The Bhutanese Leading the way.
A record breaking 5831 % return is being provided to shareholders
Jigme Mining Corporation Limited (JMCL) which managed the Chunaikhola Dolomite mine from 2005 to 2020 is set to liquidate its company by distributing its bid money war chest of Nu 1.2 bn to its shareholders. In addition, it will also liquidate other assets of around Nu 193 mn meaning a record total payout of Nu 1.393 bn.
JMCL was regarded as one of the frontrunners in any auction of the mine but the company has decided to call its quits for now given that there is no sign that the government will relinquish control of the Dolomite mine any time soon.
Record exit price
The exit price has been set at Nu 583.31 per share against the face value of Nu 10 per share.
Simply put if you own even own one share worth Nu 10 you will get back Nu 583.31 for it.
So a person holding 10 shares worth Nu 100 of will get back Nu 5,833.1 , someone holding 100 shares worth Nu 1000 will get 58,331.
A shareholder holding 1000 shares worth Nu 10,000 will get back Nu 583,310 and someone holding 10,000 shares worth Nu 100,000 will get back Nu 5.83 mn.
This is the highest exit price ever in Bhutan from a company that is liquidating itself or closing shop.
The only other company that comes close is S.D Eastern which gave an exit value of Nu 162.80 per share against a value of Nu 10 per share. However, here S.D Eastern had not saved any reserve money for auction as coal had been classified as a strategic mineral and it was clear that the government would take over and not auction it since domestic industries needed it.
Another major exit happened in the early 2000’s when the Tashi Group’s Coca Cola company claimed losses and controversially gave back only the face value of the shares to shareholders leaving a sour taste in the mouths of many investors who had expected much better from Bhutan’s largest conglomerate.
JMCL’s exit price is one of the highest in the world as it is giving back a return of 5,831% percent to its shareholders. This in a 15-year period is a return higher than most highly profitable companies in the world and is comparable to modern tech stocks.
Distributing the 1.393 bn
As per the the Royal Securities Exchange of Bhutan (RSEB) website JMCL has 2.388 mn in paid up shares.
The beneficiary of this largess will be 443 shareholders of which 440 shareholders who constitute the public own 28.87 percent shares mandatorily floated to the public back in 2005 as per the then laws.
These 440 shareholders holding 28.87% will be getting around Nu 402.280 mn in payouts coming to an average of Nu 914,000 each though the actual payout will vary depending on the exact shareholdings.
Then 71.13 percent of the payout will go to the three original promoters and largest shareholders.
Ugen Tsechup Dorji as the largest shareholder with 29.15% will get Nu 406.18 mn. This is followed by Dasho Ugyen Dorji with 27.99% will get Nu 390.01 mn and then Rinzin Ongdra Wangchuk with 14% will get 195.07 mn.
Poor initial response to JMCL stocks in 2005
Strangely when the JMCL did its first Initial Public Offering (IPO) via BoB after its formation in 2005 it got a poor response with the majority of this 30 percent stock not being sold.
It was seen as risky and was also not as well known as the Coca Cola IPO.
Once the company started making profits then a year or two later the available stocks got oversubscribed.
The company offered annual dividends as high as 350% in its year of operations never going below 100% on the lower end.
A JMCL board member on the condition of anonymity said that the management and promoters of the company wanted to give back good value to its shareholders in a transparent manner while closing the company.
Why Nu 1.2 bn bidding war chest was given up
The board member clarified that the Nu 1.2 bn cash reserve had been kept aside from the profit after taxes to build a bidding chest when the company’s time period ran out in 2020.
This means that JMCL which had bid and won the mine for Nu 390 mn in 2005 was willing to bid even much higher than Nu 1.2 bn, as the full bidding amount does not have to be paid upfront with 1.2 bn only being part of an initial payout with the rest being paid over 15 years.
The dolomite mine was supposed to be bid out in 3rd June 2020 and there were around eight eligible bidders including JMCL and State Mining Corporation Limited (SMCL) who got to submit their bid documents along with the largest companies in Bhutan. The Ministry of Economic Affairs was all set to go ahead with the auction process.
The JMCL board member said that there were rumors in the market of people willing to bid Nu 2 bn to Nu 3 bn even.
