How Germans are being sizzled
by hot Australian stocks
By Andrew Main
It is a long way from the Snowy Mountains town of
Adelong to Berlin, but an internet-driven
share-buying frenzy has brought the two together
in a way which illustrates that the world's most
exciting new medium can be a two-edged sword.
The Australian Stock Exchange suspended
shares in Adelong Consolidated Gold Mining NL
at $1.46 on January 27 after they spiked up to
$1.55, leaving hundreds of Germans, who now
own 73 per cent of the stock, stranded and
incredulous. The Germans had bought into the
stock late in 1999 and early this year from prices
around 20¢, after reading about it on German
websites and after it listed in Berlin on December
9.
German investors have had a surprisingly long
love affair with the small end of the sharemarket in
Australia, considering the share price
shellackings this market has regularly handed out.
The irritations in Germany of a high personal tax
rate and a staid sharemarket full of interlocking
shareholdings mean that German investors have
long seen Australian stocks as a perfect
destination for their undeclared earnings. As one
told The Australian Financial Review last week, "You
can only lose 100 per cent but you can make 1000
per cent."
The gold boom of the mid-1980s gave them a
successful canter in tiddler gold stocks, many of
which climbed sharply because of gold
discoveries or old-fashioned stock promotion. The
slump in the gold price through the 1990s eroded
almost all the capital gains, but the early investors
who remembered the proverb that "gold shares
are for buying and selling, not holding" did well
enough to keep the myth of the Australian El
Dorado alive.
The game began again in 1999 when Ludger
Kohmascher, scion of an Osnabruck frozen foods
family, made millions trading shares in E*Trade
Australia. Kohmascher has long been a visitor to
Australia because he suffers a crippling bone
disease, ankylosing spondylitis, which responds
well to sunshine.
He had bought in at about $2.51 a share in late
April, and once German investors saw the price
move, they piled in. Kohmascher sold much of the
stock in Germany on the "over-the-counter"
market and it rose to $11. He is still understood to
have some of the stock, but is well below the 5.5
per cent level, having sold out at about $8.
The stock price now? Back where Kohmascher
bought in. But then, word of his coup spread fast
in Germany and several websites, particularly
Zockeronline.de and Wallstreetonline.de, started
looking in earnest at potentially exciting corporate
situations in Australia.
Back in Adelong, which is midway between Tumut
and Wagga, the local mining company's situation
was anything but exciting. The company had been
floated in 1997 at 25¢ a share by a syndicate who
wanted to develop the thin but rich seam that had
given up 800,000 ounces of gold between the late
1800s and World War I. The issue raised $6
million, but by April 1999 the project had still not
reached the commissioning stage and most of the
money had been spent.
Jon Starink, an engineer who was one of the
original significant investors, had made an art of
buying second-hand mining equipment for reuse.
But it emerged that some economies, such as a
lack of infill drilling, had seriously hampered the
project's ability to turn what is known in the trade
as a resource into a mineable gold reserve. The
official resource is 146,000 oz, a tiddler by current
standards.
Adelong directors approached a dealer called
Craig Manners, son of the Kalgoorlie mining
veteran Ron Manners, at the Melbourne office of
broker D&D Tolhurst to look for a way out of the
financial jam. Last April, with the share price at
about 8¢, Manners suggested using some of the
remaining funds to buy into internet prospects.
He also introduced Pacific Rim Investments Pty
Ltd, a Perth-based investment company chaired
by an Englishman, Clive McKee, whose stated
intention is to build a "niche financial services and
investment banking group" with advisory
businesses in Australia and an office in
Switzerland.
Pacific Rim bought heavily into Adelong via its
subsidiary, Pacific Asset Management, paying
about 10¢ a share for stock sold by Starink, who
was forced to resign from the board.
On September 1, 1999, McKee became a
director, alongside Manners, who had introduced
two internet businesses, eSmart Ltd and
FreeISP.com Pty Ltd, taking 50 per cent of the
first and 20 per cent of the second for some
$300,000.
