|Shares Out. (in M):||0||P/E|
|Market Cap (in M):||240||P/FCF|
|Net Debt (in M):||0||EBIT||0||0|
|Entry||05/30/2007 08:16 PM|
1. What is the projected timeline for a mine actually coming online?
2. Why buy now when an equity raise mught be priced lower?
3. How will their mines impact supply? That seems to be the key dynamic, as well as understanding any other trends, like the increased use of scrap.
|Entry||05/30/2007 08:32 PM|
|1) The bulk sample will go out in 2008. Production should start 2010-2011.|
2)You buy now because each step towards production adds value. And because 40% plus IRRs and valuations such as this don't just stay around. I will tell you that Baffinland isn't going to raise $1.8 billion at this level. That would be absurd.
When they sign another strategic investor, it lowers the amount they have to raise from the outside investing community. Look at what happened when they signed Mitsubishi. The stock doubled. Further, the Definitive Feasibility Study is another hurdle.
Ask yourself why insiders are spending all of their money buying stock at these levels?
I think it is pretty clear that if Baffinland wanted to sell out to a mining giant they could for double to triple the price. Management thinks there is more value developing the mines out.
3)1.6 billion iron ore was produced, of that 700 million tons were sea-borne iron ore. 12.6 to 15 million tons a year isn't going to disturb that.
An interesting note is that Rio Tinto is currently short 6 million tons to customers and is scrambling to find iron ore for customers.
|Entry||05/31/2007 07:00 AM|
|given the high iron content and long mine life, one would think that this would be a low cost operation, but the fact that it hasn't been developed before now argues against that premise. can you discuss where this sits on the cost curve, and if your operating costs include depreciation or not? also, mitsubishi spending $6m seems like a very small amount for a very big company, have its other investments in the area been so small? thanks a lot.|
|Entry||05/31/2007 10:31 AM|
|This actually is a low cost operation compared to other mines. The problem as to why it hasn't been developed is because of its location, ice in the water and that its never been properly explored. Just look at a map and you will realize how remote Mary River is.|
Depreciation is not in the cost numbers I quote.
Mitsubishi has spent a small amount of money now, but by being a strategic investor and continuing to add on financings, they are signaling they will also participate in the big financings.
|Subject||Historical perspective / Txn's|
|Entry||05/31/2007 11:00 AM|
|This may sound like a strange request, but I was wondering if you could point me in some direction for industry reading on iron ore and its supply / demand characteristics over the last ten to twenty years or so. |
Price increases over the past two years are strong (mirroring other commodity prices), but what's with the massive 71% jump in 2005? That looks to be either a very deep structural industry issue or a speculative pop. In either case it would be helpful to understand.
Also, you mentioned a couple smaller players doing acquisitions. What have BHP and Rio Tinto done on the acquisition front? Are they active? Are there prices comparable to the recent transaction you cite?
Thanks for a great idea.
|Subject||I like Baffinland.|
|Entry||05/31/2007 01:05 PM|
|Thanks for posting the idea.|
A while back, I picked the "chicken" play on Baffinland, which is McChip Resources (MCS in Canada). I won't earn nearly the same return on McChip as with Baffinland, provided the thesis pans out. However, some types who like to do arbitrage work might find McChip to be of related interest. I opted to take McChip as my proxy on Baffinland.
At the current price of $3.37 Canadian, McChip has a market cap of less than $18.6 million Canadian.
McChip owns 4,723,921 shares of Baffinland, which equals about 75% of McChips current stock price. This has been a long term holding for McChip, and McChip has a director on the board of Baffinland. In addition, McChip owns a portfolio about $3.6 million of other publicly traded stocks. The firm also holds direct and indirect interests in long lived natural gas and oil wells which should produce about $2.1 million of revenues per year. The stock pays a dividend of about 3%. Last, McChip holds a fair working capital nest egg, which leaves it debt free after deducting short term assets - long term liabilities.
I don't post this to disparage BIM in any way. Baffinland is certainly a good idea and deserves to be highly rated on VIC. As I initially mentioned, if one thinks that the deposit will become a mine, BIM is the logical investment to own.
Here is the link to the McChip annual report.
|Entry||05/31/2007 02:17 PM|
|Thanks for another great idea.|
Question on the shipping costs: how are these accounted for in your analysis, and how to these affect the projected cashflows? I was not sure if you did or did not include them in your cashflow assumption, though it seems as if this would be imporant given that shipping is a big barrier with the mine.
Do you have any idea of where shipping costs will net out compared to comps, and how this will affect that operating costs or prices received on the ore?
Also, does the location of the mine pose increased weather risks, both to the operation of the mine itself, and shipping of the ore?
|Entry||05/31/2007 02:17 PM|
|I have found information broadly available on the Internet. Here are a few resources:|
Another place to get info is from any brokerage with research on CVRD, Rio Tinto or BHP.
I have been collecting info for 9 months now.
FYI, while prices have jumped since 2005, know that they have tripled since 2002. Its not a speculative pop, its just that we have a cartel and few mines coming on stream to handle demand.
Consider a massive deposit like Baffinland at 12-15 million tons a year pales in comparison to 1.6 billion tons a year produced.
Further check out the recent news on CVRD, they are short 6 million tons of iron ore and are scrambling to get it to fill supply agreements as they are falling short.
