Tuesday, July 05, 2011

BNN: Los Azules: Rob McEwen on U.S. Gold and Minera Andes Proposed Merger and its valuation tnr.v, ilc.v, mai.to, tck, cuu.v, czx.v, lun.to, bwr.to, cs.to, imn.to, ncu.to, tko.to, wrn.to, qux.to, bls.to, bhp, fcx


  Rob McEwen has a tough sell of this low ball merger proposition for some of the Minera Andes shareholders. On one side we will mention the value notes from one of the very active and knowledgeable Minera Andes shareholders below and on another side we will address the anchor's question about the Risks involved in this merger - we will remind to all shareholders involved that almost a half of Los Azules copper projects is under the litigation now with TNR Gold. DD made by the independent committee should be able to discover this ongoing litigation in time for its recommendation to all involved parties and we are not the ones to asses this risk, but it is important to have all facts straight for any consideration. 
  Will Minera Andes attract any competing bids at this moment? We do not know - Los Azules litigation uncertainty can put off a lot of potential suitors for this prized copper asset in Argentina. Rob McEwen has his own plan how to deal with it and that is why he is testing the market and shareholders response at such low valuation, even according to his own presentations before. Any potential bidder should be wise to strike a deal with TNR Gold first in order to clear the property title and propose the proper valuation in this strategic acquisition. We can even entertain you with this one, proposed by the Minera Andes shareholder.

"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."

  Why Minera Andes has never even tried to clear its ownership with TNR Gold, when junior was claiming only max 15% of the total deposit as a back-in right and was even ready to pay for it? Now the deal when TNR Gold was trying to back-in in April 2010 for 25% of the Northern Half of Los Azules deposit (max 12.5% - 15% of the"metal in ground value") and deposited 5 mln for its execution could be seen as a dream for Minera Andes shareholders. Only one thing can be stated for sure in this muddy case: that without any litigation uncertainty this great company and its great copper asset - Los Azules alone - can be valued at completely different range of valuation. Whether another bidder or the larger company after U.S. Gold and Minera Andes merger will be able to settle the situation and move forward remains to be seen in this case.
  Some shareholders are looking for answers and we do understand them - it is a business reality in Canada, when even branded "shareholders friendly environment" can be so tough for the small shareholders and junior partners. 

"...Management has told us repeatedly that the markets are not giving MNEAF fair value recognition, and that recognition as you know is reflected in the share price. As an example, look at the Company’s Presentation of March 30, 2011. Note in presentation, management uses sale and purchase price of/for Andean Resources as primary example. Link and values below.


San Jose – $880 million = $3.09 (72.53% of $4.26)
Los Azules – $250 million = $0.88 (20.66% of $4.26)
Exploration Properties – $50 million $0.18 (4.23% of $4.26)
Cash - $31 million = $0.11 (2.58% 0f $4.26)
TOTAL = $4.26
(Close March 28, 2011 - $2.97 PPS - Shares o/s 280 million)

Let’s compare questionable value ratios set by management and used in the March 30, 2011 Company presentation with the ‘new’ $2.15* PPS valuation, given by management.

$2.15 PPS – New Values for Assets
San Jose – $436.8 million = $1.50+
Los Azules – $123.2 million = $0.44
Exploration Properties – $25.2 million = $0.09

Los Azules – Again – Look at at results
280,000,000 x $0.44 = $123.2 million
$123,200,000 / 12,500,000,000 = $0.00985 per lb cu

* PPS based on June 13, 2011 closing price, plus slight premium.
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If the $2.15 PPS is accepted as 40% of UXG share price, what does an increase of .4 to .5 do for investors? ---- 25% increase, .4 to .5 gives us $2.69 PPS

The above exercise, with the result being $2.69 PPS is nothing more than an exercise in futility. Futility? Why? Because we are still basing values on UXG’s share price. A fair valuation for MNEAF can only be found by comparing to current Industry valuations.

UXG’s merger offer of $2.15 PPS can only be identified as the ‘minimum’ sale/purchase price for MNEAF. Current Industry values, if accepted, place a value of more than 3x the offer made by UXG."

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.
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