Armoyan’s Clarke books $17.5-million gain on Sherritt foray

by James Kwantes

When I last wrote about Canadian value investor George Armoyan, he was licking his wounds after losing a bid to install three directors on the board of nickel miner Sherritt International (S.TO). Sherritt produces nickel as well as oil and gas in Cuba and a major focus going forward is its 40% owned Ambatovy nickel mine in Madagascar.

Armoyan had taken aim at Sherritt – long home to a curious combination of lavish pay packages and chronic underperformance – through Clarke (CKI.TO), his publicly listed investment company. Clarke accumulated 5%-plus of Sherritt’s stock, which had sunk below $4 a share after hitting 2007 highs above $17 and 2011 highs above $9.

George Armoyan gets the last laugh after failed Sherritt proxy battle. Halifax Chronicle Herald photo

Following months of failed behind-the-scenes negotiations, Armoyan publicly criticized Sherritt management and launched a determined, if improbable, proxy battle that would have seen him and two associates join Sherritt’s board of directors. The public spat, along with a surging nickel price and analyst upgrades, sent Sherritt stock up to the high $4s in the spring.

Turns out that while Armoyan lost the Sherritt proxy battle, he won the war – to generate returns for shareholders.

Clarke disclosed in its second-quarter financials, released on Aug. 7, that it had unloaded its entire stake in Sherritt (a portion during Q2 and the rest subsequently), generating a profit of more than a few nickels on the transaction – $17.5 million, to be precise.

Armoyan has since been deploying its large cash pile closer to home, boosting Clarke’s already-substantial ownership stakes in growing hotel play Holloway Lodging (HLC.TO) and oil-and-gas focused holding company TerraVest Capital (TVK.TO).

Clarke shares closed at $8.17 the day I first wrote about the Clarke-Sherritt showdown. They are now trading in the range of $10.60, a gain of about 30% (compared to about 9% for the S&P/TSX Composite). Clarke also pays a dividend and is yielding about 3.8% at current prices.

As for Sherritt shares, they have slumped back below $4 (I bought in the low $4s and got stopped out at $4.50).

On July 30, Sherritt announced a second-quarter net loss of $30.1 million, or 10 cents a share, despite increased revenues and surging nickel prices during the three-month period.

As for Armoyan, Clarke’s beefed-up Holloway investment is also working out nicely. The stock is up more than 30% in the past month after value investor Guy Gottfried talked the company up at the Value Investing Congress in New York in early September.

Disclosure: I own Clarke shares. All investors should do their own due diligence.

Related reading

Sherritt and Clarke: Nickel for your thoughts | World of Mining

A proxy loss, but Sherritt shaken | World of Mining

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NexGen Energy, next moves

NexGen Energy (NXE.V) energized the junior mining world Tuesday (after being halted all day Monday) with a drill hole described variously as “landmark” (by the company) to a “barnburner” (Dundee).

NexGen’s AR-14-30 at its Rook 1 project, part of the Arrow discovery in the Athabasca Basin, Saskatchewan, hit 186.9 metres of uranium mineralization including about 54 metres of “off-scale radioactivity.”

It was an exceptional hole, even by the standards of the Athabasca Basin, home to the world’s richest uranium grades. I took a position in NexGen last summer, in late June, at 25 cents and wrote about that here.

NexGen shares surged about 30% Tuesday on 10X average volume, closing at 54 cents. The stock held those gains on strong volume today and closed a cent higher.

NexGen Energy, year-to-date

Doubles, especially in the current Venture market – and in uranium!, don’t come around every trading session, so the stock action presented a classic investor’s dilemma. Sell the microcap stock (which has been quite volatile) and book all or part of my gains, or ride this winner?

I decided on the latter. My position is relatively small and I believe Tuesday’s drill result buttresses the case that NexGen has a high-grade uranium deposit that will prove economic. Management is top-rate, the company is cashed-up and there are a slew of catalysts that should help underpin and drive the stock going forward, including further drill results and analyst coverage.

Getting in before the crowd remains one of the keys to successful microcap investing.

Travis McPherson of recently went on a NexGen site visit and wrote up a good report here.

Disclosure: I own NexGen shares, but this item and this blog should not be considered investment advice. All investors should do their own due diligence. Please read my disclaimer.

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Pattison backs Canterra, Randy Turner’s diamond explorer

by James Kwantes

Billionaire Jim Pattison’s business empire in automotive, food, forestry, packaging, media and coal terminals has made him Canada’s richest or third richest person, depending on who’s doing the counting.

Turns out part of Pattison’s fortune is also derived from Canadian diamond exploration.