Also, do you think that the big 3 would be going ahead with $6 billion new mines in dubious countries like Guinea in Africa if this was just a speculative pop?
As to acquisitions, Anglo american is not a small company. The Big 3 have been content to sit on the mines they do have, but that's just because no real new mine has come online. You can bet that the closer to production we get the more they will be interested.
|Entry||05/31/2007 02:21 PM|
|Shipping costs will be about $15-$10 a ton. I actually did not include them, because the price I use in my analysis is the FOB on Baffin Island. Not in Rotterdam. Iron ore in Rotterdam is going for around $89 a ton right now. |
I think weather is a factor, but because of the southern route and southern port it should not be a problem.
|Subject||re: shipping costs|
|Entry||05/31/2007 02:35 PM|
|thanks for the response. One quick follow up:|
What is the reason for the price discrepancy between prices in Baffin island and Rotterdam (I assume it is due to shipping costs from the ports to the factories, but want to make sure)? Has the gap in prices between the two locations been pretty constant, and would you expect it to continue? I did not realize that there was such a large pricing discrepancy between different locations, so it would be helpful to understand the drivers here more clearly.
Thanks again for the clarification--I thought you were being aggressive when it looks like you are actually being conservative.
|Entry||05/31/2007 05:10 PM|
|The only discrepancy is shipping costs.|
|Subject||re:I like Baffinland|
|Entry||05/31/2007 05:11 PM|
|Thanks for the "chicken" play on Baffinland. I will check out the arbitrage on McChip.|
|Subject||Some historical cost figures|
|Entry||05/31/2007 05:52 PM|
|There is a good report from Canaccord Adams on another potential iron ore mine and company, Consolidated Thompson (Toronto Venture: CLM). It gives a lot of good industry and up and coming iron ore comparisons.|
Baffinland has the second lowest operating cost of the 13 new potential mines, and the average cost to produce iron ore is $25.32 a ton. (FYI, their estimate of Baffinland's operating cost is high by $3-5 a ton, but that is a mistake by the analyst. (Doesn't really matter as Baffinland is still below the average even with the mistake.)
Check out the report if you can get it.
|Entry||06/02/2007 06:43 PM|
|This company was just able to raise over $200mm in less than an hour last week in a private placement. Pretty impressive and shows the demand for iron ore, any particular reason you prefer Baffinland to CLM? CLM seems to be an easier investment in that its now fully funded from an equity perspective and will be producing about a year and a half ahead of them with much less infrastructure development risk...do you have any thoughts?|
|Entry||06/03/2007 03:24 PM|
|I think the upside on Baffinland is so much greater, due to the quality and longevity of its reserves. Also, Baffinland is well funded after its last offering itself, though not through to production.|
CLM may be a good investment as well,but I prefer the upside of BIM.
|Entry||06/04/2007 10:51 AM|
|From your analysis, I can understand why you anticipate raising the needed capital for development is most likely doable. Do you have specifics (or ranges) on the equity and debt mix on funding the capital needs? |
Specifically, in addition to today's 63.9MM shares outstanding, there are 528K warrants (strike price $5.50 - that's positive), and 4.6MM outstanding options.
I would agree that further equity raising activities would probably be allied to higher equity pricing (the warrants certinly suggest that), but $1.8B (US) is a lot of capital. How do you see this playing out through 2010 in terms of share dilution for purchasers on the existing share base?
What is the likelihood the company would sell itself? Or what would it take to get management's and the Board's attention? How big might a 'strategic' investor's position grow without mangement viewing it as a threat if indepence is desired?
|Entry||06/05/2007 08:32 PM|
|I don't have specifics on equity/debt mix. I only know that with good strategic partners and offtake agreements the debt portion should be higher. The higher then debt portion the better.|
I see the stock reaching a much higher level with a strategic partner and doing financing then.
The likelihood of the company selling itself depends on the strategic investor initiative this year. No strategic investor, then the company would probably partner with a mining company or sell out.
Over a 10% stake in the company would probably allow the company to have a seat on the board.
|Subject||Construction Expertise & Permi|
|Entry||06/12/2007 10:06 AM|
|It is my understanding that developing a project of this magnitude requires considerable development and construction expertise. Does BIM already have this internally? How much will they need to staff up / partner to lower their execution risk or minimize cost over-runs?|
Where is the company in terms of permitting? Is this a source of risk?
|Subject||re:construction Expertise & Pe|
|Entry||06/12/2007 03:58 PM|
|The main expense of the construction involves a rail line, port over arctic terrain. It doesn't involve an expensive technical plant. One of the benefits of the having such high iron ore product and so much of it being lump, is that not much has to be done to it.|
As to staffing, if you check out the press releases from the company since the beginning of the year, you can see that they are starting to really staff and beef up with operators and people with really good resumes.
I don't think permitting is a risk and I think the company is well on its way with all of its final permitting. They have excellent relations with the Inuit tribe and the government.
|Entry||06/12/2007 06:18 PM|
I am glad that you finally posted BIM. I have some questions about it:
1) The European market for iron ore is declining because furnaces are being closed due environmental concerns and high costs, so they are replacing by slabs imported from low costs producers (e.g. Arcelor-Mittal Brazil, and this was the rationale for CSN Brazil – ticker NYSE: SID for making a bid for Corus ( SID lost to Tata), because SID owns one of the best iron ore mines in the world (Casa de Pedra), that in two to three years will be producing 40 million tons). How much will be the shipping costs to the Far East?
