Posts Tagged ‘Macmin’

National Provident Fund Final Report [Part 42]

October 2, 2015 1 comment

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.


National Provident Fund Final Report [Part 41]

October 1, 2015 Leave a comment

Below is the forty-first 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 41st 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 

NPF management did not take any independent, professional investment advice before moving quickly to acquire a placement of 2,000,000 shares with 1,333,333 free options at 20 cents a share for $A400,000. NPF purchased its first two million shares in December 1995 when Macmin’s share price and the gold price were near highest peak, as shown by the following graphs.

Gold Price See Graph One – Source: Bank of PNG Quarterly Economic Bulletin 

npf 41 a

Macmin Share Price See graph two – Source: ASX (Commission Document 754)

npf 41 b

Investment Appraisal And Board Approval 

This was an early example of NPF’s new investment strategy as formulated on June 15, 1994. The strategy was to diversify from a passive investment approach to a more active and hence more risky approach. A competent expert analysis of this investment would have shown several risks associated with it including:

  • Share market fluctuations;
  • Exploration and production risks;
  • Environmental risks;
  • Insurance;
  • Finance risks – the company was not able to raise sufficient capital to undertake projects;
  • Government actions;
  • Gold price – risks that the price of gold would fall and render mine or exploration programs economically non-viable;
  • Foreign exchange rate fluctuations;
  • Risks in PNG including:

– Changes in Government policy or legislation, unfavourable to the enterprise;
– Civil unrest;
– Landowners’ issues;
– Licence cancellation;
– General economic situation and o Foreign exchange and taxation.

NPF’s own investment policy (June 15, 1994) required consideration of the following:

  • The impact of the investment in Macmin on the investment portfolio balance and the investment guidelines;
  • A financial evaluation of Macmin;
  • A critical assessment of Macmin’s business risks;
  • An assessment of Macmin’s management’s capabilities, qualifications, background and an assessment of the directors’ business experience and acumen;
  • The likely investment returns measured against the associated risks of the investment; and
  • Future funding requirements of Macmin and the ability of Macmin to raise funds to fulfil those requirements.

Clearly, an investment in Macmin was a speculative investment. Therefore, these issues should have been considered in relation to NPF’s objectives and the existing structure of its investment portfolio.

The NPF management and board must have completely disregarded this investment policy because the Macmin investment failed each of those criteria.

In not providing proper investment advice, NPF management was in breach of its duty to the board. The trustees, in not insisting upon such advice and in not performing any valid investment analysis, failed to fulfil their fiduciary duty to members of the fund. Throughout 1995 and 1996 and up until May 1997, NPF continued to invest in Macmin despite the alarming fall in its share price. During this period, management frequently made acquisitions without board approval and frequently failed to provide accurate and timely information to the board about what was happening.

NPF’s Board Failure To Monitor Management Activities 

For its part, the Board of Trustees continually failed to keep itself informed about management’s activities and failed to criticise or reprimand management when it became aware of unauthorised transactions.

The trustees seemed not to have realised that the falling share prices, which were causing unrealised losses of several million Australian dollars, made it imperative for them to review the future of the Macmin investment. Instead, they docilely allowed themselves to be led, by Mr Copland and management into further acquisitions until the end of 1997.

NPF held almost 20 per cent of Macmin’s issued capital and was, quite inappropriately, demanding a second seat on the Macmin board.

Board Approval Of Acquisition Of Additional Shares And Loans To Macmin 

In July 1996, in another Macmin share placement, NPF acquired an additional 10 million Macmin shares for $A2.4 million. This was first approved by an invalid circular resolution on May 21, 1996, and the board also resolved to lend $A3 million to Macmin. These approvals were given by the board with no expert advice, in the face of Macmin’s falling fortunes and share price and despite the fact that security for the proposed loan was potently inadequate to protect the interest of the members of the fund.

While negotiations on the details of the security for the $A3 million loan were still being discussed, the NPF board approved yet another (short -term) loan of $A1 million on consideration of the same security arrangements which was depended upon the issue of additional shares in the ailing Macmin to NPF, should Macmin default on its loan commitments.

