Post by
74volfram on Aug 03, 2015 7:52pm
a logic problem with financial implications
To me this Woulfe issue is a very interesting logic problem with obvious personal financial implications. this is why it is interesting:
- it is a small company with a real asset and simple business model
- relatively straightforward market
- limited number of variables and players
- lots of data available
- I own a lot of Woulfe shares
Having said that, Gaston certainly has a way to hit the nail that drives it right to the point. The point here is to have a good discussion but in the end remind ourselves that even when backed up by facts opinions only become educated opinions until they turn (or not) into realities. So here is the discussion. Best is to go after Gaston's issues one by one:
"You continue to portray Dundee as a bunch of clueless hacks and Almonty as as some kind of tungsten mining wonder boys."
I got into this Woulfe with exactly the opposite opinion of Dundee. I thought very highly of Ned Goodman. I have invested considerably in a portfolio of Dundee companies and I have enjoyed his folksy yearly addresses in the annual statements. Absolutely I do not believe Dundee is an a clueless "donkey". Dundee and countless others in the resource sector just made a very wrong bet on the dollar vs. gold and hard assets four years ago. Goodman famously got up at a conference and announced the end of the US dollar and the new bull market for gold right after the US Fed opened up the gates of QE3 (biggest of all) and zero interest rates for as long as it takes. Four years later the USD is up 40% vs. CAD and gold is down 50% vs. USD. I remember plenty like him saying inflation was going to be in the double digits within a year and gold was going to double again (from 1800). None of that happened and Dundee's bet went very bad. Four years later Inflation is still very tame and US gov. is now about to start raising interest rates, which means gold and commodities may go down even more. So it is not that Dundee is clueless. They are just on the wrong side of the trade right now and have been for four years. that is a long time. Maybe they will be proven right in the end, but four-year Investment mistakes have large consequences. The basket of Dundee companies in my accounts have been decimated (not like 20% drop, more like 70% drop). My US stocks on the other hand have soared. some of my tech holdings have tripled in the meantime. The only Dundee things that have performed relatively well have been the real estate parts. Dundee has pulled the plug on most of his mining investments, including the base metals (Cogitore, Mark Goodman's company) the junior gold miners (Ryan Gold) and now Woulfe. In each case Dundee decided to consolidate their assets into another company (Yorbeau, Oban and Almonty) in exchange of shares, and let them manage their way out and hopefully up.
Concerning Almonty, I have done my research they may not be the "smartest kid in the block", but they have been pretty clever so far with their investments and execution. Again I may have my opinions, but I always look to the market for confirmation. As I have noted before Almonty is the only junior (or major for that matter) in the sector that has kept a steady market valuation over the past 4 years. Everyone else's chart is a disaster.
"Unfortunately the big picture evidence in the real world paints a different picture. Almonty has funded acquisitions with metal sales and shares because they don't have any real money behind them."
This is my point exactly: Almonty does not have real money behind (meaning a rich greedy financier ready to grab shares) so they have had to make their own money by mining and selling their products. To me that is a big plus, assuming they technically know what they are doing, which seems to be the case, again based on the available informatoin. If you want to see a real bootstrap mining operation that was wildly successful, just look at the Primary Metals (Almonty's original company) and what they did with the Panasqueira mine.
"The main reason they have been able to pull it off is that their targets have been struggliing to such an extent that they have had few options available to them.'"
Again, I do not disagree with the statement. It proves my point that they know what they are doing from a business AND technical standpoint taking advantage of the business downturn. Almonty management is doing what they are supposed to do on behalf of their shareholders and create value against market trends by consolidating and capturing new market space in a depressed market. Woulfe just happens to be the target of acquisition this time with few other options available. These are just market realities: anything else is wishful thinking. In my experience this is how major companies start in the manufacture and commodity sector..
"The ones that did were able to resist and move in a different direction."
The "ones that were able to resist" is Ormonde, which Almonty tried to acquire last year and this year again, unsuccessfully. I have researched the attempted takeover and I started with the thought that Ormonde management was right rejecting Almonty, particularly on the heels of the Woulfe merger attempt that had just been just "terminated". I read the opinion of the Ormonde management and finally also read the financing agreement that was approved between Ormonde and Oaktree (the large US private capital firm). The mine is financed alll right, but Ormonde shareholders now own only 30% of the mine. Management however gets to stay and oversee construction at a cool 1M+ per year assured by Oaktree. Shareholders are left with 30% of the mine and one can easily see where that 30% is going to go after any delays to construction and cash calls from the billionaire 70% owner. Already the mine has negative NPV due the tungsten price collapse and construction will likely be delayed one year or two. Oaktree can wait as long as they need, the longer the better for them. Ormonde shareholders can't. To me this seems like a rotten deal for shareholders. Looking at the market again for confirmation: Ormonde SP is now half of what it was prior to financing.
"Dundee bought alot of shares in WOF around 30 cents because they felt they could make money in the future developement of the Sandong mine. They have not squandered 15 million dollars like a bunch of bumbling bozo's hacking up this deal in S. Korea."
Dundee bought into Woulfe because they thought it was a good deal at the time. With $400 APT what could go wrong? They went about it in earnest at first, but when they could not get control of the company through preferred shares they reverted to the waiting game, counting on progressive dilution to control the mine. Korea told them to get busy or else and they decided they did not like the "else" and gave it Amonty to deal with, just like they have done with their other junior assets. I do not think this was bozo hacking. It is the reality of bear commodity markets.
"People will vote on this merger as they see fit, but stop pretending that Almonty is calling the shots here. This is very much a Dundee play, not the tail wagging the dog."
I am not pretending anything. I am calling it as I see it and I try to back up my interpretation by what is publicly available and market actions. In this case I believe Almonty was invited to the table and is now taking charge. Again, one can choose to believe anything they want and decide accordingly, but most of the times the simplest explanation is correct. Here are the recent facts: Almonty came in with 1M and a 1:10 5% share swap early July, and all but one Dundee directors were out the next day and Black was CEO of Woulfe. Dundee may get to participate in financing later on, but that has not been the pattern with Almonty so far. Not even one month later there is a merger offer from which Dundee will only get the 460k finder's fee and the same conversion as anyone else. Again I have to go with what I see, and looks to me it is the dog himself that is wagging a fairly large tail here and sweeping the table clean in a hurry.