Here's to the crazy ones, the misfits, the rebels, the troublemakers, the
round pegs in the square holes... the ones who see things differently -- they're
not fond of rules... You can quote them, disagree with them, glorify or vilify
them, but the only thing you can't do is ignore them because they change
things... they push the human race forward, and while some may see them as the
crazy ones, we see genius, because the ones who are crazy enough to think that
they can change the world, are the ones who do.

Steve Jobs
US computer engineer & industrialist (1955 - 2011)

Saturday, October 20, 2012

Newfoundland and Labrador Inc - Counter-Attack

For most of the last two years of the Muskrat Falls debate the business community has stayed relatively quiet, and on the sidelines. Then things started to change. First off was former Premier Danny Williams, and the company he serves Alderon Iron Ore Corp. coming out and stating Muskrat Falls power was necessary for Labrador mining. In fact, Williams said "alot" of Muskrat Falls power was going to that particular purpose. Then, despite a few tempests throughout the summer, Premeir Dunderdale disappeared for about three months. Speculation was ongoing. "Where is the Premier" many asked. Then last month at the St. John's Board of Trade lunch, Dean MacDonald kicked off the counter attack by stating: "I don't think we should be ashamed of ourselves in any way, shape or form, to be advocates for what we believe in".

That was the beginning of the businesss community's Muskrat Falls counter attack - in a sense. While the Premier was off chilling out, and recuperating from being brutalized during the spring legisative sitting, a company called MT&L opened an office in St. John's. In fact, the Nova Scotia headquartered company registered with the corporations branch on April 3, 2012, as an extraprovincial registrant. Enter Nancy O'Connor. She had been spending most of 2011 with M5 Marketing. Some of her work included:

i) listed as Nalcor media contact for the response to Nunatukavut complaints over lack of consultation on the Lower Churchill project;
ii) Listed as Nalcor media contact for panel hearings on the Lower Churchill development;
iii)Listed as media contact for OCI for the redfish application - 4 June 2011;
iv) Listed as media contact for OCI for the flatfish application - 17 March 2011;
v) Listed as media contact for Rona - 29 June 2011;
vi) Eastern Waste Management; and
vii) KPMG April, 2012.

Nancy was even given her own email address at Nalcor:

Then there is Sarah Sullivan, who was responsible for the Lower Churchill public relations at Nalcor for four years. The niece of recently disgraced politician Loyola Sullivan, joined the firm in the summer of 2012. In a recent twitter exchange I had with her, a one tweet exchange, where I asked her about the contractual relationships MT&L had with the government and/or Nalcor, she had this to say:

Rock Solid Politics‏@BradCabana @sullivansarahj Does your firm ML&T have any contracts with the Newfoundland Government or Nalcor? #nlpoli

11:28 AM - 10 Oct 12 · Details
10 OctSarah Sullivan‏@sullivansarahj

@BradCabana No & yes (respectively). @MTandL fortunate to have clients we're proud of- nalcor, emera, mf coalition and many, many others

Follow up questions to MT&L, Nalcor, the Government of Newfoundland and Labrador went unanswered. Ms. Sullivan herself went completely silent, and refused to answer any further questions.

On October 3, 2012, the St. John's Board of Trade endorsed Muskrat Falls after a hate filled anti-Quebec speech by the Premier - her official come back to work day. One day later a pro-Muskrat Falls business group announced they had formed. Some of it's members admitted they could have direct benefit from the project, but were suppoting it because it would be good for the province.

The pro Muskrat Falls Group launched a website, registered to MT&L in Nova Scotia, and named a spokesperson, Nancy O'Connor of MT&L. Individuals belonging to the group are also running ads on VOCM running down the people against the project as "naysayers".

Interestingly, MT&L is just fresh from a controversy in Nova Scotia. They were hired without tender, on an emergency basis, by the Nova Scotia government to promote a national ship building contract for the province - the bill was over $300,000.00. Many people in Nova Scotia seem unhappy with the untendered "emergency" basis nature of the contract, and have even publicly stated it was used to get around the normal tendering process as public relations does not meet the requirements of an "emergency situation".
That being said, and the fiasco still unfolding there, I thought it was right to bring what's going on in the province to the public's attention.

