In our publishing hobby, which we consider educational for us and our fellow investors, we like to follow the big cases which are played by small players and build up the puzzles on the chess board. Los Azules with its profile of the really "Big Copper" project in Americas fits well into this description. We will have to run a little bit of history in order to put the recent news in the context:
"The New Claim alleges that Xstrata and Minera Andes did not complete the required exploration expenditures required for Xstrata's exercise of its option on April 23, 2007 to acquire the Properties. On that basis, TNR and Solitario advance a claim of breach of contract and intentional interference with economic relations, and seek the return of the Properties, or alternatively, damages as against the defendants or any of them."
These properties are called Xstrata on the map below. TNR Gold litigation team now seeks in this new claim that Northern half of the Los Azules deposit to be returned to TNR Gold. The level of the case is elevated now by this action from potentially 15% after back-in into the project for TNR Gold (it is 25% for the Northern Half of the deposit, but high grade core is located on TNR Gold property called Xstrata on the map) to the claim that seeks the return of the all Solitario (TNR Gold subsidiary in Argentina) properties, which comprise roughly half of the Los Azules deposit at this moment - above the line on the map called Xstrata.
Nobody will take these kind of developments lightly just before the trial which was due to commence in June 2011. It took Judge two days to consider the application of George Macintosh litigation team and it was granted to TNR Gold.
Actually, Minera Andes has warned about this potential situation in its latest MD&A:
We think, that maybe from now on it will be more prudent to call Los Azules not 100% owned project, but subject to ongoing litigation and CIBC has already noticed this litigation before.
Our take here is that, maybe, during the-so-called discovery stage, when all involved parties in litigation are producing the documents and witnesses are called to testify; new information was discovered, which was not available to TNR Gold at the moment of option execution and it allowed George Macintosh litigation team to convince the Judge that this claim is material enough for the court to consider it during the trial.
Our take here is that, maybe, during the-so-called discovery stage, when all involved parties in litigation are producing the documents and witnesses are called to testify; new information was discovered, which was not available to TNR Gold at the moment of option execution and it allowed George Macintosh litigation team to convince the Judge that this claim is material enough for the court to consider it during the trial.
We will provide for your consideration the description of Los Azules and its value by Minera Andes and NRs from both companies. Los Azules is building up in the very important Copper project with word size potential and we can not agree more with Rob McEwen that it will become the major Copper mine one day. The project is very highly leveraged to the Copper price and Rob McEwen has done a great job to increase its size - now we are waiting for another drill results from Minera Andes, which are already long time due with five rigs on the property.
We can not speak for Rob McEwen, of course, but think that he has a few nasty surprises from these legal stage of discovery in this trial - potentially how the former management at Xstrata and Minera Andes have been dealing with TNR Gold. But Judge will be to decide in any case in all this situation. Relationship between Minera Andes and Xstrata will be another interesting topic to watch. More"
We can not speak for Rob McEwen, of course, but think that he has a few nasty surprises from these legal stage of discovery in this trial - potentially how the former management at Xstrata and Minera Andes have been dealing with TNR Gold. But Judge will be to decide in any case in all this situation. Relationship between Minera Andes and Xstrata will be another interesting topic to watch. More"
Please, do not forget, that we own stocks we are writing about and have position in these companies. We are not providing any investment advise on this blog and there is no solicitation to buy or sell any particular company here. Always consult with your qualified financial adviser before making any investment decisions.
We hope that someone will ask the write questions on behalf of shareholders of all companies in the end of the day and maybe even get the right answers. Our idea is just to follow all publicly available information here.
It is understandable that in every litigation there is some probability of negative outcome for every party. This probability can mean that in the case of the negative outcome for the TNR Gold it will get nothing on all three existing claims and will walk away. We have not noticed any potential positive litigation premium in its whole 15 mil market cap as of today, considering all other assets held by that company. TNR Gold is just trying to return what was taken away and the court will decide whether they have any rights to get anything back.
It can be a little bit more complicated for Minera Andes - this company, not TNR Gold, can be ordered by the court decision to return part of what they are claiming as 100% owned.
Some probability can suggest that the negative potential outcome for the Minera Andes has now been raised from roughly 15% of the Los Azules deposit to almost 50% at stake after the recent new claim from TNR Gold. Even at rock bottom valuation of Los Azules at 250 mil by Minera Andes (valuation became more conservative with litigation moving forward) it could represent almost 50% of Minera Andes market cap (600 mil as of today). Any probability to lose 25% of the company's market cap in case of the negative outcome of the litigation can make the night sleep not so sweet for anybody, particularly, when the other cash flow driving project - San Jose mine is operated by the partner called not so long ago "the partner from hell"
Now the combined companies Minera Andes and US Gold will be able to withstand the negative outcome of the litigation and can be even called the new "Silver play". Shareholders of the both companies will be always the ones to decide whether they are happy or not and maybe they will even find about Los Azules 100% ownership litigation challenge at some time. We are just wondering on the timing of the deal, when Minera Andes valuation has suffered with all junior market during the recent weakness in the market and its shareholders have never heard about the recent exploration program on Los Azules, which was supposed to deliver "very interesting results" with five drilling rigs on the property. It looks like that even "shareholder friendly" environment could be very challenging for the small guys like ordinary shareholders of Minera Andes or J/V partners like TNR Gold.
