Re: Gold Reserve Inc. Overvalued Due To Dilution Overhang, Litigation
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Crystallex International Corporation is a Canadian-based gold company with a successful record of developing and operating gold mines in Venezuela and elsewhere in South America
Message: Gold Reserve Inc. Overvalued Due To Dilution Overhang, Litigation
Would suggest going to the seekingalpha link and reading the comments by the Vet and others
Just where can I start here....
A classic "short and distort" article with lots of superficially logical argument and figures based on a couple of real woppers!
First, whether Venezuela remains in the ICSID system or not is completley irrelevant to GRZ. Opting out of the treaty has absolutely no effect on actions taken while it was in effect. It only means that new international projects (if any) from that date on will not be able to use the ICSID facilities to settle disputes. GRZ's case, which ended in March 2012 is not affected at all, nor is the ability to get any sum awarded by the ICSID impared in any way.
With a little slight of hand, the author manages to mingle an entirely different kind of case involving Exxon and the PVDSA on a contract dispute between partners settled by the ICC (with claims and counter claims which balance each other out) with an entirely different case Exxon has with Venezuela on expropriation that is being heard by the ICSID (an entirely different body).
GRZ's case to the ICSID is quite simple. The Brisas mine was standalone and there were no partnership or contracts with other entities or the government. GRZ's efforts and expenditure was entirely spent in Venezuela on concessions granted by the Venezuelan authorities, and GRZ complied with all laws and made all the necessary applications, work committments and payments to keep those concessions current.
GRZ has detailed exploration, engineering and financial projections prepared by world recognised experts which can particularize the costs, projected income and profit expected from Brisas with considerable accuracy and without legal or contractural impedements or complocations. The market price at any particular time is immaterial for the purpose of the project value or the projected DCF.
The majority of the bonds are held by entities who also hold considerable numbers of common shares. The insiders of GRZ also hold significant numbers of common shares in the company.
As a result the insiders and the bond holders interests are aligned with the common shareholder and the only unknown is the 13% of bond holders whose intentions in respect to the June deadline are not yet public.
The speculation on the dilution and market effect is rather misleading. The market has been aware of this deadline and the terms ever since the convertible bonds were sold and there is no surprise here that hasn't been fully priced in. The offer that is presently on the table and accepted by 87% of the bond holders will result in much less dilution than the author has posulated and will still retain a reasonable buffer of cash to see the company through the waiting period for the arbitration decision. That decision is probably less than a year away, and it could be settled much sooner.
The author also seems to have regarded the mining data as worthless even though it was completed, and independently verified by experts. It would require an expenditure in excess of half a billion of today's dollars to reproduce that data and the associated enginnering. Brisas, one of the biggest undeveloped copper/gold deposits in the world will be developed at some time, and the value of that data can only appreciate over time.
Whenever I see a short seller using clearly misleading material to publically bolster his case, I wonder why? Obviously the final settlement quantum and timing is unknown, but the other reasons put forward as negatives are purposely deceptive and misleading.
A classic "short and distort" article with lots of superficially logical argument and figures based on a couple of real woppers!
First, whether Venezuela remains in the ICSID system or not is completley irrelevant to GRZ. Opting out of the treaty has absolutely no effect on actions taken while it was in effect. It only means that new international projects (if any) from that date on will not be able to use the ICSID facilities to settle disputes. GRZ's case, which ended in March 2012 is not affected at all, nor is the ability to get any sum awarded by the ICSID impared in any way.
With a little slight of hand, the author manages to mingle an entirely different kind of case involving Exxon and the PVDSA on a contract dispute between partners settled by the ICC (with claims and counter claims which balance each other out) with an entirely different case Exxon has with Venezuela on expropriation that is being heard by the ICSID (an entirely different body).
GRZ's case to the ICSID is quite simple. The Brisas mine was standalone and there were no partnership or contracts with other entities or the government. GRZ's efforts and expenditure was entirely spent in Venezuela on concessions granted by the Venezuelan authorities, and GRZ complied with all laws and made all the necessary applications, work committments and payments to keep those concessions current.
GRZ has detailed exploration, engineering and financial projections prepared by world recognised experts which can particularize the costs, projected income and profit expected from Brisas with considerable accuracy and without legal or contractural impedements or complocations. The market price at any particular time is immaterial for the purpose of the project value or the projected DCF.
The majority of the bonds are held by entities who also hold considerable numbers of common shares. The insiders of GRZ also hold significant numbers of common shares in the company.
As a result the insiders and the bond holders interests are aligned with the common shareholder and the only unknown is the 13% of bond holders whose intentions in respect to the June deadline are not yet public.
The speculation on the dilution and market effect is rather misleading. The market has been aware of this deadline and the terms ever since the convertible bonds were sold and there is no surprise here that hasn't been fully priced in. The offer that is presently on the table and accepted by 87% of the bond holders will result in much less dilution than the author has posulated and will still retain a reasonable buffer of cash to see the company through the waiting period for the arbitration decision. That decision is probably less than a year away, and it could be settled much sooner.
