Dear Coalspur Shareholders,
I would ask you to stop and reflect on whether the recent offer by Cline LLC, is a fair bid that reflects the intrinsic value of the Vista thermal coal project. If you share the same sentiment that I do, that the bid price is well, well, below fair market value (even under current market conditions), then I would kindly ask that you join myself and other shareholders by casting a “no sale” when voting via the proxy forms, which are to be mailed out in mid March.
In short, if 25.1% (or more) of the Coalspur shareholders vote against the offer, this takeover (at the current offer price) dies! It will invariable force the bidder to come back with a more reasonable offer, or in the alternative, allow Coalspur to (sometime in May 2015 or shortly afterwards) go into CCAA (a form of court supervised bankruptcy protection offered under Canadian law). The company can sit in CCAA, and offers made to purchase the company will be under court supervision, where the courts examine the fairness of the offer price, (as well as the fairness of the offer price Cline is paying to Barrowdale for the purchase of the subordinated debt – terms of which have not been disclosed B.T.W.), which I trust will provide more protection against these types of low ball bids, that seemingly have been orchestrated by Cline and Barrowdale.
The endorsement of the Cline acquisition by the Board and Barrowdale (to me) is meaningless, as it is Borrowdale (and Coalspur’s directors) that: 1) have allowed Coalspur to become so heavily indebted (for no appearant tangible benefit); 2) endorsed the EIG debt facility only to (a year later) reject the resized proposed financing (without any shareholder vote on the matter); and 3) have all to easily extended credit to the company, which now has left Coalspur in the predicament it currently sits in (namely the excessive debt, which miraculously must be repaid by May 2015).
Some very encouraging market data that suggests that brighter days are on the near term horizon for thermal coal producers (and therefore Coalspur shareholders), include: 1) the very recent surge in the spot price for thermal coal (now at approx USD$70 spot price); 2) the drop in the Canadian to USD foreign exchange rate, which gives us a spot price of CAD$87 per ton, thereby increasing the cash contribution margins of coal produced and sold in Canada; 3) the strengthening USD dollar will put many US based coal producers out of business (near term), as they have been pushed to the higher end of the cost curve, thereby helping eliminate the oversupply position in the termal coal market; 4) recent acquisition activity that is arising from overseas buyers such as China, Japans, India, and South Korea, that are looking to acquire resources; 5) production cuts announced by major players recently in Australia (e.g. Glencore); 6) Asian based EPC contractors (the companies that build mines) coming to the table with financing as well as more cost effective bids to builds mines; 7) the fact that Canada is an extremely favorable mining jurisdiction, which eliminates the threat of nationalization (political risk), a big threat when investing in third world countries such (eg. as Mongolia); and lastly 7) and the fact that there is a $42M cash deposit on hand with Ridley Terminals (which the company should seek to monetize and pay down a substantial portion of the EIG facility and possibly negotiate an extension to fund the repayment of the remainder of debt). It is this last point, that I wish the Canadian courts (during the CCAA proceedings) to consider, as a means of de-leveraging Coalspur, and buying it more time to be sold under more favourable terms, after hopefully receiving a short term extension from EIG – after a good portion of the debt has been repaid). I am confident this “workout” solution (i.e., deleverging with Ridley Terminal cash deposit) was identified and quickly dismissed by Barrowdale and Cline, as they act in concert.
Also, it seems that the bottoming out in the thermal coal market space may have occurred with brighter days ahead. An examination of thermal coal prices over a 10 year historical look back, suggests that current low pricing is simply NOT sustainable!!!!! My estimated net present value calculations show that at current spot prices, current CAD/USD foreign exchange rates, and the cost of constructing the mine in USD (for which there is nocurrency hedge - thanks to Barrowdale, after rejecting the resized funding proposal), supports a per share value of $0.15 to $0.20 per common share. The $0.023 offer price therefore represents a discount of 85% relative to estimated NPV. [This is a positive outcome for all stakeholder -WTF???]
By rejecting the offer from Cline and letting Coalspur go into CCAA, we (as shareholders) buy ourselves additional time during which the financial advisor (Deutsche Bank) may be able to identify a better deal for the current shareholders, all while benefiting from the supervision of the Canadian courts, while also allowing the court appointed financial advisors the opportunity to seek out how to monetize the Ridley Terminal cash deposit for the benefit of deleveraging the company, a step Cline clearly sees benefit to as they (quote on quote) will seek to negotiate contracts with this party. I have NO TRUST is the leadership/trustworthiness of the Board or Barrowdale, after watching Coalspur rack up such significant debts post Bankable feasibility study, and putting the company is the insolvency position it now faces. All orchestrated events!!!!!
However, if in fact the company is sold at the current offer price to Cline, I would invite all Coalspur shareholders to join/become party too, a class-action lawsuit that will be launched by a Toronto based (contingency) law firm, that will assert gross negligence and damages resulting thereform, stemming from the actions of Coalspur’s directors and key shareholder Barrowdale. In short, the issues that will be delineated in the statement of claim are (namely) as follows.
· Rejecting of EIG resized USD denominated debt facility – the EIG facility, even at the smaller resized value, provided a very significant portion of financing, as well as currency hedge against the cost of the mine (largely priced in USD). Instead of flat out rejecting the facility (at the instructions of Barrowdale), the company should have been sold at that time, with a much smaller required funding gap needed to build the mine (while also reverting to the construction of a smaller mine – the initial plan). This instead of the brilliant idea of flat out rejecting the EIG debt facility (before putting it to a shareholder vote). The rejecting of the EIG facility at the instructions of Borrowdale, put the share price of Coalspur into a massive tailspin from which it never recovered.
· Negligence in terms and condition drafting to EIG facility – not undertaking proper measures to guard against the risk of insolvency in a weakening coal market, while continuing to borrow more, and more, and more funds under the EIG and Barrowdale facility (virtually guaranteeing the insolvency event the company now confronts).
· Inaction to monetize the cash deposit with Ridley Terminals – to use these funds to repay the EIG debt facility and protect the Vista asset (a claim the Board was undertaking – “protecting the vista asset”, while their actions showed they continued to borrow more and more, these actions going completely contrary to their assertions). The Ridley Terminal deposit could have been monetized, to help service the company’s debt. A strategy that still exists today!!!!!!!
If there are any other public forums in which Coalspur shareholders exchange information, it would be much appreciated if someone could (kindly) post this message onto that discussion board. The message is very clear; 1) VOTE “NO” to the proposed Cline acquisition; and 2) stayed tuned for more information regarding legal action against Coalspur, its directors, and its key shareholder – Barrowdale, should the Cline acquisition close at current pricing.
Thank you for taking the time to read this post! We will post again in the coming weeks, depending on the outcome of the Cline takeover offer (including details to contacting the representative law firm, should you wish to become party to this class action).
A concerned shareholder,
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