Thursday, 6 February 2014

Provenance Finance ramps Northern Mining

When an investment vehicle makes a large investment in a share with low liquidity, the purchase by itself pushes the share price higher, leading to unrealized profits. This would seem obvious, that an entity purchasing all offered shares affects the price, but everyone pretends this is not the case. When a fund ramps a share by making large purchases, media shills regard this as great "stock-picking", as if the ramp was completely coincidental to the large purchases. Of course, smallcap funds can't actually sell their holdings at ramped book prices, since selling would lower the share prices. Unrealized and unrealizable profit explains why 90% of Australian smallcap funds outperform their index, the "outperformance" is entirely manufactured by themselves.

But why would an investment entity want to ramp a holding? Fees are charged based on unrealized profits, and ramped holdings can be used to borrow against or inflate the books of an associated company. Most commonly, however, the investment entity is issuing shares or units based on the ramped holdings, effectively selling the ramped holdings to hapless investors. Ramps accompanying new investments in Australia have largely dispensed with such formalities as pretexts.

On 9 August 2013, Provenance Finance Limited BVI was issued 87m shares at $0.006 in Northern Mining (NMI.AX) and took control of the board. In August and November 2013 NMI then issued 502m shares at $0.012, bringing total shares outstanding to 938m. Based on no news whatsoever NMI's share price was ramped tenfold in sharp steps, from $0.006 in June 2013 to $0.06 in February 2014. The "profit" created for Provenance Finance and associates holding NMI shares has nothing whatsoever to do with "stockpicking".

As part of the takeover, a director of NMI sold his shareholding to a mysterious entity named Daso Investment Limited, described in disclosure documents as an "investment fund with a focus in energy and resource sectors". Not much else at all is known about Daso, but both Provenance Finance and Daso Investment list their address at the P.O. box used by NMI.

Is it stupid to have your rathole list the same address as the company? Not under the zero enforcement policy instituted by ASIC, which recently confirmed it will do nothing about insider trading, as long as it is denied. ASIC even provided the explanation to be used by insider traders, namely that they didn't know the insider information was price sensitive. ASIC also created a precedent where literally any and all obviously price-sensitive insider information can be traded on, ridiculously enough including undisclosed takeover proposals.


  1. I knew there were some things wrong with our markets, and I knew that ASIC didn't really care to stop the fraud, but it's interesting to see it clearly documented. This kind of thing can keep on going until the liquidity dries up, at which point all fictional profits suddenly vanish.

  2. Yeah exactly, works well as long as money is pumped in, collapses if investors actually try to cash out. There's a word for this kind of scheme...