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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Peregrine Diamonds: (Barely) buried treasure on Baffin Island

by James Kwantes, World of Mining

Peregrine Diamonds released its maiden resource estimate for Chidliak Wednesday, and it sparkled.

The diamond exploration company led by Eric Friedland reported an NI 43-101 compliant inferred resource of 7.47 million carats of diamonds in 2.89 million tonnes in its CH-6 kimberlite pipe, to a depth of 250 metres. The kimberlite is open at depth. More tonnage below 250 metres in CH-6 as well as in two other kimberlites, CH-7 and CH-44, has been targeted for exploration.

Diamonds recovered from the CH-6 400-tonne bulk sample. The largest is an 8.87-carat gem valued at $36,000. (Peregrine Diamonds photo)


At an average diamond value of $213/carat, that adds up to about $1.6 billion in value for just the first 250 metres of a single kimberlite, one of seven that have “economic potential,” according to Peregrine.

News of a resource estimate in the billions based on high-value diamonds in a rich kimberlite pipe just below surface – albeit in the middle of nowhere – resulted in a 6.5-cent (16%) gain for the stock. Peregrine shares can be volatile, as the chart below shows, and holding them frustrating, as I can attest. If past patterns hold, the stock will drift down until further news that moves the needle.

1-year chart for PGD (Yahoo Finance)

Here’s the new corporate presentation. One interesting nugget in the list of significant shareholders – below Robert Friedland at 18.6% and Eric at 16% – is De Beers at 2.3%. Given the history, I didn’t realize the former granddaddy of diamonds continued to hold any position.

In a conversation with John Kaiser at the Cambridge House resource show in January, the Peregrine fan told me he wouldn’t be surprised to see De Beers eventually take another run at Peregrine. However, the list of potential suitors is long, thanks in large part to the Canadian disruption of the De Beers cartel.

Disclosure: I own Peregrine Diamonds shares because I think Chidliak will become a diamond mine. However, I don’t know if or when that will occur, and financing a mine could be very dilutive to existing shareholders. The stock can be very volatile. Please read my disclaimer.

Related reading:

Chidliak grade gives Peregrine Diamonds an “A” | World of Mining

Diamond partners Peregrine, De Beers no longer dancing | World of Mining

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

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A proxy loss, but Sherritt shaken

by James Kwantes, World of Mining

When the votes were counted Tuesday, activist investor George Armoyan had lost his bid to shake up Sherritt’s board.

But Armoyan, whose Clarke owns 5% plus of Sherritt’s outstanding shares, got a round of applause on enemy territory – Sherritt’s annual meeting in Toronto – after talking up Sherritt’s potential and progress toward enhancing shareholder value, according to this Financial Post report by Peter Koven.

If Sherritt’s stock continues to rise, George Armoyan gets the last laugh. (Halifax Chronicle-Herald photo)

The conciliatory speech was the velvet glove to Armoyan’s iron fist – his months-long campaign to force accountability on the chronically underperforming company through an infusion of new blood on its board.

After months of behind-the-scenes negotiations between Armoyan and the Sherritt board, the dissident shareholder criticized Sherritt CEO David Pathe publicly for musing about an acquisition after the sale of Sherritt’s coal and royalty business was announced in December. An acquisition seemed like a curious choice indeed for a debt-riddled company that has had trouble turning a profit on existing operations.

Until Armoyan launched his proxy fight, the stock had been a horror show by almost any metric. But with ownership of less than .25% of outstanding shares, executives and directors have little “skin in the game” – a situation that persists despite this week’s endorsement by voting shareholders. Hoping for change to come organically under these circumstances seems like a stretch.

Year-to-date, buoyed by a sharp increase in the nickel price and pricked by the sharp criticisms of Armoyan, Sherritt stock is up about 19% (Clarke shares are up 14%, including an 8% rise Monday after a robust Q1 report).

Armoyan told the Financial Post he plans to remain an active and involved shareholder. “I’m not the smartest guy in the world. (But) I’m the most persistent son of a bitch you’ll ever meet,” Armoyan said.

Sounds like he’s just what the doctor ordered for Sherritt.

Disclosure: I was recently stopped out of Sherritt shares and no longer own the stock, although it’s on my radar. I own Clarke shares. This is not investment advice; do your own due diligence and please read my disclaimer.

Related reading:

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

Fight Club, Canadian-style | World of Mining

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An eventful day

And I didn’t have the time to post on today’s Peregrine Diamonds resource estimate news, which moved the stock up 15% (6.5 cents) to 47.5 cents. Please check back tomorrow on that, as well as an update on the Sherritt/Clarke proxy fight.

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Getting things done the Imperial way

by James Kwantes, World of Mining

I recently had the pleasure of interviewing Imperial Metals (III) chairman Pierre Lebel for the Vancouver Sun and my feature on Lebel and Imperial’s Red Chris mine is in today’s Sun business section and online. Red Chris, British Columbia’s next mine, is an open-pit copper-gold mine being built south of Dease Lake in northwestern B.C. Comissioning is scheduled for this summer, with production to follow in the fall.

Lebel is a low-key but high-performing executive who finds a way to get things done. Imperial won Red Chris in a bidding war with Taseko in 2007 and wasted no time taking it from exploration to production, a feat not many mining companies accomplish – let alone in seven years. Red Chris will be Imperial’s third B.C. mine (the company also owns a small Nevada gold mine) and by far its largest, with production for the first 5 years pegged at 88 million lbs copper and 52,700 ounces of gold. Not bad for a $1-billion market cap company.