That earned me the title of "dangerous zealot" from local radio host Paddy Daly. He even promised to ban me from the show. Said it was none of my business how private companies spent money. When I brought it to his attention that Nalcor is a public company, and MT&L has a contract with them, according to their staff, Daly told me they didn't have to answer to me or anyone else. Naturally I found that defensive attitude interesting.

On a related note, local PR Firm The Idea Factory announced it was also supporting the corporate pro Muskrat Falls campaign. I asked President Kevin Casey if his firm was being paid to do contract work for the pro Muskrat Falls group. His response was:
"The Idea Factory helping this independent coalition - 100% donation of services as needed. No contracts. No fees. No small print."
I followed up with a question asking if the Idea Factory intended to write off these donations, as a gift in kind, on their taxes. He would not respond. MT&L gave a similar respones to Ed Hollett, a local blogger, who asked if MT&L is being paid for its services or is volunteering them: "@edhollett A little of both. @MTandL is volunteering in kind services and also being compensated for hard costs".
If the PR firms are being subsidized by the taxpayers to work on the promotion of the Muskrat Falls project it raises a number of questions. Is it a corporate donation to an essentially political movement. Are larger contracts with entities like Nalcor and/or the provincial government, that have an obvious stake in Muskrat Falls, subsidizing this political activity. These are critical issues.

Then, earlier this week the Newfoundland and Labrador Environmental Industry Association (NEIA) issued a release supporting the Muskrat Falls development. VOCM reported it with a headline suggesting this was an environmental group. The Board of NEIA is made up of corporate actors, including three from Altius (mining company), one from Nalcor, one from Husky Oil, one from the Labrador Chamber of Commerce, and one from the Pennecon Group. That is about 90% of the Board. The reality is NEIA is a corporate/industry group - not an environmental group. The VOCM headline was very deceptive, and was subsequently changed once scrutiny was placed upon it by opponents of the project. It should be noted that VOCM owner, John Steele, is a founding member of the pro Muskrat Falls business group.

That brings us to the highlight of the week. Yesterday the PC government shuffled the Cabinet and created, of all things, an Office of Public Participation. The Telegram put it this way: "The premier also announced the establishment of a new Office of Public Engagement within Executive Council, which will include the Rural Secretariat, the Voluntary and Non-Profit Secretariat, the Youth Engagement office, the Strategic Partnership Initiative, and the Access to Information and Protection of Privacy Office.

Dunderdale said the new mandate of this office will ensure every department can launch effective, targeted and interactive public consultations,"including social media and rich information resources."

Significantly, the Office is controlled directly by the Executive Council - in other words the Cabinet. The restrictions placed by Bill 29 to the Access to Information Office means this new "Office" is wide open to manipulation by the government with no real checks or balances. Some corporate descriptions of Public Engagement functions of their senior staff include:

" ... the Deputy Director is in charge of the communications program and of the public engagement program (campaign, advocacy and education), with the objective of raising awareness about the mission"

"The PEAC Officer shall -
- design and implement in collaboration with partners, allies and Oxfam colleagues a public education, campaign and advocacy program focused on Oxfam Canada's priority theme of women's rights and gender equality;
- work with Communications team members to publicize the work of Oxfam Canada by initiating media engagement and supporting and training volunteers to actively engage local media in promoting Oxfam Canada campaigns and advocacy initiatives"

In other words, this Office, as the Opposition nicknamed it almost immediately, as an "Office of Propoganda". With little or no scrutiny to the awarding of private contracts to public relations firms, especially in the context of the current Muskrat Falls debate, the similarities to the Ship Building Scandal in Nova Scotia jump off the page.

Speaking of propoganda, former Premier Danny Williams is giving a speech on Monday at the St. John's Board of Trade. Apparently, Muskrat Falls will be high on his agenda as well.

Suffice it to say, the business crowd in St. John's have started their full court press. The provincial government seems ready to start theirs. Is Nalcor funding indirectly, or directly, public relations firms to work on trying to sway public opinion? How much are these contract worth? What are the terms? We don't know, because they aren't responding to questions. Are we seeing a Nova Scotia type situation unfolding? Is the contract this time with Nalcor as opposed to the provincial government in Nova Scotia last time? Will they be with the "Office of Public Engagement"? Is it because Nalcor doesn't have to release these, or almost any, documents? All hard questions. The obvious truth is that business and government in this province are far too close, and eventually that combination comes back to haunt. All of these questions aren't being answered by those responsible for the Newfoundland and Labrador Inc. counter-attack.

