Ebullio Saga Continues As Investor Enforces Judgement

Enforcement action comes amid greater scrutiny of commodities hedge fund Ebullio’s assets

A recent ruling against a commodities hedge fund by the UK’s Financial Ombudsman Service has been given the go-ahead for immediate enforcement by a London court.

In March, Ebullio Capital Management was ordered to compensate a fund investor £150,000, the maximum allowable, plus 8% interest. An enforcement of this decision could lead to liquidation of the fund, according to a source familiar with the ruling and court procedures.

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Comes from a Danish shipping family. Lars Steffensen
Lars Steffensen is Founder and EMP of Ebullio Capital Management

In a separate court proceeding scheduled for June 8, 2016 in London, a former Ebullio partner alleges non-payment of a severance package.

A source familiar with the case said that Ebullio company filings showed partners taking drawings of over £5 million for the year ending September 2014, the last financial statements available in the Companies House registry at time of writing.

Partners shouldn’t have been taking drawings when the company was unable to meet its other liabilities.

“Partners shouldn’t have been taking drawings when the company was unable to meet its other liabilities,” the source explained.

Another source familiar with Ebullio said: “There are no assets really in the company, all the cash was taken out in 2014, which amounts to more than £5 million. That is why there are no assets on the balance sheet, because the company wasn’t making any profit. They didn’t have the right to do that.”

According to another source, an Asia-based investor of Ebullio’s “has instructed its legal advisors” while several investors based in Europe are looking “at their options in that regard”.

Investor communications

A number of sources have questioned statements made in letters to shareholders by Lars Steffensen, Founder and Executive Managing Partner of Ebullio.

In a letter to shareholders dated April 5, 2016 made available to Finance Magnates, Steffensen provided several updates to ongoing projects in the mining sector, described as Ebullio’s “main assets”.

One of the projects Steffensen refers to is a tailings deposit in the Keban region of Turkey. He writes: “This project is going forward and will not be sold. We have spent apprx (sic) USD 12 million so far and are just one formality local tender away from starting to extract USD 120 million worth of Gold and Silver.”

They didn’t have the right to do that.

One source with knowledge of the required capital expenditure budget to execute the Keban Tailings Project (KTP) said these statements are “misleading at best”.

“The Capex budget of $21 million was estimated by consultants for the KTP, and this was supposed to have been committed to bring it to production. However the actual direct investment by Ebullio in the KTP to the point the project was placed on hold was less than $2 million, which excluded acquisition cost of the Keban licence,” the source said.

A licence for the Keban mine site is not, however, the same as a licence for the tailings (waste from mining operations containing mineral residues that can be monetized), and exactly what Ebullio has rights to is in question.

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Turkey assets

The rights to mine Keban tailings went up for tender by the Turkish government and were awarded on March 29, 2016, to Frontline Gold Corp, a Canadian junior miner. Frontline Gold was the only bidder for the licence, said President and CEO, Walter Henry.

…the actual direct investment by Ebullio in the KTP to the point the project was placed on hold was less than $2 million…

The Keban tailings are located on a property licenced to Pera Maden AS, a company based in Turkey that Ebullio has a 61% stake in (via holding company Pera Maden AG based in Germany), according to the shareholder letter. However, Pera Maden has no rights to mine the tailings, Henry noted.

He could not confirm whether Ebullio’s investor letter was referring specifically to the tailings sites Frontline Gold acquired rights to, but did confirm that as of the end of March 2016, “it is understood by them (Pera Maden) that they don’t have the right to the tailings that were awarded by the government in the tender process”.

In terms of the valuation of the tailings in situ, Henry pegs it at some $20 million at current gold and silver prices based on independently verified calculations for the area under licence to Frontline, and assuming a recovery rate of 100%.

Frontline has had soft discussions with Pera Maden’s representatives in Turkey on leasing the Keban property for a one-time payment of approximately 600,000 Turkish lira ($205k) and a monthly lease payment of an unknown amount. Henry said that Frontline has no interest in pursuing this deal due to its structure and he has had no discussions with the holding company Pera Maden AG.

In Ebullio’s shareholder letter, Steffensen writes that the book value of the 61% stake in Pera Maden was worth $610 million in 2012, and that now “it should be worth approximately £100 million in its entirety”.

Pera Maden did not respond to multiple requests for an interview. Two of the company’s Executive Board members at time of writing, Joe Crawley and David Sutcliffe, are also names that appear registered as former officers for Ebullio at Companies House.

UK investments

Ebullio is also claiming to be monetizing its investment in Alexander Mining, an AIM-listed mining and mineral processing technology company.

…Ebullio does not hold a declarable share- holding in Alexander Mining…

In the shareholder letter, Steffensen wrote: “We are working with the major shareholders to finally monetize our heavy investment into this company over the last 4 years. The present management has been very disappointing in terms of delivering results (other than granting of patents) and we are pushing for a new strategy that will turn Alexander into a proper, producing mining company using its own proprietary AmmLeach technology on assets we inject into the company.”

Responding to inquiries about Ebullio’s stake in Alexander Mining, CEO Martin Rosser said: “To the best of my knowledge, currently Ebullio does not hold a declarable shareholding in Alexander Mining (less than 3%), and therefore they have no influence as a significant shareholder…I have not had any contact with the company since August or September last year.”

He noted that Alexander Mining’s management and Ebullio had a constructive relationship in the past, but “things didn’t develop commercially, due to circumstances at the time, in the way that both entities were hoping”.

He added that Alexander Mining’s management in general remains open and flexible to proposals that would leverage the company’s leaching technology.

Lars Steffensen did not respond to multiple requests for an interview.

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