The Speculator

Some GoConnect shareholders are about to get a pleasant surprise, thanks to a Mongolian manganese deposit.

PORTFOLIO POINT: Another 'freebie’ is in the pipeline for qualifying GoConnect shareholders, courtesy of a deal with First Mongolian.

The following play is not one for the faint-hearted, because the proposition appears somewhat exotic, but I’ll go along for the ride.

In October last year, the Australian Securities Exchange hosted a conference in Mongolia to explain the benefits of and requirements for a business to list on the ASX.

At the end of last week, Melbourne-based investment banker Sino Investment Services Pty Ltd (SIS) announced it had reached an “in principle” agreement with First Mongolian Investment Holdings Ltd to act as lead manager in a proposed listing of that company on the ASX.

Our Melbourne-based internet entertainment company GoConnect (GCN) has already formed a partnership with First Mongolian, which is the holding company for diversified interests in mining, business consulting and media in Mongolia.

GoConnect chairman Richard Li is also the principal of SIS, which helped negotiate the deal to supply GoConnect’s IPTV/WiFi content and technologies to a jointly-owned company, First Mongolian Media Ltd, in which GoConnect will have 51% controlling equity.

GoConnect explains that Mongolia is well-established in IPTV (internet protocol TV), with its biggest IPTV operator, Univision, providing a pay-IPTV service, with 70 channels. It is the plan of the partnership to work with existing IPTV industry players, with GoConnect providing content and licensing its technologies to Mongolian businesses.

Since English is a second language in Mongolia, GoConnect’s English language content distributed via the channels uctv.fm and World Business Network is expected to complement other existing Mongolian IPTV English content.

The mining interest of First Mongolian is held through its wholly-owned subsidiary First Mongolian Resources Ltd, which holds an exploration licence over a 5673.5-hectare tenement in the Province of Uvurhangai in central Mongolia, about 368 kilometres south-west of the Mongolian capital, Ulaanbaater.

Last week’s GoConnect announcement, lodged with the ASX, said: “Based on the records of the Minerals Resource Authority of Mongolia, the tenement has a stated reserve of 4.37 million tonnes of manganese and 12 million tonnes of an inferred manganese resource.”

ASX demands clarification

Yesterday, GoConnect was required to explain: “Even though the (previous) ASX release was based on the official records of the Mineral Resource Authority of Mongolia and the release was reviewed by an independent Australian Competent Person with over 40 years’ experience in the Australian mining industry, since the records of the Mineral Resource Authority of Mongolia were not based on the JORC code as required by the ASX for disclosure, we retract the above statement at this time.”

GoConnect added that the manganese deposit, discovered in 2001, was delineated from surface outcrop down to 50 metres followed by trenching and drilling. The company will appoint an independent person under the JORC code to evaluate the tenement and provide an independent valuation report, which the company expects “will further substantiate the original statement”.

-The Speculator portfolio, as at March 21
Company
ASX
No of shares
Bought
Purchase price
Current price
Current value
Image Resources
IMA*
15,000
31/12/2010*
0.362 av
$0.370
$5,550
Viralytics
VLA
19,995
20/12/2011
$0.308
$0.365
$7,298
Robust Resources
ROL
6,000
31/12/2010*
$1.49 av
$1.240
$7,440
Scotgold Resources
SGZ
25,000
31/12/2010*
$0.053
$0.076
$1,900
Scotgold Resources Options ex30/4/12 @ 8c
SGZO
2,500
$0.000
$0.001
$3
Coalworks
CWK
10,000
31/12/2010*
$0.830
$0.815
$8,150
GoConnect Ltd
GCN
250,000
31/12/2010*
0.034 av
$0.030
$7,500
Minemakers
MAK
20,000
25/01/2011*
0.425 av
$0.275
$5,500
Platsearch
PTS
20,000
8/02/2011*
$0.130
$0.085
$1,700
Broken Hill Prospecting
BPL
20,000
22/02/2011*
$0.160
$0.100
$2,000
Austpac Resources
APG
40,000
2/03/2011*
$0.060
$0.040
$1,600
Potash West
PWN
11,050
30/03/2011*
$0.200
$0.295
$3,260
Cortona Resources
CRC
20,000
13/04/2011*
0.146 av
$0.140
$2,800
Golden Gate Petroleum
GGP
408,500
20/04/2011*
0.0145 av
$0.022
$8,987
TNT Mines
TNT
4,440
22/07/2011*
$0.000
$0.250
$1,110
Quickstep Holdings
QHL
20,000
23/11/2011*
$0.185
$0.165
$3,300
Orpheus Energy
OEG
19,250
17/08/2011*
0.164 av
$0.130
$2,503
 