Randy Turner (above) is back hunting for diamonds in NWT and he’s taking along Jim Pattison, a former Winspear investor. Photo by Jason Payne/Vancouver Sun

The Vancouver business tycoon was a 10% holder of Randy Turner’s Winspear Diamonds, which discovered the Snap Lake deposit and was sold to De Beers for $305 million in 2000. (Winspear owned 68% of Snap Lake; Gren Thomas’s Aber owned the other 32% and sold that to De Beers for $173 million a year later.)

Pattison is teaming up with Turner once again by taking a large stake in the Vancouver geologist’s latest diamond exploration vehicle, Canterra Minerals (a Diamondex successor). On July 29, Canterra announced it had closed a $2-million financing, with Pattison acquiring 14 million shares, or about 18.7% of Canterra’s outstanding shares.

For more on Turner – who more recently, in 2011, sold his Silver Quest Resources and its 25% interest in a B.C. gold project to New Gold for $131 million – check out my June 10 Vancouver Sun feature.

In a followup interview this week, the Canterra CEO described Pattison as a “great supporter” and said Canterra crews are now doing till sampling and further defining future drill targets at the company’s early-stage Northwest Territories projects. Those properties are located between Snap Lake and Gahcho Kue, the joint-venture diamond mine being built by De Beers (51%) and Mountain Province Diamonds (49%).

Canterra has narrowed down its hunt for gems with the help of a large geophysical database accumulated over 15 years of exploration in the southern Slave, where Canterra’s claim and lease holdings now total about 74,000 hectares.

On Aug. 14, Turner also brought diamond veterans Tom McCandless and Bruce Kienlen into his corner. McCandless worked with diamond pioneer Chuck Fipke before Canada’s industry existed, has extensive experience in the Slave and was chief mineralogist for Ashton Mining/Stornoway Diamonds. Kienlen has worked for BHP Billiton and Diamonds North.

Disclosure: No position in Canterra Minerals currently. Please read my disclaimer.

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Kaminak Gold: What you have, who you know

After a family holiday in the Netherlands (great!) and a period of inactivity at, I’ll pick up where I left off: with Eira Thomas, CEO of Kaminak Gold and Canadian diamond pioneer.

When I interviewed Thomas in June for a Vancouver Sun feature, she had expressed some frustration at the fickle state of the Venture market.

Kaminak had just released a preliminary economic assessment on its Coffee gold-copper deposit in western Yukon with some impressive numbers.

- Life-of-mine all-in sustaining costs of $687.50/oz

- Pre-tax NPV of $522 million at a 5% discount rate and IRR of 32.8% (after-tax of $330 million and 26.2%)

- Initial capex of $305 million, with a payback of 2 years, after-tax.

The PEA was announced on June 10 and the next day, Kaminak shares surged about 29%, from 72 cents to 93 cents, before settling back to the 80-cent level in the following weeks.

Then on July 14, Kaminak released some news that seemed to move the needle in a more permanent way – a $13.5-million equity investment in the company by Vancouver mining entrepreneurs Ross Beaty and Lukas Lundin.

Beaty is flush with cash after selling his Lumina Copper to First Quantum Minerals for $470-million (he owned 26% of shares). He is also a 10% holder of Augusta Resource, which finally capitulated in its long-running battle with Hudbay after the miner sweetened its offer for the copper junior.

Lundin runs a mining empire that spans the globe, with interests in junior and producing miners in copper, gold, uranium, diamonds and more. One of his companies is African diamond producer and market darling Lucara Diamond, which has delivered shareholders a 1-year return of 188%. Thomas is a Lucara director and one of its largest individual shareholders – she owns 7.7 million shares, a 2% stake worth about $20 million. Lundin family holding companies are also the largest shareholder of Canadian diamond explorer North Arrow Minerals, which is run by Thomas’s father Gren Thomas. Eira is an advisor to North Arrow.

Beaty and Lundin will each hold 10% stakes in Kaminak following the close of the private placement, which consisted of 80-cent units (one common share and a half-warrant).

With $26 million in cash after the financing, Kaminak announced July 28 it would go straight to a feasibility study on Coffee.

It goes to show you, especially in a bear market, that sometimes it’s as much about who you know as what you have.

Kaminak shares were trading at $1 at the time of writing, up about 76% year-to-date, giving the company a market cap of $110 million. Thomas recently added to her stake in Kaminak as well, picking up 50,000 shares at $1.01 on July 17 and 18.

Disclosure: I own shares of North Arrow Minerals.

Related reading

Chasing the carat: Canada’s Queen of Diamonds comes full-circle | World of Mining

Lumina Copper: Good things come to those who wait | World of Mining

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Busy week in Canadian diamond world

by James Kwantes

Eira Thomas wearing two-carat diamond earrings from Diavik, the Northwest Territories mine she discovered. Photo by Gerry Kahrmann, Vancouver Sun

As regular World of Mining readers know, I have written about Eira Thomas and followed her career since I was an Ashton Mining shareholder. I interviewed Eira recently about her diamond pursuits and other endeavours for the Vancouver Sun and my Sun feature was published this week. Eira is now CEO of Kaminak Gold, which is developing the Coffee project in Yukon, but diamonds remain a “passionate pursuit.”

