N.G.G. Pyramid
pp. 75-76 · Read in the full issue
Sydney Writer’s History Of Goldfields Co.
WHEN New Guinea Goldfields Ltd. decided to write down its issued capi tal from £4,472,000 to a little more than £1,100,000 (see report of meeting else where in this issue), a writer in “Smith’s Weekly,” Sydney, was bitter, and thus described the history of the Co.: The foundation of the financial pyramid was Edie Creek Pty. Ltd., a company registered in Rabaul in August, 1927, with an authorised capital of £500,000, About two years later the published ac counts showed that the issued capital was then £363,207 in £1 shares, of which, all but seven were paid up.
This company lived less than two years and in the middle of 1929 sold itself to New Guinea Goldfields Ltd. The “water” added in this transaction was in the vicinity of £140,000.
The second stone was laid in Novem ber, 1928, when Ellyou Goldfields De velopment Corporation Ltd., was regis tered in London. Its authorised capital was £300,000, in 1,200,000 5/ shares, and had objects somewhat similar to those of the Edie Creek company. The main intention was the development of the field with the idea of forming another company later on. It also took up 22,284 £1 ordinary shares in Edie Development Co, Ltd., and 55,000 5/ shares, together with options over 124,230 shares in New Guinea Goldfields Exploration Ltd.
But two injections in the pyramiding scheme were not enough. For taxation reasons it was decided to add yet an other.
This took the shape of another new
company, registered in September, 1929, as Edie Development Co. Ltd., with an authorised capital of £250,000 in 5/shares, which took over the assets and obligations of the Ellyou Goldfields De velopment Corporation Ltd. Included amongst these were the acquisition at cost of the properties, options and rights that company owned.
In July the following year this com pany was interred along with the rest.
In the meantime the final operating company that is now so well known to operators, New Guinea Goldfields, Ltd., was registered.
This was the peak of the pyramid. Com pared with its ancestors, its authorised capital assumed colossal proportions when 5,250,000 shares of £1 each were registered. The substantial increase was necessary because it was at this time that the infusion of an enormous volume of “water” was contemplated.
Shareholders in the Edie Development Co. Ltd., who had been issued a similar number of shares to that previously held in the Ellyou Corporation received 187½ £1 shares in New Guinea Goldfields Ltd.,
for every 100 5/ shares held in Edie Development. In addition a cash distri bution of 2/1 per 100 shares was made, while they were also given the option of applying for a further 75 shares at £1 a share. If this option was exercised, a further 37½ shares were issued free.
In other words, excluding the 2/1 cash distribution, this is how shareholders in Edie Development Co. Ltd. fared, assum ing that they exercised the option to put up an additional £75 to get £112/10/ of capital.
Shares issued for assets taken over (previously represented by £250,000 of capital) . . . . £1,875,000 Cash subscriptions . . . . 750,000 Bonus thereon . . . . 375,000 Total . . . . 3,000,000
Mining Trust Ltd. guaranteed the sub scription of this £750,000 of new capi tal for a commission of 75,000 £1 shares.
And as it was proposed to issue 1,475,000 shares to other claim holders, the issued capital proposed about six years ago was to be £4,550,000. The actual figure, how ever, was not quite so heavy, probably because of some adjustment. But last week’s meeting of shareholders was asked to write 75 per cent, off £4,472,332, meaning, in other words, that £4,472,332 of book assets are worth only £1,118,083.
This is a truer valuation, and if the cpntinuous injections of “water” had never been made, shareholders would have been much better off in the long run. Instead of seeing the value of their shares never much higher than 50 per cent, of par, there would, doubtless, have been a premium. This would have arisen because the 4 per cent, dividends that have been paid would have allowed a higher distribution on the smaller capi tal.
This colossal revaluation of assets should be a lesson to others who con template the capitalisation of optimism.