These security arrangements were being negotiated and agreed to by David Copland who was exceeding his authority as chairman of the NPF board in these endeavours. As a result of further adverse reports about Macmin in February 1997, these loans did not proceed.

“On Market” Purchase Of Shares By NPF 

Also in the period November 29, 1996 to December 24, 1996, NPF purchased “on market”, 2,530,000 shares for $A452,570 increasing NPF’s shareholding to 16.56 per cent of issued share capital. Once again this was authorised by management without due diligence or expert appraisal and without the knowledge or approval of the NPF board. The management and trustees both failed in their duties to NPF and its members regarding these “on market” purchases.

During 1997, NPF continued these “on market purchases’, usually without explicit board approval, bringing its shareholding in Macmin close to 20 per cent.

NPF’s investment in Macmin, during 1997, was as follows:

npf 41 c

The trustees were rarely consulted or given prior knowledge of these purchases. Sometimes management did not include the investment schedule, which would have disclosed the transactions in the papers for the next board meeting, so the trustees had no notice at all.

Board’s Failure To Reprimand Management

It is disturbing that the trustees did not speak out about management’s failure to provide documentation or about the unapproved transactions authorised by Mr Wright and Mr Kaul. Even on the occasions when these activities were belatedly brought to the board’s attention, it did not result in criticism or reprimand. For this, the trustees must bear responsibility, as their failure must have encouraged management to persist in this improper way.

25 Million Share Placement, March 1997

On March 20, 1997, Macmin issued a prospectus for the issue of 25 million shares at 20 cents a share, with one option per share. With no objective review of the proposal and heedless of it being well outside NPF’s investment guidelines, NPF purchased 4,297,409 shares with an equal number of options for $A644,611.

In recommending this purchase to the board, Mr Kaul falsely implied that Macmin’s explorations were going well, despite reports in his possession to the contrary. He also implied that Macmin’s share price was approximately 8 cents, which was higher than the actual price of 6.5 cents.

NPF failed to obtain the Ministerial approval required under s.61(2) Public Finances (Management) Act (PF(M) Act).

Mr Kaul and Mr Wright and all the trustees were again failed in their duty and fiduciary duty to the board and members of the fund in recklessly entering into this extra purchase.

The shares were paid for by using off-shore funds in NPF’s account with its brokers, Wilson HTM. This deliberate breach of the (BPNG) foreign exchange regulations, which was authorised by M. Wright, was improper and illegal. The commission recommends that Mr Wright and Mr Kaul be referred to the Controller of Foreign Exchange, BPNG to consider taking action under the appropriate regulations.


National Provident Fund Final Report [Part 40]

September 30, 2015 1 comment

Below is the fortieth 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 40th 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 4D Continued Investments – 1999 

Concern About NPF’s Unrealised Losses – Termination Of Mr Wright 

After Mr Wright’s employment with NPF was terminated in January 1999, he was replaced on the CXL board by trustee Nathaniel Poiya.

Mr Fabila reported in February on the CXL and STC results. Discussion centred on CXL, which showed a loss of K3.7 million, K2.5 million of which was attributable to a budget blow out in respect of directors’ remuneration. Although Mr Fabila wrote to the CXL chairman on this matter, he failed to provide the NPF trustees with an expert assessment of its CXL investment.

Advice from Ben Semos of Wilson HTM 

By this time, NPF management had begun to realise the enormous unrealised loss suffered on NPF’s investments as interest rates on NPF’s huge debts rose and the value of the kina and of resource stocks fell. Ben Semos of Wilson HTM was asked to advise on NPF’s investments. On February 6, commenting on each investment in turn, he advised selling CXL shares rather than STC. Mr Semos forwarded a mandate document appointing himself as sole agent and broker on the sell down but on February 19, 1999, Mr Fabila wrote cancelling all authority for Wilson HTM to act as broker for NPF.