2) I have some doubts if you can use the figures of Vedanta acquisition and Anglo acquisition of MMX, without some adjustment , considering that they are more close to the Far East markets (where growth is happening), and therefore shipping costs are lower. Besides that, it is not certain that BIM could ship ore around the year. MMX- Rio is a big project that will reach almost 50 million tons, and it is around 10% of CVRD’s (RIO) production of iron ore.
3) One of the underwriters Raymond James issued a report in 2005, saying that will be required “Class 3” vessels, which are similar to icebreakers ships to transport the ore from Mary River, as he said: “Up to four ice class shipping vessels (capex of $ 550 million) on the order of 250,000 deadweight tonnes are being considered. A loading rate of 7,000 tonnes per hour would be required in order to deliver 10 million tonnes of iron ore per year”. Do you have any update figure on that? On other shipping options that the company could implement?
Thanks for the reply.
|Subject||re:finally part 1|
|Entry||06/13/2007 02:09 PM|
|Here are some answers from BIM:|
1) Consolidation in the European Market has been a work in progress over the past twenty years. Many mills have shut but this has focused production on larger and more existing blast furnaces. The survivors are expected to remain. Current iron ore demand is ~145 million tonnes for EU-15 and growth is generally flat that sees annual changes in iron ore consumption driven more by the availability of scrap steel. Slight growth is predicted as re-builds of blast furnaces are completed. EU-15 are more efficient and significantly lower cost that the North American market, but EU focuses on higher quality products that other parts of the world.
Environmental pressures remain a constant, everywhere. CSN is a integrated producer that was privatized by the Brazil government in 1993. CSN produces a pig-iron slab cheaper and more efficiently than NA producers. In the USA stand up for steel campaign that saw virtually all steel companies exporting into the USA hit with duties, except for the CSN slabs. Many of these were being imported as it was cheaper to buy and import rather than produce the slabs themselves. CSN had a JV with Dofasco to export > 1 million tonnes of these slabs into the US for use in producing automotive flat steel. This was a key asset that Arcelor sought in its takeover of Dofasco. There has been constant discussion about any future production of hot metal, the blast furnace part of the steel making process, being located in Brazil or the source of the iron ore and fabricating being concentrated in end-user markets. Very probable it will be the way of the future, but it has been discussed on/off again for the past 30 years.
The Casa de Petra is planned to expand to 30-40 million tonnes by 2012 but it produces concentrate (pellet feed) and fines (sinter feed). CSN plans a new 6Mt pellet plant as well. CVRD had the right of first refusal on "excess production" from Casa de Petra until 2031. Excess production is defined as anything that CSN does not consume. Remember that in 2002 Corus bid £2.7 billion for CSN, but dropped the bid due to the CVRD option and a worsening financial position. There appears to be a buy or be bought attitude developing amongst steel producers. CVRD was supposed to sell Ferteco or give up this right to satisfy regulators but I am not sure where this is at. In any case, Baffinland's focus is on lump (75%) and fines (25%) production, initially at 12.6 Mt per year. As you may know lump is a premium priced product that requires specific physical/chemical/metallurgical characteristics.
Many mine expansion plans are limited due to infrastructure bottlenecks, both rail and port capacity
Sinter plants are environmental concerns in Europe and I am probably safe to say that no new sinter plat will be built in Europe, but sinter remains the most efficient and best way to produce hot metal. Remember, when iron ore is finer grained that 0.15 mm in size, you can only use this material to make a pellet. Brazilian ores, including that from Casa de Petra, are very fine grained, (think flour). Despite comments that there are better fine products elsewhere, we have received interest in our product as our fines are 3-6 mm in size (small pebbles) and we do not generate very much ultrafine material (<0.15 mm). Finer grained iron ore reduces the productivity of the sinter plant. As sinter plants are designed to meet a specific feed, use of finer grained ore reduced productivity of the sinter plant. Then one must buy additional iron ore credits (pellets, lump) to maintain output. Steel mills are either on or off and there is a balance to maintain steel output.
2) BIMC can ship 12 months a year from either Milne Inlet or Steensby Inlet. We choose, in the scoping study, to only ship 8.5 months a year to mitigate cultural concerns. It would be possible to expand this to 12 months once a history is established. As you are aware, fear and uncertainty is the greater concern, particularly when discussing anything new, even if it is only a perceived concern. However, this is moot as we plan to go to Steensby Inlet as the cultural concerns are mitigated and the technical requirements of the ships considerably less.
