Please note – I make this commentary without the benefit of speaking with senior management at OLE since news of TGZ intended buyout offer. I also remind everyone of my highly bias position as both a compensated consultant to OLE and control almost 3 million shares of OLE.
While I feel somewhat vindicated twice in one day, OLE still remains an albatross for me. Why just last week I had to endure this rant:
“... your take on OLE has cost us dearly. You call yourself an expert – what on losing lots of money? Get a real job.”
My answer was the same as it always been:
“Honey, I’m sorry!”
I believe yesterday marked the beginning of the end of OLE as an independent public company. While there are legitimately more than one ending’s, IMHO it ends up the same as it was first perceived back in December 2011, becoming part of Teranga Gold.
December 2011 is part of my first vindication in that it was then that I first bought OLE well above a buck on the rumor it was a takeover target. In their press release yesterday, TGZ noted “…Teranga was in the advanced stages of negotiation with Oromin, Bendon and Badr to purchase the OJVG in December 2011…” So the original reason for owning OLE was correct only they don’t payout on almost.
The second vindication has been the long-standing belief that OLE was still a takeover target and that Teranga Gold made the most sense as a suitor. Here too yesterday proved correct only the worse junior resource market in my 30 years in and around the financial arena and the smashing of gold in the April takedown, made such a belief the most pain-staking equity position in my entire natural life (I say natural because if OLE somehow blows up I’m likely to be on life support in more ways than one).
Again, without the benefit of speaking with senior management (I did speak with David Scott after the close yesterday), and knowing the potential conflicts of interest present (including possibly pis sing off OLE management and being terminated), I tell you my thoughts on this as I would tell my own wife (only there are no weapons or divorce attorney’s standing by). I do want to caution you to avoid taking anything you read in a chat room seriously as one in particular has been home to many useless, thoughtless and reckless opinions.
One doesn’t need to be a rocket scientist to understand and appreciate TGZ’s announcement. They want (and badly need to) takeover OLE. AN IPO at $3, they have seen a 75% drop in their share price (no doubt the horrific resource market and gold slam played a role). Original management bought a serious amount of shares around $2. I’m not here to debate it but as I said from the very first disclosure, their large sums of monies spent on exploration IMHO didn’t obtain the results one would expect for the monies spent. I suspect they have received much grief about this from institutional shareholders and analysts. Their main asset remains a working mill, only it was high-graded and that has taken away from the future. They badly need additional feed down the road. Large shareholders obviously felt they needed more representation and have achieved that most recently. While it’s definitely true their near to mid-term outlook is not the least bit “grave”, they’re facing some serious concerns long term…. And OLE solves them and then some!
OLE meanwhile, did achieve much of what it said it would only it finds itself hampered by a series of events in all fairness to them, several would not likely have been on their radar (devastating bear market in juniors and slamming of gold price two of them). I give OLE one of the three choices one had decades ago on a ticket in New York City – Not Guilty, Guilty or Guilty with an explanation. In OLE’s case, it’s the latter.
The guilty with an explanation begins back in December 2011, when after unusual trading volume, the company responds to the TSX by saying for the first time that they may be a takeover or merger candidate (yesterday’s TGZ release confirms that). They continue to note this and the engagement of an investment banker (and I suspect we shall see evidence way before this is all over). This led some who were not deeply experience to think there must be no real suitor since no one had stepped up
It matters little now, but in the initial drubbing of the junior resource market, OLE managed to demonstrate relative strength. I suspect here too it managed to carry a takeover/merger premium but was eventually mauled by the bear of all bears. You can waste much time and effort pointing fingers, whining and complaining (as some apparently do almost daily on a chat forum), but like a coach who goes for it on fourth down with the crowd behind him only not to make a first down, Chet Idziszek, President of OLE has faced “Monday Morning Quarterbacks” for several months now. He also finds a limited amount of support in a business where what have you done for me lately is a way of life. Like TGZ, OLE shareholders have seen a similar loss in share price, have great assets but lack of liquidity has given them very limited wiggle room.
Which brings us IMHO to what I have said for quite some time now – OLE and TGZ are many times better off as one than as two separate companies. The only question is how do we get to that and can egos, markets and the like get in the way to the most natural conclusion?
“Your guess is as good as mine!”
But 30 years in and around this arena does allow me to make the following considerations:
- We know from TGZ release yesterday that their offers were not adequate in OLE’s eyes and history tells me by going “hostile-like” will not likely lead to suddenly winning friends among OLE management. It would not be foolish to think since the public offer is much like the one made to OLE directly; chances of OLE management supporting the offer are about as strong as Mark Sanchez of the Jets being MVP of the NFL this year.
- On the assumption OLE doesn’t recommend to its shareholders accepting the offer, what are the most likely scenarios?
1- TGZ goes forward with the offer.
2- TGZ sweetens the offer
3- TGZ pulls the offer (by far the least likely).
While I wish it wasn’t true, OLE is in by no-means any driver’s seat. Why?
1- Like TGZ noted in their release, liquidity is a critical issue for OLE
2- Junior resource shareholders are badly beaten up financially and mentally and OLE shareholders are among them. Selling their shares may not lead to a profit but it can lessen the financial and mental stress they feel they are in (trust me, no one knows that better than me)
3- It’s natural to want to sell and with the market so beaten up, I’m certain many OLE shareholders have other stocks way under water and they will see the liquidity offered by TGZ as a way to average down in some others (if they haven’t already average down and down and down….)
4- I’m willing to be surprised, but I don’t think the world is beating a path to takeover juniors with hefty premiums anytime soon. OLE is no different.
So then, is there a happy ending to this 18 month+ saga?
Despite a horrific bear market and a target that doesn’t have a defense to carry it to the Super Bowl, TGZ’s offer can be describe as low-balled (and all but certain to be termed inadequate by OLE management). Recent deals in this bear market has shown much better per ounces in the ground offers and who had far more cap-ex costs then TGZ made clear it doesn’t face and adds to the attractiveness they noted to their shareholders on what such a deal would bring to them.
I do think some OLE shareholders will tender simply because they can’t (or won’t) see OLE staying strong on its own and in the end losing more than what they can take now. Ironically, the price of gold is likely to have a big influence on decision-making by retail investors as weakness shall likely cause TGZ share price to decline, which will make the deal look even worse. The opposite can occur if gold rallies (but as of this morning doesn’t look to be the case today).
Remember, yesterday’s news was a notice of intention, not the offer itself. That’s expected by mid-June. This gives both sides time to play some chess but hopefully not let egos and the like get in the way of doing what’s right for shareholders – both of whom have seen large-scale losses and if honest with themselves, realize they both need each other.
Please don’t email or call as I won’t say anything to one that I won’t say to all and avoid chat rooms at all costs and anyone there making claims I said this or that that you haven’t read or heard on the blog is full of…..
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