On March 12, Mr Semos wrote again urging his appointment as sole agent to handle the difficult job of selling off large parcels of shares in STC, CXL and HPL without causing a massive fall in share prices.

On March 16, 1999 at a special NPF board meeting, the board appointed Mr Fabila and Mr Leahy to negotiate the sale of all NPF’s holdings in CXL to the Swires Group for a minimum price of $A3.75 per share (9.3.4). These negotiations were unsuccessful.

Unsuccessful Attempts To Sell CXL Shares 

By March 25, NPF chairman Brown Bai sought Ministerial approval to sell NPF’s CXL shares at $A3.75 and 50 per cent of the Tower Ltd. Unfortunately, Swires would not go beyond $A2 per share and Wilson HTM could only manage $A2.25.

Although Minister Lasaro had approved the sell down on March 25, 1999, his approval was not received by NPF until April 8.

Meanwhile, Mr Fabila had instructed Mr Semos to sell prior to receiving Ministerial approval and Mr Semos was actively involved trying to generate “good buying” for CXL, and for some other NPF holdings.

NPF Moves Away From Substantial Holdings Into Smaller Passive Holdings 

By May 1999, the sell down of equities in order to reduce NPF’s debt to the ANZ Bank had still not got underway. On May 11, Mr Fabila wrote a long explanation to Minister Lasaro, explaining the history of NPF’s disastrous investment strategies of obtaining significant holdings in PNG resource stocks and obtaining controlling interest in CXL and STC.

He explained how this had been financed by massive borrowings from ANZ and he laid the blame squarely on the previous Board of Trustees and on Mr Copland in particular (The letter is quoted in full at paragraph 9.4).

On May 21, 1999, the NPF board resolved to move away from substantial shareholdings in a few companies in favour of passive minority interests and to reduce holdings in any company to 11 per cent of issued capital (except for HPL).

Trustee John Paska spoke against the proposal, particularly against selling STC shares, sensing some “political” motivation. On May 28, 1999, NPF’s investment team, headed by Rod Mitchell submitted an investment fact sheet on STC recommending that its value be reassessed to reflect its much lower true value.

Selldown Of CXL Shares NPF’s Selldown Prompts Swires Takeover Offer For CXL

On June 3, 1999, Mr Fabila instructed Mr Semos to sell off NPF’s holdings of 8,266,679 CXL shares at $A2.56 or better. This prompted Swires to make a take-over bid for CXL by offering to acquire all the issued shares in CXL at $A1.50 per share (paragraph 9.7). Mr Fabila was prompt to accept Swires’ offer and obtained NPF board approval by circular resolution on July 7, 1999. This was ratified by formal board resolution at the 119th NPF board meeting on July 29 and 30, 1999.

CXL Share Valuation

Before finalising the sale, NPF management obtained an expert independent opinion on CXL’s fair market valuation from KPMG which on July 8, 1999, stated:-

“Our valuation of CXL is prepared in order to determine a fair market valuation of each share. The valuation has been prepared using generally accepted valuation principles and is based on information provided to KPMG by CXL. This information has not been verified by KPMG. Based on the information provided, our valuation of CXL is K62,461,000. Given the 21,060,370 shares in issue this equates to a value per share of K2.97.

“Swire PNG’s offer of $A1.50, as set out in their take over notice, equates to K2.68 per share (exchange rate K1= $A0.56).

“When considering the merits of the offer, it is necessary to consider the following:

  • Poor trading results for 1998;
  • Projected poor trading results for 1999;
  • Increasing cash flow requirements to fund trading losses and replacement of inventories;
  • Technical breach of current banking covenants;
  • Law and order issues in PNG;
  • Political instability;
  • The precarious nature of the kina currency; and
  • The lack of alternative investors for a minority investment of the size and nature in question.

“Overall, we are of the opinion that the offer price is not unreasonable and represents a price that whilst not great provides an exit alternative to shareholders, thereby giving a level of certainty which may not otherwise exist.” (Exhibit S152)

Department Of Finance Recommendation On CXL Selldown 

Mete Kahona of the office of Public Enterprises and Asset Management, wrote a brief to the Secretary for Finance supporting the sale of NPF’s CXL shares to Swires at $A1.50 per share. The brief highlights the problems caused by investing in a significant holding in such a company:

“NPF’s Acceptance of the Offer.