|Subject||re:finally part 2|
|Entry||06/13/2007 02:10 PM|
|3) In our scoping study, a copy of which is on our website, shipping costs, using a ice reinforced cape class bulk carrier (>150,000 dwt), were ~US$ 18.5 per tonne from Milne Inlet, which included the cost of two ice-management vessels, for an 8.5 month per year shipping season. We had access to some long-term basic rates from Brazil to Europe that were ~US$16.5-17.5 per tonne in 2005. This was the rational for assuming that we would have to absorb $2.5 per tonne shipping cost. It is not clear what will be the long-term shipping rate for Brazil to Europe, it is just as difficult to forecast long-term iron ore prices. So this is a best guess and given the changes in the shipping markets, I see higher long-term costs, due to changing lesgislation in Europe/NA and Asia that will already has newer better quality ships being built. Shiploading capacity in the scoping study was dual streams at 6,000 tph (2 x 6,000 tph) |
As stated, we plan to ship from Steensby Inlet and we are in the middle of this process for our definitive feasibility study. Steensby allows us to ship 12 months per year, use a lower class of ice reinforced bulk carrier (cheaper due to less steel in its construction), however the feasibility study will use actual estimates from shipyards rather than consultant estimates so our estimate would be more accurate. This is a far as we can discuss our shipping, however we have formed a strategic alliance with FedNav, whom have extensive experience in shipping in Canada's Arctic (see news release on Baffinland website).
Baffinland will produce a high quality lump iron ore and some sinter fines that we believe that marketing up to 15 million tonnes into Europe will be easily doable. Our bulk sample is oversubscribed and our marketing efforts have been extremely well received.
Note the last comment from the company: "the bulk sample is oversubscribed"
|Entry||06/13/2007 05:53 PM|
|I think if you do some poking around the European market that there is a growing chance of a shortfall in lump shipments of iron ore into Europe. And that situation could play right into Baffinland's hands.|
|Entry||06/20/2007 05:53 PM|
|Your post also confirms what I'm starting to hear and that is that iron ore pricing could surge for next year's pricing. I'm hearing that 30-40% is not out of the question. This would be an enormous boost for the valuation and financing for Baffinland.|
Further, the pricing should happen right around the definitive feasibility study and a potential strategic partner.
Also, check out the news on Mittal today:
Arcelor Mittal, the world's biggest steelmaker, plans to produce about 80 percent of the iron ore it uses within the next decade to protect itself against price increases from the three companies that dominate the market.
Mittal wants to boost supplies from the current 45 percent of the ore it uses by buying mines near its manufacturing facilities across the world, Chief Executive Officer Lakshmi Mittal said today at a steel conference in New York.
Mittal is buying iron-ore facilities in Senegal and Liberia to counter the market power of BHP Billiton Ltd., Rio Tinto Plc and Brazil's Cia. Vale do Rio Doce, which together control about 80 percent of the world's iron ore and are boosting prices for the raw material used to make steel.
``We want to have a completely integrated business model,'' Mittal said at the conference. High-cost new projects the iron- ore companies are developing will make it ``difficult'' for prices to decline substantially, he said.
|Subject||Iron Ore Prices|
|Entry||06/21/2007 10:11 PM|
I don´t believe that it will reach 30%-40%, it just gut feelings. It is more between 10-20%, in order to compensate US$ devaluation against the Brazilian Real and the Australian Dollar.
What Mittal said is not new, however he increased the percentage target of iron ore produced internally, it was 50%.
|Subject||London Mining Plc|
|Entry||06/26/2007 12:07 PM|
Do you know any about this company? So far is private owned, but its biggest shareholder with 28% is RAB Capital, which is one of most shrewd investors, that manages RAB Special Situation Fund (a hedge fund managed fron London). The mining company will make an IPO in July at Oslo Stock Exchange. Could the Greenland project compete with BIM?
They have iron ore exploration licenses in Sierra Leone (Africa), Greenland and Brazil (Minas Gerais state, where are CVRD, MMX and CSN (Casa de Pedra).
|Entry||06/26/2007 12:34 PM|
|I don't know about them, but I will look around and see if I can find anything. If I can I will post something. Thanks for the head's up.|
|Entry||07/05/2007 03:18 PM|
|There is no company specific news to Baffinland that is driving the stock up to all time highs. I think the momentum is just building from talk of a 25% increase or more in the price of iron ore for 2008, and bullish commentary from Rio Tinto and BHP from Australia.|
There appears to be substantial institutional interest from Raymond James today.
|Entry||07/11/2007 04:33 PM|
They have a strong buy on the stock.
|Subject||Iron Ore Acquisitions|
|Entry||07/12/2007 01:20 PM|
|July 12 (Bloomberg) -- Mt. Gibson Iron Ltd., backed by Russian billionaire Alisher Usmanov, is looking for iron ore and coking coal acquisitions in Australia and overseas to benefit from soaring demand for steelmaking ingredients driven by China.|
``We have identified some very clear winners within the M&A space,'' Luke Tonkin, managing director of Perth-based Mt. Gibson, said yesterday by phone. Potential acquisitions could be made within the next 12 to 18 months, he said.
Rising demand from China has pushed iron ore prices to records for five years, spurring acquisitions including Mt. Gibson's purchase last year of rival Aztec Resources Ltd. Shares of Cleveland-Cliffs Inc. surged in May on speculation the company may be acquired by Cia. Vale do Rio Doce, the world's biggest iron-ore producer.
``Mt. Gibson has a track record of acquisition,'' Merrill Lynch & Co. analysts Mike Harrowell and Stuart Howe said in a July 10 report. ``We expect this pattern to continue with a positive valuation outcome for shareholders.''
Shares of Mt. Gibson rose 1.5 cents, or 1 percent, to a record A$1.475 at the 4:10 p.m. Sydney time close on the Australian Stock Exchange. The company, whose stock has gained 66 percent this year, has a market value of A$1.2 billion ($1 billion).
