Sheldon Inwentash, pinetree. HAHA Monday, August 5, 2013
Pinetree we have a problem
Back in the spring of 2011 when gold was trading at $1500 and on it's merry way to $1900 and the talk of $3000 gold was all the rage, Pinetree Capital opted to leverage their seed generator model via a $75 million 8% debenture offering.
Part of the covenant of the offering was that the debt to net asset value ratio will not exceed 33%, which was not a problem at the time of the offering. In May 2011 Pinetree had approximately 136,389,000 shares outstanding with a net asset value of $4.30, the assets were worth $586,472,000 so $75 million was just a mere 13% debt to equity. Well within the covenant.
How things have changed in the summer of 2013. Pinetree is now under pressure as CEO Sheldon Inwentash is now finding out that the bank is his new boss.
Pinetree Capital Ltd., as at June 30, 2013, was not in compliance with one of the debt covenants contained in the convertible debenture indenture dated May 17, 2011, as supplemented by the first supplemental indenture dated Dec. 11, 2012, in each case, between the company and Equity Financial Trust Company, as trustee, which govern Pinetree's 8 per cent convertible unsecured subordinated debentures due May 31, 2016. The debt covenant at issue prohibits the company's debt from exceeding 33 per cent of the total value of its assets, as reflected on its (unaudited) consolidated balance sheet as at the last day of each month. As at June 30, 2013, Pinetree's debt-to-assets ratio was 36 per cent. Pinetree has attempted to manage its debt-to-assets ratio throughout the year, primarily by retiring in excess of $14-million principal amount of debentures under normal course issuer bids (representing approximately 19 per cent of the debentures originally issued), however, the downturn in both commodity prices and the junior resource space generally has eroded the value of the company's investment portfolio.
Pinetree will continue to monitor its debt ratio, which it estimates to currently remain at a similar level to the June figure.
Pinetree has pared the original $75 million debentures back down to $60,864,000 as of June 25 2013 through a series of buybacks. Unfortunately Pinetree's main source of income is based on capital gains and with interest payments of approximately $4.9 million a year, a declining portfolio value and the need to buy back debentures to stay within the covenant guidelines the pressure is on the portfolio.
As of June 30th Pinetree declared a NAV of $0.76/share and with 143,819,000 shares outstanding giving Pinetree's portfolio value of $109,302,440 net of debt. So Pinetree is faced with a double edge sword, as the margin calls come in from Equity Financial and the interest payments rack up Pinetree would have to sell its portfolio into a very illiquid market further depressing their portfolio and putting more pressure on their covenant.
Here is a list I compiled from Pinetree's website, Pinetree's disclosure policy is to disclose the public positions over $1,000,000, this is as of March 31, 2013. I have adjusted for reverse splits, takeovers and spinoffs to the best of my knowledge. The prices where as of August 2nd for valuation with the original cost provided.
This is a pretty large portfolio and anyone of these companies could be under further price pressure given Pinetree's circumstances, although the most liquid companies could be sold first.
Company Shares x Price Value as of Aug 2* Original Cost
Africa Gold -AGG.V 16,500,000 x .08 $1,324,000.00 $6,148,000.00
Alpha Minerals AMW.V 525,000 x 5.30 $2,782,500.00 $1,109,000.00
America Petrogas BOE.V 2,500,000 x 1.25 $3,125,000.00 $5,345,000.00
Augusta Industries AAO.V 35,383,223 x .03 $1,061,497.00 $4,358,000.00
Troy Resources TRY.ASX 4,081,575 x 1.25 $5,101,970.00 $5,928,000.00
BSM Technologies GPS.V 1,313,100 x 1.90 $2,494,890.00 $1,306,000.00
Caledonia Mining CAL.TO 5,325000 x .70 $3,727,500.00 $7,582,000.00
Canada Lithium CLQ.TO 3,500,000 X .48 $1,680,000.00 $2,222,000.00
Canadian Orebodies CO.V 17,502,000 x .035 $612,570.00 $3,999,000.00
