Scion Capital Encourages Bolivar Gold Securityholders to Act Now to Stop the Undervalued Gold Fields' Transaction
January 04 2006 - 10:14AM
PR Newswire (US)
- Meeting Of Securityholders A Week Away - Rising Gold Prices
Underscore Low Value In Offer - ISS Canada Valuation Clearly Flawed
CUPERTINO, Calif., Jan. 4 /PRNewswire/ -- Scion Capital, LLC today
reminded the securityholders of Bolivar Gold Corp. (TSX: BGC) (TSX:
BGC.TO) of the many reasons they should oppose the offer from Gold
Fields Limited (NYSE:GFI) and encouraged them to vote their proxies
AGAINST the proposed plan of arrangement as soon as possible to
ensure their votes are counted at the scheduled January 12 meeting.
In a letter being sent to all Bolivar securityholders today, Scion
Capital, the company's largest shareholder, says: AN IMPORTANT
MESSAGE TO BOLIVAR GOLD SECURITYHOLDERS THE PROPOSED GOLD FIELDS
PLAN OF ARRANGEMENT IS NOT IN YOUR BEST INTERESTS PLEASE VOTE
AGAINST IT BY SUBMITTING YOUR PINK AND/OR GREY PROXY CARDS BY
JANUARY 9, 2006 January 3, 2006 Dear Fellow Bolivar Gold
Securityholders: Since it was announced, we have expressed our
opposition to the proposed acquisition of Bolivar Gold Corp. by
Gold Fields Limited, because we are convinced the Gold Fields'
offer significantly undervalues Bolivar and the transaction is not
in the best interests of Bolivar securityholders. We continue to
urge Bolivar securityholders to vote AGAINST the plan of
arrangement. As we have described in our Dissident Proxy Circular
dated December 15, 2005 and other public statements, we believe
Bolivar securityholders should reject Gold Fields' offer for the
following reasons: -- Gold Fields' offer significantly undervalues
the common shares and convertible securities of Bolivar; -- Gold
Fields' offer does not recognize Bolivar's near-term prospects, and
does not take into consideration Bolivar's expected and anticipated
increase in gold resources; -- Gold Fields' offer is opportunistic,
and does not include a true premium for control of Bolivar's
substantial assets; -- The actions of Bolivar's officers and
non-independent directors are rife with conflicts of interest; --
Bolivar's officers' and non-independent directors' endorsement and
irrevocable agreement to vote in favor of this transaction are in
contradiction to the best interests of Bolivar securityholders; --
Gold Fields' offer exploits the market's recent overreaction to
perceived Venezuelan political risk; -- Gold Fields' offer does not
reflect that gold prices have recently risen to a 25-year high; --
After the announcement of Gold Fields' offer, Bolivar's final
exploitation permits were issued by the Venezuelan government; --
Bolivar's securityholders, not Gold Fields' shareholders, should
reap the benefits of Bolivar's substantial assets and potential; --
Bolivar's prospects as an independent remain compelling and a sale
of the company is not the only option available to securityholders;
and -- Bolivar securityholders should be wary of the scare tactics
being used by management of both Bolivar and Gold Fields to
convince Bolivar securityholders to approve this transaction.