Usmanov, through Gallagher Holdings Ltd., holds about 17 percent of Mt. Gibson and ``will participate'' should the Australian company find assets worth buying, Tonkin said. The Uzbek-born billionaire controls Metalloinvest, the world's fourth-largest iron-ore producer, among other businesses.
Iron ore will rise through 2009 for a record seven consecutive years of price gains as global production of the key steelmaking raw material fails to meet Chinese demand, UBS AG said in a July 8 report. The price of coking coal, also used in steelmaking, may jump 22 percent next year, Goldman Sachs JBWere Pty. said in a May report.
Mt. Gibson will ``closely look at'' acquisitions overseas as well as coking coal assets as its business cycle is complementary to iron ore, Tonkin said. It completed the A$207 million takeover of rival Aztec in January to gain control of the Koolan Island mine where first ore was shipped last month.
``They have got to be the right size, so around Aztec's size is good but we could certainly do a little bit larger at the moment and the reason for that is we are in exactly that sweet spot in the cycle,'' Tonkin said. No opportunities had matured, he said.
Mt. Gibson also owns the Tallering Peak mine in Western Australia state, and is awaiting environmental approvals at a third mine, Extension Hill, to bring total production to about 10 million metric tons annually, Tonkin said.
Development of the Extension Hill mine will cost about A$80 million and take four months to construct once approval is received, Tonkin said. The mine will produce about 3 million tons annually, he said.
Iron ore will climb 25 percent in 2008 and 10 percent in 2009, UBS analysts led by Daniel Brebner wrote in the report. That's higher than UBS's previous forecasts for a 10 percent gain in 2008 and no increase in 2009. Macquarie Bank Ltd. expects 2008 prices to rise 17.5 percent, Citigroup Inc. forecasts 20 percent and Credit Suisse Group 25 percent.
Demand for iron ore is ``as strong as we have seen it,'' Tonkin said, adding that ``you just can't stop the juggernaut overnight.'' Additional supply in the next three to five years may reduce the price of the ore, he said.
Increased production at steel mills is driving demand for iron ore, the costliest ingredient in steel that's used in items from toasters to cars, UBS said. That leaves BHP Billiton Ltd., Rio Tinto Group and Cia. Vale do Rio Doce, the mining companies responsible for three-quarters of global trade in iron ore, in a better bargaining position for higher prices.
|Subject||10% holder filing|
|Entry||07/16/2007 11:46 PM|
|Baffinland surged another 11% today. Besides good old fashioned momentum, there appears to be a lot of excitement based upon the filing of Dundee (Goodman & Company) that they increased their position to over 10% of the company.|
They announced a similar position in CLM before the stock basically doubled.
There also appears to be an intensified search for iron ore investments.
|Entry||08/17/2007 09:24 AM|
|what do you make of this morning's announcement?|
Baffinland comments on short-term investments status
Friday August 17, 8:55 am ET
TSX SYMBOL: BIM
TORONTO, Aug. 17 /CNW/ - Baffinland Iron Mines Corporation ("Baffinland" or the "Company") advises on the impact of recent disruptions in global credit markets on $43.8 million of its $45.9 million in cash and investments. The remaining $2.1 million is held in cash and guaranteed investments not affected by this situation.
Baffinland's cash management criteria is to invest in products that are ranked by the Dominion Bond Rating Service ("DBRS") as R1-High. In July and August of 2007, Baffinland invested, on the basis of professional advice, a total of $43.8 million in the following A Notes with three separate trusts managed under the Coventree Capital Group Inc. ("Coventree"):
Date Issuer Value Date Value
August 13, Structured Investment Trust III July 3, 2007 $9,949,500
August 13, Structured Investment Trust III July 10, 2007 9,957,500
August 15, Skeena Capital Trust Series A August 3, 2007 6,989,220
August 16, Lafayette Structured Credit Trust August 2, 2007 6,987,400
August 30, Skeena Capital Trust Series A July 30, 2007 9,960,700
Coventree announced on August 13, 14 and 15, 2007 that it was experiencing market disruption and as a result was unable to meet its repayment obligations until its liquidity providers fund such repayments. While the DBRS announced yesterday that the investments are under review, the DBRS has rated the above trusts and their underlying assets as R1-High.
Of the A Notes held by Baffinland, $33.9 million came due and payable on the maturity dates shown above but were not paid and remain outstanding. Another A Note in the amount of approximately $9.9 million comes due on August 30, 2007.
Baffinland is currently investigating the implications of these events, which appears to be a result of the current lack of liquidity for asset backed securities of the type held by Coventree rather than the creditworthiness of its underlying assets.
The Company currently believes it has sufficient cash available to maintain financial obligations provided this market disruption is resolved in a timely manner. In the interim, the Company is working diligently on a short-term solution.
|Entry||08/17/2007 11:15 AM|
|I'm trying to assess what this means, but it makes me shake my head. Why a company such as Baffinland would stick so much money in illiquid securities is beyond me.|
When I hear more from the CEO I will report more.
|Entry||08/17/2007 11:18 AM|
|It seems the short-term disruption and any potential loss are quite small compared to the value of the project.|
|Entry||08/17/2007 11:21 AM|
|My general sense is that you are correct. Still its just annoying to come out with this news in this market environment.|
|Entry||08/17/2007 11:56 AM|
|I talked with the CFO and he told me that the investments they have were in the highest rated commercial paper. The problem is the commercial paper market seized up in Canada for the first time in recent history.|
Yesterday, ten major banks of Canada announced a $40 billion package to bailout the troubled funds and provide liquidity.