Canadian Spirit Resources SPI.V 4,399,500 x .25 $1,099,875.00 $3,556,000.00
Coro Mining COP.TO 13,700,000 x .05 $685,000.00 $6,487,000.00
Donny Brook Energy DEI.V 14,000,000 x .035 $490,000.00 $5,225,000.00
Energy Fuels EFR.TO 16,000,000 x .20 $3,200,000.00 $9,884,000.00
Euromax Resources EOX.V 4,469,133 x .23 $1,027,900.00 $4,034,000.00
European Uranium EUU.V 5,769,770 x .20 $1,153,954.00 $5,882,000.00
Evolving Gold EVG.TO 12,455,555 x .05 $622,777.00 $3,539,000.00
Fission Energy/Dennison DML.TO 887,000 x 1.30 $1,153,750.00 $2,905,000.00
Fission Uranium FCU.V 887,000 x .98 $869,260.00 $0.00
Genenews GEN.TO 1,550,000 x .71 $1,100,500.00 $2,829,000.00
Gold Canyon GCU.V 17,500,000 x .23 $4,025,000.00 $12,787,000.00
Happy Creek HPY.V 6,912,500 x .15 $1,036,875.00 $2,589,000.00
Integra Gold ICG.V 5,383,000 x .16 $861,280.00 $1,287,000.00
International Northair INM.V 7,250,000 x .15 $1,087,500.00 $2,859,000.00
Kilo Gold Mines KGL.V 15,000,000 x .04 $600,000.00 $3,296,000.00
Latin American Mineral LAT.V 18,200,000 x .08 $1,456,000.00 $6,913,000.00
Levon Resources LVN.TO 7,469,000 x .27 $2,016,630.00 $6,574,000.00
Lithium Americas LAC.TO 5,869,500 x .42 $2,465,190.00 $9,273,000.00
Longreach Oil LOI.V 1,717,860 x .70 $1,202,500.00 $2,750,000.00
Macarthur Minerals MMS.V 7,500,000 x .20 $1,500,000.00 $9,477,000.00
Macusani Yellowcake YEL.V 17,750,633 x .06 $1,065,037.00 $10,421,000.00
Mason Graphite LLG.V 2,625,000 x .50 $1,312,500.00 $1,724,000.00
Matamec Exploration MAT.V 14,250,000 x .15 $2,137,500.00 $4,696,000.00
Mawson Resources MAW.TO 2,041,400 x .53 $1,081,942.00 $1,625,000.00
Mega Precious MGP.V 14,496,100 x .22 $3,189,142.00 $8,053,000.00
Mega Uranium MGA.TO 13,150,000 x .1 $1,315,000.00 $15,086,000.00
Nighthawk Gold NHK.V 7,350,000 x .10 $735,000.00 $2,253,000.00
Novo Resources NVO:CNSX 2,178,571 x .75 $1,633,928.00 $1,487,000.00
Poet Technologies PTK.V 5,547,500 x .49 $2,718,275.00 $1,763,000.00
Potash Ridge PRK.TO 8,500,000 x .35 $2,975,000.00 $2,573,000.00
Powertech Uranium PWE.TO 10,710,000 x .09 $963,900.00 $3,959,000.00
Pirmary Petroleum PIE.TO 17,750,000 x .09 $1,597,500.00 $5,629,000.00
Redstar Gold RGC.V 11,808,000 x .09 $1,062,720.00 $3,060,000.00
Santana Resources STA.V 7,850,000 x .095 $745,750.00 $4,598,000.00
Shoal Point Energy SHP:CNSX 12,750,000 x .05 $637,000.00 $2,491,000.00
Soltoro SOL.V 4,075,000 x .17 $692,750.00 $2,696,000.00
Stans Energy HRE.V 13,008,000 x .17 $2,211,360.00 $8,888,000.00
Talon Metals TLO.TO 5,250,000 x .21 $1,102,500.00 $4,276,000.00
Unigold UGD.V 23,044,500 x .07 $1,613,115.00 $7,022,000.00
Vanoil VEL.V 4,702,500 x .32 $1,504,800.00 $2,348,000.00
Total
$79,858,637.00 $234,791,000.00
Equity Financial Trust has given Pinetree until September 13 to remedy the situation.
Further to Pinetree Capital Ltd.'s July 12, 2013, press release, Equity Financial Trust Company, as trustee under the convertible debenture indenture dated May 17, 2011, as supplemented by the first supplemental indenture dated Dec. 11, 2012, in each case, between the company and Equity Financial, which govern Pinetree's 8-per-cent convertible unsecured subordinated debentures due May 31, 2016, has given notice to Pinetree pursuant to the indenture that the company is in default of the debt covenant which prohibits Pinetree's debt-to-assets ratio from exceeding 33 per cent as at the end of each month. As at June 30, 2013, Pinetree's debt-to-assets ratio was 36 per cent. In accordance with the indenture, Pinetree is required to cure or obtain a waiver for the default by Sept. 13, 2013. Failure to obtain a waiver or to cure will constitute an event of default under the indenture. Pinetree will continue to monitor its debt ratio, which currently remains at a similar level to the June figure, and will consider the alternatives available to the company to cure the default or obtain a waiver of the default from the holders of the debentures.
It will be difficult for Sheldon to raise $60 million in equity to payout the debenture in this market which makes any of the stocks in the above list very vulnerable.