“The fund’s management supports the acceptance of the current offer by John Swire & Sons Limited and KPMG’s recommendation with the following argument:

  • That CXL has been touted around the market by a number of stock brokers with no serious interest what so ever in the stock;
  • That the CXL with a falling kina has suffer large diminution in value;
  • NPF debt to equity ratio would be reduced to 20 per cent from 45 per cent;
  • Failure to accept the offer means that NPF will breach current interest cover ratios required by the ANZ Bank; and
  • Acceptance of the offer allows NPF to keep its strategic holding in Steamships Trading Company. NPF’s Board Position

“The board at its previous meeting discussed NPF’s debt problem and agreed to the sale of Collins & Leahy shares down to 11 per cent of its market capitalisation.

“It is for the above arguments that the NPF board supports to accept the current offer by John Swire & Sons for $A1.50 per share held in Collins & Leahy.

“For your information in this regard.” (Exhibit S153)

NPF’s Realised Loss On CXL Investment

The proceeds of the sale, $A12,354,269, were paid to ANZ Nominees, which held the shares as security for the ANZ loan facility and it went towards retiring NPF’s debt to ANZ. The loss suffered by NPF was:

npf 40 a

(This does not include the effects of foreign exchange loss and bank fees).

Sell-Down Of STC Shares Negotiations With Swires 

On September 17, 1999, through capital Stockbrokers Ltd, Mr Mitchell ascertained current market price for STC was $A2.50 per share.

He then negotiated a sale of NPF’s entire STC share holding (7.3 million shares) to Swires at $A2.25 per share ($A16.425 million).

This strategy was approved by the NPF board on November 29, 1999, which resolved on “the sale of 100 per cent of its share holding in STC at a price no less than $A2.25 per share net of all costs”. The following problems occurred arranging the actual sale.

Negotiations With Bromley Group (Lemex International) 

After Mr Mitchell received Swires’ offer of $A2.25, he informed Mr Semos and asked him to contact Sir Michael Bromley to gauge if he was interested. This produced an offer from Lemex International Ltd of $A2.26 per share, which was then increased to $A2.28. Mr Mitchell then made an unauthorised decision for NPF to retain 5 per cent of its STC holding to see whether this would enable Lemex to go higher. On the morning of September 7, Lemex increased its offer to $A2.30 and Mr Mitchell said that he required time to consider the offer. He then left a message for Swires that an offer of $A2.30 had been received and then Mr Mitchell attended another meeting. Some time later, Swires left a message in Mr Mitchell’s office offering $A2.40 for NPF’s entire STC holding.

Acceptance Of Lemex Offer

Before returning to his office, Mr Mitchell accepted Lemex’s offer of $A2.30 per share for 95 per cent of the shares.

Realised And Unrealised Loss On STC Investment

At that price, NPF’s situation on its STC investment as at December 30, 1999, and November 3, 2000 was:

npf 40 b

The realised loss on the sale of 5,762,023 shares as at December 31, 1999 was therefore $A7,160,677 and the unrealised loss on the retained 5 per cent of shares was $A1,315,526. By November 3, 2000, that unrealised loss had increased to $A2,392,291 – making a total realised and unrealised loss in November 2000 of $A9,552,968.

Complaints By Swires

After the sale to Lemex, the Swire Group expressed considerable bitterness that Mr Mitchell had accepted the Lemex offer without formally checking whether Swires had improved on it. Swires wrote a letter of complaint to the chairman of NPF and Mr Semos and others wrote in support of Mr Mitchell.


