Home > Corruption, Papua New Guinea > National Provident Fund Final Report [Part 42]

National Provident Fund Final Report [Part 42]

Below is the forty-second part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.

NPF Final Report

This is the 42nd extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 4E Continued 

At the July 4, 1997 NPF board meeting, Mr Kaul accurately reported on the state of the Macmin investment of 21,876,409 million shares for a cost of $A4,369,999. NPF then showed an unrealised loss of $A1.85 million and he specifically invited the trustees to “air any views” they held.

No trustee is recorded as making any comment about NPF increasing its share holding in Macmin or about Mr Wright’s inappropriate focus on acquiring an additional seat on the Macmin board. NPF’s last purchase of Macmin shares occurred on May 6 and 7, 1997 when it acquired a total of 2,200,000 shares “on market” for a total of $A324,788. This was done without board approval and without Ministerial approval, which was required for the May 6 transaction only.

When these purchases were eventually disclosed to the board on July 4, 1997, the trustees did not criticise or reprimand management. Both management and the trustees were in breach of their duties.

Between August and December 1997, despite a massive fall in the gold price and in the value of Macmin shares, NPF management still failed to obtain expert investment advice or to present a proper analysis to the board. Nor did the board request such advice. All parties concerned failed in their duty to the NPF members.


The same trend continued throughout 1998 and still no analysis of this investment was made. During this period, Mr Fabila replaced Mr Kaul as managing director and Mr Copland left the NPF.

A period of management paralysis followed as the situation of increasing losses continued un-addressed. By May 1998, NPF’s unrealised losses in Macmin stood at $A2,542,959 and by June 30, 1998, the share price had dropped to 5 cents.

Brown Bai terminated the chairmanship of Mr Copland, who immediately criticised the Macmin investment as speculative and spoke out against a proposed $A3 million underwriting that was then being considered.

The board resolved not to participate in the underwriting. By September 30, 1998, NPF’s unrealised losses in Macmin had reached $A3,145,270.

The commission has found that throughout 1998 the trustees were failing in their fiduciary duty to the members of the fund and management was in breach of its duty, as follows.


(a) The NPF Board of Trustees did not challenge the logic of continuing its Macmin investment;
(b) Mr Bai, the incoming chairman, expressly informed the trustees at the 1st September 1998 board meeting that NPF’s investment in Macmin was speculative. It had taken almost two years and nine months for a trustee to question the investment in Macmin and act in a prudent manner;
(c) The Board of Trustees did not adequately consider the implications of Macmin’s falling share price upon NPF’s investment portfolio. They should have
discussed, for instance, whether to hold or sell the Macmin scrip and also considered the effect (on its ANZ loan covenant) of the falling value of Macmin shares, held as security for NPF’s ANZ loan;
(d) The NPF trustees did not seek independent investment advice about the investment during this period;
(e) There was no independent and objective investment advice from NPF’s Investment Division, headed by Mr Wright; and
(f) The Investment Division had not performed a review of NPF’s future with Macmin as resolved by the board at the 114th Board meeting on September 1, 1998.

The failings of the NPF trustees in this regard was a failing to properly discharge their duties as trustees and a breach of their fiduciary duty to the members of the fund.

The failing of management was a breach of their common law duty to the NPF board.

The individual officers and trustees concerned may be personally liable for losses caused to the fund and its members unless they can establish that they “acted in good faith”.

Sell Down Of Macmin Shares 1999 

As the 1998 NPF audited financial statements showed a deficit of K71 million, something had to be done.

Mr Wright resigned in January 1999 and PwC was engaged to review the fund’s investment portfolio and formulate a strategy to table the fund’s mounting debt problems. They reported in March 1999.

The strategy to reduce NPF’s crippling debt burden was to conduct a massive sell down of its equity investments, including the sale of 100 per cent of its Macmin shares.

This occurred between April and October 1999 as follows:

npf 42 a

The sell down of Macmin shares occurred, despite advice from Mr Semos of Wilson HTM to hold on to the shares in the hope of a favourable exploration discovery because the selling price of Macmin was so low.

At the completion of the period under review, NPF was negotiating to sell its remaining Macmin shares under an option agreement.

Conflict Of Interest 

Noel Wright held 10,780,742 options in Macmin. This gave rise to a conflict of interest and his failure to disclose this situation to the NPF board, was improper.


The investment in Macmin was totally contrary to NPF’s investment guidelines. It was an active (19.35 per cent ownership) participation in a non-dividend producing, high risk, speculative investment.

Throughout the period of this investment the management (specifically Mr Wright and Mr Kaul) routinely failed to give the board proper investment advice and acted frequently without the authority of the board.