Sunday, October 14, 2012

Expose Alderon Iron Ore Corp - the conclusion

2010 ended with Alderon being in its best cash shape ever. It had $24,376,060.00 in the bank, but a ballooning deficit that reached $32,347,749.00 by year's end. It incurred $4.6 million in administration expenses alone. Rougly $1.3 million went to the Exploration Group(Forbes West)alone. This covered rents, wages, and investor relations among many things. Alderon at this point had almost no staff of its own, and was billed for all these expenses. This, despite the fact that Alderon had only two "offices" at this time: one in Toronto that was in reality the office of Black Iron (Forbes and Manhattan company); and one in Vancouver that belonged to the Exploration Group (Forbes and Manhattan). In addition, large personal contracts for management were signed between Alderon and Forbes and Manhattan interests. The sole primary, physical asset the company had, other than the mine deposit, was a $180,000.00 trailer in Labrador.

2011 was a busy and transforming year for the company. Under the new Forbes and Manhattan direction the company moved ahead with exploration on the Kami site. The company was audited by Revenue Canada for its GST/HST return from April to June, 2011. In September, 2011, the "Forbes Fee" (Forbes and Manhattan)was increased to $40,000.00 per month, plus expenses, from the previous $10,000.00 per month. On a side note, the "Forbes Fee" also provided a lump sum payment of 36 months worth of fees should a change of control result in Mr. Stan Bharti leaving. Exploration Group (now Forbes West) had a contract to provide services and facilities to the company at cost plus 15%. 2011 also witnessed Alderon's stock graduate from the TSX to the TSE - at $2.67 per share.

2011 also marked the year when Alderon started to get a distinct political flavour. Gary Norris, recently retired Clerk of the Executive Council under Danny Williams, signed a personal services contract with Alderon to become Executive Vice-President of Government and Community affairs (after only 7 months from leaving the government). Shortly afterward, Todd Burlingame left Nalcor to become Alderon's Executive Vice-President of Environment and Aboriginal Affairs - a similar position he held at Nalcor.

On September 30, 2011 Alderon's name changed one more time - Alderon Iron Ore Corp. This time there was no reverse share split. Not to be outdone by his former staff, Danny Williams himself was hired onto Alderon with a consulting contract, as Strategic Advisor to the Chairman, on December 22, 2011. His long time communications director while Premier, and confidante Elizabeth Matthews was hired on the same day as a Communications Consultant.

Alderon also hired on 52380 Newfoundland and Labrador Inc to be a consultant for railway development to the mine. 52380 was incorporated September 7, 2005. It was ammended twice and lapsed, but brought back to life again. The company shows two directors - Greg Mercer, and his wife. Mercer served as Special Assistant to Brian Tobin, Fisheries Minister from 1994-1996. In September, 2000 he challenged Gerry Byrne, with the backing of provincial Liberals, for the federal Liberal nomination. He lost, and by November 2000, he was appointed Senior Policy Advisor at Industry Canada under then Minister responsible - Brian Tobin. Mercer is a federally registered lobbyist, and shows Tobin's/Forbes and Manhattan's Consolidated Thompson as his one registered client. He was hired three days after Danny Williams joined Alderon's Board of Directors.

While it was a busy year for Alderon, it was also the most expensive by far. They finished the year down to $7,759,933.00 in the bank and a massive $68,790,827.00 deficit(more than double the year before,and six times the year befor that). Key management personnel received $10,914,462.00 in renumeration. Other big tickets included: $3,567,604 in salaries and benefits; $15,182,005.00 in general and administrative expenses; $21,201,210 in exploration and evaluation expenses; $10,574,640.00 in share based compensation; $1,625,232.00 to Forbes West; and $2,926,997.00 in consulting, professional and legal fees. So much was spent that the company lost $37,506,618.00 on operations in 2011. A year that was very rewarding for insiders, but expensive for the shareholders.

January, 2012 started with a big financial shot in the arm for Alderon when Liberty Metals & Mining Holdings,LLC, a susidiary of Liberty Mutual(USA)took a major position in the company. Liberty pumped $39,999,999.00, less transaction costs of $2,626,000.00, into Alderon in exchange for 14,981,273 shares at $2.67 each - 15% of the company. It was significant as an investment for the credibility it lent Alderon, and of course the cash. Altius was diluted down to 34% opwnership.