Bolivar Shares are Not Participating in the Gold Market Rally Since
our Dissident Proxy Circular was issued on December 15, 2005, gold
prices have begun to rally again, recently reaching US$520 per
ounce, and Bolivar securityholders are not participating in this
upside. In an article in The Gold Report on December 28th, 2005,
Frank Holmes, the Chief Investment Officer for U.S. Global
Investors, whose investment funds hold Bolivar securities, stated
that "We have a unique situation where all critical drivers for
gold are pointing in the same direction." The article goes on to
say in that "Holmes says a gold price of $600 to $650 over the next
12 months is a high possibility." In addition, as shown in the
table below, since our Dissident Proxy Circular was issued, Bolivar
shares have been flat to down, capped by the C$3.00 per share
offered by Gold Fields. Meanwhile, shares of Crystallex
International Corp. (TSX: KRY) have risen an additional 7.59% (a
total of 37.84% since Gold Fields' offer for Bolivar was announced
on November 18, 2005), and shares of Gold Reserve Corp (TSX: GRZ)
have risen an additional 5.67% (a total of 47.5% since Gold Fields'
offer for Bolivar was announced). Assuming that Bolivar's shares
would have participated in the market rally, and had not been
encumbered by Gold Fields' offer, Bolivar shares would be trading
in excess of C$3.60 today. Closing Price(1) Company 11/18/2005
1/3/2006 Percentage Change Bolivar Gold (BGC) 2.53 2.91 15.02%
Crystallex (KRY) 1.85 2.55 37.84% Gold Reserve (GRZ) 2.40 3.54
47.50% (1) Closing price on the Toronto Stock Exchange (C$)
Securityholders Should Ignore Flawed ISS Report Unfortunately for
Bolivar's securityholders, Institutional Shareholder Services
Canada (ISS Canada) announced on December 29th 2005, that it
recommended supporting Gold Fields' offer for Bolivar. While ISS
Canada criticized the governance aspects of the deal, it decided to
recommend the deal based on a flawed and internally inconsistent
valuation analysis. ISS Canada (formerly Fairvest) has
traditionally focused its opinions on its core competency in
governance issues, but now seeks to provide investment advice.
Unfortunately, ISS Canada does not yet have the depth to properly
carry out a detailed analysis as it has only two analysts on its
entire staff who are charged with covering all industries in
Canada. As a result, it is not surprising that the analysis has
several significant shortcomings. We highlight the following
shortcomings in ISS Canada's Bolivar valuation analysis: -- ISS
Canada's high case for Bolivar's total resource only has 4.2
million ounces of gold, and their base case has only 4.0 million
ounces. This indicates that they are largely ignoring management's
third quarter conference call comments when management said that
there will be a 30% increase of gold across all categories, which
would imply at least 4.4 million ounces of gold. A base case of 4.0
million ounces would give a zero probability of any increases in
resources going forward, despite the highly encouraging geology and
the fact that a majority of Bolivar's concession area remains
largely unexplored. -- Along the same lines, ISS Canada comes out
at a higher mining cost and a higher processing cost than Mine
Development Associates Inc., the third-party geologists hired by
Bolivar to assess and confirm gold reserves. This, despite
commentary during Bolivar's third quarter conference call by two
analysts, Chantal Gosselin of Haywood Securities and Terry Bell of
Salida Capital, that, in the near-term, costs would approximate
US$135 per ounce and US$123 per ounce, respectively. Bolivar
management emphasized in the third quarter conference call that
their higher cost estimates were not "engineered" numbers, and
tacitly agreed with the two analysts' comments. -- ISS Canada's
total expansion capital expenditure of US$135 million is
inconsistent with their assumption that there are only about 4
million ounces of gold in the ground. There would be no need to
increase the throughput of the mill to 15,000 tons per day unless
there were significantly more gold in the ground. The entire
resource would be exhausted in just nine years using ISS Canada's
resource numbers and capital expenditure assumptions. There is
absolutely no need to spend all that capital unless there is
significantly more gold present than ISS Canada assumes. -- ISS
Canada ignores the fact that Bolivar has significant tax shields
going forward and will likely not pay taxes until after 2011.
Further capital expenditure would only push that date out to the
future. ISS Canada's valuation analysis taxes all earnings at a 34%
rate, significantly depressing their calculation of Bolivar's NAV.
