SINGAPORE (Jan 10): Singapore Exchange Regulation (SGX RegCo) has ordered the ISR Capital to hold an extraordinary general meeting (EGM) as soon as possible to seek shareholder approval for the waiver of condition related to its acquisition of a mining concession in Madagascar.

SGX RegCo also said that the US$10 million to US$15 million preliminary estimates provided by ISR Capital would have to be adjusted and updated over time as the numbers were derived by chairman Chen Tong based on his mine development experience and through discussions with consultancies.

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.

The waiver, if approved, allows ISR Capital to excuse itself from the preparation of a cashflow budget and liquidity plan which is vital for the purpose of determining and planning the company’s working capital requirements of up to six months.

To recap, ISR Capital on the original long-stop date of Dec 31 2018 had announced that it has waived the condition set out in the sale and purchase agreements which requires the preparation of a cashflow budget and liquidity plan being agreed on by the buyer and the seller. It was also announced on the same date that the parties have agreed to extend the long-stop date to Jan 3.

Following the announcement, SGX RegCo had voiced its concern that the waiver would have a material bearing on shareholders’ decision as the waiver was disclosed after shareholders’ approval and only two days before completion of the acquisition deal.

On Jan 2, in response to queries by the SGX RegCo, ISR Capital said shareholders’ approval for the waiver was not required as it believed “the waiver would not be prejudicial to the interest of shareholders and will 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.”

See: ISR Capital spurns SGX request to seek shareholder nod for waiver of condition for acquisition

After disclosure of the waiver on the last day of 2018, ISR Capital then proceeded to announce the issuance of the consideration shares resulting in the completion of the acquisition on Jan 3.

Failure to comply with the requirements imposed would be deemed to be a contravention of SGX’s Listing Rules, said June Sim, head of listing compliance at SGX RegCo, in the notice.

ISR Capital 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 Capital 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 Capital'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 Capital 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 Capital shares too.

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

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