Some DD on Arias, Cooperman, LGO and SMT.I've been concerned with the level of selling from both Arias Funds and Insiders. In my mind, given the strength of Vanadium it seems dumb to be taking so much off the table. Anyway, it is a long read below, if you don't have to time to read it through, the conclusion is we are about to put to rest a significant over-hanf that I believe has been dogging us for a while.
There are three Arias Funds and their up to date holding:
Arias Resource Capital Fund LP (13,576,893 shs and no warrants)
Arias Resource Capital Fund II LP (213,899,479 shs and 72,882,972 warrants)
Arias Resource Capital Fund II (Mexico) (12,136,052 shs and 4,135,174 warrants)
Most of the shares sold this year by Arias have been from the first Fund (Arias Resource Capital Fund LP).
July 24, 2018 sold 24,425,892 @ $1.40
October 9, 2018 sold 13,864,406 @ $2.08 US
So as stated above, my concern has been with the selling. As it turns out, this particular Arias Fund is unwinding this month. They apparently have some options as I will show you further down, but the standard would be to sell all of the assets in the Fund and payout cash.
The Arias sells as we have found out recently went partly, most likely mostly to Leon Cooperman. Which is interesting because both Leon and J. Alberto Arias are ex Goldman Sachs guys. Goldman is a big company obviously so one might argue that they don't know each other until you dig deeper and find that Leon also has a big holding in another obscure mining company that Arias also owns >50% of, Sierra Metals (SMT.T).
It is from the SMT.T conference calls that all the info comes out. On the last two CC's Leon calls in and asks what the Arias Funds plan to do with their holdings. This is a major concern as SMT trades about 20,000 shs a day and apparently Arias has to liquidate 52m shs. I'll put the transcripts below.
To my mind this explains the selling by Arias. Question is what is going to happen with the last 13m shs held in the Fund that is unwinding. Apparently as Leon asks in the SMT.T CC's an option is for the Fund to distribute shs in lieu of cash or that the investors might give the Fund an extension. Either way the situation has created a big over hang that I believe will be dealt with very shortly if not tomorrow.
Also note SMT like LGO is held in all three Arias Funds. On October 15th Sedi showed the Arias Resource Capital Fund holding 52,721,964 shares of SMT and today they are gone. So it was dealt with in the last two weeks but I can find no news release to see if it was a private sale and whether it went to Cooperman as well.
Here are the last two SMT CC's where Leon calls in:
Q4: 03-22-18 Earnings Summary
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News Gordon Babcock Actually it was a result of a program that I was incorporated with the prevention of that site, there was no [indiscernible]. So it was dividing the ore zones that we were treating into separate dangerously processing plants for each type of ores. Before all the ore was treated with one time and one point with certain reagents and so on for that one point, so we didn't have any flexibility at all, and now we have a different plan to reach at ore zone. So we have areas like Promatoyo [ph] which are little different from Santa Rosa, which -- areas like San Nicolas and areas like Sant Luis that were different from now. She has 4 or 5 different -- well, let's call them recipes for treating new ore and now we're sustainable.
Igor Gonzales I guess the short answer for the question with respect to similar recoveries as the fourth quarter of -- we're obtaining similar recoveries year-to-date.
Unidentified Analyst And then lastly, just looking towards the studies being undertaken at each of the month; can you just touch on how these are coming along and when we should maybe expect some new slow out of that?
Igor Gonzales We're trying to get it completed by PAS [ph] by the end of Q2 and then move forward after that. So we have to do the first portion of the PAS first and then we'll see where we go with the pre-Ps and fees after report.
Operator Your next question comes from the line of Lee Cooperman with Omega Advisors. Your line is open.
Lee Cooperman 52% of our stock is owned in a private equity fund which I believe has an obligation to distribute October 1 but has the ability to extend. I think given where we are in the calendar that some kind of comment from the Company or the private equity fund regarding their intentions would be welcome. So that's question number one, do you have any insight into the intentions? And number two, ever since we filed the shelf, the stock has kind of lost it's luck; I'm just wondering with the kind of cash flow profile you project and the unused liquidity we have -- whether we should just take that shelf out because we basically have no interest in selling the stock anyway near the current levels? So two questions.
