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  • Allied Nevada Gold - After Osisko, Allied Nevada Is A Prime Takeover Target  [View article]
    Ok, if you say so. I forgot that Wall street is the pinnacle of integrity. Please accept my apologies.

    If there is money to be made, even illegally and the probability of being caught is small or manageable…..then humans will ALWAYS do it. Your shop may not have engaged in such activities, but I assure you that others do. Your common sense alone should tell you this.
    May 19, 2014. 12:04 PM | Likes Like |Link to Comment
  • Allied Nevada Gold - After Osisko, Allied Nevada Is A Prime Takeover Target  [View article]
    Hi Omer, What do you make of the previous feasibility numbers. Seems that the NPV and IRR dropped quite a bit from $2.7 NPV in earlier feasibility analysis to now $1.7B. Which assumptions did ANV management change? here is the previous quote below:

    "The expansion of the Hycroft Mine including construction and operation of a milling facility is expected to require initial capital expenditures of $1.24 billion. The expansion results in a net present value of $2.7 billion and an IRR of 77%. The life of mine adjusted cash cost for the project is estimated to be $273 per ounce. This economic assessment is based on a discount rate of 6%, long-term gold price of $1,200 per ounce and silver price of $21 per ounce, starting in 2016." -ANV Technical report

    Thanks for clarification.
    May 19, 2014. 11:57 AM | Likes Like |Link to Comment
  • Allied Nevada Gold - After Osisko, Allied Nevada Is A Prime Takeover Target  [View article]
    I believe they have also retained Scotia per their recent NAV conference call. Its available on the website. I know you already answered this, and I know that technically there is supposed to be a chinese wall between I-bank departments……but I can't help but find the Scotia bank downgrade a very curious development. There used to be an unwritten rule on Wall street that I-bank clients received favorable sell side reports or at least didn't receive downgrades. Maybe things have changed.
    May 14, 2014. 06:02 PM | 1 Like Like |Link to Comment
  • Allied Nevada Gold - After Osisko, Allied Nevada Is A Prime Takeover Target  [View article]
    I don't think ANV is misstating anything. I think that you haven't actually read the 10k.

    -"Cash" is currently $49M as of most recent quarter. Capital lease payments and Interest expense alone for 2014= (capital lease- $54M, Interest expense-$24M)….that doesn't even count the net negative in payables and the ongoing losses. I probably don't need to point out that at this rate, cash burn is a REAL problem.

    -The "assets held for sale" is equipment including a shovel that they haven't been able to sell and loses value by the day…..the "value" that has been placed on "assets held for sale" is just a guess based upon comps in OTHER MARKETS (management has admitted this on CC) since a shovel in the middle of the nevada desert doesn't really have a ready market…..its worth what someone is willing to pay, nothing more.

    -Inventories of ($78M) aren't the liquid LBMA bars that you seem to think they are. ANV uses the percentage completed method…..if they tried to actually liquidate those inventories right now, they would get significantly less. if you read "NOTE 3" in the 10k it clearly shows that out of the $78M in inventories, only $632K is actually "precious metals" meaning actual inventory ready for sale. The rest is "in process" and "materials and supplies"….meaning that the vast majority of the "inventory" that you are counting on in your working capital liquidity calculation isn't actually liquid. As far as the $2m increase, frankly i don't see how that relevant. $2m is nothing first of all, and more importantly that increase didn't result in the most important "precious metals available for sale" category.

    To be clear, I don't think ANV is misstating anything, they have clearly stated everything in the 10k. The problem is that some haven't actually read the 10k. Counting $78M as money in the bank just because the "inventory" line item sounds liquid is a mistake and a big disappointment in this case. Listening to past CC's you will hear disappointment from analysts in the poor conversion from "in process" to "precious metals" available for sale. There have been hiccups in converting the "inventory" into actual saleable product.

    -As for the "ore on leach pads" I would simply refer you to my comment above on Inventory. Its the same basic principle but further up the chain and thus even less liquid. "ore on leach pads" can change….its all based on model estimates and samples. if certain areas of the pad aren't getting efficient exposure to solution, they will yield fewer Oz/T. The point here is that its a mistake to start counting chickens before the egg has even been laid. Its also worth pointing out that the ore needs to be exposed on the leach pad for a set amount of time and everything has to go according to plan before the "projected" yield can be realized. ANV cant just go process that ore early to pay bills……its not a liquid asset. ANV may be able to source liquidity from the Ore on leach pad by trying to use it for collateral on a loan. I would be surprised if they get 20% LTV (value being the balance sheet line item) for it.