The new beefed-up board provided the ASX with
a solid diet of positive announcements and the
company recovered nicely, not just through a
share price climb back past 20¢, but also thanks
to a series of small share placements and rights
issues via D&D Tolhurst, at least one of which
was declared to have gone to "international
institutional investors". Indeed, by the end of
September, Pacific Asset Management was only
the second-biggest holder, on 7.3 per cent of the
shares, behind the mysterious ANZ Nominees
with 8.36 per cent.
Most of the long-suffering shareholders, many of
whom were Adelong locals, were too happy to
see the stock price recover to worry about who
was buying the shares, but it emerges that it was
small German investors sniffing for a "hot" story. If
they wanted a hot story, they certainly got one.
On January 14, with the share price at 43¢,
Manners gave an interview to the
Dusseldorf-based Wallstreetonline.de website in
which he painted a very rosy picture indeed of
Adelong's future as a venture capital provider to
the internet industry, and the stock price bolted.
The ASX had been querying Adelong's share
price climbs regularly from late 1999, but kept
getting the anodyne "we know of no reason"
response, which merely talked up the stock's
internet potential by way of background.
In the seven trading days after the interview, the
share price more than doubled to $1.08, but a
query on January 18 got the stock response, with
the disingenuous addition that "the company's
securities are traded on the Berlin Stock
Exchange as well as the Australian Stock
Exchange, and have been very actively traded in
recent days".
In the two weeks following Manners' interview,
which he has said his fellow directors did not
know about, several directors including Manners
sold shares and options. McKee, for instance,
sold 700,000 shares and one million options. The
ASX suspended the stock on January 27 on
learning of the Manners interview, by which time
the stock price had spiked up to $1.55 before
closing at $1.469.
The stock is still suspended and looks set to
remain so for a while. The ASX has made no
official comment about Adelong, but it is
tightening its surveillance of mining companies
that go into high technology, and has resolved,
with the regulator the Australian Securities and
Investments Commission, to crack down on
companies that give inadequate responses to its
queries. The ASX queried Adelong six times in
all, and it was only after the sixth that it got a reply
of any consequence whatsoever, by which time it
suspended the stock anyway. And who has lost
out? The Aboriginal community in Adelong is still
waiting to be issued the second half of a one
million share issue as part of a land use
agreement, but the main losers are the existing
shareholders, 73 per cent of whom appear to be
in Germany. Adelong's chairman, Stan Lewis,
admitted to the AFR that he did not know who was
behind ANZ Nominees, which is understood to be
the sub-custodian for Deutsche Boerse Clearing
AG. Asked when the Germans started buying in,
he said "we never really knew who took the
placement to clients of D&D Tolhurst" late in
1999.
German investors are furious. The major websites
are seething with angry debate and Craig
Manners, who quit on January 31 to spend more
time on the "development and floatation [sic] of
FreeISP and eSmart Ltd", is the prime target of
most of the complaints. The grumbles are
widespread and, not surprisingly, focus on the
feeling that the Germans have been taken for a
ride by "the Australians".
But hope springs eternal. The AFR contacted the
major website in an attempt to bring a few facts to
bear and got some anxious replies, but many
included requests for tips on other Australian "hot"
stocks. And late in the week came this priceless
exchange between two Adelong followers, both of
whom had moved beyond cynicism to satire:
"SeppiBert" said his uncle in the US was a
college friend of Bill Gates and they had dined
together at the weekend. He said the uncle had
asked Gates what acquisitions he planned, and
Gates said he was looking at Australia and hoped
to make a saving of $US2 billion for Microsoft by
buying Adelong. "Then Adelong would be worth
$US4 billion," he concluded.
"Standing Bull" replied drily, "That's not all. Beate
Uhse [a chain of sex shops] will be divided up
between Microsoft and DaimlerChrysler. Microsoft
wants to bring vibrators to the market that are
internet capable and can be hot linked to sex chat
lines and DaimlerChrysler will start the production
of inflatable sex dolls to make air bags more
attractive."
by hot Australian stocks
By Andrew Main
It is a long way from the Snowy Mountains town of
Adelong to Berlin, but an internet-driven
share-buying frenzy has brought the two together
in a way which illustrates that the world's most
exciting new medium can be a two-edged sword.
