What's going on at Minera Andes (MAI.to)?

A big fat strike at its only working mine, that's what. We're now in the 14th day of a mine-stopping strike at the San José mine 51% owned and operated by "the JV partner from hell" Hochschild (HOC.L) and 49% owned by Minera Andes and if the meeting scheduled for 1pm local time doesn't go well, the AOMA miners' union down there in Santa Cruz Argentina plans on calling a regionwide strike to protest the bad work practices that management impose upon employees. Here's the text that appeared in IKN104 about all this deal yesterday:

Minera Andes (MAI.to) San José strike in its 13^th day

More details have been appearing in the local Santa Cruz press about the strike at the San José mine, 51% owned and operated by Hochschild (HOC.L) and 49% owned by Minera Andes (MAI.to). It started on April 18^th (recall that it was only reported by HOC.L/MAI.to after the close of market Thursday 21^st April, after the market week had finished (5)) and far from getting close to a settlement, it seems that the worker’s union AOMA is considering calling a regionwide strike (6) to support the striking workers at San José and force the management to the negotiation table, something that might also happen via a government led compulsory negotiation as well.

 

The complaints of workers seem to have substance. There are reports of insecure working conditions at the San José mine which include an accidental death on March 12^th this year (7)  which workers say was largely due to bad H&S policy and a mentality of “cutting costs at all costs” at the mine, as well as many other accidents that anecdotal evidence (i.e. from griping workers) says go unreported.

 

There are other unsubstantiated but reliable sounding anecdotals reaching local press (8) (9) of the mine paying workers less than the agreed salary for their jobs, making them work unpaid extra hours under threat of dismissal, going back on agreements to turn currently third party contracted miners into full-time direct employees (which brings a host of extra benefits), the systemtic rejection of any sort of pay rise negotiations by management (we recall that Argentine real inflation is estimated at around 25%) bad living conditions and a lack of uniforms and personal safety equipment for the mineworkers.

 

Now we know that the San José mine is 51% owned and operated by Hochschild (HOC.L), the company that Rob McEwen of MAI.to (49% owner) calls “the JV partner from hell”. However, are we also supposed to believe that 49% owner of San José MAI.to knows nothing about the alleged bad working conditions and cheapskate attitude towards its workforce that has led to this current protracted strike that is said to be costing the mine one million Argentine Pesos per day (around U$243,000)? If I ran a company like this and were staring at a strike action that cost my company U$1.5m so far for its 49% share, I’d personally be all over the whys and wherefores of this event. I’d also be fairly aware of the operating costs at San José on a day-to-day level. I’d also know about the safety record of the people I were paying to do the job in hand. Being non-operator doesn’t give MAI.to a free pass here, sorry and all that.

 

There’s clearly bad feeling between management and workers at San José and although it’s unlikely to be one-way traffic and management is to blame for everything whilst the union-backed workforce are innocent lambs, things are not right and those in charge have to accpet at least some of the responsibility. What I’d like to know is just how much MAI and its famous hands-on leader knows about the whole affair, starting before the recent fatal accident (of which details were covered up for over a month by the San José management team) and moving through to today. Unfortunately at time of going to press the initial inquiry mail your author sent into MAI.to has not been answered, nor has the repeat mail (best to make sure these things get through) seen an answer. Watch this space, but for the time being your author is going to do one of his pathetic “social” handwringing things and not get involved with a company that has a seemingly dubious record and bad blood to cope with at its only operating mine.

The point here is that McEwen might not be operator at San José, but he's not stupid either and this is the type of thing that turns around and bites your nether regions when you treat workers badly. Get your act together, MAI.to, treat people right and the bad press will turn to good.

