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7/24/08

Obsession with a question

A man with glasses

I spent the afternoon writing about another thing, but I haven't really been able to get the Aurelian deal out of my mind. The whole thing has been going round and round my head, and I keep coming back to the same simple question:

Why has the offer been accepted by ARU mgmt as a friendly bid?

It makes no sense at all when compared to the stated desire of ARU mgmt to maximize shareholder value. And not only that, but there's the whole private placement issue, too. Why does ARU need to raise $71m at this point in time? At such a low PPS? The reasons given were (and I quote) "...to assist with the development of FDN and for general corporate purposes." The last time i heard (i.e. at the AGM), the $45m at bank was enough to work FDN through 2009! As for "corporate purposes", what kind of going away corporate bash can they put on with $71m to spend on beer and party hats? Nah, sorry....very weak excuses for adding a 10% dilution at favourable terms to the suitor. It stinks to high heaven.

Why has the offer been accepted by ARU mgmt as a friendly bid?

At the AGM just one month ago, CEO Anderson made a big thing about emphasizing there were plenty of drill results to come. This means there's already a sizeable chunk of M+I resource to add to the 14.1m oz Au eq already on the books, and ARU knows it. When the first stink bid comes in, the company doesn't just drop its trousers like this....the company hums and hahs and then says "nope...too low" and then 4 days later releases the new drill numbers and bumps the M+I to 16m oz...or at least something along those lines.

Why has the offer been accepted by ARU mgmt as a friendly bid?

I've just spent half and hour looking over the the agoracom ARU board, because the high quality of posters there is very unusual for a public bullboard (yes guys, that means you). There are many good posts to read, but I'm going to pick up on just one because it reiterates some of the feelings i have above, the numbers look spot on to me, and it says it all in a succint way. The post linked right here is by someone named neuman, and here it is pasted out (they sometimes paste my stuff, so this is fair swaps). Neuman says:

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"More on highway robbery"

Posted by: neuman on July 24, 2008 08:34PM

0.317 times 18.7 share price of Kinross on close is $5.93. ARU close at $6.31 implies some value for future warrant but this is not cash today. Say Kinross is going to $75 in five years. Profit on warrant is $43 for each 7 shares of Aurelian, because each share gets 1/7 of a warrant, or $6 per share...if, if and five years!! $6.31 is a stink bid, I agree, but why tender management shares, recommend it, give $42 million guarantee and sell 15 million shares when you do not need the cash to develop a mine? It stinks so loud, that I do not have polite words to describe it. I agree only that the shorts will use this PP to cover,. so the perpetrators of the manipulation are buying the company with management's blessing. I want to believe that Patrick is concerned about the share price, but I've just had a few too many lies from them.

Our beloved Safeharbour is strongly hinting at events to come that will turn us into believers. I respect Safeharbour for all the good work he's done, but is it too good? Is he being too naive? I think so. I was firmly under the impression that the only offer management would accept and fall all over would be a generous one (like Virginia Gold), not a highway robbery that has the affront to publicize a very misleading $8.20 for all to see when reality is ....$6.31. THE MARKET HAS SPOKEN! Look at the stink bid, but do not recommend it, endorse it and wrap it with gifts, diluting shareholder value. What other lies and deception hide behind these latest maneuvers, just before the mining law, withholding results of additional ounces, etc. Sprott and the other funds save us from management, please.

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I agree. Well said neuman (I don't know the person, I hasten to add. Just admire the post.). I simply do not understand how this deal could possibly be done with the best interests of shareholders at heart.

Why has the offer been accepted by ARU mgmt as a friendly bid?

So what happens now? Cynical me is guessing the scenario will roughly follow these lines (with plenty of room for variations along the way, of course):

1) KGC make the formal offer

2) People get their abacuses out and find that 35% or so of shares get pledged

3) KGC sweetens the bid...a bit. Maybe edges up the ratio, maybe adds a small slice of cash.

4) Pledges edge up towards 45%

5) KGC makes its final 'take it or leave it' bid. Then ARU completely drops its trousers by allowing the threshold to go to 50% + 1 vote.

6) Thank you, and goodnight. Don't forget to turn off the light on your way out.

Why has the offer been accepted by ARU mgmt as a friendly bid?

I repeat: It makes no sense. You don't maximize shareholder value by caving in on the very first bid. If other bids come it will be despite management attitude, not because of it. So how can they ARU directors possibly say that the deal is (I quote again) "..... in the best interests of Aurelian's shareholders"?

The only reasons I can find are the ones I published this morning. No need to repeat. The only things I want to say to the directors at ARU are the things I've already said. No need to repeat. I'd like to be proved wrong here. I'd like to hold my hands up and say "hot damn, my call sucked on July 24th".

I hope that there's more in the pipeline for shareholders. I hope that ARU mgmt hasn't done what I believe it has done to its long term backers. But hope is not a rational investment strategy. If counter-offers come, then management would have got lucky, that's all. And if luck is the only card they have left to play, it's a woeful situation indeed.