Lion Diversified contracts out mining work due to lack of capital

KUALA LUMPUR: Lion Diversified Holdings Bhd (LDHB) is giving exclusive right to Lion Tin Sdn Bhd, a company ultimately owned by its chairman Tan Sri William Cheng and managing director Tan Sri Cheng Yong Kim, to prospect and mine on 800 acres in Kuala Langat, Selangor.

The Practice Note 17 company said its unit Banting Resources Sdn Bhd (BRSB) entered into a contract-to-work agreement with Lion Tin on Wednesday as it was short of financial resources to undertake the mining activities itself.

LDHB told Bursa Malaysia that BRSB would be paid a mining tribute equivalent to 10% of the revenue net of royalty from each type of mineral mined, processed and sold in exchange for giving Lion Tin the mining right for the six pieces of land.

Lion Tin will carry out mining activities for a period of 10 years. In the event the initial term is extended, it will be for a further period of five years.

BRSB will also give Lion Tin the option to buy the mining land at any time starting from six months from today and expiring on the expiry or termination of the contract-to-work agreement. The price will be determined based on the average of the market values of the mining land as assessed by  two land valuers (to be separately appointed by the parties respectively).

“The proposed award of contract will allow BRSB to realise potential earnings from the mining activities to be undertaken on the mining land without incurring material operational and capital costs in the process as Lion Tin is responsible for bearing such costs to extract the minerals,” LDHB said.

The company noted that it had limited financial resources to undertake the mining activities itself, being a PN17 affected issuer.

Within the anticipated implementation timeframe of up to 18 months, LDHB estimated that it would have to incur working capital of RM20mil and capital expenditure of RM113mil for plant and machinery if it shouldered the mining work itself .

It said that subject to the conditions precedent set out in the agreement being fulfilled, the contract was expected to take off in the fourth quarter of 2017. 

BRSB had in March 2013 applied to the relevant state authority for proprietary mining licences for the exploration, extraction, mining, production, milling or other processing of tin and other mineral deposits - including sand, silica, clay and amang - found either in or on the land.

In September 2013 BRSB inked an agreement with Lion Tin to undertake the mining activities. The following month BRSB clinched a permit to extract sand from part of the mining land measuring 120 acres, and the permit was subsequently renewed on quarterly basis.

LDHB’s shareholders gave the approval for it to enter into recurrent related party transactions of a revenue or trading nature on Dec 19, 2013, at the company’s AGM and the mandate has been renewed yearly.

LDHB managing director Cheng Yong Kim, 67, is the nephew of the company’s substantial shareholder, William Cheng, 74.
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