(a) Mr Fabila was acting without board authority in seeking to mandate Wilson HTM as sole broker;
(b) Mr Semos’ comments about CXL in his report of February 6, 19996 should have been made much earlier consistent with his duty to “know your customer” (NPF) when Wilson HTM was providing investment advice (Mr Semos’ statements indicate that on occasions, he had given investment advice although on other occasions, he simply executed client’s instructions without giving advice);
(c) Mr Mitchell’s decision to retain 5 per cent of STC was contrary to the board resolution of November 29, 1999, to sell off all NPF’s holding in STC;
(d) Mr Mitchell failed to maximise the price obtainable for the sale of NPF’s STC shares. Mr Mitchell failed to actively conduct a “Dutch auction” to bring forth Swires best offer before accepting Lemex’s offer of $A2.30 per share;
(e) Mr Mitchell was acting in stressful and difficult circumstances when trying to finalise a deal to sell off NPF’s shares in STC. The commission accepts that he was trying to act in the best interests of the members of the fund and that he had no ulterior motives. Nevertheless, his failure to seek out Swire’s last highest offer before accepting the lower Lemax offer was careless and unprofessional. It was a failure of his duty to NPF. At the time of this failure Mr Mitchell was acting managing director and was therefore also a trustee bearing all the onerous fiduciary duties of a trustee. He is therefore personally liable for the losses suffered by the contributors from his breach of fiduciary duty unless he can successfully raise the defence that he was acting in good faith. This would be a matter for a court of law and is beyond the scope of this commission.

Concluding Comments

The NPF’s large scale investment in STC and CXL was inappropriate for a provident fund which should concentrate on small passive, risk-averse equity investments.

By making an amateurish attempt to take over these companies, NPF was obliged to acquire large shareholdings (21 per cent of STC and 38 per cent of CXL) which was bound to motivate the companies’ powerful owners to resist the takeover attempt. This happened.

NPF’s acquisitions were funded by borrowed capital (drawdowns on its ANZ facility) and when economic circumstances made it impossible for NPF to service this debt, it was obliged to sell down its equity portfolio, including its investments in STC and CXL. It was unable to do so at competitive prices because of low demand for the shares. It was then left at the mercy of the powerful Swires Group, which could ensure that the price offered would be low.

Because of Mr Mitchell’s inexperience, NPF sold to Lemex International at 10 cents below Swire’s intended final offer but in any event NPF’s realised losses on these investments, totalling $A23,483,324 and unrealised loss of $A2,392,291 (for a total of $A25,875,615) made huge inroads into members funds. The main procedural short-comings regarding these investments included management’s failure to provide the board with expert investment advice and failure to keep the board advised of the on-market transactions, some of which exceeded management’s delegated authority.

Once again there was failure by the board to seek out proper investment advice and failure to exercise proper control over management.

There was also failure by DoF to provide critical comment on NPF’s strategies. There was improper conduct by Minister Chris Haiveta in enthusiastically approving Mr Copland’s misguided strategy of leading NPF into a K40 million strategy to take over, merge and manage two of PNG’s largest retail and manufacturing corporations, without seeking expert advice from DoF or elsewhere.

The main responsibility for leading NPF into the misguided attempt to takeover CXL and STC must be borne by Mr Copland, who conceived and inspired the policy, Mr Kaul and Mr Wright who implemented it and Minister Haiveta who gave it such enthusiastic and unqualified support without seeking expert advice.

The commission’s major findings in the context of the commission’s Terms of Reference are listed in paragraph 10 of Schedule 4D.

Executive Summary Schedule 4E Macmin NL


NPF was enticed into the Macmin investment by an address given to the NPF board by Macmin managing director Robert McNeil.

Macmin was a small or junior minerals exploration company. It was avowedly a high risk, speculative enterprise, which had interests in the Wapolu and Wild Dog projects in PNG.

Its aim was not so much to be the owner of a rich, income-producing mine as to be alert to bringing in joint venture partners to the early stage of a project with a view to selling its interest when there was a chance of a quick profit. For these endeavours it was chronically under funded. It was essentially a “father and son” corporation.

Mr Copland and Mr Wright and also Mr Kaul became enthusiastic about Macmin’s prospects and set out to obtain a significant interest in the company for NPF.