The author also seems to have regarded the mining data as worthless even though it was completed, and independently verified by experts. It would require an expenditure in excess of half a billion of today's dollars to reproduce that data and the associated enginnering. Brisas, one of the biggest undeveloped copper/gold deposits in the world will be developed at some time, and the value of that data can only appreciate over time.
Whenever I see a short seller using clearly misleading material to publically bolster his case, I wonder why? Obviously the final settlement quantum and timing is unknown, but the other reasons put forward as negatives are purposely deceptive and misleading.
I am not attempting to mislead anyone. How is the speculation of dilution misleading? In the first case, it comes directly from the company announcement. There will be 14.7mm shares issued if the agreement works. That's a fact. It comes down to 2 issues: recovery and share count. I think shareholders will reject this deal since it puts the company in a tough position. that means using the share redemption mechanism.
I could clearly be wrong about the amount recovered, and that is described in the variant view section. I am very bearish on the ability to recover from Venezuela. Argentina is probably one of the highest profile examples of how you can lose at ICSID and still not wind up paying. If there is a protracted fight, GRZ will need cash, and it is better to have that cash than spend it on the redemption. the downside is dilution.
At a 300mm USD recovery, then the stock is properly valued. I do not believe the number will be anywhere near that, and i do not think the bondholders accepting tons of shares will stick around to wait for a year to find out. the shares could experience a dramatic fall on the redemption. Look at GSS.
You still haven't addressed the value of the exploration data and the engineering data. This data remains the property of the company regardless of the ICSID ruling and is of significant value to anyone (even the Venezuelan government) who ever anticipates developing the Brisas deposit. It is a good bargaining chip in any negotiation for a settlement.
Also you failed to acknowledge that the agreement will reduce the burn rate by reducing the interest payable to the bond holders who accept the deal.
An additional 14.7 million shares to settle a $100 million debt and the ongoing interest on that debt doesn't seem to be a bad deal to me.
This is not a sudden or unexpected issue. The stock and the bond holders have always known of it and I assume that they have priced it into the stock. Sudden and unexpected dilution poorly priced bought financing deals certainly affect stock prices but you cannot characterise this as sudden, unexpected or poorly priced.
The ICSID hearing has been completed, and the reasonable expectation is that a ruling will be forthcoming in due course.
There may be delays in getting paid, but the ICSID and the World Bank have the power to ensure payment in full. With Venezuela exporting around $25 billion in oil to the US every year through a fully government owned organisation, the cash flowing through the world banking system is certainly available from a friendly source.
Also you failed to acknowledge that the agreement will reduce the burn rate by reducing the interest payable to the bond holders who accept the deal.
An additional 14.7 million shares to settle a $100 million debt and the ongoing interest on that debt doesn't seem to be a bad deal to me.
This is not a sudden or unexpected issue. The stock and the bond holders have always known of it and I assume that they have priced it into the stock. Sudden and unexpected dilution poorly priced bought financing deals certainly affect stock prices but you cannot characterise this as sudden, unexpected or poorly priced.
The ICSID hearing has been completed, and the reasonable expectation is that a ruling will be forthcoming in due course.
There may be delays in getting paid, but the ICSID and the World Bank have the power to ensure payment in full. With Venezuela exporting around $25 billion in oil to the US every year through a fully government owned organisation, the cash flowing through the world banking system is certainly available from a friendly source.
14.7mm shares does not get rid of all the debt. read the exchange offer. so it comes down to you thinking there will be a significant recovery, it will happen quick and easy enough that the remaining cash will be sufficient, and that dilution is already priced in.
If it was really that easy to collect on Venezuela, no one would ever settle. Venezuela does need some trade agreements, agreed, but with China refusing to acknowledge judgments against governments, they can sell the oil to them just fine.
I disagree with your view. that's what makes a market.
We can agree to disagree, but what we seem to have established is that the offer that has already been accepted by 87.8% of the bond holders makes your first paragraph of this article moot.
Absolutely nothing rests on the 15th June date or the price of the stock between now and then. The majority of the bond holders have accepted the offer and the price price for them is fixed. The minority 12.2% may still come on board and take the same deal, or else they will be paid out in cash. Either way the VWAP is of absolutely no consequence to anyone except perhaps to a short seller trying to cover a potentially losing position.
The only way that the share price over this period could become of any import would be if the shareholders rejected the deal. Considering that the major bond holders who have accepted the offer are also share holders and that insiders also have significant voting power, is that really likely?
So why have you placed such a negative emphasis with predictions of doom and gloom concerning an issue that has effectively been defused?
My best guess is that you sold short expecting that a large number of bond holders would also sell down the stock in order to maximise the number of shares the company needed to issue to issue to fulfil the put option causing dilution and a drop in the share price.
Now that the deal on the table has been accepted by 87.8% of the bond holders, this obviously won't happen and so your quick in and out short position could easily end up being stranded in a static or rising illiquid market for GRZ stock. The recent uptick in liquidity has only come from short sellers and they could easily become forced buyers quite quickly.
