One of Canada’s leading investment firms is warning investors to bail out of Allied Nevada Gold Corp.
, Stock Forum
), this week's target of a withdrawn takeover offer from a mystery company called China Gold Stone Mining Development.
“We would trim positions at levels materially above our $4 per share target as we expect the tender offer will fail and the share price will revert to pre-offer levels,’’ wrote Scotia Capital in a research report that was published Wednesday.
Trading in Allied Nevada was halted Tuesday morning after the stock rose to $4.69 in response to a release which said a company called China Gold Mining Development had commenced a tender offer for all the outstanding shares of Allied Nevada at $7.50 per share.
Hours later, another release by Hong Hong registered China Gold Stone
retracted the announcement, saying it had been “issued in error without the advice of counsel.”
Published reports say Ghina Gold Stone is an exploration and development company that allegedly owns three gold mines in China worth US$15 billion. Reports say the company is also involved in the rare earths sector.
China Gold stated that it had retained Belknap Webb & Tyler as its legal counsel and CB Capital Partners of Newport Beach, Calif., to provide financial advice.
Allied Nevada issued its own release Tuesday, saying that together with its advisors, it has not been able to find any substantive published information on China Gold Stone and cannot substantiate the credibility of the proposal.
“There is no public information available to indicate that China Gold Stone has the financial resources to complete the proposed transaction,’’ Allied Nevada said, adding that no tender offer has commenced.
It would seem therefore that Allied Nevada is an obvious opportunity for short sellers who believe the stock is going down from here.
However, that did not prevent the stock from rising 0.60% to $5.05 on Wednesday, leaving Allied Nevada with a market cap of $525.4 million, based on 104 million shares outstanding. The 52-week range is $28.02 and $3.20.
In a research note Wednesday, Scotia Capital said it does not believe the offer will result in a successful bid for the company as it fails to comply with U.S. and Canadian laws, leaves insufficient time for in-depth due diligence, and is made by a virtually unknown entity.
The investment firm said it believes Allied Nevada should trade at about $4 per share, “roughly in line with our net asset value,” the investment firm said.
“We would trim positions at materially higher share prices than our $4 per share valuation and target price,’’ it said.
Still, Scotia Capital went on to say that Allied Nevada remains a going concern near-term, even in today’s bullion price environment. “This is bolstered further by its 30% gold production growth in 2014 due to the new crusher and processing plant.’’
As noted by Stockhouse on Tuesday
, Allied Nevada operates its wholly-owned Hycroft gold mine near Winnemucca, Nevada. Last week, the company said it produced 190,831 ounces of gold and 882,225 ounces of silver in 2012. That marked an increase of 39% and 11% respectively from 2012 production levels.
Gold and silver sales in 2014 are expected to increase to approximately 230,000-250,000 ounces of gold, and 1.7 million-2.0 million ounces of silver, the company said.