And it shaped up to be a busy week in the world of Canadian diamonds. Chuck Fipke, the Kelowna geologist who literally launched the Canadian industry with his 1991 discovery of diamonds in the Northwest Territories, sold his 10% stake in the Ekati diamond mine for $67 million. The buyer was mine operator and 80% owner Dominion Diamond (formerly Aber Resources/Harry Winston), and the purchase price included Fipke’s stakes in both the mine and in the exploratory “Buffer zone.” Ekati co-discoverer Stewart Blusson and his company, Archon Minerals, have opt-in rights on Fipke’s stakes that if exercised would moderately dilute Dominion Diamonds’ interest. Fipke’s passion for diamond and mineral exploration endures, however, as he explained to a Globe and Mail writer. “I’m an explorer, not a manager.”

Here’s the Globe and Mail on the Fipke sale.
And the Financial Post’s take on the historic transaction.

Finally, Stornoway Diamonds announced a production decision this week and broke ground on its Renard diamond project in northern Quebec. Eira Thomas is a cofounder of Stornoway, which acquired Renard through a hostile takeover of Ashton Mining, but stepped down as a director and chairwoman in August 2011. Renard will be Quebec’s first diamond mine and Stornoway took the unusual step of raising the money to build the mine – almost $1 billion – itself, through a creative financing that involves debt, dilution and even the forward sale of a diamond stream.

Renard will be a lower-grade diamond mine than Ekati, Diavik or Gahcho Kue, the diamond mine being developed by Mountain Province Diamonds (49%) and De Beers (51%) in the Northwest Territories. But it’s one of the few new diamond mines coming onstream globally, as a supply pinch builds amid growing demand for the glittery gems in the United States, China, India and the Middle East.

Also providing supply of Canadian diamonds is De Beers’ Snap Lake diamond mine, which was sold to the diamond giant by Winspear Diamonds/Aber Resources. I interviewed Winspear founder Randy Turner recently about the transaction with De Beers and his latest diamond exploration vehicle, Canterra Minerals, which is raising $2 million to return to the Northwest Territories and the diamond hunt. Here’s a link to my Sun feature on Turner.

Related reading

Chasing the carat: Canada’s Queen of Diamonds comes full-circle | World of Mining

Chasing the carat: The Friedlands go diamond-hunting | World of Mining

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Cashed-up IDM Mining takes gold hunt to Red Mountain

Rob McLeod’s IDM Mining has closed its financing, raising about $3.3 million to drill for high-grade gold at its Red Mountain project, near Stewart in northwestern B.C. The area has been home to some of Canada’s highest-grade gold mines, including Premier, and is where Bob Quartermain’s Pretium is delineating its high-grade Brucejack gold project.

I wrote about McLeod and the return to his hometown neighbourhood in this Vancouver Sun feature. IDM Mining stands for Ian and Don McLeod, Rob’s father and uncle, respectively, both of them well-known B.C. miners and mine builders.

No positions at present in IDM Mining or Pretium.

UPDATE: Tommy Humphreys at published a good video excerpt with Rob McLeod this week. Check it out.

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Lumina Copper: A final sweetener

Lumina Copper and its Taca Taca copper porphyry in northern Argentina was purchased by First Quantum Minerals on June 17 for about $470 million, or $10 a share. Lumina shareholders have three options to tender their shares – $10 cash, $5 cash and .2174 of a First Quantum share, or the all-share offer of .4348 of a First Quantum share. The amounts are based on June 16 closing prices ($21.65 for First Quantum).

Lumina Copper, 1-month chart

Thanks to a surge in First Quantum stock since and the wonders of arbitrage, Lumina Copper shares are now trading at $10.30 a share, a healthy 3% higher than the offer price. The price of copper has rocketed up about 10% in the past month, and First Quantum shares are trading at $25, up more than 12% in the same time frame and at 52-week highs.

It adds up to a nice sweetener for Lumina Copper shareholders, particularly those – like me – who had planned to take the cash offer.

Thanks, Ross Beaty. Thanks First Quantum.

UPDATE: The First Quantum/Lumina Copper deal seems to be the gift that keeps on giving. Lumina closed the week at $10.61, a 6% premium to deal terms. Yes, I sold too early.

Please read my disclaimer. This is not investment advice.

Related Reading:

Good things come to those who wait | World of Mining

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Lumina Copper lures in a suitor, belatedly

It’s been a wild ride, but Lumina Copper got taken out recently for $10 a share by First Quantum Minerals, which will develop Lumina’s monster Taca Taca copper-gold deposit in northern Argentina. The deal values Lumina at $470 million.

