Investors in the New York Stock Exchange (NYSE) may not be familiar with the Bre-X Mining scandal. That is no surprise as the scam was a quarter-century ago.

Bre-X was a Canadian mining company with Indonesian operations. It was a penny stock like the ones that litter the Singapore Exchange (SGX). It was so illiquid that it was traded by appointment.

In October 1995, there was a shocking announcement that Bre-X Mining was found to be sitting on massive gold deposits in Busang, Kalimantan.

The Bre-X management was triumphant. Its grinning vice-president for exploration told business magazine Fortune that it had 71 million troy ounces of gold reserves. (A troy ounce is about 31g.) That worked out to US$24 billion.

Investors were ecstatic. This meant that Bre-X could be one of the most valuable gold stocks in the world in terms of reserves. The stock price rose 15,000% in fewer than two years. It peaked at a market cap of US$4 billion (or C$6 billion) in 1997. It was one of the 10 largest gold stocks in North America at the time.

However, it turned out that the Busang mine was a giant fraud. The gold samples that were used to verify the reserves had been falsified. The management was allegedly complicit.

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Bre-X stock became worthless within days. It was the biggest mining scandal of all time.

A new scandal may have arisen along the lines of Bre-X — exquisitely timed to mark the 25th anniversary of that scam.

Asia may be at the heart of the latest version. NYSE-listed AMTD Digital is an obscure company, based in Singapore and Hong Kong.

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It is part of the privately held Hong Kong-based AMTD Group. According to Bloomberg, AMTD Group was probed last year by the Hong Kong Regulator for some of its deals. Its chairman Calvin Choi, a former banker, joined the company in 2016 from UBS.

Choi is now reportedly facing a ban by the Hong Kong regulator for failing to disclose conflict of interests.

Billing itself as a fintech company, AMTD says it has a platform connecting customers and companies. The fintech industry is the gold industry of the 2020s. Claiming to be or own a fintech platform can add glitter to a company’s valuation.

AMTD stands for Add, Minus, Times, Divide. This acronym is neither clever nor catchy. However, that has not held the stock back.

Since AMTD Digital’s listing on July 17, the stock has risen 3,000%. It peaked at 32,000% above its IPO price of US$7.80 ($10.80).

Last week, its market capitalisation hit US$400 billion, making it one of the largest financial firms in the world, more valuable than Goldman Sachs, Coca Cola and Bank of America. That is not a bad start for a company with 50 employees and a desolate office in Shenton Way.

The stock’s rise defies easy explanation. It is possible that it is the Asian version of the meme stock frenzy, which occurred in early 2021. During the frenzy, Stocks such as AMC and GameStop rose up to 3,000% in a few weeks. The names were being pushed by online message boards such as Reddit. Punters in these message boards were taking leveraged bets.

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The hysteria ended in tears. By February, AMC and GameStop had come full circle. Ordinary investors were left in the lurch. Some even took their own lives.

AMTD Digital is outrageously valued, at 978x FY2023f P/E. This is more than 120 times the multiples in the emerging market tech sector.

AMTD Digital’s business model is untested. Some of its areas of business have not gotten off the ground. For instance, its digital financial services segment applied for a digital banking licence in Singapore back in 2020. This has not been granted by the Monetary Authority of Singapore.

In FY2021, changes in fair value on financial assets were one-third of its net profit last year. These non-cash items have no bearing on valuation.

AMTD’s SpiderNet Ecosystem, which is used to describe the network it is weaving together, has a sparse track record. It has negligible usage with the client base. The extravagant multiple that the market is paying beggars belief.

AMTD Group once claimed that it is an investee company of the CK Group, Li Ka-Shing’s flagship. The CK Group issued a statement last week distancing itself. CK Group now only has a small stake.

The CK Group may have smelt a rat. The stock’s astonishing ascent and the company’s mysterious model are red flags. Investors should head for the door. Gold may turn to dust.

Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in these columns

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