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National Provident Fund Final Report [Part 44]

October 6, 2015 1 comment

Below is the forty-fourth 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 44th 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 4G Continued 

This was corrected by regazettal on April 15, 1996, but meanwhile all previous transactions in OSL or NML shares exceeding K500,000 between January 26 and April 15, 1996 were invalid, as they still required specific approval from the Minister.

In paragraph 4.4.6, the commission indicated that several of the sales of OSL shares in 1996 were without NPF board approval.

Furthermore, BPNG approval for the sales had been on the condition that the proceeds of the sale must be brought back into the country. This did not happen as Mr Wright authorised the brokers, Wilson HTM, to use the funds to purchase other ASX listed shares.

Findings 

(a) THE sale on February 14 and 15, 1996 of 1,000,000 shares for $A1,316,288 and the three sales after May 27, 1996, totalling 1,000,000 shares were not authorised by the NPF board;
(b) MR Kaul and Mr Wright were responsible for these unauthorised sales in breach of their duty to the NPF contributors;
(c) THE NPF board contravened Section 61 of the PF(M) Act for any shares sold without Ministerial approval prior to April 15, 1996, where the value of the sale transaction was more than K500,000;
(d) THE NPF board contravened Section 61 of the PF(M) Act for any shares sold without Ministerial approval on and after April 15, 1996, where the value of the transaction was over K1,000,000;
(e) MR Kaul failed in his fiduciary duty to the members regarding sales not authorised by the board;
(f) MR Wright failed in his duty to NPF for his part in these unauthorised sales;
(g) NPF had clearly sold the two million shares before it obtained Internal Revenue Commission of Papua New Guinea (IRC) Tax clearance and the BPNG approval. This contravened the requirements of the BPNG and the IRC; and
(h) BASED on NPF’s Wilson HTM statement (Commission Document 748), the proceeds from the sale were used to purchase other ASX listed shares. The proceeds were not brought back into Papua New Guinea as directed by the BPNG.

Transactions In OSL Shares 1997-1999 

In 1997, NPF held no OSL shares and there were no transactions.

On December 16, 1998, NPF management purchased 222,000 OSL shares through Wilson HTM and then sold them on January 17, 1999, for a loss. The NPF board was never informed about these two transactions. The transactions may have been required by Mr Wright to obtain share scrip as security for his unauthorised transactions in options, which were occurring at that time.

Findings 

(a) THE NPF board did not approve the purchases and sales of 222,000 OSL shares in December 1998/January 1999;
(b) THE officers responsible breached their duty and may be personally liable for the loss, unless it can be shown that their actions were “in good faith”.

Dividends 

OSL paid dividends between 1992 and December 1999 of $A59.046 million. NPF received dividends of K49,500 in 1995 and K20,000 in 1996.

Concluding Comments

The main features of the NPF’s investment in OSL was the fact that it held a relatively safe and profitable dividend-providing investment in a large and proven PNG resource company.

Mr Copland, Mr Kaul and Mr Wright seemed driven to become in-volved in more risky smaller ventures in which NPF could have some control and in which there was a chance of a windfall from corporate takeovers and the like.

To fund such an investment with more “upside”, management decided to sell off the OSL investment. Making a grave error in judgment and without expert investment advice, management sought approval from the Board of Trustees, by circular resolution, to sell off the OSL shares and invest the proceeds of the sale by acquiring shares in NML.

In gross breach of fiduciary duty the trustees approved.

Thereafter, management set the pace for a total sell-down of OSL, often proceeding without board approval and sometimes without the board’s knowledge.

NPF management, particularly Mr Wright and Mr Kaul, and the NPF trustees, were in breach of their duties to the board and to the members of NPF in their handling of this investment.

Executive Summary Schedule 4H Orogen Minerals Limited 

Introduction 

NPF’s investment in Orogen proved to be moderately profitable as shares purchased at $A29,487,447 (K32,241,239) were sold at $A30,809,481 (K42,229,956), resulting in a realised capital gain of $A1.32 million (K9.9 million). In kina terms, this represents an annualised return on capital of 10 per cent per annum for the period NPF held this investment. In addition, NPF received dividends of K2,506,627. Between April and June 1999, the investment had to be sold off to relieve NPF’s debt burden.

From start to finish, however, this investment was marred by NPF management’s cavalier approach to its obligation to properly brief the Board of Trustees about transactions being undertaken on behalf of NPF. Management also failed to obtain expert independent advice regarding its large initial investment in Orogen and subsequent “on market” purchases.

It also failed to seek such advice and provide it to the board when Orogen share prices fell steadily from 1997 onwards.

These breaches in management’s common law duties to the NPF board are dealt with in detail in the text of the report and in the list of findings in paragraph 8.