Trying to talk down the stock to encourage more sellers seems to be your only option. Alternatively you can hold on and hope that the ICSID provides nothing significant in the way of a judgment or just buy back your short position ASAP and hope somebody has been unsettled enough by this article to offer their shares to you on the cheap. As most of the current long term GRZ holders held through long periods of sub $1 prices waiting for the ICSID a little volatility now is not going to upset them. Best of luck with trying to talk them out of their stock on the cheap. They are long, strong and patient.....
Absolutely nothing rests on the 15th June date or the price of the stock between now and then. The majority of the bond holders have accepted the offer and the price price for them is fixed. The minority 12.2% may still come on board and take the same deal, or else they will be paid out in cash. Either way the VWAP is of absolutely no consequence to anyone except perhaps to a short seller trying to cover a potentially losing position.
The only way that the share price over this period could become of any import would be if the shareholders rejected the deal. Considering that the major bond holders who have accepted the offer are also share holders and that insiders also have significant voting power, is that really likely?
So why have you placed such a negative emphasis with predictions of doom and gloom concerning an issue that has effectively been defused?
My best guess is that you sold short expecting that a large number of bond holders would also sell down the stock in order to maximise the number of shares the company needed to issue to issue to fulfil the put option causing dilution and a drop in the share price.
Now that the deal on the table has been accepted by 87.8% of the bond holders, this obviously won't happen and so your quick in and out short position could easily end up being stranded in a static or rising illiquid market for GRZ stock. The recent uptick in liquidity has only come from short sellers and they could easily become forced buyers quite quickly.
Trying to talk down the stock to encourage more sellers seems to be your only option. Alternatively you can hold on and hope that the ICSID provides nothing significant in the way of a judgment or just buy back your short position ASAP and hope somebody has been unsettled enough by this article to offer their shares to you on the cheap. As most of the current long term GRZ holders held through long periods of sub $1 prices waiting for the ICSID a little volatility now is not going to upset them. Best of luck with trying to talk them out of their stock on the cheap. They are long, strong and patient.....
Dude (author), you are toast. You are nervous about being short and it shows. Virtually the entire article is misinforming, misleading and misrepresenting.
The $70 million settlement, VZ leaving the ICSID, the bondholders/dilution, comparison to the Exxon case...all very misleading, and intentionally, IMO.
I always wondered how someone with a PC and an internet connection, can write anything on a web log, and have it circulated on the news wires as news. After today, I still wonder.
The $70 million settlement, VZ leaving the ICSID, the bondholders/dilution, comparison to the Exxon case...all very misleading, and intentionally, IMO.
I always wondered how someone with a PC and an internet connection, can write anything on a web log, and have it circulated on the news wires as news. After today, I still wonder.
The bottom line Long Term Value Investor is that you were likely speculating on a death spiral and with the company now saying they will pay cash to the 12% left over means that if you shorted it expecting to cover your short with stock from the conversion you are SOL. There will be no stock there fore those that naked shorted (non bondholders) will have to buy the stock This deal is dead for shorters.
That was the huge fear that a death spiral would ensue by everyone contemplating it and then the stock would plummet and shorters make out like bandits. Not today at least on the noteholder conversion deal.
Do you think that the company has finished the arbitration and the debt will be significantly reduced that their burn rate would be $17 million.
Looking at their cash statement they had $5.6 million in interest and $6.6 on arbitration takes the $17 million burn rate down to something like $4.8 million in terms of net cash used. So now how does the future look with a significantly lower burn rate with those two items reduced?
That was the huge fear that a death spiral would ensue by everyone contemplating it and then the stock would plummet and shorters make out like bandits. Not today at least on the noteholder conversion deal.
Do you think that the company has finished the arbitration and the debt will be significantly reduced that their burn rate would be $17 million.
Looking at their cash statement they had $5.6 million in interest and $6.6 on arbitration takes the $17 million burn rate down to something like $4.8 million in terms of net cash used. So now how does the future look with a significantly lower burn rate with those two items reduced?
emilia - a) the 14.7mm will likely get sold, i think the recent short interest is probably hedging against those shares to be received.
b) when the management is punting stocks and losing 20% or more on investment securities, you should be worried about the cash.
c) this litigation is likely more difficult than you think. it is better to preserve a war chest (which they can use to buy back stock if there is excess cash) instead of putting yourself in such a thin cash position.
The litigation phase has ended and all hearings and submissions are final LTVR... You seem to be talking as if it has yet to start.
Those 14.7 million shares are going to the three biggest current shareholders who with the insiders now hold around half the issued shares. Selling them and causing a drop in price will hurt their bottom line far more than holding will.
Don't worry too much about the investment securities. In the past GRZ have invested in other gold miners or advanced explorers who they had good information about and came away with significant profits. The miners have been very badly hit by the market lately but they are likely to recover smartly when the PM prices start to improve or some significant M & A activity gets underway.
Those 14.7 million shares are going to the three biggest current shareholders who with the insiders now hold around half the issued shares. Selling them and causing a drop in price will hurt their bottom line far more than holding will.
Don't worry too much about the investment securities. In the past GRZ have invested in other gold miners or advanced explorers who they had good information about and came away with significant profits. The miners have been very badly hit by the market lately but they are likely to recover smartly when the PM prices start to improve or some significant M & A activity gets underway.
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