- Meeting Of Securityholders A Week Away
- Rising Gold Prices Underscore Low Value In Offer
- ISS Canada Valuation Clearly Flawed
CUPERTINO, CA, Jan. 4 /CNW/ - 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$3.60 today.
<<
Closing Price(1)
Company 18/11/2005 03/01/2006 Percentage Change
-------------------------------------------------------------------------
Bolivar Gold (BGC) 2.53 2.91 15.02%
Crystallex (KRY) 1.85 2.55 37.84%
Gold Reserve (GRZ) 2.40 3.54 47.50%
-------------------------------------------------------------------------
(1) Closing price on the Toronto Stock Exchange (C$)
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 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"
Michael J. Burry
President
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
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 www.sedar.com and at
www.scioncapital.com.
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