapore Exchange through a reverse takeover?

Shareholders of struggling electronics engineering firm Dragon Group International will certainly hope so. But even if the reverse takeover deal works out, it is not clear if such a business will gain favour with investors here, especially with the scant information provided on Coeur Gold now.

Mainboard-listed Dragon Group announced on Oct 19 that it is acquiring Coeur Gold for S$500 million in shares and cash, in a reverse takeover. It has entered into a non-binding term sheet with businessman George Howard Richmond for the entire issued and paid-up share capital of Coeur Gold Armenia.

The announcement didn't provide more details on Coeur Gold beyond this: that it holds controlling interests in Vayk Gold LLC (VGL) and Vardani Zartong Ltd (VZL), which possess exploration rights to mine for gold, silver, antimony and copper in the Azatek and Sofi Bina Mineral Deposits.

The same company had, however, previously attempted takeover deals with Catalist-listed Albedo and Asia Pacific Strategic Investments (AP Strategic) in 2013 and 2014 respectively.

Albedo ditched the plan only two months after entering into a memorandum of understanding to buy Coeur Gold.

AP Strategic extended the long stop date twice before it aborted the plan nearly two years later. The firm said in October 2015 that the conditions precedent had not been fulfilled or waived, and that the company no longer wished to acquire the target company.

The earlier announcements by AP Strategic, however, help shed more light on Coeur Gold's operations. According to these, the exploration rights that it holds started in Nov 2012; VGL's licence lasts for 25 years, while VZL's is valid for 16 years.

No further detail is known about the stage of exploration or development in the two exploration areas; the lack of production also meant that the group was loss-making when AP Strategic was considering to acquire it.

Little-known sector

Still, Mr Richmond was said to have built and run two of the largest gold mining operations in Armenia and Georgia, and held senior managerial and ownership positions in projects in countries such as Armenia, Russia, Australia and Turkey.

If plans previously announced by AP Strategic are any indication, the new Dragon Group will, after the reverse takeover, most likely be used to acquire more gold and silver mines in Armenia.

Even if the deal goes through, however, little is known in the investment community here about Armenia's mining sector; Dragon Group will undoubtedly have an uphill task in educating investors.

Dragon Group's shares spiked to a 19-month high of 4.7 Singapore cents after the announcement, though it has slipped a little since then.

Even before that, the stock had rocketed in early August, after its principal subsidiary Eocell Ltd attracted a strategic partner, Zhuhai Yinlong Energy, to invest US$20 million in it through a share subscription.

The 940,000 new shares Zhuhai Yinlong Energy - which sells next-generation lithium ion batteries and related materials for cell phones and electric vehicles - will subscribe for would represent about 40 per cent of the enlarged share capital of Eocell. Dragon Group's 93 per cent stake in Eocell will be diluted to 40 per cent.

Clearly, Dragon Group needs a new business driver.

For the first half of the year, it narrowed its losses from US$1.76 million a year ago to US$1.43 million. Revenue plunged 72 per cent to US$749,000 due to decreased sales in the electronics distribution business. The financially beleaguered group, which has been in the red since 2012, was placed on the exchange's financial entry criteria watch list on March 4, 2015. It has been granted an extension till March 3, 2018 to meet the requirements for exiting the list, or face delisting. It is also on the exchange watch list for failing to meet the revised minimum trading price rule.

The odds of success are, however, stacked against Coeur Gold being that silver bullet for Dragon Group. The little that investors know about the mining business so far leaves much to be desired - it has not shown any track record, nor has it revealed anything about its reserves and resources.

Even if the third time proves to be lucky for Coeur Gold, winning investors over might be another story altogether.

Andrea Soh

25 October 2017