I had expected a takeover of Lumina, at one time one of my largest positions, and first wrote the company up at World of Mining on Sept. 12, 2012 when the stock was at $9 and change. I had not expected it to go for $10/share.

Lumina Copper, 5-year chart

For a while, Lumina shares defied gravity – the TSX Venture went off a cliff in the spring of 2011 but Lumina stock rose through 2011 to the spring of 2012, when it scaled heights north of $16. That’s when a rumoured sale fell through … then Argentina nationalized oil firm YPF and … yeah, you know the rest.

The pain became too great at a certain point and I put my capital to work elsewhere, holding on to a reduced holding in an RRSP account. I wrote about that here and touched on the risks of holding, and selling LCC, here.

The Lumina takeover looks very different to those who purchased north of $10 than to those who have either been shareholders for several years or had the fortitude to bottom-feed on LCC when the stock was skidding along at $4 and $5. Shareholders of Ross Beaty’s original Lumina have made many times their money as Beaty has sold several Latin American projects to majors over the years before Taca Taca was the last asset standing. Part of the proceeds came from the sale of Lumina’s royalty portfolio to Franco-Nevada in 2011.

Beaty built his copper portfolio while the metal was out of favour and other investors weren’t interested – an important and timely reminder for resource value investors. As a 10% holder of Augusta Resource, Beaty also cashed in recently when Hudbay sweetened its takeover offer for Augusta and its Rosemont copper deposit in Arizona.

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WEQ revisited

Small-cap dividend play WesternOne Inc ($WEQ.CA) named its new CEO this week and the market applauded. On Sept. 1, current Ritchie Bros CEO Peter Blake will succeed interim CEO Robert King at the helm, the company announced May 26. Blake is currently CEO of Ritchie Bros. Auctioneers ($RBA.CA), the global equipment auction house that grew from a $250-million market cap to a $2.5-billion MC in just 10 years under his stewardship. He replaces former CEO and company founder Darren Latoski, who died of cancer in September.

Peter Blake, WesternOne’s next CEO

WesternOne is a “pickaxe” company that supplies the mining/oilpatch/shipyard industries with modular buildings and workforce housing (through its Britco division) and also has an equipment-rental business. Its customers are large companies and governments – one current Britco project is a $100-million contract for northern Alberta workforce housing for Devon Energy.

Securing a CEO of Blake’s calibre is a coup for WesternOne, which currently has a market capitalization of about $250 million. Stellar Q1 results didn’t hurt either – for the quarter ending March 31, WesternOne revenue was $117 million ($77M a year ago) and net income was $2.4 million, or 8 cents a share ($700K, 3 cents a year ago). Corporate overhead declined.

This month’s news has propelled the stock back above the $8 mark, near 52-week highs. For the past year, WEQ has traded in a tight band between $7 and $8.10. I no longer hold WesternOne in my portfolio, but investors looking for a high-yielding small-cap stock with positive growth prospects – especially investors who are levered to risky junior mining stocks – may want to take a look. WEQ yields 7.5% at current prices ($8.05) and had a payout ratio of 69% in the first quarter.

This is not investment advice, do your own due diligence.

Related reading:
Rebalancing, Part 2: Signs of life | World of Mining
RIP Darren Latoski, WesternOne CEO | World of Mining

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NEWS FLASH: Sherritt insider buying

One of the main beefs activist investor George Armoyan has with Sherritt executives and board members is their lack of “skin in the game.” Armoyan recently failed to get his slate of directors elected to the board of the underperforming nickel producer, but his Clarke Inc. still owns about 5% of Sherritt’s outstanding shares, and he’s been making money on that stake.

The good news for Sherritt shareholders: On Thursday, Sherritt CEO David Pathe filed a public market purchase of 6,700 Sherritt shares at $4.42 (in a spousal RRSP account he has control or direction over), according to Canadian Insider.

The bad news: Including Thursday’s buy, Pathe still only owns 76,038 Sherritt shares (or .03% of S.O.), according to our friends at INK Research. That hardly aligns his interests with those of shareholders. It was Pathe’s declaration that Sherritt was on the hunt for acquisitions in late December – after the sale of its coal and royalty business – that prompted Armoyan to go public with his concerns, after months of behind-the-scenes negotiations with Sherritt.

I don’t currently own Sherritt stock, although I’m watching it closely given the run-up in the nickel price and the fact their Ambatovy nickel mine in Madagascar is up and running. Sherritt was also recently a BNN top pick of a money manager named Jim Huang.

Related reading:

A proxy loss, but Sherritt shaken | World of Mining

Sherritt International wins solid victory in proxy fight | Financial Post

Sherritt and Clarke: Nickel for your thoughts | World of Mining

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