Baffinland expects to get 100% of their money back, the only question is one of timing.
In the most dire scenario, economists in the Canadian papers today say that at worst investors would only get 90% of their money back.
Please see the below story:
|Entry||08/17/2007 12:11 PM|
|Here's another company suffering similar problems:|
Redcorp said it is "investigating the implications of these events, which appear to be a result of the current lack of liquidity for asset-backed securities of the type held by Coventree rather than the creditworthiness of its underlying assets."
Here is Baffinland:
Baffinland is currently investigating the implications of these events, which appears to be a result of the current lack of liquidity for asset backed securities of the type held by Coventree rather than the creditworthiness of its underlying assets.
I'm no fan of conspiracy theories but is someone dictating these statements or is Baffinland just copying Redcorp out of laziness?
I'm also concerned about why they didn't come out with a statement earlier given that their stock was going through above-average declines, and of course about the investment itself. Are these guys sharp enough to execute the equity raises or merger that this company needs?
What do you think is the worse case scenario for BIM right now?
|Entry||08/17/2007 12:39 PM|
|The worst case is that BIM loses $5 million of their money and their development is delayed 3-6 months due to waiting for their cash.|
As to the similarity of the statements, I'm guessing that lawyers drew up the press releases and the two companies probably share the same legal counsel.
The similar statement doesn't bother me.
The bailout is what is important, and that seems to moving forward.
|Subject||Update and change of opinion|
|Entry||08/17/2007 02:48 PM|
|Ok, so I've had a few calls around and I think the worst case could be a 30% haircut to their money or $13 million. |
The problem is that unlike the company's characterization, from talking to the banks involved this is a very fluid situation. The money may be tied up for a significantly longer time than I first thought.
Further, Baffinland is a company that needs to spend its money now and it needs to raise a significantly greater amount of money soon to keep up its bulk sample ore shipment.
I believe the current environment of liquidity and capital availability will compel Baffinland to significantly delay its progress of its mine. This is actually a horrible time for this to happen to this company, as they are in the middle of negotiations for strategic partners.
I think the risk on the stock in the current environment and their horrible cash management has caused me to change my mind and recommend for VIC investors to sell.
The risk of further bad news and delays is too great and that the stock could fall significantly more.
That said, they could have an investor step in and offer liquidity for their investments, but that doesn't change the fact that the environment for raising money has completely changed in the last couple of weeks.
I apologize for this as I had no idea the company was this irresponsible with its money and I'm just glad its right around my recommendation price. I will revisit this once the capital environment and the liquidity situation changes.
|Entry||08/19/2007 11:40 PM|
|As your comments suggest, it appears their problem is only liquidity. What makes it so difficult to call up a steel giant and negotiate a buyout right away, assuming some type of financing is set up for the duration of due diligence. |
Related thought: Isn't it attractive for steel giants who already appreciate BIM's mines for what they are to provide a high-coupon rescue financing package, even if they're not intending to acquire?
|Entry||08/20/2007 01:35 PM|
|I wouldn't describe a company that needs to raise close to C$2 billion has having "only" a liquidity problem.|
I'm not sure what the steel giants are thinking. But why would they rush in now and buy BIM out or provide a big cash payment, when the stock could be in half in the next 6 months?
The timing of this Coventree announcement really is terrible for the timeline of a 2008 bulk sample for BIM. They not only need that cash now they needed to raise more money by year end.
And while this may push the company into M&A discussions instead of strategic investment discussions, they will be in a position of weakness, not strength.
Further if the economy weakens from here because of credit problems, the price of steel and iron ore will fall.
I still like BIM's assets and their plan. However, I cannot ignore the new risks and its near term liquidity problem. Once they solve these issues I will revisit, but in my mind the risk/reward has dramatically changed.
|Subject||new financing in place|
|Entry||08/23/2007 03:09 PM|
TORONTO, Aug. 23 /CNW/ - Baffinland Iron Mines Corporation ("Baffinland" or the "Company") announced today that it has arranged a $21 million senior secured credit facility from its corporate banker, the Bank of Nova Scotia, to provide liquidity to the Company which was constrained due to the recent illiquidity of asset-backed commercial paper.
As previously reported, $43.8 million of the Company's $45.9 million in cash and investments was invested in certain non-bank asset-backed commercial paper R1 High A Notes (the "Investments") with three separate trusts with maturity dates ranging from August 13 to August 30, 2007. On August 13, 2007, Coventree Capital Group Inc. announced that due to market disruption it was unable to meet its repayment obligations until its liquidity providers funded such repayments.
The non-revolving, six-month credit facility, primarily collateralized with the outstanding Investments, will provide the Company with the ability to drawdown up to $21 million immediately.