The Australian Stock Exchange suspended
shares in Adelong Consolidated Gold Mining NL
at $1.46 on January 27 after they spiked up to
$1.55, leaving hundreds of Germans, who now
own 73 per cent of the stock, stranded and
incredulous. The Germans had bought into the
stock late in 1999 and early this year from prices
around 20¢, after reading about it on German
websites and after it listed in Berlin on December
9.
German investors have had a surprisingly long
love affair with the small end of the sharemarket in
Australia, considering the share price
shellackings this market has regularly handed out.
The irritations in Germany of a high personal tax
rate and a staid sharemarket full of interlocking
shareholdings mean that German investors have
long seen Australian stocks as a perfect
destination for their undeclared earnings. As one
told The Australian Financial Review last week, "You
can only lose 100 per cent but you can make 1000
per cent."
The gold boom of the mid-1980s gave them a
successful canter in tiddler gold stocks, many of
which climbed sharply because of gold
discoveries or old-fashioned stock promotion. The
slump in the gold price through the 1990s eroded
almost all the capital gains, but the early investors
who remembered the proverb that "gold shares
are for buying and selling, not holding" did well
enough to keep the myth of the Australian El
Dorado alive.
The game began again in 1999 when Ludger
Kohmascher, scion of an Osnabruck frozen foods
family, made millions trading shares in E*Trade
Australia. Kohmascher has long been a visitor to
Australia because he suffers a crippling bone
disease, ankylosing spondylitis, which responds
well to sunshine.
He had bought in at about $2.51 a share in late
April, and once German investors saw the price
move, they piled in. Kohmascher sold much of the
stock in Germany on the "over-the-counter"
market and it rose to $11. He is still understood to
have some of the stock, but is well below the 5.5
per cent level, having sold out at about $8.
The stock price now? Back where Kohmascher
bought in. But then, word of his coup spread fast
in Germany and several websites, particularly
Zockeronline.de and Wallstreetonline.de, started
looking in earnest at potentially exciting corporate
situations in Australia.
Back in Adelong, which is midway between Tumut
and Wagga, the local mining company's situation
was anything but exciting. The company had been
floated in 1997 at 25¢ a share by a syndicate who
wanted to develop the thin but rich seam that had
given up 800,000 ounces of gold between the late
1800s and World War I. The issue raised $6
million, but by April 1999 the project had still not
reached the commissioning stage and most of the
money had been spent.
Jon Starink, an engineer who was one of the
original significant investors, had made an art of
buying second-hand mining equipment for reuse.
But it emerged that some economies, such as a
lack of infill drilling, had seriously hampered the
project's ability to turn what is known in the trade
as a resource into a mineable gold reserve. The
official resource is 146,000 oz, a tiddler by current
standards.
Adelong directors approached a dealer called
Craig Manners, son of the Kalgoorlie mining
veteran Ron Manners, at the Melbourne office of
broker D&D Tolhurst to look for a way out of the
financial jam. Last April, with the share price at
about 8¢, Manners suggested using some of the
remaining funds to buy into internet prospects.
He also introduced Pacific Rim Investments Pty
Ltd, a Perth-based investment company chaired
by an Englishman, Clive McKee, whose stated
intention is to build a "niche financial services and
investment banking group" with advisory
businesses in Australia and an office in
Switzerland.
Pacific Rim bought heavily into Adelong via its
subsidiary, Pacific Asset Management, paying
about 10¢ a share for stock sold by Starink, who
was forced to resign from the board.
On September 1, 1999, McKee became a
director, alongside Manners, who had introduced
two internet businesses, eSmart Ltd and
FreeISP.com Pty Ltd, taking 50 per cent of the
first and 20 per cent of the second for some
$300,000.
