SINGAPORE (Jan 3): ISR Capital has rejected a call by Singapore Exchange for the company to seek shareholder approval for the waiver of a condition precedent to its acquisition of a Madagascar mining asset.

In a Wednesday night response, ISR insisted shareholder approval was not required as the waiver was not prejudicial to the interest of the shareholders and would not have an adverse impact on the company and the potential development or operation of the commercial production of the target company and the mining asset.

ISR is acquiring a 60% stake in Tantalum Holding (Mauritius) (THM) which owns 100% of Tantalum Rare Earth Malagasy SARLU (TREM), which in turn holds an exploration licence for a rare-earth mining concession in Madagascar.

John Soh-linked ISR Capital gets nod for Tantalum deal, but further hurdles remain

Perhaps it should've been called the 2013 great penny stock manipulation

The request by SGX follows ISR’s announcement on Monday that the long drawn-out acquisition of the mining asset would be completed “on or around Dec 31” after the company decided to waive certain conditions related to the project’s cash flow budget and liquidity plan, precedent for the completion of the proposed acquisition. Instead, ISR said these will be prepared at a later date in the interests of relevance and reliability.

In an email on Wednesday, SGX had asked ISR to seek shareholders' approval for the waiver before paying for the acquisition, saying the condition precedent was material and will have an adverse impact on the company and the potential development or operation of the commercial production of the target company and the mining asset.

"Shareholders had approved on the basis that the company will not waive such material conditions," says SGX, referring to a disclosure in a circular dated Oct 15 in which ISR had said that the "company will not waive any conditions precedent if such waivers will be prejudicial to the interest of the shareholders, and the board will be accountable to the shareholders of the company."

Disagreeing, ISR said had stated in an Oct 15 circular that the company intends to acquire and control the target company first before conducting a feasibility study of the project. “The board believes that the cashflow budget and liquidity plan will be more reliable if these are prepared concurrently with or using the results of the studies which will be conducted after the sale is completed,” said ISR.

"It is not practical for the company to conduct a feasibility study first as this would require considerable time and additional funding which will lengthen the acquisition process. Further, the consideration for the proposed acquisition may increase significantly if the feasibility study is conducted first," ISR had also said in its Oct circular.

ISR had first announced the THM deal on May 20, 2016. To support the acquisition, ISR released two valuation reports — one in July and another in October 2016. Both reports valued the Madagascar asset at more than US$1 billion.

From the time ISR announced the deal in May, the shares started surging. By its peak in October 2016, the company’s share price had gained some 4,900% since the start of the year, giving a company with essentially no operating business nor significant assets a market value well over $500 million.

As the share price surged, ISR drew a series of queries from SGX, which, among others, questioned the validity of the two valuation reports.

ISR's high-flying days came to an end on Nov 24, 2016, when John Soh Chee Wen, the alleged penny stock saga mastermind, was arrested. Later that day, ISR shares slid and, within two hours, had crashed by half. Besides the three penny stocks — Blumont Corp, LionGold Corp and Asiasons Capital (renamed Attilan Group) — prosecutors alleged that Soh manipulated ISR shares too.

Quah Su-Yin, then CEO of ISR, denied any links to the penny stock saga except that she was the sister of Quah Su-Ling, Soh’s alleged co-conspirator. According to court documents, a trading account used to manipulate the shares belongs to Chan Sing En, former CEO of ISR subsidiary Dynamic Return (Singapore). The stock was suspended by SGX and, when trading resumed in March 2017, the share price plummeted to less than a cent.

Chen Tong, who took on the role of executive chairman three days before the crash, pressed ahead with the acquisition. The third and final valuation report prepared by Behre Dolbear, assessed that the Madagascar asset was worth just a fifth of the valuation done by the two earlier Australian mining consultants, who were later suspended temporarily by their industry association.

As at 2.40pm, shares in ISR are trading at 0.4 cent.