Total value of portfolio
$70,600
Cash at bank
-$13,730
Total
$56,870
 
Portfolio change since January 3, 2012 (started with $50,000)
13.74%
All Ordinaries change since January 3, 2012 (then 4155.22)
5.06%
 
*Shares held from previous year, carried at their December 30, 2011 closing price.

Free share issue planned in First Mongolian float

Yesterday’s ASX announcement confirmed that shareholders in GoConnect will be offered 10% of First Mongolian’s issued capital upon listing, in a pro-rata entitlement offer for nil consideration, based on a minimum shareholding requirement of 250,000 GoConnect shares, held on a closing date yet to be announced.

Since GoConnect has more than 1600 shareholders, the company expects that more than 500 shareholders will rank for the entitlement. Those shareholders who do will also have a right to acquire a separate and additional $2000 of First Mongolian shares, under a prospectus being prepared for the proposed listing.

Back-of-the-envelope figures look attractive

Back-of-the-envelope analysis of the initial report, if confirmed in the forthcoming prospectus, looks like a goer. This is assuming, however, that there’s around 16 million tonnes of manganese metal and 10 years’ mine life, beginning within 12 months of listing, with the first five years producing from the stated reserve of 4.37 million tonnes, and the next five from the remaining 12 million tonne resource.

With the manganese market price $US1.50-$2 a pound, one might assume a net cash profit of $US0.50/lb after costs. The deposit could be contact mined, but let’s assume a $4 million capital cost to buy a few trucks and bulldozers.

Applying those assumptions, and applying a 10% discount rate, gives a net present value of $US10.95 billion. So 10% of the company will be equivalent to $US1.095 billion, to be distributed to GCN shareholders in the pro-rata entitlement, subject to a minimum holding of 250,000 GCN shares.

That translates to $1.18 per GCN share of First Mongolian’s share distribution value, or about 40 times GCN’s share price now of about 3c.

As a precaution, I topped up my holding in GoConnect by 130,000 shares at 2.9c today, to take my total to 250,000, at an average 'in’ price of 3.4c.

Readers may have already benefitted from another free issue when GoConnect announced last year that shareholders with a minimum holding of 55,000 GCN shares, at October 21, 2011, would be eligible for a free distribution of 135 million shares in Priority One Network Group Ltd, to get a sufficient spread for an ASX listing.

The Speculator, with a holding of 200,000 GoConnect shares on the 'ex’ date, has since collected 30,260 Priority One shares, to be included in our portfolio after the new company lists (probably in June) (see The Speculator, February 15).

Minemakers’ target gathers pace

Minemakers’ (MAK) all-paper takeover offer for phosphate joint venturer UCL Ltd has been outstripped by the market. Its offer of nine Minemakers shares (trading today at 28c) for every 10 UCL shares (trading today at 34c) makes the bid package worth $2.52, but the target package is $3.40.
In recommending shareholders reject the bid, UCL today announced an “independent expert” valued its shares at between 43.1c and 46.3c.

David Haselhurst writes a monthly column for Money magazine. Please note that he is not able to provide personal replies to emails.