Handbags at dawn! Hochschild vs McEwen goes to court

Oh, now this one could run and run....and be fun along the way, too. Funnily enough I was looking at MAI and wondering if it were shortable at its $1+ prices registered, as a couple of e-mail pals will stand witness. I didn't short it in the end, so just a sideline spectator as this stuff unfolds. I can't wait for the Rob Mac E reply PR:

Hochschild files suit against Minera Andes seeking project financing repayment

    -   Despite a $65 million loan disbursement by Hochschild, Minera Andes,
       Inc. and Minera Andes SA have refused to execute formal loan
       agreement documents for three years
   -   Hochschild provided a project finance loan to the co-venture entity,
       Minera Santa Cruz, for the construction of the San José mine in
       Argentina
   -   Minera Andes has caused an undue delay in documentation and repayment
       of this loan by refusing to execute formal loan documents
   -   Legal action has no impact on the running of the San José mine, which
       is operated by Hochschild

LONDON, March 17 /CNW/ - Hochschild Mining plc ("Hochschild") today announces that it has filed suit in the New York State Supreme Court, asking that Minera Andes, Inc. ("MAI") of Alberta, Canada and its subsidiary, Minera Andes SA ("MASA"), be required to execute formal loan agreement documents for the $65 million project financing loan Hochschild provided to the San José gold and silver project in Argentina.

The mine, a co-venture between Hochschild and MAI, has been in operation since June 2007. Under the terms of letter agreements between the parties executed in October 2006, Hochschild alone provided the full amount of the project financing, totalling $65 million in instalments between October 2006 and July 2007.

The complaint alleges that MAI and MASA have unduly delayed the execution of formal loan documents and repayment of the loan by the co-venture entity, known as Minera Santa Cruz. Hochschild has made repeated attempts to finalize the formal loan agreement documents, but the suit alleges that MAI and MASA have made demands never contemplated by the original letter agreements.

The suit lists five separate causes of action. It seeks a decree by the court requiring MASA and its parent company to execute formal loan agreement documents with Hochschild, consistent with the previous agreements between the two companies. It asks that Minera Andes, Inc. and MASA be enjoined from further interference in the repayment of the project finance loan, asks the court to order payment to Hochschild of benefits derived by MAI and MASA as a result of the loan, and requests an order declaring that other shareholder loans are subordinate to the project finance loan.

The law suit has no impact on the running of the San José mine, which is operated by Hochschild. The mine initiated operations in 2007 with a plant capacity of 265ktpa, and following a successful expansion in 2008, it doubled plant capacity to 530ktpa. In 2009, the mine produced approximately 5 million ounces of silver and 77 thousand ounces of gold.

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Hochschild (HOC.L): On strike

Workers at the Peruvian operations of large silver miner Hochschild (HOC.L, quoted on the London Stock Exchange) went on strike last night. At present all four of the mines HOC.L operates in Peru (Ares, Arcata, Selene and Pallancata) are closed. It also has two other majority owned mines, San José in Argentina and Moris in Mexico. These are not affected by today's industrial action. Here's Reuters with its version.

The dispute is about the workers' profit-sharing plan that operates at HOC.L and all other Peruvian mines. Acording to Peruvian law, all mining companies are obliged to share 8% of profits with their workforce. HOC workers are accusing the comapny of dragging its heels on this, however HOC says that workers cannot expect the same amount of profit this year as they received last year due to market circumstances. The truth probably lies somewhere in between, but that's just personal speculation at this time.

On Wednesday HOC.L releases its year-end earnings and report, so at that time we'll know more about the hard numbers involved. Right now HOC.L says that the dispute won't affect production targets, which makes sense in the short-term but if the dispute goes on for more than a few days, that will change.

Hochschild (HOC.L) downgraded by UBS after a great run

Interesting analysis call out of London this morning. UBS has cut its rating on Hochschild (HOC.L) from 'buy' to 'neutral'. HOC.L is 7.1% down right now at 232p. The stock peaked two days ago at 278p intraday, which is quite the blowoff top, is it not? Checking the chart.....

.....it seems like UBS nailed that call and has had a great run so maybe they see no more rebound left in HOC.L, one of the world's largest dedicated silver miners. There's certainly no nitpicking possible at the original UBS call last year and its clients that took the sellside advice must be very happy with their advisors now.

