EDITOR: | July 29th, 2015 | 2 Comments

Anaconda and its Gold Projects are in Play

| July 29, 2015 | 2 Comments
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Anaconda-MiningWe have been fans of Anaconda Mining Inc. (TSX: ANX) for some time, and earlier this year put it on our “Takeover Target List”. We soon may have to remove it.

The private Plantro Venture Group Ltd. yesterday announced an intention to make a formal cash take-over bid for all Anaconda’s shares, at a price of $0.035 per share. Anaconda’s shares are trading at 5 cents at the time of this writing, so that proposed offer amount doesn’t make sense. With gold-producing Anaconda having roughly 180M shares outstanding, that would be a total cash payment to Anaconda’s shareholders of $6.3M, for a company with a market cap of $9M. The debt would go with the company and Anaconda would likely at that time become a private non-reporting issuer.

Plantro is purportedly controlled by Tyler and Matthew Proud. Since it’s a private company, we know very little about Plantro or the Prouds.

We reached out to Anaconda for comment but were instead directed to its press release of July 29/15 in which Anaconda said:

“The Plantro proposed offer is stated to be subject to due diligence and is significantly lower than our share price. When a formal offer is received, the board of directors of the company will meet and carefully review and consider such offer. Until such time, there is no formal offer to consider or respond to. The board will provide shareholders with updates as necessary. In the meantime, shareholders are urged to take no actions in connection with the offer.”

From a corporate governance perspective, this is absolutely the right response. Until Plantro shows up with evidence of financial strength, mining experience and a capable diversified independent board of directors, its “intention to make an offer” can’t be taken seriously, but it can’t entirely be dismissed either.

Until Plantro does something to bolster its credibility, Anaconda can carry on with its work in Newfoundland at its Pointe Rousse mine / mill, and at the Stog’er Tight Project. (As an aside, Anaconda reported good numbers today from Stog’er Tight. Click here for that press release.)

We’ve seen these take-unders before. Someone housed in 372 Bay Street in Toronto regularly kicked out successful take-unders, but those were mini-bids on larger, more thickly traded securities. Rarely do 100% take-unders like this ever result in a meaningful offer for the target shareholders, let alone crystallize into real cash. I doubt this one will, either.

First, the intended offer price is much less than the current market price per share. Doh!

Second, usually in a takeover press release, the acquirer goes to great lengths to establish its bona fides. “We tried to do this quietly in the board room and made several serious offers. They just won’t listen to us!” is a public theme common to the suitors. They want you upset at the current team. That’s a fair point to make, but it wasn’t made by Plantro.

Third, a suitor’s press release also often makes disclosure on some of the proposed new directors / management team, which adds to the credibility of the attacker. Again, it’s to be expected. Nothing like that in the Plantro release.

Fourth, the offeror’s press release provides some indication of the business plan / strategy / philosophy that the new proposed team will follow. Expand into silver? Sell the producing mine and become an explorer again? Merge with another company to diversify? Again, Plantro offers nothing.

Finally, the press release is even hollower when you read the part about the “intention to make an offer” being subject to due diligence. Let’s read that slowly. Plantro, announces an intention, to make an offer, but, before it makes that offer, it wants to do due diligence. Really? That’s hilarious.

The normal course would be to make the offer, make it subject to due diligence, and then let the deal breathe. Either a white knight will arrive, or the shareholders won’t sell, or the offer will evolve into something else, or Plantro will withdraw due to what its due diligence revealed. No matter what, that normal process won’t happen here due to the odd wording in Plantro’s release.

Until Plantro does something to advance its credibility, Anaconda is taking the right position carrying on with its day-to-day business. Our call is that Plantro’s “intention to make an offer at 3.5 cents” will likely die a quiet death, and they will blame it on, “Anaconda wouldn’t let us carry out due diligence”.

This, though, raises the larger question from the opening paragraph. If we don’t think Plantro will carry through on its intention, why might Anaconda soon be removed from our Takeover Target List?

Because perception matters. Now Anaconda is perceived to be “in play”. Other market participants will see Anaconda a little differently, and opportunistically. It would not be a surprise to see a share-for-share offer from one of the mid-tiers or stronger juniors, looking to diversify their portfolio with a mill, producing mine, and highly prospective exploration targets in Newfoundland, a mining-friendly jurisdiction.

Our call is that it’s 50/50 whether Anaconda will be around in 12 months.

Finally, in fairness to Plantro and the Prouds, we invite them to comment on this or correct us where our facts are incorrect. Please email the publisher to arrange a discussion offline.


Peter Clausi

Editor:

Mr. Clausi is an experienced investment banker, executive and director. A graduate of Osgoode Hall Law School called to Ontario's bar in 1990, Mr. Clausi ... <Read more about Peter Clausi>


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