Igor Gonzales As you know, Sierra is the operating company; we presented an operating privacy to our board. Our board then approves our operating strategy and of course, we are executing this compared to this growth by Brownfield and plant expansion which we are executing. I guess in addition of two of this execution of our strategies that the results are based on 2018 are on-budget. So I think that at Sierra we're going to continue to do that. On the fund, we know that the fund is bullish on Sierra Metals' and they have been elsewhere a driving force on Sierra Metals growth; so I think we're going to continue that, we cannot speak for the fund as they do their own analysis on the current situation and for that Mike can complement my response. Mike?
Mike McAllister Yes, I can only say further to that that the fund does have optionality; they will do whatever is best to maximize value. No decisions have been made as of yet that we're aware of or know off. And I could only offer that if you would like to discuss further, we recommend that you reach our directly to the ARC fund [ph].
Igor Gonzales Ed, can you provide the comment on the second portion or the second question that was made?
Ed Guimaraes Yes, sure. In terms of the shelf, we do have -- it was filed summer of last year, there was a 26 month shelf life if you will. So we've got approximately another year and a half. There is no intention to issue shares at these levels, I have stated in the past that it would take a significant increase in the share price before we would even consider taking down some proceeds from a swing shares. I mentioned $3 but just to reinstate that, $3 isn't where we would start to issue shares; it's where management and the board would contemplate and based on where they saw metal prices headed and valuation would we contemplate issuing shares. But there is no obligation to issue any shares and it's at the complete discretion of the board and it is something that is in place until -- we've got another year and a half left.
Sierra Metals Inc. (AMEX:SMTS)
Q2 2018 Earnings Conference Call
Aug. 14, 2018
10:30 a.m. ET Lee Cooperman --
Omega Advisors -- Analyst Thank you. Let me first, before I ask my questions, compliment the entire management team for the job they are doing, and particularly, for the high-quality financial information you disclose for a company of that size. And now let me ask the question. It's probably hard to understand how Sierra [Inaudible] fails to ask you about the company about the deadline with the Arias fund [Inaudible] who asked for an extension.
We're talking about somebody who controls 52% of the company. So the question we should be asking and I'm asking is, are you guys going to distribute -- and it's Arias, not you. But you should know the answer. We're sitting here in the middle of August, we're talking five, six weeks away.
As the -- Arias can ask its fund investors for the extension or is it going to distribute? And if it distributes, how is it going to distribute? Common sense tells me with the net present value of USD 428 million and the stock price at $2.54, that distribution would make sense because you'll give up the control of premium. So the choice to me would be either sell the company at private market value if there's a buyer or ask for an extension to give yourself time to develop, say, the Yauricocha mine facility, which might be an elephant, given all the stuff you disclosed. But I think it's relevant that you guys should give us some insight into what is likely to happen in October. Thank you and hope you could help.
Again, congratulations and your performance is excellent.
Igor Gonzales --
President and Chief Operating Officer OK. This is Igor, and I will ask also Ed to participate right after. What we're doing, as operators, we presented a strategy to our board last year. And we're well into the execution of business strategy and we have continued to do that.
As a matter of fact, next month, we have a strategy review session to update ourselves on what have we completed on the strategy, which is what you guys been getting all along throughout our press releases, throughout our 43-101s, throughout our PEAs, etc. Regarding the ARC fund, we don't know and we cannot answer, unfortunately, what they're going to do. I mean, they are a shareholder for Sierra, but we don't control their activities. So we cannot comment on what they will be doing in six weeks.
Ed, you want to comment also?
Ed Guimaraes --
Chief Financial Officer Thanks, Igor. No, just to add that the company and its shareholders, we're completely aligned in terms of maximizing shareholder value. And any decision that the ARC fund ultimately takes is not impacting our day-to-day decisions and in running our minds and pursuing shareholder -- optimizing our assets as best as we can.
Lee Cooperman --
Omega Advisors -- Analyst I have no question about that. But I think with this event six weeks away, the management -- you'd like to know who you're going to be working for, you know? And I would like to know, since I'm the buyer in the market, do I want to buy in front of the possibility of distributing 52% to the equity. So I think, we're close enough to the event, where Alberto should feel obligated to inform you guys of what his plans are. That's all.
But I don't want to beat a dead horse, but that's kind of my view. But thank you, and again, you're doing a very fine job in running the company, which is most important.