    ANV is asset rich and capital/liquidity poor. To say otherwise is just ignorance. I agree with the article author that ANV represents a compelling acquisition target for the right company, but that doesn't change the fact that ANV currently has a major liquidity problem and will need capital from somewhere. They aren't sustainable under current conditions. They either need 1) capital infusion 2) partner 3) acquirer. Even the company knows this, why do you think they are doing NAV presentations? They are quietly shopping themselves around. You seem to be the only one that thinks they have the liquidity to make a go of it under current conditions.
    May 14, 2014. 01:20 PM | 8 Likes Like |Link to Comment
  • Allied Nevada Gold - After Osisko, Allied Nevada Is A Prime Takeover Target  [View article]
    "but there are assets to pay-off the debt today"

    - Are there? This would be very helpful if true, but I don't see where. If you are referring to the "shovel" that has been for sale for 6+ months and is losing value by the day, or the "inventory" which is nowhere near as liquid as the line title would suggest, then you are likely to be disappointed. I am long ANV (from higher prices), but unfortunately, I do see real liquidity risks here in the absence of some capital raising very soon (or buyout, which I would welcome)
    May 12, 2014. 05:05 PM | 1 Like Like |Link to Comment
  • Allied Nevada Gold - After Osisko, Allied Nevada Is A Prime Takeover Target  [View article]
    Thanks again for correcting my mistake Omer. Two more unrelated questions if you don't mind:

    1) Do you happen to know if the ANV board has any measures in place that would impede a potential acquisition? i.e. poison pill, or absurdly large exit packages for management etc.?

    2) I heard on the NPV call that ANV had retained Scotia bank and credit suisse to help source capital or a potential partner. Not long after it looked like Scotia Bank analyst downgraded ANV…..seemed odd to me since investment banks have always seemed to have an unspoken agreement to upgrade the stock of clients or at least do no harm with a downgrade. Do you have any thoughts on this.

    Thanks again for the well researched article. Much appreciated.
    May 9, 2014. 08:16 PM | 1 Like Like |Link to Comment
  • Allied Nevada Gold - After Osisko, Allied Nevada Is A Prime Takeover Target  [View article]
    Ahhhh, ok makes sense. Thank you.
    May 9, 2014. 08:09 PM | Likes Like |Link to Comment
  • Allied Nevada Gold - After Osisko, Allied Nevada Is A Prime Takeover Target  [View article]
    Hi Omer,

    Thanks for the well researched article. I am having trouble understanding why a takeover of ANV would make good business sense for potential acquirer given the two statements below. Im sure that Im missing something and I would appreciate if you can point me in the right direction. the quotes are:

    "Allied Nevada's Hycroft mine has an after tax net present value of $1.7 billion (5% discount rate) at $1,300 gold and $21.66 silver"

    "whereas Allied Nevada still needs to spend $1.3 billion on capex before production reaches ~800,000 gold equivalent ounces a year."

    My confusion is; assuming that the capital expenditures necessary to reach the stated NPV of $ $1.7B are somewhat front loaded……why would an acquirer want to assume $700m in capital leases and debt plus $1.3B in capex just to reach the necessary productivity to hit the NPV $1.7B assumptions.

    In other words; To me that seems like a poor investment……i.e.:

    $700m debt +$329M Market cap (+ takeover premium) + $1.3B capex= $2.329B just for the opportunity to possibly make $1.7B in present value dollars with a rather low 5% discount rate and unpredictable gold price.

    Is the angle that an acquirer would effectively have to be betting on significantly higher gold prices in the near future? I don't see how it works at current prices.

    Like i said, I'm sure I'm misunderstanding something. I appreciate any input. Thanks again for the great article.
    May 9, 2014. 06:45 PM | 2 Likes Like |Link to Comment
  • The Nuclear Option: Russia's Threat To Dump Treasuries  [View article]
    You should review, Damodaran if you ever did in the first place. He clearly defines arbitrage on the first page, "speculative arbitrage" is the only one that fits your thesis:

    "Speculative arbitrage, which may not really be arbitrage in the first place. Here, investors take advantage of what they see as mispriced and similar (though not identical) assets, buying the cheaper one and selling the more expensive one."- (Too Good To Be True? The Dream of Arbitrage, Damodaran)

    As for Arbitrage Pricing Theory, as with any Model, the quality of assumptions is key…Garbage in Garbage out. Your thesis is starting with the biggest garbage input of all time….. that the current status quo in the debt market is fundamentally justified. Developed nations around the world are purchasing their own debt or artificially incentivizing financial institutions to uneconomically purchase sovereign debt (Euro) at a rate that is truly unprecedented. I don't know how this plays out….I can make a case for massive Deflation (yields lower) and Inflation (yields higher)…….what I DO know, is that these major imbalances result in increasingly drastic market responses to major world events. In the event that China liquidates 10% of the public treasury market……the response is unlikely to be mean reversion to the current status quo (your thesis). As you point out above (curiously, you are proving my point) the current status quo is not well established. Yields were drastically different 3 years ago, and even more so 3 years before that.
    Mar 16, 2014. 10:53 PM | Likes Like |Link to Comment
  • The Nuclear Option: Russia's Threat To Dump Treasuries  [View article]
    Not sure, where in your post you provide the evidence to prove me wrong? Did I stumble into a philosophy thread? You made bold claims that a hypothetical liquidation of 10%+ of a market would not have a long term effect. A large part of your thesis is based upon "arbitrage" which you clearly misunderstand in definition and concept. Now you are basing your claims of Efficient Market Hypothesis? I thought your background was as a portfolio manager……were you just asset allocating in ETF's for clients? You can't seriously believe in EMH. I'm done here, you are well written, but you fail to understand some basic concepts and I can't take you seriously. Best of luck.
    Mar 16, 2014. 10:04 PM | 1 Like Like |Link to Comment
  • The Nuclear Option: Russia's Threat To Dump Treasuries  [View article]
    I have read this thread, as evidenced by my comment towards the end, and I don't see an answer, perhaps you can point me to it?

