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Rise and fall of ISR Capital reprises penny stock saga

Ben Paul
Ben Paul10/8/2018 08:00 AM GMT+08  • 6 min read
Rise and fall of ISR Capital reprises penny stock saga
SINGAPORE (Oct 8): If I’ve learnt anything as an investor over the last few decades, it’s that volatility is not a bad thing if you can keep your head when all about you are losing theirs. Market panics are a great opportunity to buy shares in good co
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SINGAPORE (Oct 8): If I’ve learnt anything as an investor over the last few decades, it’s that volatility is not a bad thing if you can keep your head when all about you are losing theirs. Market panics are a great opportunity to buy shares in good companies at bargain prices, while periods of euphoria can be a good time to sell. But taking advantage of this ebb and flow of sentiment often involves a degree of speculation, or trading with incomplete information. And, investors should not complain when bets they make do not pay off.


See: Getting ready for the next chapter of the penny stock saga

See also: Five years after the Penny Stock Crash

Yet, investors should not have to tolerate being presented with information that is untrue or misleading. Public-listed companies ought to ensure announcements they make do not create a false impression in the market. And, regulators ought to speedily investigate every instance of investors possibly having been misled by the manner in which information is presented.

How would boards and regulators know when something has gone wrong? A telltale sign is when shares in a company suffer a sudden slump. Two years ago this month, ISR Capital had garnered a market capitalisation of more than half a billion dollars, amid plans to acquire a rare earths mining concession in Madagascar. A month later, its stock had suffered a massive collapse, from which it has not recovered. Looking back at The Edge Singapore’s reporting on the company over the last two years, the whole episode seems like a reprise of the penny stock saga that gripped the market in October 2013.

ISR’s shares took off in early 2016 after an individual named David Rigoll emerged as a major shareholder and director, and the company began making plans to acquire a 60% stake in Tantalum Holding (Mauritius), which owns a rare earths mining concession in Madagascar. The vendor of the asset was a Singapore-registered company called REO Magnetic. ISR proposed to pay $40 million in new shares priced at 10 cents each.

Controversially, REO Magnetic had acquired the 60% stake in Tantalum Holding (Mauritius) only a few months earlier for just €3.7 million. The vendor in that transaction was Tantalus Rare Earths AG, a company whose shares traded over-thecounter in Germany. Rigoll had been a director of TRE AG when the transaction was organised. Also, two valuation reports for the mining concession in Madagascar were published, both of which put the value of the concession at more than US$1 billion. Shares in ISR peaked at 34 cents in October 2016, which valued the company at well over $500 million. But things began to turn sour the following month. On Nov 24, 2016, John Soh Chee Wen was arrested in connection with the manipulation of Blumont Group, LionGold Corp and Asiasons Capital (now Attilan Group). Shares in ISR immediately tanked. Trading was halted by the company and later suspended by the Singapore Exchange. The trading suspension was eventually lifted on March 6, 2017, and the stock tumbled on an accumulation of bad news.

Notably, on Dec 9, 2016, ISR had said the Monetary Authority of Singapore and Commercial Affairs Department were investigating an offence under the Securities and Futures Act, and that the company was required to provide access to documents related to merger and acquisition agreements, minutes to board and management committee meetings as well as corporate emails of its employees and directors. Then, on Feb 28, 2017, during a court hearing, prosecutors alleged that Soh had been involved in the manipulation of shares in ISR.

Earlier this year, the consultants who produced the two valuation reports for the Madagascan rare earths concession were suspended by their industry body, The Australasian Institute of Mining and Metallurgy.

In the meantime, a third valuation report — by Behre Dolbear Australia dated Sept 21, 2017 — was produced. This report valued the Madagascar concession at only US$48 million. ISR is now proposing to pay less than $3 million for the 60% stake in Tantalum Holding (Mauritius) by issuing new shares at 0.4 cent each.

Towards end-2016, there were a number of board changes at ISR. In particular, executive director Quah Su-Yin resigned on Dec 31. Only four weeks before that, Quah had grumbled about media reports “inaccurately” associating ISR with the individuals who had been charged for their alleged roles in the penny stock saga. One of those individuals is her sister Quah Su-Ling, former CEO of IPCO International, whom the authorities have alleged was in a romantic relationship with Soh. Last year, Rigoll also resigned from the board of ISR and sold most of his stake in the company. Now, the face of ISR is Chen Tong, who was appointed executive chairman on Nov 18, 2016. Chen invested about $4 million in ISR by taking up a portion of a placement of new shares at 8.5 cents a share in September 2016. Shares in ISR subsequently ran up dramatically, before collapsing. Earlier this year, Chen bought more than 246 million shares in the market for some $1.26 million, which is roughly equivalent to 0.512 cent a share.

Should investors follow Chen’s example and jump into ISR’s deflated stock? Is the sharply reduced price tag for the Madagascan mining concession a positive development for ISR’s investors?

Or, should investors be asking themselves why the deal has not been scuppered? Is it conceivable that nobody at ISR thought it odd that the Madagascan mining concession was initially said to be worth more than US$1 billion when ISR was proposing to buy a 60% stake for only $40 million? To what extent were these now discredited valuations for the mining concession a factor in driving up shares in ISR in 2016?

In the light of everything that has happened, ISR should look carefully at whether there is any real prospect of the Madagascan mining concession becoming a profitable enterprise and how much investment it would require. ISR should also closely examine what happened while the mining concession was held by TRE AG and REO Magnetic. In the meantime, the big slump in ISR’s shares does not look like an opportunity to me.

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