Keep it clear that guys like UBS don't mess around with the little equities that I tend to feature here (like FVI.v, for example). The big boys swim in big pools, which means that in the case of dedicated silver plays choices are rather limited. Apart from HOC.L there's FRES.L, PAAS, HL counts I suppose (but already we're encroaching on larger gold production in the mix) the original Peñoles company of course (from where Fresnillo was spun off), Silver Wheaton (SLW) and then SLV the metal ETF. But then my "off top of head" list starts to get thin. Maybe you can add a couple more, but there aren't many out there, that's for sure.

So with UBS downgrading HOC.L today, it's sending more than a simple message about a single stock, methinks. My best interpretation is one of UBS saying "party's over for a while...time for a bit of consolidation after the nice rebound." But that's just my dos centavos.

Minera Andes (MAI.to): I doff my cap to Rob McEwen

POW!

You gotta applaud Rob McEwen today...man that was a class move. Here's the PR and here's the opening snippet....

Mr. McEwen has agreed to complete the private placement in a two step transaction designed to alleviate the Corporation's immediate financial pressures. First, Mr. McEwen will purchase 18,299,970 common shares of the Corporation at a price of C$1.00 per share for proceeds to the Corporation of C$18,299,970 which will be used, as to $US11.3 million, to satisfy the cash call made in respect of the Corporation's 49% interest in the San José Project ("Step 1"). Second, Mr. McEwen will assume the bank loan owing by the Corporation to Macquarie Bank Limited ("Macquarie") in the aggregate principal amount of US$17.5 million ("Step 2"). The subscription price of C$1.00 per share represents a 108% premium to the closing price of Minera Andes' common shares on the TSX on February 13, 2009 of C$0.48 per share.

.......but you must read the whole thing to fully understand what he's done, including diffusing the HOC.L problem and getting them to bid higher. That's why he's a multimillionaire and I'm a dude with a blog.

Minera Andes (MAI.to): Suddenly it's a raging buy....

...isn't it? I mean, accuse me of being a bit slow on this if you like.......

It occurred to me, lying in bed last night and about to drop off that Minera Andes (MAI.to) is a raging, stonking total buy right now (yes it is sad that I obsess about these things so much....I pity myself, too). Here's the reasoning in simple bullet point form:

• Hochschild (HOC.L) has run a six month long dirty play on MAI.to to get its hands on 100% of the San José silver/gold mine. Basically it deferred sales in 3q08 while costs were high, thus causing a cash crunch at MAI.to. Then HOC.L as operator made an unexpected cash call of $11.3m on MAI.to that it knew it couldn't cover, then once the PPS had dropped made a cash offer for the company. That's so low it could limbo under a rattlesnake while wearing a top hat.
  

• However, Rocking Rob McEwen screwed up HOC's plan and gave them the bird royal style by funding MAI.to via the recently announced placement (details of which found here).
  

• So HOC.L now cries "not fair" and is trying to stop McEwen via the regulators. By the way, McEwen will win this one, be in no doubt. Even if the TSX stuffed suits say "can't do that" he'll just take it to a full shareholder vote and get approval that way.It'll take a while longer, but he's got it in the bag whatever.
  

• But wait, there's more. Now who in their right mind would want to JV with HOC.L at San José after the sneaky trick it tried to pull? Answer; nobody. Not MAI.to, because HOC.L (as operator, remember) can continue to play silly financial game with MAI.to and make sure it never makes a decent profit.

• But but but, McEwen has made it perfectly clear that MAI.to is up for sale at the right price. The Reuters note dated Feb 11th is entitled "Minera says will consider bids after conditions improve". That clear enough for you, readerperson?

• The bid that's on the table is the C$0.66 offer from Hochschild. It's unlikely anyone will come in to counterbid that, as who would want a crummy partner like HOC.L anyway?

