Renamed from American Bullion Development Corp.
North American Royalties and Assets in Nevada and the Yukon
Message: Chairman’s Letter to Shareholders
Trouble viewing this email? Read it online
|
January 9, 2014
|
||
|
Chairman’s Letter to Shareholders
2013 has been a challenging year in the junior mining sector, but we at Americas Bullion see opportunity emerging for well-positioned companies with cash reserves, streamlined operations and an efficient, talented team. With our recent news releases regarding our corporate reorganization, and change of business, I wanted to take this opportunity to reach out and provide you with some information on our proposed changes plus describe our vision and plan going forward. We are very optimistic about these changes, and want to lay out the structure and rationale in this letter as clearly as possible. We are of course willing to discuss their implications and answer questions you may have. In spite of a record breaking year for Wall Street, the mining sector remains mired in what many say are the worst markets in their memory. While the price of gold has suffered a decline of just over 35% from its highs of 2011, most of the junior mining sector has experienced declines in share value in the 60-80% range, with declines exceeding 90% not being uncommon. In addition to the obvious destruction of wealth, the severe liquidity crisis has been both the cause and the continuing effect of this implosion of the markets. In short, an inordinately high percentage of capital has left the sector and is unlikely to return in the near term. It may very well take a decade or more to see capital influxes return to previous levels. Meanwhile, many companies are left barely hanging on or devastated, to the point where many now trade at market values well below the value of their liquid assets. What has changed is the survival prospect for the business model that has been used to this point by the junior mining industry, wherein companies raise capital to finance their exploration through repeated issuances of new stock in the public markets. With stock prices now battered to abysmally low levels, this modus operandi is even less feasible in today’s market. We believe in being proactive. We reacted to the changing market conditions commencing in 2011 by reducing property costs, closing our office in Vancouver and locating to a more cost-effective, smaller staffed office along with making other painful yet necessary changes. Staff was reduced in 2012 and the remaining senior staff took pay reductions in 2013. We monetized part of our royalty portfolio in 2013, with the sale to MF Investment/Orion Royalty, as a means of securing and holding cash, which we feel will be invaluable in seizing upon opportunities that we see emerging. To help with this strategy, we have contributed to the development of a proprietary evaluation tool to assist us in reviewing and evaluating the many available opportunities in the resource sector. It is our belief that the markets may have bottomed, but we have no expectation for a broad or swift recovery. When the recovery comes it will not come to the entire sector, but only to those with significant cash flow opportunities, either producing or near-term producers, with reasonable cost structure and sound management. Simply put, even when the recovery comes, funds for investment in our sector will be selective and risk-averse at best. In our opinion, the traditional model of the past 30+ years for financing in the junior mining sector is broken, perhaps irreparably On the other hand, the mining industry must continue, as there will be an ever increasing demand for metals. We do not know all of the nuances of the model going forward, but we do have confidence in our new approach as being part of the solution, while offering our investors a significant diversification through the reinsurance industry. Our Vision, Our Plan Americas Bullion has agreed to acquire Resource Holdings Ltd. and its subsidiary Resource Re Ltd., a Bermuda-based insurance company, and the securities portfolio of Kudu Partners LP (Kudu), a private hedge fund founded and managed by William (Bill) A. Lupien. The corporate restructuring plan will see a change of business, primarily directed towards reinsurance, but with continued key investments in both royalties and equities within the resource sector. The acquisition of the Kudu securities portfolio, estimated to be approximately $21 million, will provide a larger asset base to build from and cements a strong team bolstered further by our recently announced addition of Wayne Kauth to the Board of Directors (see AMB NR13-26 for more details). Wayne has extensive national insurance experience with Ernst & Young, serves on the Board of Directors of Kemper Corp. (NYSE:KMPR) and has been an associate of Bill Lupien for approximately 40 years. In addition to