10 percent of the bid value would have to be paid the next day while the remaining amount would be divided over 15 years.
However, on 1st June 2020 a surprise letter from the Prime Minister’s Office cancelled the auction saying that given COVID-19 the likelihood of auctioning the mines as a profitable venture to both the private sector and the government appeared slim, and this compelled it to reconsider the timeline.
The board member said JMCL had held onto the Nu 1.2 bn for the auction but first the auction dates kept being postponed and when it was supposed to happen in June 2020 then it was kept on hold and handed over to SMCL.
He said JMCL was fine with the mining bill giving 49 percent ownership to the public and 51 percent to the promoters as well as other provisions, however, in the National Council the bill underwent a complete change where all major mines were to be given to State Owned Enterprises (SOEs) only.
The board member, however, did not rule out bidding in the future if there is an opportunity.
The Prime Minister Dasho (Dr) Lotay Tshering said that the dolomite and gypsum mines will continue to remain under SMCL until the pandemic is over or when the Mines and Minerals Act is ready and until then no auction will even be considered (see story on pg 4).
Lyonchhen praised JMCL for setting up the mine, making it lucrative and opening up new markets.
Private sector efficiency
The JMCL story in one aspect is of private sector efficiency where it competitively bid and took over a relatively unknown mine where even the public initially did not want to buy shares, but increased production from 0.20 mn metric tonnes in 2005 to 2.85 mn metric tons per year in 2019.
It also explored and significantly expanded the dolomite market in India and left behind a well oiled system and ready market in place for Bhutanese dolomite that the SMCL is now benefitting from.
SMCL has in fact used the same set up to even get higher prices for dolomite than JMCL (see separate story on pg 1).
In these 15 years JMCL paid the government Nu 3.239 bn in taxes, mineral royalty, mineral rent, lease rent and the license fee and employed 243 people who now continue to work under SMCL.
Apart from that it created wealth for its 443 shareholders as JMCL shares became a coveted one due to the sky high annual dividends.
This is compared to the government running the Gypsum mines till the 1980’s at a loss and the NRDCL losing Nu 400 mn a few years ago in a disastrous bid to operate stone quarries.
Under the scanner
However, at the same time JMCL like other major mines has also come under the scanner for its mining and corporate practices and this in turn also exposed a very weak regulatory environment and monitoring by government agencies.
This was encapsulated in a 2014 Performance Audit report by the Royal Audit Authority (RAA) on the entire mining sector but particularly focusing on the dolomite, coal and gypsum mines.
There were similar findings on all major mines.
In JMCL a comparison of royalty rates carried out by RAA showed that the export rate royalty applied for Dolomite at Nu 40 per metric ton (MT) was lower than other minerals which was at Nu 100 MT. The RAA computed the notional loss at Nu 328.860 mn from 2008 to 2012.
The RAA also pointed out inadequate protection of the 30 percent public or minority shareholders. JMCL had formed a subsidiary company Jigme Industries Private Limited (JIPL) for crushing and screening of dolomite for export and supply to domestic markets where the proportion of shareholding of minority shareholders in JIPL had decreased to 15% and the promoter’s share increased to 85%.
The involvement of JIPL in JMCL as an intermediary company gave rise to conflict of interest and rates charged to JIPL were determined in 2005 and not revised since then.
RAA also raised issue on the high commissions to board members saying that from 2010 to 2013 Nu 60 mn was paid as commission to Directors of JMCL while another Nu 30 mn was paid to Directors of JIPL. A donation of Nu 4.9 mn was made by JMCL to directors and other individuals from 2009-2012.
JMCL had said it had the legal right to form subsidiary companies and the expenses and commissions were authorized by the board in line with international practices to pay a part of the profit to the Directors as commissions.
Similar findings as the above were also raised against the Gypsum and Coal mines.
The RAA on review of the of the system of transportation of minerals from the mine sites to stockyards pertaining to dolomite, gypsum and coal found lack of appropriate monitoring controls by the Department of Geology and Mines.
Findings like this also fired up the National Council to demand nationalization of mines impacting the current mining bill too.
After the 2014 audit report the new mining bill has put in place a separate mining authority for monitoring and the Companies Act also underwent changes to protect minority shareholders and improve corporate practices.