To some extent, the trustees were therefore “kept in the dark” about unauthorised transactions and management did not properly advised them about the risks and prospects of this investment.

Nevertheless, the trustees also failed in their fiduciary duty to maintain control of management and to challenge management over its failure to provide proper advice to the board.

The trustees also failed to criticise and reprimand management about those unauthorised transactions, which were subsequently disclosed to the board.

The trustees breaches of fiduciary duty to the NPF members are detailed within the text and in the list of findings at the rear of the report.

Investment In Orogen 1996 

The most serious breaches of duty occurred at the commencement of this investment.

There were known risks associated with investing in Orogen as Orogen intended to invest in PNG resource stock, which is inevitably risky.

Despite these known risks the trustees approved an investment of K34,999,640 for 20 million shares in the initial share issue with very little discussion taking place and no expert investment analysis regarding the proposal. Management (Mr Kaul and Mr Wright) and the trustees all failed in their duty, in this regard.

The Department of Finance (DoF) analysis of this investment was very inadequate and it gave an unsubstantiated recommendation for the Minister to approve the investment. Although the full number of 20 million shares was cut back, management acted without board authority to purchase additional shares “on market” (through the stock exchange) at a higher price than the board had approved.

Findings

(a) MANAGEMENT (specifically Mr Wright and Mr Kaul), were in breach of their duty to the board by not providing independent expert investment advice before recommending an initial investment of K34,999,640 in Orogen, which involved significant investment risks;
(b) THE trustees failed their fiduciary duty to the NPF members by approving the investment of K34,999,640, without first seeking independent expert investment advice;
(c) THE NPF management did not obtain board approval before making additional transactions through book building or the additional “on market” transactions at higher prices than the board had approved;
(d) MINISTERIAL approval was obtained after NPF had contracted liability, which it had done so without board authority. The Minister failed to query or reprimand NPF about this breach of Section 61 of the PF(M) Act;
(e) WHERE NPF management acted in excess of their delegated authority and without the Board of Trustees approval, they were in breach of their duty to the NPF. If losses occurred, the officers concerned may be personally liable, unless they can successfully claim that they “acted in good faith”;
(f) THERE is no clear documentary evidence to conclusively show who initiated these transactions, however Yamyam Gire and Haro Mekere have given evidence (Transcript pp. 2558 – 2576 and 4104-4106 respectively) that during the period in question, Mr Wright usually gave instructions to the brokers. Mr Kaul has said that in most cases he was aware of Mr Wright’s transactions and would have approved, at least implicitly (Transcript p. 5090).
Other confidential evidence available to the commission confirms that it was usually Mr Wright who gave instructions to Wilson HTM;
(g) MR Kaul’s letter of the November 15, 1996, (Exhibit OR44), expressly showed that NPF requested Ministerial approval after liability had been contracted. Mr Haiveta’s response (Exhibit OR45) does not say anything in relation to this obvious breach by NPF. Mr Haiveta was remiss in not criticising NPF and demanding that Ministerial approval be obtained before NPF made acquisitions that required such approval.

Investment In Orogen 1997 Sales 1997 

On May 5, the NPF board meeting resolved to “approve in principle as a matter of policy that where required a certain parcel should be realised where the need to use some cash arises in investment initiatives . . .”.

The minutes show that Mr Copland advocated this policy so that NPF could “realise some of the shares into cash and invest in areas where the board will have influence as a matter of policy” (presumably by obtaining a seat on an “policy” investee company’s board).

This resolution was wrongly taken by management as authorising it to sell Orogen shares without reference to the board to approve the sale.

The following sales occurred in 1997: See table 1 below.

image a

Source : NPF accounting records/ Wilson HTM & Merrill Lynch statements (Exhibits OR11 OR13 ).

These sales did not have NPF board approval and were improper breaches of management’s duty to the board.

Findings

(a) MANAGEMENT (especially Mr Kaul and Mr Wright) directed Wilson HTM to sell 10 parcels of shares in June 1997, without the prior approval of the NPF board;
(b) MANAGEMENT, specifically Mr Kaul and Mr Wright, did not subsequently explicitly inform the board about these unauthorised “on market” share sales and the board’s ratification was not obtained. After September 1997 when the Orogen share price began to fall sharply from $A3.9 to bottom at $A1.6 in March 1999, NPF management failed to provide expert evaluation of this investment and the trustees failed to seek it. This was a breach of duty by both management and the Trustees.

Purchases in 1997

Throughout 1997, NPF management continued to acquire Orogen shares and did so without seeking the requisite NPF Board approval.