the new reinsurance business, we intend to sell our physical assets to Silver Predator and Northern Tiger in return for controlling stakes and a significant increase in our royalty portfolio, thus creating and establishing value while continuing to have exposure to exploration successes via not only these two companies but also via investments in other select companies. I hope my overview of the market and the resource sector has provided you with some general understanding of the ‘why’ behind our actions. We simply do not believe we can sit and wait for things to improve; we do not believe this is a logical or wise business strategy. Instead we see an opportunity to be a unique vehicle to capitalize on the best investment opportunities in the sector while enjoying cash flow from the reinsurance business. I acknowledge this is a lot of information and takes time to digest; synthesizing down to simple steps the reorganization is basically four steps: Step A: Americas Bullion has agreed to vend the Springer Mine and Mill and other Nevada assets to Silver Predator Corp. while also making an investment in the company. We will also be vending Brewery Creek and other Yukon assets to Northern Tiger Corp. (which is merging with Redtail Metals Corp. and will be renamed Golden Predator Mining Corp.) while also making an investment in the company. These steps will result in AMB owning 50% or more of each of these companies. We will be slated to receive in excess of $10 million in installment payments for these assets over a three year period, as well as retaining 43 royalty interests. Both companies will have key advanced projects with compelling resources and reasonable capital requirements. These moves significantly reduce our expenditures, cash requirements, overhead and administrative costs while maintaining controlling interests of Silver Predator Corp and Golden Predator Mining Corp. Step B: Americas Bullion has agreed to acquire Resource Holdings Ltd., a Bermuda corporation, for US$1,300,000. Resource Holdings owns all of the issued and outstanding shares of Resource Re Ltd., a Bermuda corporation, which holds a Bermuda Class 3A insurance license and cash of US$1,000,000. Step C: Americas Bullion has agreed to acquire Kudu’s securities portfolio, valued at approximately $21 million. I will remain as Chairman & Chief Executive Officer with negotiations underway to see Bill Lupien direct the management of the Company’s securities portfolio. For those unfamiliar with Bill Lupien, he is known as an innovator and a successful investor and fund manager. The acquisition of the Kudu portfolio and active involvement of Bill Lupien will greatly enhance our position for future growth. Step D: Americas Bullion will complete a 1:100 stock consolidation as we reorganize under Resource Holdings Ltd. This will create a tight share structure and a share price that should provide us with the opportunity to obtain a U.S. listing and have broader market appeal. A name change is also being contemplated. Going forward, Americas Bullion brings together a talented team to create a unique corporate entity that combines an innovative investment strategy with reinsurance, royalties and equity holdings. This non-traditional approach creates a diversified investment company with significant upside potential that is well-positioned for future growth through access to and strategic deployment of capital across a variety of markets. After these transactions are completed, Americas Bullion will hold approximately: - $33+ million in cash, marketable securities and illiquid securities; plus - 50%+ of Silver Predator Corp. and Golden Predator Mining Corp.; - 100% ownership of Resource Re Ltd.; - 55 royalty interests including deeded and option related royalties; - The Carlin Vanadium Project in Elko County, Nevada; - Approximately 12% of Wolfpack Gold; and - Approximately 157 oz of gold bullion. Silver Predator Corp. will have $2+ million in cash, the Taylor Silver Mine and Mill and the Springer Tungsten Mine and Mill in Nevada with 12 additional Nevada properties. Golden Predator Mining Corp. will have $2+ million in cash, the Brewery Creek project, 3Aces, Grew Creek, Marg and Clear Lake projects in the Yukon, as well as other significant Yukon properties. Wolfpack Gold has approximately $6 million in cash, the Adelaide Project and Castle Black Rock gold projects in Nevada, the Crownpoint and Hosta Butte uranium resources in New Mexico, a multi-million share position in Nexgen Energy, as well as several other properties in the western U.S. Completion of the foregoing transactions are subject to the entering into of definitive agreements and the approval of the TSX. Re-Insurance The reinsurance diversification is new to the company and deserves some explanation. We have agreed to acquire the Bermuda-based company named Resource Holdings, Ltd., along with a