RE:RE:RE:Cost of CoreboxI am still wondering what was the catalyst that pushed EO to issue the NR a week ago? He had to know it was the end for him, so just what was it that got him reacting with emotion over thought?[/quote]
LRG,
After looking at AZX’s past drilling programs more closely, I have a new theory on what led EO to issue the NR. Look at the following headlines.
- Jan 30, 2015: Alexandria Minerals closes financing
- Feb 17, 2016: Alexandria begins drilling copper-gold zone in Val d'Or
- Jan 11, 2016: Alexandria announces intention to conduct a normal course issuer bid
- Feb 17, 2016: Alexandria begins 2,000-meter drill program in Val d'Or
- Dev 20, 2016: Alexandria announces closing of first tranche of $5.1 million financing
- Jan 13, 2017: Alexandria Minerals begins 12,500-meter winter drill program in Val d'Or
As I understand from previous interviews by Eric Owens, Alexandria has discrete windows to drill around the spring thaw. So, putting myself in Eric’s shoes, he worked extremely hard on a strategy to reinterpret the Orenada resource after a lackluster Akasaba program. The results in 2017 confirmed his team’s thesis, and he wanted to see the full potential with a multi-rig, 60,000m by enlarging the deposit even further. I imagine he was chomping at the bit to build on his recent success, and his team was starting to miss important operational windows.
Why? The BoD has placed AZX's operations in a state of limbo without a timeline, as they review strategic alternatives. So, Eric Owens set an expectation to investors that 60,000m is going to be drilled in 2018, and now the BoD was not committing funds to his project. When he realized he couldn’t move forward, then he might have been in a emotional state of being spurned so easily, even after his recent drilling success.
I think he alludes to this dynamic in his initial shareholder meeting request on Feb 9, 2018:
“The Concerned Shareholders believe that the Alexandria board, as currently constituted, has failed to be responsive to shareholder expectations and has no coherent strategy for value creation. Instead, as announced on December 20, 2017, the existing board has formed a special committee, which has been tasked with examining strategic alternatives for the Company, with no defined timeline.” He then clarifies this further on why he made his surprising move with an Open Letter to the shareholders:
“The Special Committee stated that their process promised a "variety of outcomes or no outcome." I, however, propose a clear path forward for Alexandria. First, I propose to bring in the capital the Board had already budgeted last year, at as accretive a level as possible. With the Board's knowledge, I was putting together a financing (with hard-dollar and flow-through portions) expected to raise over $20 million. Much of that money sits in trust, awaiting the Board's approval to close the financing.” “Third—and only after the NI 43-101 report is released—I propose to look for partners and M&A opportunities. But I will pursue only options that are in the best interests of shareholders and properly value the Company that I as co-founder and CEO, and we as shareholders, have built.” I think he got so tired of waiting that he felt he needed to reclaim control of the company he founded. He is not accustomed to his future drilling plans being thwarted by other people. In his letter, EO proposes to release the NI 43-101 reports before considering M&A opportunities, which I agree with, but he doesn’t say the resource estimate needed to be released before trying raise $20 million. If this is indeed the source of the disagreement between the BoD and EO, then I must agree with the BoD that the resource estimate should be released before even thinking about new financing, even if it means operational milestones are going to be missed in 2018.
The BoD’s response to EO’s concerns make sense with this lens, where they say “self-serving”. EO seemed to be more than willing to move forward with new financing, despite not having the updated resource estimate, because he cared more about hitting his operational targets. At a depressed valuation, $20 million is a substantial sum for AZX shareholders, which would have been very dilutive.
This dynamic led the BoD to find EO’s assertions “puzzling” because this should have seemed obvious. Peviously, EO could never have even considered a $20 million financing, and he seemed to have gotten way ahead of himself with only a $40 million market cap. EO just doesn’t seem to place a high priority on getting the best terms in deals, and he does see the value of financing-related activies. He acts as though financing is only a necessary distraction, which should take a back seat to more important value-adding activities. To his detriment, he doesn’t seem to see the value of spending time and effort on this aspect of the exploration business.
“The assertions of the Concerned Shareholders are puzzling, especially on the part of Eric Owens, the CEO of AZX, where they are so apparently self-serving, and in light of a scheduled meeting of the Board of Directors early next week to receive further reports and recommendations from the Special Committee and its advisors. The Special Committee fully intends to continue with its efforts and make timely disclosure, when appropriate. Walter Henry, Chairman of the Special Committee, reiterated that “The Special Committee remains committed to discharging its duties in the interests of AZX’s stakeholders notwithstanding efforts to sidetrack us." Eric Owens fails to realize that the BoD must represent the views of Alexandria’s shareholders, and by far the largest shareholder currently is Eric Sprott. I imagine Eric Sprott would need a very good reason for Alexandria to dilute his stake this much for a future drilling program, especially without waiting for a fairer market valuation after a much-anticipated resource estimate update. Even if the next drill program has great potential, it would be much costlier for ES to support now instead of waiting. In addition, ES would also experience more risk to his investment if he supported a new drilling program while ignoring multiple bids on already great results.
It’s possible the delays from the assays on the final drill results and resource estimates brought this disagreement out in the open. Eric Owens had no reason to hesitate on starting his 2018 60,000 meter drill program, while the BoD had many reasons to hesitate.
If AZX did conduct a financing, then I agree with the BoD view that we should wait for the resource estimate to encourage a higher valuation before tapping the financial markets. That is much more important than missing some operational milestones. The resource isn’t going anywhere. :-) However, I do understand why Eric Owens is so frustrated. He seems to have exceeded even the most optimistic expectations in 2017, and he saw an even more ambitious drill program as the best way to add value to AZX.
Anyway, that’s how I currently seeing things.
NP