The trustees failed to control management and maintained a docile silence in the face of serious adverse reports, plummeting share prices and mounting losses.

When made aware of management’s serious breaches of duty, the trustees took no steps to reprimand management and to direct the officers to act within their delegated authority.

In the opinion of the commission, such repeated instances of management and trustees failing to act in the interests of the members of the fund, amounts not only to serious breaches of their common law and fiduciary duty but also to improper conduct and misconduct in office.

They face personal liability for losses suffered by NPF from their breaches of duty.

Being subject to the Leadership Code, the trustees have also been referred to the Ombudsman Commission to investigate possible breaches of the Leadership Code.

Executive Summary Schedule 4F Niugini Mining Limited 


Niugini Mining Limited (Niugini Mining) was incorporated in Papua New Guinea and is listed on the Australian Stock Exchange (ASX).

Its largest shareholder was Battle Mountain Gold Company, a United States mining company, holding 50.5 per cent of the issued shares.

Niugini Mining was involved in the mining and exploration for gold and related minerals such as silver and copper. The company was the discoverer of the Lihir deposit and in the period under review Niugini Mining was the second largest shareholder of Lihir Gold Limited (the owner and developer of the Lihir project), holding 17.15 per cent of the issued shares.

As of early 2000, Niugini Mining no longer existed as Lihir Gold Ltd had acquired all Niugini Mining issued shares. In exchange, however, Lihir Gold Ltd issued Niugini Mining shareholders with Lihir Gold shares.

NPF’s initial investment in Niugini Mining occurred on December 5, 1995, when it purchased 100,000 shares through the brokers Wilson HTM.

NPF increased its shareholding through further “on market” purchases through Wilson HTM in 1996 reaching its highest holding in the company at July 8, 1996, at 1,570,000 shares at a cost of $A4,484,293, representing 1.34 per cent of the issued shares of Niugini Mining.

A sell down commenced in August 1996. Most of the sales occurred in January and February 1997 with NPF’s entire shareholding in Niugini Mining being sold by February 24, 1997, all through Wilson HTM. In January 1998, NPF acquired a small parcel of 32,300 shares and these were sold in the same month, again through Wilson HTM.

Unlike the equity investments in various other companies, the disposal of Niugini Mining shares was not a forced sale to retire debt.

Niugini Mining is one among a few of NPF’s equity investments which resulted in a positive return to the members. The realised gain was $A522,718 (K780,125) being 10.6 per cent on funds invested.

At the time of investing, it was known that in the near future Niugini Mining’s only income would come from its 17.15 per cent shares in Lihir Gold and that it would not be paying dividends in the near future. If the strategy behind the investment was to indirectly gain leverage in Lihir Gold, it was creating a significant bias in NPF’s investment portfolio as it already held 10 million Lihir shares worth K15 million and was already over exposed in the PNG Resource Sector.

Although Niugini Mining had generated revenue of $US91.5 million in 1995 its profit was recorded as $US5 million. In 1996, there was a loss of $US38.9 million as its Red Dome and San Cristobal mines headed towards closure and were written down to recoverable value.

Niugini Mining reported a profit of $US5.5 million in 1997 and a profit of $US4.4 million in 1998. It would have been prudent to analyse this investment prior to entering into it and management and the trustees failed in their duties to NPF board and members by not obtaining independent professional investment advice before making this investment.

Summary of NPF investments in Niugini Mining 1995-1999 

Table 1 Source: NPF accounting records / Wilson HTM records (Exhibit NM2-NM4).

npf 42 b

The movement in Niugini Mining share price in the period in which NPF held shares, closely corresponded to movements in the gold price.

Table 2 – Gold Price – Source: Bank of PNG Quarterly Economic Bulletin.

npf 42 c

Table 3 – Niugini Mining share price – See table Source: ASX (Commission Document 753)

npf 42 d

Initial Investment In Niugini Mining – 1995 

Solely on the strength of a Wilson HTM newsletter presented by Mr Wright, and without advice or expert appraisal, the NPF board resolved to purchase 200,000 shares and this resulted in 105,000 shares being purchased for $A253,638 in December 1995. Management (Mr Kaul and Mr Wright) breached their duty to the board and the trustees failed their fiduciary duty to the members in not seeking expert advice and professionally analysing this investment.

Investment – 1996

Throughout 1996, NPF purchased 156,500 Niugini Mining shares for $A4,620,000 as per the following table. Mr Wright undertook the purchases between May 3 and October 9 with Mr Kaul’s approval but without board authority.


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  1. October 5, 2015 at 12:00 pm

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