Jaguar Mining: An Activist Investor Waiting To Pounce

| About: Jaguar Mining (JAGGF)
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Jaguar Mining (JAG) had a massive sell-off (-26.8%) on 4/11/2012 after DealReporter reported Shandong Gold is no longer interested in buying the company. This was a hard blow to JAG investors who have long been awaiting an announcement regarding the previous unsolicited offer. JAG responded after the bell stating:

"In response to recent market speculation and increased trading volume in its shares. Jaguar is not aware of any developments that would merit such trading activity.

"The strategic review process initiated by the Board of Directors and led by the Special Committee is continuing and the Board will provide further updates to shareholders as circumstances warrant. There can be no assurance that this strategic review process will result in Jaguar entering into or consummating any change of control or merger transaction."

So what does this mean for JAG's shareholders? Will an activist investor come to the rescue?

Here is a list of major JAG shareholders at the end of 2011

(Click to enlarge)

When taking a closer look at Bristol Investment Partners, they added to their position after the unsolicited bid by Shandong Gold. They filed a schedule 13G on 12/16/2011 and then refilled a schedule 13D on 12/20/2011. For those who don't know the difference: A 13G filing is required for investors who own more than 5% of the class shares. But, if they file a 13G then they are passive investors and not activist investors. If they wish to be activist investors then they must file a 13D.

When looking into Bristol Investment Partners schedule 13D filing this is what we find:

The Reporting Persons have serious concerns regarding the recent series of events at the Issuer and have engaged, and intend to continue to engage, in private discussions with the Board to discuss these concerns. Namely, the Reporting Persons' concerns include the following:

  • The Reporting Persons question the diligence of the Special Committee in responding to the reported expressed interest from Shandong. Given the prodigious 73% premium of the Shandong offer to the Issuer's then current market valuation, the Reporting Persons are concerned about the lack of open communication with shareholders regarding the details of the Shandong offer and question whether the members of the Board are adequately fulfilling their fiduciary duties to shareholders in connection with their review of the Shandong offer and any other acquisition proposals. The Reporting Persons further note that the Board only commenced a strategic review process after Shandong's unsolicited offer was made public, as opposed to when it was first received.
  • The Reporting Persons are concerned that the recently created Office of the Chairman and Special Committee are constituted by the same three directors, one of whom has no prior experience in the affairs of the Issuer. The Reporting Persons do not believe this arrangement lends itself to appropriate transparency and accountability in connection with the Issuer's evaluation of strategic alternatives to maximize shareholder value.
  • The Reporting Persons are troubled that potential conflicts of interest may exist among the three directors serving in both the Office of the Chairman and the Special Committee. Central to this concern is the fact that one of the directors, Mr. Andrews, appears to have been Mr. Clausen's former boss at Stillwater Mining, was appointed to the Board two days before the Shandong acquisition offer surfaced (by a Corporate Governance Committee on which Mr. Clausen serves), has no prior experience or knowledge of the Issuer's operations, and was curiously appointed to both the Office of the Chairman and Special Committee to operate the Issuer's ongoing business while simultaneously evaluating the unsolicited offers. Further, the Reporting Persons question the appropriateness of Mr. Clausen assuming such direct control over the Issuer's ongoing operations and evaluation of the Issuer's strategic alternatives while serving contemporaneously as President and Chief Executive Officer of Augusta Resource Corporation, a competing miner.

The Reporting Persons urge the Board to take the following actions without delay:

  • Reconstitute the Office of the Chairman and Special Committee such that they are not composed of identical directors, especially in the case of Mr. Andrews, who has no prior experience in the affairs of the Issuer.
  • Re-confirm and demonstrate the Board's commitment to a fair and open strategic-review process by voiding immediately any outstanding standstill or confidentiality agreements in place with Shandong, thereby permitting Shandong to communicate its interests directly to the Board, its financial advisors, shareholders and the marketplace in general.

Bristol Investment Partners has a large interest in JAG and specialize in corporate governance, going private transactions, mergers and acquisitions, and management buyouts. This is obliviously the reason for the adopted "poison pill" which lasts the duration of the 2nd quarter. The Board must find a deal for the investors of JAG. I understand the Board wants to get a deal of more than $10 a share but reality must set in knowing the time value of money and if they don't find a buyer the stock might never reach the 52 week high of $8.18 again.

We will now have to wait and see how this story unfolds but I can assure you that we will have our answer by the end of this quarter or maybe the SPDR Gold Trust (GLD) would better suit investors for those seeking exposure to gold.

Disclosure: I am long JAG.