It will be interesting to see the reaction from the other parties of this litigation. Maybe the combined companies will be able to reach out and make a settlement or maybe we can witness M&A games around TNR Gold at one point in time - future will tell and it is going to be interesting: stakes in this game are getting bigger as the players from both sides of this chess board as well.
06/14/2011
TORONTO, ONTARIO -- (MARKET WIRE) -- 06/14/11 -- US Gold Corporation (NYSE: UXG)(TSX: UXG) and Minera Andes Inc. (TSX: MAI)(OTCBB: MNEAF) announce that Rob McEwen, Chairman, CEO, and largest shareholder of both companies has proposed to combine these companies to create a high growth, low-cost, mid-tier silver producer focused in the Americas. Mr. McEwen's investment in the combined company (market close on June 13, 2011) would be approximately US$ 345 million.
"The merger of US Gold and Minera Andes would be transformative, creating a
dynamic, new precious metal company. A mid-tier silver producer diversified
throughout the Americas. The combined company would be low-cost and possess
a significant pipeline of production growth in addition to owning an
exciting portfolio of exploration properties. Importantly, this combination
would move us one step closer to our goal of qualifying for inclusion in the
S&P 500 Index by 2015."
- Rob McEwen
Highlights of the Combined Company Would Include:
-- Significant Growth: projected production of 2.5 million silver ounces in
2011 expected to increase to 7.5 million silver ounces by 2014;
-- Industry Leading Costs: estimated cash cost of negative US$0.40 per
silver ounce (net of gold by-product), with costs expected to reduce
further as new production commences;
-- Strong Balance Sheet: US$122 million in cash, including silver/gold
bullion, and no bank debt;
-- Exciting Exploration: significant land packages adjoining Goldcorp's
Cerro Negro Project, Barrick's Cortez Mine and US Gold's own El Gallo
Project;
-- Resources (NI 43-101): Silver, measured + indicated totals 81.2 million
ounces and 51.1 million inferred ounces; Gold, measured + indicated
totals 3.8 million ounces and 900,000 inferred ounces; and Copper,
indicated totals 2.2 billion pounds + 10.3 billion inferred pounds;
-- Market Capitalization: approximately US$1.4 billion;
-- Listings: the combined company's shares would trade on the New York
Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX).
As proposed by Mr. McEwen, Minera Andes shareholders would receive 0.4 of a US Gold common share for each 1.0 Minera Andes share currently held. This ratio is within an average trading range established during the past six months and presents a slight premium over the previous day's closing price on June 13th, 2011. The total number of shares outstanding in the combined company would be approximately 252.7 million.
Completion of the business combination is conditional on approval of US Gold's and Minera Andes Board of Directors and their special committees, confirmatory due diligence, the approval of each company's shareholders, and satisfaction of customary approvals, including regulatory, stock exchange, and court approvals. In that regard, the board of directors of each of US Gold and Minera Andes have each formed special committees of independent directors to consider the proposed transaction.
The business combination, if approved, is anticipated to become effective in late October 2011. Upon completion of the proposed transaction the combined entity would change its name to McEwen Mining Inc.
Webcast Details
Management will be providing an overview of the combined company at US Gold's Annual General Meeting (AGM) that will be held in Toronto at the One King West Hotel at 4:00PM (eastern).
Interested investors may view the live AGM webcast by clicking the link below: http://www.meetview.com/usgold2011
An investor presentation may be accessed by clicking the link below:
http://www.usgold.com/news/pdf/20110614_agm/20110614_usgold_agm_presentation.pdf
ABOUT US GOLD (www.usgold.com)
US Gold's objective is to qualify for inclusion in the S&P 500 by 2015. US Gold explores for gold and silver in the Americas and is advancing its El Gallo Project in Mexico and its Gold Bar Project in Nevada towards production. US Gold has a strong treasury with approximately $100 million in cash and gold and silver bullion. US Gold's shares are listed on the NYSE and the TSX under the symbol UXG, trading 1.9 million shares daily during the past twelve months. US Gold's shares are included in S&P/TSX and Russell indices and Van Eck's Junior Gold Miners ETF. Rob McEwen, Chairman and CEO, owns 20% of the shares of US Gold.
ABOUT MINERA ANDES (www.minandes.com)
Minera Andes is an exploration company exploring for gold, silver and copper in Argentina with three significant assets: a 49% interest in Minera Santa Cruz SA, owner of the San Jose Mine in close proximity to Goldcorp's Cerro Negro project; 100% ownership of the Los Azules copper deposit with an inferred mineral resource of 10.3 billion pounds of 0.52% Cu copper and an indicated resource of 2.2 billion pounds of 0.73% Cu copper; and, 100% ownership of a large portfolio of exploration properties in Santa Cruz province, Argentina, including properties bordering the Cerro Negro project in Santa Cruz Province. Minera Andes had $22 million in cash and short-term investments, with no bank debt. Rob McEwen, Chairman and CEO, owns 31% of the shares of Minera Andes.
Technical Information
All resource estimates reported by US Gold and Minera Andes are calculated in accordance with NI 43-101 and the Canadian Institute of Mining and Metallurgy Classification system. These standards differ significantly from the requirements of the U.S. Securities and Exchange Commission. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
Pro-Forma Reserves and Resources"
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