The purchases were as follows:- See table 2 below.

image b

Sources: NPF accounting records/ Wilson HTM statements/ Merrill Lynch Statement — (Exhibits OR11-OR13).

There were references to some of these purchases in the equity portfolio schedules filed with the board papers but the references were out of date and inaccurate. They were sufficient, however, to have put the trustees on notice that unauthorised purchases were occurring. Failure by the trustees to observe these transactions and to reprimand management was a breach of fiduciary duty by all trustees holding office at the time. Clearly, the conduct of management, namely Mr Wright and Mr Kaul, was improper and they were in breach of their duties to the NPF Board.

Findings

(a) NPF management directed 12 “on-market” purchases totalling 1,087,973 shares for a total cost of $A3,917,879, without the requisite prior board approval;
(b) The purchases were later reported on the monthly equity schedules tabled at subsequent board meetings but the information was sometimes inaccurate and well out of time. The attention of the Trustees was not drawn explicitly to the equity schedules;
(c) MANAGEMENT, particularly Mr Wright and Mr Kaul, were in breach, respectively, of their duty and fiduciary duty to NPF members by this failure;
(d) THE trustees were in breach of their fiduciary duty in not monitoring management’s unauthorised activities and bringing them under control;
(e) THERE was a breach of Section 61 of the PF(M) Act with regard to the shares purchased on the October 2, 1997, as Ministerial approval was not sought or given.

TO BE CONTINUED

National Provident Fund Final Report [Part 43]

October 5, 2015 1 comment

Below we continue the re-publication 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.

The Inquiry findings provide an unprecedented insight into the methods that are still being used today by the mobocracy that is routinely plundering our government finances. The inquiry uncovered for the first time how the Waigani mafia organise complex frauds using mate-networks, shelf companies, proxy shareholders, and a willing fraternity of lawyers, accountants, bankers and other expert professionals.

The Commission findings also reveal the one grand truth at the centre of all the corruption in Papua New Guinea: it is pure theft, no different from an ordinary bank robbery. However, if you steal the money by setting up, for instance, a bogus land transaction, the crude nature of the criminal enterprise is disguised to all but forensic experts, making it seem the perfect crime! 

NPF Final Report

This is the 43rd 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 4F Continued 

Table of Niugini Mining share purchases in 1996 

npf 43 a

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

The purchases in January to February were authorised by the board by circular resolutions. No advice was given to the trustees other than that Mr Wright believed it was a good idea and that some Oil Search shares should be sold to finance Niugini Mining purchases as the latter had more significant upside than Oil Search.

The board endeavoured to inject some control over the widespread use of circular resolutions by resolving on February 23, 1996:

“. . . that management seek formal approval from the board for all circular resolutions obtained in between board meetings by tabling those resolutions at the first board meeting after the resolution has been taken.” (Exhibit NM58)

Findings

(a) THE NPF management, (particularly Mr Kaul and Mr Wright) did not present to the board any independent advice in respect of the investment in Niugini Mining;
(b) MR Kaul and Mr Wright failed to properly discharge their duties by not making timely disclosure to the Board of Trustees of the unauthorised purchases;
(c) THE NPF management failed to properly discharge their duties by purchasing shares without the board’s approval
(d) THE Board of Trustees failed to reprimand or question management over the unauthorised share transactions; and
(e) NPF management acted in excess of their delegated authority by purchasing shares without express board approval.

Sale Of Shares In 1996

In 1996, NPF also sold shares as per the following table. This was authorised by management without board approval.

Table of Niugini Mining share sales – 1996 

npf 43 b

Source: NPF accounting records/Wilson HTM records (CD 748), Exhibits NM2-NM4.

Findings

(a) MANAGEMENT sold 370,000 shares in 1996 for $A1,292,974 without prior board discussion or approval and the sale was not subsequently ratified by a formal board resolution. No loss was incurred by NPF;
(b) SPECIFIC Ministerial approval was not required as the sales were within the general K1 million approval previously granted by Minister Haiveta;
(c) ROBERT Kaul and Noel Wright jointly bear responsibility for these unauthorised sales. It was a breach of Mr Kaul’s fiduciary duty to the contributors and a breach of Mr Wright’s duty to NPF. No loss to NPF has been established.

Sale Of Shares – 1997 

In January and February 1997, NPF management arranged the sale of 1,300,000 for $A4,090,158 without the approval of the NPF board. In doing this, Mr Wright was in breach of his duty to the NPF board and Mr Kaul who, as managing director, was also a trustee, was in breach of his fiduciary duty to the members.

Management never disclosed these sales to the trustees explicitly but they were shown in the schedule of investments placed before the board in May, 1997. This did not provoke discussion at the May board meeting and the trustees once again failed to reprimand management for exceeding their authority.

