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Have The Uncertainty Regarding MAS and CAD’s Investigation Created Buying Opportunities for These Shares?

If you thought you have heard the last of the Blumont Group (SGX: A33), Asiasons Capital (SGX: 5ET) and LionGold Corp (SGX: A78) saga, think again.

Earlier this week, the Monetary Authority of Singapore (MAS) and the Singapore Police Force’s Commercial Affairs Department launched an investigation into suspected trading irregularities that might have occurred in the shares of the three companies back in October 2013. News of the probe by the authorities have caused a dip in the share prices of the trio yet again.

That fateful October

So, what happened last October was that the three companies had a cumulative market value of S$8 billion that was wiped off in the course of less than a week (the chart below showed the drastic fall in price that Asiasons Capital suffered during that fateful week last October; Blumont and LionGold would have very similar-looking price charts as well). And, that left some market participants badly burnt while leaving many just scratching their heads over went wrong.

Source: Yahoo Finance

Now, authorities have extended the scope of their investigation by asking more companies for their assistance in the probe. Currently, more than 7 companies, namely Blumont, LionGold, Magnus Energy Group (SGX: 576), Innopac Holdings (SGX: I26), IPCO International (SGX: I11), ISR Capital (SGX: 5EC) and ITE Electric (SGX: 581), have announced that they have been approached by the authorities to aid in the investigation.

Turnaround situation or value trap?

When there is bad news surrounding a company, it might signal a possibility for alert investors to buy into a potential turnaround situation. On the other hand, those unsavoury developments might just turn a share into a bona fide value trap. So, what can we make of the whole situation here with the main cast of Blumont Group, Asiasons Capital, and LionGold Corp?

Fundamentals is key

The most basic principal in investing in the share market is to look at the business fundamentals of a share.

If we take a look at Blumont Group and LionGold for instance, it can be seen that both companies have not been profitable over the last few years if we strip out non-recurring gains. Both firms have also been struggling with their mining businesses and have yet to be able to operate at a profitable level.

When we look into the mineral reserve assets they have, most of these assets are currently considered as “inferred mineral resources which indicates that the assets both companies hold might be quite a long way from being economically profitable. Using such information, investors can then better decide if the risk of investing in unprofitable companies outweigh the potential rewards.

Ultimately, the short exercise I showed above regarding Blumont Group and LionGold Corp’s fundamentals shouldn’t be thought of as recommendations of any sorts. Instead, think of it as a way to investigate a potential turnaround situation.

As it is with any investment, it’s always a case of caveat emptor – we have to know what we’re getting ourselves into with any investing situation.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.