FIU Shareholder Article How First Uranium Management will rationalize the ‘distressed’ asset sale of Mine Waste Solutions and Ezulwini.
First Uranium management does not have many options when it comes to presenting arguments for why shareholders should vote for the asset sale. The following analysis first presents why First Uranium is in the best position it has been in two years, and second presents the possible arguments that First Uranium management may present in an effort to try to manipulate shareholders into voting yes.
Conservative gold forecasts predict that gold prices will remain stable, optimistic gold forecasts predict a continuing upward trend, and realistic gold forecasts concur with optimists gold is going nowhere but up over the next year. Analysts are bullish on uranium, which may seem to be important to First Uranium but let’s not forget…First Uranium is currently a gold company…due to the simple fact that uranium was causing the company to lose money, FIU management decided to suspend the majority of uranium focused work at Ezulwini. Furthermore, as many critics of First Uranium have been quick to point out, the gold stream deal between Franco-Nevada and First Uranium was crippling the companies ability to move forward and become profitable – well, that gold stream is now drastically reduced and is no longer a barrier.
“On a positive note, the Ezulwini Mine settled the final quarterly guaranteed ounces requirement to Franco-Nevada pursuant to the Ezulwini Gold Stream Transaction at the end of Q3 2012 (effectively 64% of the gold sold during Q3 2012 at $400 per ounce of gold). This means that as of January 2012, the mine reverted to delivering only 7% of its gold production to Franco-Nevada at $400 per ounce of gold.”
With Mine Waste Solutions being a profitable asset as it always has been, and Ezulwini now positioned to be profitable this quarter, First Uranium is now in a position to report it’s second profitable quarter. Wait…second profitable quarter? Wasn’t the last quarter a loss? No…First Uranium actually reported a net profit of 1.8 million, however, it was presented as a loss due to an impairment charge on Ezulwini – an impairment charge that is yet to be explained and conveniently occurred right before Gold One’s offer of 70 million….I guess it would have looked even more ridiculous if Ezulwini had a value of over 250 million and was only offered 70 million eh?
So what we have is a profitable gold company that has large debts due in the short term. In no way am I trying to argue that First Uranium is in a strong position relative to another gold junior such as New Gold…what I am arguing is that FIU is in the strongest position it has been in two years. MWS is profitable. Ezulwini is no longer hemorrhaging money due to uranium and gold stream costs. And there have been 0 death’s for 2012.
So…the circular…I have presented a few arguments FIU management may bring up below.
- First Uranium will go bankrupt if the assets are not sold right now, the company simply cannot pay back the debt.
- Because of the terms of the asset sale that First Uranium management has negotiated, such as the credit facility, escrow monies, etc. shareholders cannot afford to vote no.
- FIU will report that Ezulwini and Mine Waste Solutions both have impairement charges, which will justify the so-called ‘fair’ RBC valuations.
- The FSE won the lawsuit appeal and now MWS has lost their water use license
- MWS and Ezulwini outlooks have been downgraded.
So just how legitimate are these arguments?
Well,
- As I have posted previously, debt holders cannot afford to be diluted. They lose their position of power (currently the pay out structure favors debt holders, followed by shareholders). Someone brought up the possibility that after dilution occurred, debt holders would hold the majority of shares, and would simply vote the deal through…I agree, however, the debt holders turned shareholders would want to maximize their return, i.e. higher asset sale prices, so I have no problem with debt holders becoming shareholders. So if we do not sell the assets are shareholders getting less than 0.15/share? No. FIU management can either renegotiate the terms of the debt or dilute. Obviously renegotiating the debt is better, because debt holders maintain their position as ‘first paid’ in the event of bankruptcy or an asset sale, and they receive a higher payout down the road I believe they will renegotiate. But if we need to dilute then let dilution occur. In no way is the choice between an asset sale and bankruptcy. You cannot simply declare bankruptcy, first, the debt would have to be converted and diluted, and then bankruptcy, however, I have a feeling that the debt holders turned shareholders would not want bankruptcy, given the payout structure would no longer benefit them. I think First Uranium management will be replaced if dilution occurs given that the debt holders know how current management works, I doubt that they would be happy with current management acting on their behalf as the debt holders would become shareholders.
- Can we afford to vote no to the asset sale? Yes...in fact, if FIU draws on the credit facility, we will be receiving less than 0.16/share, because the 10 million is reduced from the Ezulwini asset sale price of 70 million. And lets not forget that in the event that the escrow fund is depleted. Shareholders will only receive the initial payout, without the credit facility drawdown, shareholders are slated to receive 36.6 million which translates into 0.15/share, but if the credit facility is drawn on, 36.6 million becomes 26.6 million, which reduces the share prices to 0.11/share. Given that FIU management asked for the credit facility, logic would dictate FIU needs it, which would mean that shareholders receive 0.11/share if they vote yes. So…can we afford to vote no to the asset sale? I think shareholders would be pretty stupid to vote yes for 0.11/share don’t you?
- I think FIU management will definitely report high impairment charges, my estimate would be about 20-30 million to Ezulwini, remember, there was just a 180 million impairment charge that dropped Ezulwini value to just over 95 million, I’m sure another one’s about to occur. This is the only way that RBC could justify their valuation. I have no idea how management will rationalize an impairment to MWS, a profitable asset, so I will not even speculate, but again, this is the only logical way that FIU management could rationalize selling an asset worth over 700 million for less than 50% of it’s value.
- Would it be difficult for FIU management to tell the lawyer to throw the case? No.
Personally, I find this asset sale insulting…IMO is there is one message that this asset sale has sent to shareholders it is that AngloGold, Gold One, and FIU management think we are sheep to be fleeced. I mean seriously…0.11/share? Really? And it should be further noted that FIU management did not explicitly notify shareholders that there was the possibility that they would receive 0.11/share, it was hidden in NR’s. So whose interests are being looked after? Not shareholders…we are left to go through each line of the NR’s to find that **** that is hidden between the lines.
These are simply a shareholder's opinions...but this shareholder will be voting NO to this **** deal. Oh...and there 6,000,000 other shares on stockhouse.com so far voting NO...oh and there are 41,000,000 shares belonging to the 3 largest FIU shareholders allowed to vote voting NO...so who's voting yes? I would imagine the sheep...