• So what's going on here? Seems simple, really. McEwen is going for a quick and VERY profitable flip by taking control of the company, adding 121m shares at $0.33 to the 46m or so he already owns, then "considering offers" from HOC.L who'll have to come up with more cash. I mean, maybe HOC.L reduces that offer to, let's say $0.55 to take into account the extra dilution, but whatever happens here, if HOC.L wants control of San José it will have to pay more than it tried to pay with its bullshit lowball backdoor tactics.

• And with McEwen in 53% control of the company, he'll be able to vote the deal he wants. Anything above $0.33 means he's in the money, but i'll bet you anything you like that he doesn't take a penny under $0.60 on this.

So, there's the logic, as thunked through by your humble correspondent last night on his pillow. Anyone think of a reason why Minera Andes isn't a raging buy right now?

PS: I don't own, but if that nice Mr. Market lets me in at under 50c I will very soon.

Related Post
Minera Andes: In Play

Minera Andes: In Play

The news that Rob McEwen had put together a $40m financing deal for Minera Andes that would give him 53% control of the compayn has tipped Hochchild's (HOC.L) hand. It turns out HOC.L privately offered $70m for Minera's 49% of the San José mine in Argentina....aka the 49% HOC doesn't already own.

What the hell was HOC trying to achieve here? It's pretty clear that the company has tried to muscle in and grab full control by making a cash call they knew MAI.to couldn't easily cover and then lowballing for the whole asset. Are you surprised that McEwen, a Minera board member that would have known all about the deal, has done the corporate equivalent of giving HOC.L the finger?

Thus Hochschild once again proves it's a total klutz when it comes to doing deals. We can now add this one to recent Hochschild screwups such as selling Caylloma, a mine packed full of silver and profit, to Fortuna when HOC thought it was depleted. And let's not forget the Lake Shore Gold fiasco, too.

But what it does mean is that MAI.to is in play. Let's see if HOC.L comes back at them with a counterbid, as the original $70m mentioned is derisory for 49% of this asset; they put double that on the table and then people might take them seriously.

PS: Here's Mineweb with more details


RELATED POST
Minera Andes (MAI.to): Suddenly it's a raging buy... (February 16th 2009)
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Minera Andes (MAI.to): well, this sucks

Here's the link to the Minera Andes (MAI.to) PR this morning, but this is what it says:

.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Minera Andes Inc. ("MAI") announced that following a meeting of the shareholders of Minera Santa Cruz, S.A. ("MSC") on December 17, 2008, the shareholders of MSC can expect to receive a cash call of US$23 million to finance further expansion and development of the San José project. MSC is owned, indirectly, as to 51% by Hochschild Mining plc ("Hochschild") and as to 49% by MAI. MSC is the registered owner of the San José gold project in Argentina. MAI's share of the cash call is approximately US$11.3 million, payable by mid-February, 2009. Failure by MAI to pay this amount when due will result in a dilution of MAI's interest in MSC below 49%. MAI is investigating financing alternatives available to it.

This request for additional funding is being made notwithstanding previous assurances by Hochschild that additional cash calls would not be required as the mill and plant are operating and Phase I of the initial expansion has been completed. Further plant expansion costs were therefore expected to be paid from cash flow.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

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So MAI.to has to come up with $11.3m to keep San José running, even though they've been producing for a while and the company (not HOC.L, but MAI.to) assured us all on several occasions that they'd be cash flow positive by now. Humph...can't trust anyone these days, can you? That's what comes of a creeping cash cost number.

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MAI.to has dumped 10% on this news, and for once I agree with the sell-off in this stock. What was once an Otto favourite is now an also-ran, at least for the time being. Finally, I note with chagrin that two readers now have the right to say to me "I told you so, dumbass." I'll be expecting your mails...you know who you are.

Gold Resource Corp (GORO.ob) news...interesting

Gold Resource Corp (GORO.ob), a small and tightly held junior gold in Mexico, has just had a $5m cash injection thanks to silver mining bigboy Hochschild (HOC.L) of Peru.

