>Rumblings over Stillwater “ballroom bombshell”
mips1.net
By: Tim Wood
Posted: 2002/10/31 Thu 16:00 | © Mineweb 1997-2002
NEW YORK -- A majority of analysts polled by Mineweb are seething about the reason for a massive leap in the Stillwater [SWC] stock price – a surprise revelation that the company has encountered a “ballroom” that will boost production and grades going forward.
“Ballroom” describes a swelling of the mineralized zone, often contributing more ounces of precious metal per tonne of ore than the average. It is, perhaps, the mining equivalent of having every space on your dance card signed before the first waltz even gets under way.
The ballroom became public knowledge when Prudential Natural Resources fund manager, Leigh Goehring, spoke of it during the Stillwater third quarter conference call on Monday. The Jennison Associates managed fund is one of the biggest shareholders in Stillwater, and most of the analysts believe Goehring’s question was a rehearsed plan to gin up the company’s flagging fortunes.
A New York analyst wasn’t so sure. He said those raising Cain about it were likely short the stock and getting badly burned. The share price rocketed 15.7% from $6.90 to $7.98 yesterday, its sixth consecutive gain, and it managed a seventh today.
“They got too greedy and now they’re desperately looking for excuses.” He also noted the strong American-Canadian investment community rivalry that has developed regarding embattled Stillwater and failed North American Palladium.
None of the analysts polled had any foreknowledge of the ballroom, which the company appears to have kept under wraps specifically for the quarterly. Adding insult to injury for the analysts was that the company has been able to delineate the ballroom to such an extent that it described it as potentially the largest ever mined by the company.
“An absolute bombshell,” said a New York analyst. A Toronto competitor agreed: “How does this information end up in just one person’s hands?” A New York broker was scathing of the way in which the information was released and even more cynical about the motives: “It’s just so convenient.” “It stinks,” said the broker’s colleague, highlighting the vested interest of the Pru fund.
There was unanimity in ascribing yesterday’s surge in the Stillwater share price to revised valuations anticipating the ballroom’s beneficial impact. It is expected to be worth as much as ten per cent of production running above the average grade. Despite this, a number of analysts said the ballroom did not “change the story”, which is generally very bearish without a much higher palladium price and improved grades at the Stillwater and East Boulder mines.
“The market has gone on a tear over this, but the excitement will be short-lived,” suggested another New York analyst.
Goehring, speaking in the early part of the question and answer session [1h08’:57 on the replay], asked about the ballroom, which Stillwater chief executive, Frank McAllister, confirmed. This is a verbatim transcript of the conversation:
Goehring: “I believe that you guys have a very large ballroom that’s supposed to come on very soon. Will that be in production in the fourth quarter?”
McAllister: “Leigh, you’re absolutely right and it will be in production in the fourth quarter; in fact it [chuckle]… is a very small portion of it, but it will come on in the fourth quarter. The main production, obviously, will be next year, but it will begin to affect our operations during the fourth quarter. Bob [Robert Taylor, VP Mine Operations], would you like to speak to the size of it?”
Taylor: “Well, it appears that it could be one of the largest ounce based ballrooms we’ve ever encountered. It’s going to be a nice stope; we’re just getting into it now.”
Goehring: “Okay, so it will contribute significantly to operations in the fourth quarter, and ramping up into the first?”
McAllister: “No, let me say the reverse. It will ramp up in the fourth quarter and contribute significantly in year 2003.”
Those polled fumed at how forthcoming the executives were on the ballroom after clamping down on any and all news as pressure to perform mounted. Even preceding the question, the executives were hyper-cautious and reluctant to say much. Virtually every analyst covering the company is deeply frustrated with the information sharing process, which was described by one as akin to “pulling teeth”; even when there is genuinely good news.
The ballroom is clearly good news, but the consensus view is that it will likely only accentuate Stillwater’s problems since it is not expected to boost production and grade in a way that cushions the company from the debt related covenants it must conform with.
No-one would venture an opinion on whether the ballroom constituted a “material” disclosure problem that might attract legal censure, but the hostility doesn’t make it too difficult to read between the lines. The rule of thumb test for “materiality” in the US is quite straightforward – “is the information important to an investor making a decision to buy or sell securities in the company, and would be viewed by a reasonable investor has having significantly altered the total mix of information available on the company.” Canadian standards look to changes in the share price exceeding 5% following unusual disclosure as a trigger for an insider investigation.
There is some wiggle room for a company to plead “unintentional selective disclosure” if it disseminates the information within a day at least. However, the test for intention is extremely tough and the company must prove that there was “a good faith failure to appreciate the market’s reaction to information regarding trends in a corporate business segment.”
The news has had the desired effect, and a Canadian analyst noted wryly: “If the stock gets to $10 and Stillwater doesn't jump at raising more money; a real opportunity will have passed them by.” A fund raising would help solve the pressure piling up as debt repayments come into view.
Neither Mr Goehring nor Stillwater responded to requests for comment at the time of publication. |
