Recent Developments At Allied Nevada Make A Buyout More Likely

| About: Allied Nevada (ANV)

Since my last article on Allied Nevada (NYSEMKT:ANV) here, quite a bit has happened. The most significant event took place on January 16, 2014 when China Gold Stone announced a buyout at $7.50/share, but the offer was quickly retracted as it "...was issued in error and without the advice of counsel." Allied Nevada management acknowledged that they received a letter containing the buyout proposal, but questioned the credibility of the offer. The credibility was questioned because management and their lawyers couldn't find any information about China Gold Stone. I personally contacted China Gold Stone's financial adviser CB Capital Partners the day the offer was announced and asked if the press release was authentic. I was told by Christopher Baclawski that it was indeed legitimate and that they would release additional information soon. No word on that yet. China Gold Stone's legal counsel Patterson Belknap Webb & Tyler LLP, a major New York City law firm with over 200 lawyers, has yet to deny their relationship with China Gold Stone. If the offer was entirely fake both the financial and legal adviser in the deal would quickly distance themselves from the company to protect their own reputation. Whether this buyout ever happens or not is up in the air, but Allied Nevada did receive a buyout proposal, CB Capital Partners acknowledged that it was legitimate, and a major New York City law firm seems to be involved.

Another interesting development took place on January 23, 2014 when Allied Nevada announced that they amended two executive's (CEO's and CFO's) employment agreements. The amended agreements essentially say that in the event of a change of control, the two executives will receive generous severance payments (2x base salary and 2x Employee's target bonus) if they are ever fired from their jobs in relation to a change of control with or without cause. Even an adverse change in the salary or power of these executives will result in a payout. The definition of "Change of control" was also broadened in the amendment. The original employment agreements with these two executives aren't even a year old (signed March, 2013), so it seems odd to have to change them already unless the company is already looking at buyout proposals, and wants to make sure executives are protected.

Lastly, on January 27, 2014 the company announced that it was divesting Hasbrouck, a non-core undeveloped mining property, to West Kirkland Mining for $30 million. Allied Nevada never had the capital to build out Hasbrouck and the additional $30 million will strengthen their balance sheet. Management can also focus entirely on the flagship Hycroft property now. Capital expenditures for all of 2014 is expected to be $35 million, so this divestiture will pay for most of it.

Whether Allied Nevada gets bought or not is still up in the air, but recent developments make a buyout seem more likely now than ever before. Even if Allied Nevada doesn't get bought, it's still an excellent leveraged play on gold prices.

Disclosure: I am long ANV, . I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.