Copper market’s biggest whale fuels speculation of a major shift
The world’s single biggest buyer of copper, State Grid Corp. of China, has slowed its purchases of copper wire this year.
Russian billionaire Vladimir Iorich keeps a low profile, but has shown he’s ready to play for high stakes – as some shareholders in mining companies he covets have discovered. It’s been a busy year for Pala, his investment arm, which has been named in a lawsuit between two copper companies and is attempting, on another front, to purchase $24.5 million worth of assets for $19 million.
The mining tycoon made his fortune in coal and steel after the breakup of the Soviet Union, and was chief executive officer of Mechel when the Russian metals and mining giant listed on the New York Stock Exchange in 2004. Two years later, Iorich sold his stake in Mechel to company chairman Igor Zyuzin and turned his attention to junior mining companies.
In recent years, through his Zug, Switzerland-based Pala investment companies, Iorich has spent hundreds of millions of dollars building major stakes in miners producing and exploration companies searching for gold, copper and potash around the world – including Capstone Mining, Nevada Copper and Alacer Gold. His stake in Alacer Gold is worth about $250 million and in Nevada Copper, $120 million.
For a major player in the mining world, Iorich remains a mysterious figure.
He doesn’t have a Wikipedia page, but Forbes lists Iorich’s net worth at $1.6 billion as of March. According to a 2009 Globe and Mail article, the CEO of a company Iorich was building a stake in – Neo Material Technologies – stopped in at his Zug offices during a European trip, in order to meet the company’s largest shareholder. Iorich declined to meet with him, according to the article. (Neo Material was purchased earlier this year by Molycorp; Pala sold its stake at lower prices than the takeout price, but still made money.)
Iorich’s Pala investment company now figures in a B.C. Supreme Court lawsuit reportedly launched by Mercator Minerals against Nevada Copper Corp. Iorich’s Pala has been a major shareholder of both companies; he likely even played a role installing Bruce McLeod at the helm of Mercator (Iorich was openly critical of the former management team and McLeod, a mining engineer, was installed as CEO shortly thereafter).
It all makes the lawsuit rather interesting and Canada Stockwatch has the details here. Mercator Minerals is alleging Nevada Copper breached a confidentiality agreement by buying 46 million shares, about 17.8% of Mercator’s then-issued outstanding stock (Mercator subsequently issued more shares as part of private placement financing). The confidentiality agreement, signed May 18, 2012, followed discussions about “a possible transaction involving Mercator and Nevada Copper or their respective assets,” according to Stockwatch.
Mercator, which mines copper, moly and silver in Arizona and has development projects in Mexico, says that as part of the confidentiality agreement, the two companies agreed not to purchase shares in the other for a period of 2 years.
Nevada Copper – whose advanced-stage Pumpkin Hollow project in Nevada hosts about 6 million pounds of copper, measured and indicated (at a .2% cut-off grade) – denies any wrongdoing.
According to an Oct. 9 Nevada Copper news release, Nevada Copper bought the shares from Iorich’s Pala Investments, which received 7,315,000 Nevada Copper shares at a deemed price of $3.37 per share,
On Oct. 9, Canadian Insider records show Iorich sold 46 million Mercator Minerals shares privately, registering the sale two days later. Nevada Copper filed an opening balance on Oct. 9.
Iorich isn’t the only mining power player in this saga. Bruce McLeod, a mining engineer, was president and CEO of Creston Moly when that company was purchased for $195 million (in cash and shares) by Mercator Minerals. He’s also the founder and executive chairman of Sherwood Copper, which combined with Capstone Mining in 2008, giving Capstone the Minto mine in the Yukon.
McLeod’s father is Don McLeod, who founded the Northair group of companies and developed three producing mines in B.C. His sister is Catherine McLeod-Seltzer, a geologist who sold Arequipa Resources and its rich Peruvian gold deposit, Pierina, to Barrick for $1.1 billion in 1996.
As for Iorich, his exit from Mercator Minerals, which has been plagued by operating and liquidity problems, might be a case of “good riddance” for the tycoon. He’s lost a small fortune on Mercator – tens of millions of dollars – in the last couple of years, according to insider trading records. Iorich has spent more than $86 million buying Mercator shares in the past 2 years, and almost all of the purchases were at considerably higher levels than the current stock price, according to INK Research data (subscription required).
In the first 3 months of 2011, for example, Iorich purchased more than 17.4 million Mercator shares at prices above $4 a share, and he kept adding to his stake as the stock fell. Mercator shares now trade for 40 cents.
Iorich made out much better with Pala’s investment in the beaten-down shares of Hana Mining, which is developing the Ghanzi copper-silver deposit in Botswana. On Oct. 24, Hana received an 82-cent all-cash takeover offer from private equity firm Cupric Canyon, ending a back-and-forth control battle between 10% holders Cupric Canyon and Pala. Cupric Canyon is made up of former Phelps Dodge executives and backed by Barclays Capital.
Cupric Canyon had disclosed its Hana Mining stake in February of this year, at a price of $1.35/share. A preliminary economic assessment for the Ghanzi project announced May 14 was poorly received by the market, and Hana shares plunged from $1.29 to 42 cents in a single day. As shareholders fled, Pala bought. In an early warning report filed at Sedar on May 16, Pala announced that it had purchased 8 million Hana shares (about 8% of outstanding shares) at an average price of 50 cents a share. Pala subsequently acquired more shares at 49 cents, taking its ownership to 19.4 million shares, about 20% of S.O. Cupric Canyon responded in kind, increasing its shareholding. On Oct. 25, Pala sold its entire 20% stake to Cupric Canyon, netting Iorich’s investment firm a tidy $15.9-million profit.
In addition to shifting capital into Nevada Copper and pocketing a tidy profit on Hana Mining, Iorich has been making a move into gold.
Pala has spent about $2 million in the last week and $10 million in the past month buying shares of Alacer Gold, an intermediate producer with mines in Turkey and Australia. Like many of the gold producers, Alacer has been stuck in a downdraft: shares were trading at $12 a year ago and Iorich’s recent purchases were at prices ranging from $4.39 to $4.75.
Through his Pala investment companies, Iorich owns almost 20% of outstanding shares, a stake worth about $250 million.
Through Pala, Iorich has also been adding to his stake in Asian Mineral Resources, which is developing a nickel and copper project in Vietnam. And on Oct. 1, Pala launched a $19-million hostile takeover bid for Melior Resources, which used to mine coal in Colombia as Coalcorp Mining. Melior sold the coal-producing property to a Goldman Sachs subsidiary, reducing its holdings to $22 million in cash and 13% of Asian Mineral Resources’ outstanding shares. Melior’s Asian Mineral Resources stake is worth about $2.5 million.
Pala, through a numbered company, owned a 44% stake in Melior as of the offer date and has since built that to 50%. Pala is offering 11 cents a share, considerably below the 16-17 cents per share a valuation concluded Melior was worth. Pala disputes the valuation, citing liquidity among other factors, and is attempting to purchase Melior at a $5.5-million discount to net asset value.
Disclosure: I don’t own shares in any of the companies mentioned. Please do your own due diligence and read my disclaimer. Happy investing!