"This credit facility provides us with sufficient cash to continue to operate and meet our financial obligations while the longer-term liquidity matter is being resolved in the marketplace", said Gordon A. McCreary, President and Chief Executive Officer. "As a result of this expedited support from the Bank of Nova Scotia, we are continuing to move forward with our plans."
|Entry||08/23/2007 05:03 PM|
|This is good news. I'm still wondering how this changes their financing they need to do by year end. Any thoughts?|
|Subject||re: new financing|
|Entry||08/24/2007 02:02 AM|
|my two cents...you would think that the banks see so much future business with Baffinland (potential deals, partnerships, m&a, money raising) they would find a way to finance them one way or another|
big risk to me: the terms of the financing could be extreme
|Subject||RJ upgrades price target|
|Entry||08/27/2007 05:59 AM|
|Raymond James upgrades price target to $5 today and writes a 10 page report about company|
Major points below:
We are increasing our target price on Baffinland shares to C$5.00 (previously
C$4.00) and are reiterating our STRONG BUY rating to reflect our
increasingly positive view of the production expansion potential of the 100%-
owned Mary River iron ore project. In our opinion, Baffinland shares remain
undervalued trading at a P/NAV of 0.27 times. In addition to assumed higher
capital and operating costs, incorporating a slow ramp-up from 12.5 million
tonnes per year of iron ore product (75% lump/25% fines) starting in 2012 to
30 million tonnes per year by 2021, we have increased our “unadjusted” net
asset value estimate to C$12.76 from C$11.62 per share. On an “adjusted
NAV basis” the NAV increases to C$6.38 from C$5.81 previously. Going
forward, we will refer only to the unadjusted NAV and remove the “50%
adjustment factor” which previously accounted for unknown equity dilution
and other risks. On the pricing front, we now forecast a long-term fines price
of USc50.0/dmtu (previously USc45.0/dmtu) and a long-term lumps price of
USc62.0/dmtu (previously USc60.0/dmtu). The combined changes in pricing,
cost and expansion assumptions results in a 10% increase in our NAV
estimate. For perspective, without the increase in our long-term price
assumptions our NAV would have otherwise declined by 14%.
We observe that Baffinland Iron Mines continues to make its way on the radar
screen of the iron ore and steel industry as well as garnering growing levels of
investor attention as the need for increasing amounts of high quality iron ore
becomes more apparent. Although we had expected the announcement of a
strategic investor by now, we believe that validation of the project by a wellfunded
third-party would result in a material positive improvement in the
share price and prove our C$5.00 target price conservative.
A robust iron ore market, a constrained yet strong demand for lump products,
and a steel industry that more and more demands high quality inputs, result in
fundamentals that support the investment case for Baffinland shares. Though
early stage, we believe the rewards outweigh the risks. A potentially high
quality, lump iron ore product located in the Arctic and delivered to the
European market will likely compete directly with CVRD’s (RIO-NYSE, not
rated) product line. We have applied a 0.40 times multiple (previously 0.60
times) to our net asset value of C$12.76 to calculate a C$5.00 target price.
|Subject||Profile has changed|
|Entry||08/27/2007 04:15 PM|
|I think the macro backdrop has changed significantly in terms of funding and financing. I also cannot seem to get over the stupidity of the cash management.|
I recognize clearly that if a third party announced a strategic investment the stock would easily double. I also recognize that the demand/supply for iron ore is still very strong.
However, in this credit and stock market, I no longer think the risk/reward is the same. I think the market agrees with me when it cannot rally on its biggest analyst trying to bull the stock.
If September rolls around and we start having debt and credit problems again, this stock will fall hard.
The stock is higher then when I recommended it and if you own it because of me, I would sell.
I still like and would buy Hemisphere, CAM Commerce and Photochannel.
|Entry||08/27/2007 09:44 PM|
|I still follow it. I think BQE shares a lot of characteristics of BIM. The minute the market becomes weak and this stock absolutely plummets. BQE traded down to $2.70 from $4.40 in a week. Now it has substantially recovered but that is really volatility I would like to avoid.|
In the case of BQE, I underestimated how European funds would just buy and sit on their shares, and I exited early.
I think BQE is fairly valued at $3.50 to $4, but any delay in projects or downturn in copper prices will hurt the stock.
|Subject||$30 million raised|
|Entry||09/27/2007 01:41 PM|
|BIM just raised $30 million in a common and flow through offering. This comes on the heels of several analysts scrambling to raise their forecasts of iron ore pricing. Add in a Federal Reserve Bank flooding the market with money and commodity prices are soaring.|
This bodes well for BIM's valuation and the crisis appears to have passed.
As long as the economy doesn't crater because of housing this stock is an interesting buy for those looking for iron ore exposure.
|Subject||Iron Ore set to remain strong-|
|Entry||10/18/2007 05:43 AM|
|from today's WSJ|
China's Continued Steel Demand
Bolsters Iron-Ore Prices, Miners
By PATRICK BARTA
October 18, 2007
BANGKOK, Thailand -- The longrunning boom in iron-ore prices appears to have at least one more year to run, and maybe more. That could be good news for some of the world's biggest mining stocks.
Iron ore -- an ingredient in steel -- already registered eye-popping price gains during the past several years, largely thanks to robust demand from China. But many analysts expected prices to level off as mine expansions in Australia and elsewhere started to catch up with demand.