-- ISS Canada's use of Desert Sun Mining as a comparable is
inappropriate. Desert Sun's major mine has already driven one
producer into bankruptcy due to worse than expected grades
recovered from the mine. Desert Sun is a new team that has taken
over the mine since then. However, the prior bankruptcy still casts
a pall over the valuation of the company. Furthermore, most
observers would agree that its exploration potential is not as
bright as Bolivar's. -- The total resource of 3.58 million ounces
used by ISS Canada in their comparables calculation is inexplicably
inconsistent with ISS Canada's own base case number of 4.0 million
ounces used in their NAV calculation. Correcting ISS Canada's
internal error by using 4.0 million ounces in the comparables
calculation yields a valuation of Gold Fields' offer for Bolivar of
US$94.5 per ounce of total resource, not the higher US$107 per
ounce as they report. While the ISS Canada valuation flaws are
manifest, it is worth noting that correcting this small internal
inconsistency alone increases Bolivar's value by 13%, or about
US$40 million at Gold Fields' offer price. -- Regarding governance
issues, ISS Canada notes the following concerns with respect to
this offer: (i) there was a lack of formal sales process during
which the board of directors should deliberate independently from
management, (ii) the independent committee was established too late
in the process given that a majority of the board of directors is
not independent from management, (iii) that Bolivar's press release
announcing the deal with Gold Fields inaccurately stated that its
board of directors had unanimously approved the transaction, when
in fact all independent directors had abstained from the vote, and
(iv) the use of GMP Securities Ltd. by the board of directors as
its financial adviser was not necessarily appropriate. These
revelations only further bolster our case that this deal with Gold
Fields is ill- conceived and is not in the best interests of
Bolivar securityholders. Statements Made by Bolivar Management Have
Been Misleading Securityholders should also be aware that, contrary
to erroneous and misleading statements recently made by Bolivar
management, all securityholders regardless of whether they vote
against the deal or abstain from voting, will be entitled to
receive compensation under the plan of arrangement, if approved.
Rejecting Gold Fields Offer will Not Result in Payment of
Termination Fee We also wish to emphasize that Bolivar
securityholders have the opportunity to reject Gold Fields'
unacceptable offer without penalty to Bolivar; Gold Fields will not
be entitled to the $12 million termination fee if securityholders
reject the proposed plan of arrangement. There is not much time
left before the voting deadline. We hope that you will join us in
opposing this plan of arrangement by signing, dating and returning
the PINK (for common shareholders) and/or GREY (for warrant and
option holders) proxy cards we sent you along with our Dissident
Proxy Circular by no later than January 9, 2006. For your
convenience we have enclosed an additional copy of the PINK and/or
GREY proxy cards. If you need a copy of our Dissident Proxy
Circular please go to http://www.scioncapital.com/ . Remember, you
can still change your vote -- even if you have already voted
management's proxy card -- by returning the PINK and/or GREY proxy
card by January 9, 2006 -- only the latest dated proxy card you
return will be counted. IMPORTANT: PASSAGE OF THE ARRANGEMENT
RESOLUTIONS REQUIRES THE AFFIRMATIVE VOTE OF 66 2/3 % OF VOTES CAST
BY HOLDERS VOTING AT THE MEETING SO IT IS IMPORTANT THAT YOU VOTE
AND THAT YOU VOTE AGAINST THE ARRANGEMENT RESOLUTIONS TODAY If you
have any questions, or need assistance completing the enclosed PINK
and/or GREY proxy card, please call our proxy solicitors, Mackenzie
Partners, Inc. toll-free at (800) 322-2885 or call collect at (212)
929-5500. Sincerely, Michael J. Burry President TIME IS SHORT! VOTE
NOW! If you have any questions or require assistance in expediting
your vote, please call Mackenzie Partners, Inc. Toll-Free (800)
322-2885 or Collect at (212) 929-5500 The Special Meeting of
Bolivar securityholders to consider Gold Fields' offer is to be
held on Thursday, January 12, 2006 at 10:00 a.m. (Toronto time) in
the TSX Auditorium at The Exchange Tower, 130 King Street West,
Toronto. About Scion Capital Based in Cupertino, California, Scion
Capital, LLC is an investment advisory firm founded in 2000, with
current assets under management in excess of US$750 million. Scion
Capital seeks to make long-term investments in companies it
identifies as having value that has not yet been recognized by the
market. It employs a diversified investment strategy across many
public and private industries, markets and investment
opportunities. Scion Capital is Bolivar's largest shareholder with
holdings of 21,676,400 shares representing approximately 19.14% of
Bolivar's outstanding common shares. Scion Capital's Dissident
Circular is available at http://www.sedar.com/ and at
http://www.scioncapital.com/ . DATASOURCE: Scion Capital, LLC
CONTACT: investors, Steven A. Druskin, Chief Legal Officer of Scion
Capital, LLC, +1-408-441-8400; or Mackenzie Partners Inc.,
toll-free, 1-800-322-2885, or collect, +1-212-929-5500; or media,
John Lute of Lute & Company, +1-416-929-5883 Web site:
http://www.sedar.com/ Web site: http://www.scioncapital.com/
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