    "Surely, you don't think it reasonable for me to have to repeat myself multiple times."

    - How you choose to respond is up to you, you may find some value in the copy and paste function….it will save you from having to re-type. regardless, I haven't seen an explanation in this thread beyond referencing alternative forms of arbitrage which you appear to misunderstand.

    In ANY arbitrage definition, the instruments must be so similar that the trade can be executed risk free…..this is a crucial component to the definition. Your claims that it is all semantics is simply wrong. Your assumption above that any selloff would be met by the entire (or any subset) global debt market exploiting an "arbitrage" opportunity is simply absurd. Arbitrage opportunities get exploited because they are risk free………selling a German bund to buy the liquidation of a UST is NOT risk free……not even close. For starters you would have to hedge the currency exposure and thats just he beginning. Your entire "arbitrage" concept is flawed….you are relying on the current stays quo to remain the same which is ridiculous given that less than 3 years ago the relative valuations of the same debt instruments you reference in your "arbitrage" example were trading with significantly wider spreads.
    Mar 16, 2014. 09:50 PM | 1 Like Like |Link to Comment
  • The Nuclear Option: Russia's Threat To Dump Treasuries  [View article]
    "First, your statement regarding arbitrage is simply incorrect"

    - This is your quote.
    Mar 16, 2014. 09:18 PM | Likes Like |Link to Comment
  • The Nuclear Option: Russia's Threat To Dump Treasuries  [View article]
    First, I don't think either hypothetical scenario would ever happen. Second, Arbitrage is indeed used in finance all of the time, regardless of your ill-informed categorization of me. Third, like it or not, your entire "arbitrage" example is wrong, for more than just the definition error that you made….it is flawed in concept. What you are describing as "arbitrage" is really just a relative value play. Arbitrage denotes a sort of de-facto response by the market…..BECAUSE IT IS RISK FREE. Nothing about the cash-flows of French bonds and US treasuries are the same….they aren't even denominated in the same currency. Frankly, I'm shocked that someone with your impressive background would make such a simple error, and further try to defend it when it is clearly wrong.

    "Or is it that you believe that Chinese firesales of Treasuries would permanently cause their yields to rise above those of say Italian sovereign debt or French corporate debt of the same maturities?"

    - Who says that Italian or French Yields would stay the same?…this appears to be the crux of your error….you seem to believe that the current relationship between respective Eurozone yields and Us Treasuries would remain the same? Im not sure how you can even make this assumption given that only 3 years ago the relative yields fluctuated wildly……you seem to think we have hit some long term fundamentally justified debt market equilibrium….I recommend you go back and re-analyze your premise.
    Mar 16, 2014. 09:14 PM | 1 Like Like |Link to Comment
  • The Nuclear Option: Russia's Threat To Dump Treasuries  [View article]
    "But this has absolutely nothing to do with a politically motivated Chinese dumping of UST. A Chinese dumping of UST per se would not change relative credit fundamentals"

    - Really? another bold assumption. If ANY debt holder, regardless of motivation, decides to liquidate 10% of a market in a short period of time then it will have a material effect on the yield…..assuming that the market would immediately return to equilibrium requires more proof than just your word. If yields increase quickly, as they definitely would in such a scenario it can have domino effects. Believe it or not, Markets rarely respond rationally to significant events.

    If the yields remained elevated for an significant period of time then new issuance would have a much higher cost of debt……this affects credit risk. The Fed is of course an autonomous issuer of currency, so no doubt you will retort that the Fed will simply "print" if need be……which I would agree with, except that now you introduce inflation risk which debt investors will begin to discount…….. it is hard to argue that an event within this context (unlike QE) is not debt monetization. You can save any (asset swap MMT/MR theory) with regard to outright purchases of debt……market perception is king.
    Mar 16, 2014. 09:01 PM | 1 Like Like |Link to Comment
  • The Nuclear Option: Russia's Threat To Dump Treasuries  [View article]
    "First, your statement regarding arbitrage is simply incorrect"

    - Great answer… to explain why, or should I just take your word for it?

    The rest of the world is under the impression that arbitrage is essentially a risk free trade involving two or more effectively similar products. How exactly is a french bond denominated in Euro's and subject to the credit risk, inflation risk etc of the Eurozone anything like a US treasury bond denominated in $US and subject to completely different credit risks, inflation risks? Your statement is bold, bordering on absurd….I think it requires explanation at the very least. The assumption that holders of German Bunds would de-facto dump their bund positions in order to purchase UST on the basis of relative valuation all during a hypothetical Chinese liquidation of 10% of public outstanding UST market is rather outlandish….calling it arbitrage is ridiculous. I normally wouldn't resort to being so brash, but your arrogance in dismissing a reasonable point of contention calls for it at this point.
    Mar 16, 2014. 08:51 PM | Likes Like |Link to Comment