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Nautilus arbitration win raises eyebrows
Questionable financing in April produces windfall for Nautilus investor
... and also raises questions about financing fegulation
Back in November I published a report on Stockhouse entitled:
Deep sea fishing Nautilus at 36 cents - Monday, November 26, 2012
By early January, Nautilus Minerals Inc. (TSX: T.NUS, Stock Forum) was trading at 80 cents and produced a short term gain of 120%. A lot of this was fueled by takeover talk initiated by a 3rd party that when the smoke settled was a joke (almost literally). The stock then drifted towards 40 cents by late March.
Please click on the link the view the stock chart.
https://stockhouse.com/media/tickertrax/NUS1.jpg
On March 28th with NUS trading at 38 cents, the company dropped a bombshell on existing retail shareholders. To put it bluntly – the news was jaw dropping and “highly questionable”. I lost complete respect for this company at that time.
Only two weeks earlier Nautilus released December 31st financials showing they still had net cash of almost $40 million. Heading into Q2 there appeared little reason they would need to immediately raise another $40 million - and do so at HALF the market value !!
Equally shocking was that the TSX would even allow this. But they did.
Happy to participate in the cheap financing and draw fees up to $2 million, was MB Holding Company LLC (an existing majority shareholder).
By June 12th it was announced that Mawarid Offshore Mining Ltd., a wholly owned subsidiary of MB Holding Co. had purchased 82,679,363 Nautilus shares at 20 cents.
Understandably MB has supported the company in the past at higher prices. However, in doing this huge cheap financing they set a valuation precedent and dramatically diluted existing shareholders. By summer the stock drifted to 20 cents and many old shareholders threw in the towel and took big losses.
OCT 3RD – NEWS PRODUCES FINANCING WINDFALL
Nautilus was in the midst of a fight with the Papua New Guinea government over money spent on their deep sea mining vessel. They had taken the matter to arbitration and a ruling came down October 3rd in favor of Nautilus.
As you will see from the chart above, the stock jumped 50% on this news.
On paper Mawarid Offshore Mining was a VERY Happy Camper
82.6 million shares purchased in the financing at 20 cents = $16.5 Million (cost)
82.6 million shares now worth 50 cents = $41.3 Million)
Paper Gain = $24.8 Million in only 4 months
THIS RAISES MANY QUESTIONS WHEN IT COMES TO PROTECTING THE RIGHTS OF THE AVERAGE INVESTOR
When a stock has established (what is expected to be) a FAIR market value based upon trading over the past several months, why is ANY company allowed to grossly dilute existing shareholders by doing a financing DRAMATICALLY below market value ?
If the securities regulators exist to protect the interests of the average investor or shareholder, then how is allowing this type of financing helping anyone but the largest of investors. The simple answer is – it isn’t.
Allowing this type of activity does nothing to help preserve market value OR create an environment where the average investor can feel his interests are being protected.
In 2013 I am noticing that most reverse takeovers or change of business on the TSX or TSX Venture are taking up to nine months for approval. While these companies are being scrutinized to death, the regulators are happy to approve transactions like we saw with Nautilus.
This makes little sense and I am sure pushes away many investors and new public companies interested in listing on the TSX or TSX Venture.
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Disclosure: Danny Deadlock owns no shares of Nautilus Minerals
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