ISR Capital gets approval for acquisition of mining asset

ISR CAPITAL’S long-drawn-out proposed acquisition of a rare-earth mining asset - in the works since June two years ago - is finally making progress, with shareholder approval on Tuesday.

At an extraordinary general meeting, 100 per cent of over 760 million shareholder votes were cast in favour of the acquisition of a 60 per cent stake in Tantalum Holding (Mauritius) (THM), which fully owns Tantalum Rare Earth Malagasy SARLU (TREM). The latter has an exploration licence for a rare-earth mining concession in Madagascar.

ISR is acquiring the stake from REO Magnetic, a Singapore-registered private company, by issuing 747 million new shares, assigning a value of 0.4 Singapore cents to each of those shares for a deal valuation of S$3 million. But clarity is still wanting in various aspects, from the benefits of the deal to the direction of the company.

On when the company would start turning a profit, executive chairman Chen Tong predicted three years. This is based first on TREM’s exploration licence being renewed by the Madagascar government. The licence would be valid for three years, during which they would take necessary steps towards applying for a full mining licence. With the full mining licence, the firm would be able to start production immediately.

The renewal application was sent in December 2016 but the licence has not been renewed since. Mr Chen said they have not received any objections from the government so far. He also agreed that it is not confirmed as to whether the full mining licence would ultimately be granted to them.

If the exploration licence is not renewed, “we will consider (backup plans) but that will be the next steps”, said Mr Chen. “Now, we are still highly focused on making this transaction happen.”

The deal will also give REO controlling interest in ISR - the new shares represent 19 per cent of ISR’s enlarged share capital as at Oct 4. Currently, ISR’s single largest shareholder is Value Capital Asset Management with a 13.5 per cent stake. Mr Chen comes in second with an 11.2 per cent stake. He is also a director of THM.

Asked by The Business Times what REO’s plans might be after taking controlling interest, Mr Chen said “REO did not come to us to communicate about the company’s plans” but believed that next steps presented to the board of directors would be in the best interest of all the shareholders. He also confirmed there would be no change in the board of directors or management team for now.

Questions also linger on whether thorough homework has been done.

An independent valuation report by Behre Dolbear Australia Pty Limited lists the concession’s preferred value at US$44.5 million. REO had paid 3.7 million euros (S$5.82 million) when it acquired the stake. If they had obtained access to such a valuable concession at a bargain, why sell? Mr Chen did not respond directly to this point.

ISR also said it engaged Ernst & Young (Mauritius) last year to perform financial due diligence. The report remains in the process.

Meanwhile, ISR has been on SGX’s watch list since December 2017 and share price has been tanking. Its counter was among last year’s worst performers which had ended the year down close to 80 per cent or more. Since starting this year at one Singapore cent, the share price has declined about 60 per cent. ISR stock has also been actively traded.

When pressed on the dismal stock price and factors driving trading activity, Mr Chen said: “We do not know, that’s the market forces.”

Lynette Tan

31 October 2018