Interesting for a couple of reasons. Firstly Hochschild (HOC.L) has been beaten up really badly recently and it's clearly keen to get more gold production on its portfolio. Secondly because this industrious Otto recently wrote a NOBS report on GORO.ob and liked the company, too. As a quick plug, you can get your own copy of the GORO.ob report for a very reasonable $10 (yep, that says ten dollars) and find out more for yourself about the company and maybe why Hochschild thinks the same way. The PayPal is....

otto.rock1 (AT) gmail (DOT) com

....or just use it to write me a mail and ask things. Anyhow, here's the PR from GORO this morning:

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Gold Resource Corporation and Hochschild Mining plc Form Strategic Alliance; $5 Million Private Placement

Wednesday December 10, 6:00 am ET

DENVER, CO--(MARKET WIRE)--Dec 10, 2008 -- Gold Resource Corporation (GRC) (OTC BB:GORO.OB - News) (Frankfurt:GIH.F - News) is pleased to announce that it has formed a strategic alliance with Hochschild Mining plc (Hochschild) through a $5 million private placement of 1.67 million shares of GRC's restricted common stock at $3.00 per share (no warrants). Hochschild is a world leading precious metals producer listed on the London Stock Exchange. Based in Lima, Peru, Hochschild is a mid-tier gold producer and the world's 4th largest primary silver producer with mining projects in five countries in the Americas including Mexico.

Funding will be used for the continued construction and exploration of GRC's El Aguila Project in Oaxaca, Mexico. GRC is focused on yada yada continues here

Minera Andes' Quarter (MAI.to)

Minera Andes (MAI.to) hasn't reported full figures for 3q08 yet, but tonight it released production and sales guidance figures for its 49% owned San José mine in Argentina (the 51% majority partner is Hochschild (HOC.L)).

While nobody was expecting a repeat of the $63m sales in 2q08 (because in 2q08 San José sold over double its production of gold and silver due to previous stockpiling), the $18.5m in total sales for 3q08 is somewhat disappointing. The mitigating factor is that some metals produced are staying on inventory until 4q08. Those inventory metals look like around 2,580 oz gold and 144,000 oz silver. Using the average selling prices for 3q08 ($861/oz Au & $12.37/oz Ag) that's about U$4m in unsold production (so about $2m for MAI.to).

So we'll likely see $4m or so put in the current assets column, but a sale is a sale. As for net revenue projections, interestingly MAI.to "forgot" to tell us the cash cost per ounce of its gold and silver co-product this quarter. But let's assume the same numbers as 2q08 for the moment ($6.16/oz Ag and $322/oz Au). According to my casio this would leave a little under $8m in the EBIT column. So one the rest of the calculations are done and through I'm expecting MAI.to to announce an EPS of around 1.5c to 2c for the quarter, this assuming they haven't broken the bank on capex at the Los Azules copper project and spent a heap of those earnings.

So all in all I'm not expecting a sparkling result for MAI.to. A profit yes, but a blockbuster quarter no. The places to look for variations are with cash cost (assuming the 2q08 figures is a necessarily rough estimate for the moment) and with final net earnings (how much will be diverted towards capex?). The share price will probably move on guidance more than the filed numbers, so let's see what management have to say for themselves come the filings day.

Remember that earnings are one thing, but propects are quite another. For sure it'd be nice to see MAI.to earning a whole heap of money and stashing it in the bank, but right now the important thing is that the company is self-sufficient in cash and can get on with the job of proving up its potentially enormous Los Azules copper project (JV with Xstrata) without having to beg and scrape to the crunched financial sector. IMHO Los Azules alone makes MAI.to worth more than its current PPS (we're talking 11Bn lbs Cu and rising there), but then again I see a future for copper and the market now seems to think that nobody will ever need the metal again.

I'll leave you with the recent share price chart. 189.7m shares out at the current $0.73 puts market cap at $138.48m FWIW.