The new beefed-up board provided the ASX with
a solid diet of positive announcements and the
company recovered nicely, not just through a
share price climb back past 20¢, but also thanks
to a series of small share placements and rights
issues via D&D Tolhurst, at least one of which
was declared to have gone to "international
institutional investors". Indeed, by the end of
September, Pacific Asset Management was only
the second-biggest holder, on 7.3 per cent of the
shares, behind the mysterious ANZ Nominees
with 8.36 per cent.
Most of the long-suffering shareholders, many of
whom were Adelong locals, were too happy to
see the stock price recover to worry about who
was buying the shares, but it emerges that it was
small German investors sniffing for a "hot" story. If
they wanted a hot story, they certainly got one.
On January 14, with the share price at 43¢,
Manners gave an interview to the
Dusseldorf-based Wallstreetonline.de website in
which he painted a very rosy picture indeed of
Adelong's future as a venture capital provider to
the internet industry, and the stock price bolted.
The ASX had been querying Adelong's share
price climbs regularly from late 1999, but kept
getting the anodyne "we know of no reason"
response, which merely talked up the stock's
internet potential by way of background.
In the seven trading days after the interview, the
share price more than doubled to $1.08, but a
query on January 18 got the stock response, with
the disingenuous addition that "the company's
securities are traded on the Berlin Stock
Exchange as well as the Australian Stock
Exchange, and have been very actively traded in
recent days".
In the two weeks following Manners' interview,
which he has said his fellow directors did not
know about, several directors including Manners
sold shares and options. McKee, for instance,
sold 700,000 shares and one million options. The
ASX suspended the stock on January 27 on
learning of the Manners interview, by which time
the stock price had spiked up to $1.55 before
closing at $1.469.
The stock is still suspended and looks set to
remain so for a while. The ASX has made no
official comment about Adelong, but it is
tightening its surveillance of mining companies
that go into high technology, and has resolved,
with the regulator the Australian Securities and
Investments Commission, to crack down on
companies that give inadequate responses to its
queries. The ASX queried Adelong six times in
all, and it was only after the sixth that it got a reply
of any consequence whatsoever, by which time it
suspended the stock anyway. And who has lost
out? The Aboriginal community in Adelong is still
waiting to be issued the second half of a one
million share issue as part of a land use
agreement, but the main losers are the existing
shareholders, 73 per cent of whom appear to be
in Germany. Adelong's chairman, Stan Lewis,
admitted to the AFR that he did not know who was
behind ANZ Nominees, which is understood to be
the sub-custodian for Deutsche Boerse Clearing
AG. Asked when the Germans started buying in,
he said "we never really knew who took the
placement to clients of D&D Tolhurst" late in
1999.
German investors are furious. The major websites
are seething with angry debate and Craig
Manners, who quit on January 31 to spend more
time on the "development and floatation [sic] of
FreeISP and eSmart Ltd", is the prime target of
most of the complaints. The grumbles are
widespread and, not surprisingly, focus on the
feeling that the Germans have been taken for a
ride by "the Australians".
But hope springs eternal. The AFR contacted the
major website in an attempt to bring a few facts to
bear and got some anxious replies, but many
included requests for tips on other Australian "hot"
stocks. And late in the week came this priceless
exchange between two Adelong followers, both of
whom had moved beyond cynicism to satire:
"SeppiBert" said his uncle in the US was a
college friend of Bill Gates and they had dined
together at the weekend. He said the uncle had
asked Gates what acquisitions he planned, and
Gates said he was looking at Australia and hoped
to make a saving of $US2 billion for Microsoft by
buying Adelong. "Then Adelong would be worth
$US4 billion," he concluded.
"Standing Bull" replied drily, "That's not all. Beate
Uhse [a chain of sex shops] will be divided up
between Microsoft and DaimlerChrysler. Microsoft
wants to bring vibrators to the market that are
internet capable and can be hot linked to sex chat
lines and DaimlerChrysler will start the production
of inflatable sex dolls to make air bags more
attractive."