That hasn't happened. Now, analysts are predicting a price increase of 30% or more for 2008, as steelmakers and mining companies prepare to hammer out new contracts with customers for next year. (Unlike most commodities, prices for much of the world's iron ore are set through annual contracts in private negotiations rather than on international exchanges.) Some have suggested prices could even double -- a surge that would have been unthinkable a year ago.
What happened? For one, steel output in China -- the world's biggest producer -- has continued to boom despite some predictions it might taper off this year. Chinese steel production is on track to grow 18% to 19% this year and next, about the same expansion rate as 2006, according to Citigroup.
Meanwhile, mining companies still aren't producing enough ore supplies. Although Rio Tinto, BHP Billiton and other mining companies have been expanding their iron-ore mines in Australia and elsewhere in recent years, capacity has been held in check by port bottlenecks and other infrastructure constraints.
The result is a tighter-than-expected market. China's needs for iron-ore imports are expected to increase by about 61 million metric tons this year, UBS said in a recent report, even though exported supply world-wide is only projected to increase by 45 million metric tons.
China has been ramping up domestic production of iron ore to help offset the need for more imports. But some of its ore is expensive by international standards, and some analysts say the country is approaching the limits of increasing domestic production.
Meanwhile, another ore-producer and steelmaker, India, levied a tax on iron-ore exports earlier this year to ensure more supply for domestic steel mills.
Indeed, some analysts say India offers the best indication yet that iron ore-prices are due for another big jump in the coming round of annual supply contracts. In India, unlike elsewhere, producers often negotiate their prices on a spot basis rather than once a year, providing a real-time barometer of overall market conditions. During the past twelve months, Indian iron-ore prices have shot up roughly 120% on the spot market, making Indian ore in some cases more than twice as expensive as product sold through annual contracts elsewhere.
Citigroup analysts predict annual contract iron-ore prices will rise 30% in 2008, but say they could go even higher given the recent movement in Indian spot prices.
All of this strengthens the hand of the big iron-ore producers, especially Anglo-Australian mining giants Rio Tinto and BHP Billiton, and Companhia Vale do Rio Doce, or CVRD, of Brazil. Together, these companies control about 75% of the world's iron-ore trade, with the balance made up by smaller producers in India, South Africa and elsewhere.
The outlook may be particularly good for Rio and BHP, whose mines are closer to China and can deliver ore to Chinese steelmakers at a discount. That may give the two companies leverage to demand higher prices from buyers in 2008 compared to competitors in Brazil and elsewhere.
Iron-ore producers are notoriously tight-lipped about their negotiating tactics and the prices they ask for. During a visit to New York earlier this week CVRD Chief Executive Officer Roger Agnelli said it is too soon to talk about what to expect from price negotiations, though he added that demand remains very strong. Rio Tinto Chief Executive Tom Albanese recently said "certainly it hasn't escaped our notice" that Chinese steelmakers are getting Australian iron ore at a discount to other providers, implying his company may press for a premium.
To be sure, China's steelmakers will fight hard to prevent more iron-ore price increases, which they aren't always able to pass on to customers. They are already struggling to incorporate iron-ore price increases from past years, including rises of 9.5% in 2007, 19% in 2006 and 71.5% in 2005 -- and some may already be losing money. If the annual iron-ore price increases turn out to be smaller than expected -- say, only 20% -- it could actually hurt mining company shares in the short run, since some of the stocks already appear to have priced in an iron-ore increase.
Any price increases will likely underpin strong earnings for the iron-ore producers over the longer term. In Asia, Rio Tinto has the greatest exposure to the commodity, with Australian capacity of as much as 195 million metric tons this year compared to 129 million metric tons for BHP Billiton, according to HSBC.
|Subject||This is a negative|
|Entry||10/19/2007 01:33 PM|
Mitsubishi's participation in every financing was a big positive. Their failure to participate in the last round of financing is a negative.
|Subject||RE: am I missing something?|
|Entry||02/21/2008 12:29 AM|
|I think the potential is there, but I don't understand why the company can't find a partner and had to hire an investment bank to find one. What are potential partners balking at, that we can't see?|
|Subject||RE: RE: am I missing something|
|Entry||02/21/2008 09:32 AM|
|A snippet from the last press release, |
"Mr. McCreary said confidentiality agreements have already been signed with 16 potential partners but that none of the major iron ore producers including Vale, Rio Tinto and BHP Billiton are on the list, because the agreements prohibit them from bidding for the company."
That seems a bit odd in that their process is excluding a true strategic partner. So they are just looking for a "financing" partner? I don't understand the thought process given how big the opportunity is. Management must think they can take this all the way to the goal line - with just money and no other expertise. Tough to guage whether that is true.
Ironically - maybe a true strategic partner brings too much value to the table? BIM mgmt doesn't want to concede that so they are playing hardball. Is this somewhat of a backhanded way for them to keep their jobs/stay in control?
Wish I could get comfortable with this piece because the risk/reward seems to have changed quite a bit more than the stock price has moved.
Thanks for your thoughts.
|Subject||Deal with Arcelor|
|Entry||11/10/2010 01:34 PM|
Are you still following this name? Would love to have thoughts on deal with Arcelor. Thank you.
|Subject||RE: Deal with Arcelor|
|Entry||11/10/2010 09:08 PM|
I'm not following the name anymore, sorry.