wholly-owned Bermuda-based subsidiary named Resource Re, Ltd. Resource Re is a fully-licensed Class 3A insurance company (noting Bermuda is the third-largest jurisdiction for insurance and reinsurance businesses in the world). As the name implies, reinsurance policies are insurance policies taken out by insurance companies to cover a precisely-structured portion of their exposure to claims by those whom they insure. A very important point: the type of reinsurance contracts we will write will NOT cover catastrophic loss events. Rather, we will write reinsurance contracts of the sort having highly predictable, low-severity claims, with strict limits on maximum liabilities. In other words, the investment spectrum in the reinsurance business ranges from conservative to very high risk, and we intend to direct our operations towards lower risk. The premiums (a.k.a. the “float”) paid will be invested in lower-risk strategies that provide a steady income stream for us, taking advantage of the time value of money, since premiums are received up-front, while claims are paid out over multiple years. This income stream is intended to cover operating costs, eliminating the need to raise money in the market. Capital reserves will allow us to write reinsurance contracts through a hub and spoke arrangement with MultiStrat Re, led by Bob Forness and Joe Taussig, who have extensive expertise in this sector. Bob Forness is a senior reinsurance executive with more than twenty five years of experience, working in London, Bermuda and the U.S. Joe Taussig has been instrumental in assisting with the launch of reinsurance companies such as Greenlight Capital Re Ltd. (NASD:GLRE) and Third Point Reinsurance Ltd. (NYSE:TPRE). Mr. Taussig has been an associate of Bill Lupien for more than 40 years. After graduating from Harvard Business School, Joe worked with Bill at both Instinet Corp. and Mitchum, Jones & Templeton. We expect to elect a representative with senior level accounting and auditing experience to the Board of Directors of MulitStrat Re upon completion of a negotiated contract. By contracting with a highly skilled team of reinsurance professionals at MultiStrat who have pioneered this hub and spoke reinsurance company strategy, we will operate as a part of a pool of reinsurers and gain entry into this business without bearing the large capital commitments required to self-start one from scratch. In addition, we will be bearing only a fractional amount of the cost structure of a stand-alone reinsurance company. This model allows us to benefit from the premium flows in the reinsurance business, while the MultiStrat centralised underwriting model supports the allocation of reinsurance capital to risk. This model offers a unique investment proposition in the financial market that has generally been confined to companies with significant larger pools of capital. Investment Strategy As a reinsurance company, we will generate cash premiums or ‘float’ derived from reinsurance policies written. This float will be invested in lower-risk strategies to provide a steady cash flow. Developing this source of investment funding, as traditional sources of financing retrench, offers us a unique advantage in the resource sector. We will continue to look for opportunities for additional equity participation in the mining industry and in other sectors, and will evaluate opportunities thoroughly via in-depth due diligence to ensure that we focus on projects and companies offering the best return on investment. Our primary focus will be on companies with producing or near-term production projects with proven ability to manage cost-effective operations within a predictable and acceptable timeline. The royalty model will be one of the means going forward to finance select projects in the final pre-production phase through an accompanying equity investment. Further to this letter we have posted a link to our recent webcast on our Home Page at www.aubullion.com. We also want to remind you that, since the corporate reorganization and change of business is subject to shareholder vote, we anticipate holding a shareholders meeting in March 2014. You will be receiving an information circular detailing all the components of the reorganization. And again, should you have any questions please do not hesitate to contact Investor Relations or me at 208-635-5415 or info@aubullion.com. We are excited about the changes at Americas Bullion and see a unique opportunity here. I trust this letter helps explain the reasoning behind our restructuring for success and how we see things going forward. On a personal note, I want to thank you for your support and on behalf of the Board and management at Americas Bullion we wish you a healthy and prosperous 2014. William M. Sheriff Chairman & Chief Executive Officer Americas Bullion Royalty Corp. |
New Message
Please
login
to post a reply