Findings 

(a) NPF management sold 1,300,000 shares in 1997 for $A4,090,158.00 (K4,377,541) without prior board discussion or approval and the sales were not subsequently ratified by the board;
(b) THE sale on February 21, 1997, of $A2,013,954 (K2,169,040) was more than K1 million and therefore required ministerial approval. As ministerial approval was not obtained there was a breach of Section 61 of the PF(M) Act;
(c) MR Kaul and Mr Wright were responsible and Mr Kaul breached his fiduciary duty to the contributors and Mr Wright breached his duty to NPF. No loss to the NPF has been established.

Sale Of Shares – 1998

Once again, management purchased 32,300 shares on January 12, 1998, and sold them again on January 29, 1998, through Wilson HTM without the knowledge or authority of the board. A profit of $A13,890 was made. It was yet another breach of duty by Mr Wright and possibly Mr Kaul, which may have had connections with Mr Wright’s trading in Lihir options.

Conclusion 

This risky, unwise investment returned a small profit and was sold off voluntarily, not part of the 1999 forced sale. Both management and the trustees displayed the same failure to perform their common law and fiduciary duties as demonstrated throughout the period under review.

Executive Summary Schedule 4G 

Introduction

Oil Search Ltd (OSL) was PNG’s largest oil and gas explorer and producer in December 1995 and the fourth largest oil and gas exploration company registered on the Australian Stock Exchange (ASX).

NPF had bought 4,954,000 shares in OSL in 1994 and was still holding them at the beginning of the period under review. During 1996 NPF sold off all its OSL shares for a realised profit of $A3,571,011.

In 1998 NPF acquired 222,000 shares and disposed of them in January 1999 for a loss. See table 6.

npf 43 d

Source: NPF accounting records / Wilson HTM records (Commission Documents 748, 525) Exhibits OS4 and OS5.

The total realised profit on OSL at December 31, 1999, was $A3,034,637.

The stated reason put forward by Mr Wright for selling off OSL shares in 1996 was because he thought the share price would decline and he recommended that the proceeds of the sale should be used to purchase shares in Niugini Mining Ltd (NML) which he said had more “upside” than OSL.

In fact, the price of OSL rose significantly after NPF sold out and the price of NML fell significantly after NPF bought in.

Oil Search Share Price 

npf 43 e

Source: ASX (Commission Document 752)

Sale Of OSL In 1996 

During the time NPF held the OSL shares, they showed an unrealised gain of $A2,724,700 at December 31, 1995. Management never reported to the board on, or analysed, the investment.

Attractiveness Of NML – The Lihir Factor 

Mr Wright and Mr Kaul, with the enthusiastic support of Mr Copland and Minister Haiveta, felt NML was selling at a “one off” low price and acquiring NML shares would give NPF an interest in Lihir Gold, as NML held 17.15 per cent of Lihir. A management paper, signed by Mr Wright and Mr Kaul, was circulated to NPF trustees on January 11, 1996, advocating the disposal of 954,000 OSL shares, in three tranches, at $A1.20 and acquiring 420,000 NML shares at $A2.70.

The NPF board approved this proposal by way of circular resolution, despite receiving no investment advice or report.

NPF sold its OSL shares on January 11 and 12, at $A1.20 and $A1.23 respectively, after which the price rose (paragraph 4.3)

Further Sales

At the 99th NPF board meeting on February 23, 1996, Mr Kaul sought approval to sell a further two million OSL shares. The board resolved to approve the sale. Mr Wright and Mr Kaul did not advise the board they had already sold 1,000,000 OSL shares, without the board’s knowledge or approval. Another 100,000 shares were sold (on their prior direction) on the day of the meeting. This was a breach of duty by Mr Kaul and Mr Wright and amounted to improper conduct.

Management then proceeded to sell off the remaining two million OSL shares without further reference to the board. When the board was informed of this at the June 1996 meeting, there was no criticism of management for these further breaches of duty.

The sale of NPF’s OSL shares in 1996 was as follows:

npf 43 c

Source : NP accounting records/ Wilson HTM records (Commission Documents 748, 525), tendered document OS4 and OS5.

Findings 

The sales of 1,100,000 shares, prior to the February 23, 1996, NPF Board resolution, were made without the Board of Trustees’ approval.

Lack of Ministerial Approval

Although the Minister had purported to grant a standing approval in January 1996, for NPF to acquire and dispose of shares in batches up to a limit of K1 million without needing to apply to him, that approval was invalid as it had been signed and gazetted using the wrong sections of the PF(M) Act.

TO BE CONTINUED

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.

1998 

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.

Findings 

(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.

Conclusion 

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 

Introduction 

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.

TO BE CONTINUED