In the case of Red Chris, getting things done meant clearing multiple hurdles, as well as a foray into the power line construction business. Imperial is building the Iskut Extension to the Northwest Transmission Line, and struck a creative deal to sell it back to BC Hydro.

I didn’t mention it in the story, but Imperial’s share performance hasn’t been too shabby, either. The stock has a 1-year return of about 19% at the time of writing, and a whopping 5-year return of 600% since the financial crisis. Memo to junior mining companies: Imperial has only 75 million shares outstanding. Of course, it doesn’t hurt that the company’s major shareholder is oilpatch billionaire N. Murray Edwards, who also helped finance mine construction and was a key partner to Imperial management, according to Lebel.

Here’s the story.

The piece is Part 2 of a 3-part series on mining in northwestern B.C.

Related reading: Part 1: Quartermain goes for the gold | World of Mining

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A (re-)visit with Pretium CEO Bob Quartermain

by James Kwantes, WorldofMining.com

I first interviewed Bob Quartermain for the Vancouver Sun in December 2011 when his Pretium Resources IPOed on the Toronto Stock Exchange. At $265 million, it was one of the larger IPOs that year, and allowed the geologist executive to purchase the Brucejack and Snowfield properties from Silver Standard, which he’d run for 25 years.

What drew him to the projects? Quartermain talked during the phone interview about the high-grade veins of gold that had been intersected and how he had never seen anything like it in his decades as a geologist and executive.

I revisited Quartermain recently, this time in his office, and wrote about his high-grade northwestern B.C. gold project in my first mining piece for the Vancouver Sun, where I am a story editor. My day job there will now include a part-time role writing about B.C.’s mining industry — its projects and personalities. I don’t anticipate writing much about stocks I own (because of the Sun’s B.C. focus). If I do, I’ll follow the same policy of full disclosure that I do here at WorldofMining.com.

A vast drilling campaign at Brucejack’s Valley of the Kings in the years since that 2011 IPO has turned those high-grade gold hits into a resource estimate of some 8.7 million ounces (in measured and indicated categories).

But the path to delineating that buried treasure has been a rocky one characterized by choppy junior mining markets, a volatile gold price and a resource estimate controversy that temporarily battered Pretium’s stock.

Through it all, Quartermain has his eyes focused on the prize: developing a high-grade gold mine that will employ an estimated 500 people and feed a growing demand for physical gold in China and other rising Eastern markets.


Full story here.

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Fight Club, Canadian-style (Sherritt vs. shareholders)

by James Kwantes, WorldofMining.com

Sherritt and Clarke resumed their very public boardroom battle this week with fresh accusations and countercharges.

A group of battered Sherritt shareholders whose luck is about to change? (Fight Club photo)

Sherritt chairman Hap Stephen opened fire Monday morning with a 7-page broadside attacking dissident shareholder George Armoyan. Stephen spent about 1 1/2 pages defending the existing board and management (“the good news”) and the rest of the letter attacking Armoyan (“the bad news”) – delving into his regulatory past and somewhat checkered record on the topic of corporate governance. By the close of trading Monday, Sherritt stock was more than 9% higher. It held those gains Tuesday, closing at $4.73 (up 3 cents) during a session that saw most mining issues hammered on the TSX.

Sherritt 6-month chart (Google Finance)

Armoyan, the CEO of Clarke who is leading the “Concerned Shareholders” in the proxy fight, responded on the SaveOurSherritt.com website with his own dirty dozen – 12 reasons shareholders should elect his 3 board nominees (himself, David Wood and Ashwath Mehra) to shake up Sherritt. Mehra has a wealth of international metals and commodity experience including 10 years spent running Glencore’s nickel and cobalt businesses.

Clarke stock has had a good 12-month run (up 82%) but has failed to appreciate recently on pace with Sherritt’s move (up 66% from February’s multi-year low). As of March 5 – when Sherritt stock closed at $3.29 – Clarke owned a $43.9 million stake that made up about a third of Clarke’s publicly traded debt and equity, according to a corporate presentation on Clarke’s website. That would have given Clarke about 13.34 million shares at the time, a stake worth about $63 million at current prices. The market capitalization of Clarke, which runs several other businesses in addition to the marketable securities and had $46.5 million in cash as of March 5, is about $150 million.

Clarke 6-month chart (Google Finance)

Sherritt’s 40% owned Ambatovy nickel mine in Madagascar is coming on-stream just as nickel prices are rising, and it has robust oil and gas assets as well as a nickel mine in Cuba. It’s flush with cash after selling the Canadian thermal coal business, including royalties, at the end of last year. Yet the share price as of February was barely above lows plumbed during the depth of the 2008 financial crisis. Stephen’s criticisms of the Concerned Shareholders ring false when looked at through the lens of the stock’s chronic underperformance and the rich compensation levels of existing management and directors, especially when their paltry shareholding is taken into account. The Concerned Shareholders website is SaveOurSherritt.com.

Disclosure: I own shares of Sherritt and Clarke Inc. This is not investment advice; all investors should do their own due diligence, always. Please read my disclaimer.

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

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