PAA & Orko Hope I'm wrong but my gut feeling is that PAA is finished with Orko, and if that is the case I don't necessarily think that is a bad thing. If it was, I think the market would have taken Orko down today.
I believe my last post a few months ago indicated that I felt that PAA might not be able to proceed and today's deal really reinforces that idea for me. My guess is the chaos and share price destruction in the miners last year, along with PAA's problems with getting Navidad online has resulted in a strategic shift in direction for PAA, one in which they focus on buying existing production as opposed to future production.
When that production is as cheap as it is now and PAA's share price has been decimated also (moving from low 40's to 25 before the deal was announced today) you can bet PAA is trying to slow the bleeding. The Minefinders deal is a much quicker way of doing that than Orko, with the production being instant.
But take a look at what PAA's price did today, down another 10% on the proposed deal. I simply can't see them doing further dilution with Orko in the next few months. $15 million to walk away from is a drop in the bucket compared to the 1.5 billion (well, maybe less based on today's closing price for PAA) they are looking at with Minefinders. Is PAA now going to buy Orko and see their stock move into the teens? I don't think so.
Additionally, I would expect that, behind the scenes PAA was grinding OK management pretty hard after the PAA PEA on La Preciosa and the collapse in the junior miners last year and that OK management has not been receptive, which is fine with me. I would bet a few dollars that OK is working dilligently with AMEC to prepare a real PEA that will be used to shop the company in April.
As I said, I'd be happy if I was wrong and PAA completes, but at this stage I have very strong doubts. What I don't doubt is that Orko is still worth a lot more than $1.80 a share, that a buyer will come forth, possibly even one that might be willing to pay more than PAA is or was willing to. Fresnillo still strikes me as a natural fit, but there may be others.
Patience, once again.