On February 23, 2012, Alderon established a detailed Code of Ethics which was a significant departure from the practises of the old days within the company.
On March 28, 2012 Danny Williams joined the Board of Directors. It was an interesting choice as all other members of the Board represented significant shareholders.

On April 13, 2012, the news that Alderon had been praying for was announced. Hebei Iron & Steel Group (China) agreed to purchase 19.9% of Alderon and a 25% stake in a new partnership that was to be established to own the Kami project, for $194-million.
Hebei was to initially buy a near 20-per-cent stake in the Canadian company for $88.3 million at $3.42 a share, or a 0.6-per-cent discount to the day's closing price. Following that, Hebei would invest $105.7-million, giving it the right to a 25-per-cent interest in Kami. The deal also gave Hebei the right to buy 60 per cent of the iron ore produced annually from Kami. Hebei agreed to try and assist in obtaining debt financing for the Kami project from Chinese banks. GMP Securities was Alderon’s financial adviser on the deal and Bank of America Merrill Lynch acted as Hebei’s financial adviser. In a note of interest, the agreement states there were no "finders" except Cuda International Ltd. and GMP Securities L.P. The troubling part of this statement is almost no information exists on a "Cuda International Ltd". The announcement did say that the price per share was discounted 6% from the day's trading price. That may indicate a 6% pay out, or part thereof, to Cuda International Ltd.That represents about $11,440,000.00. There is certainly no record of payments it may have received due to its involvement in this transaction. The only firm of record close to that name the author could find was Cuda Capital Corp, now August metal - previously owned by Reza Mohammed. That's not to say it was the same firm, but the issue is clouded.

On August 9, 2012, Alderon added a significant piece to its infrastructure puzzle by entering into a Port Agreement with the Port of Sept-Ile. The agreement was for 8 miliion tonnes of ore to be shipped annually (although Alderon's plans call for double that ammount). The cost to expand the Port was pegged at $220,000,000.00, and Alderon was required to put in $20.46 million in two payments - $10.23 million on signing and $10.23 no later than July 1, 2013 (interestingly, the federal government added $55 million in as well). Alderon was also required to put up an irrevocable guarantee of the equivalent value. The deal was for 20 years with a 5 year option. Alderon would recieve a discounted rate for shipping until its initial pay-in had been discounted back to the company. Alderon apparently did not have the money for its share, so it turned to Liberty Metals. Liberty provided bridge financing for the first $10.23 million payment, securing it with a mortgage against the Kami project with an 8% interest tag, and promised to front the second half if it was required.

On August 13, 2012 Alderon joined CN Rail's feasability study to develop a rail line from Sept-Ile through to northern Quebec as part of the Quebec government's Plan Nord.

Alderon's stock hit a high of $3.83 on February 22,2012, but started to slide badly from that point on. By late August, 2012 it was at $2.45 per share, a $.97 (32%) drop from the price Hebei had agreed to pay per share. On August 31, 2012, pursuant to the terms of the subscription agreement (as amended) (the "Subscription Agreement"), Hebei acquired 25,858,889 Common Shares at a price of C$2.41 per Common Share for gross proceeds to the Company of approximately C$62.3 million, representing 19.9% of the issued and outstanding Common Shares. Hebei was permitted to change its price per share offering in accordance with a section in the original agreement that gave it flexibility should the value of the Alderon change between the initial signing in April, and the final signing. Concurrent with the Hebei closing, Liberty Metals & Mining Holdings acquired 3,816,181 Common Shares at a price of C$2.41 per Common Share for gross proceeds to the Company of approximately C$9.2 million, allowing LMM to maintain its relative proportionate interest in Alderon. Also concurrent with the Hebei closing, Alderon repayed the $10.5 million bridge loan previously advanced by LMM. Altius also had a pre-emptive right to purchase shares to keep its percentage ownership of Alderon, but apparently did not. The dilution left them at about 25% ownership.

An interesting part of the Hebei Agreement is the formation of a seperate entity to own the Kami project. It appears the old Privco company (0860132 BC Ltd) Mark Morabito used to buy the interest in Kami from Altius may now be the shell company used as this seperate entity. The Agreement awardes 75% ownership to Alderon, and 25% to Hebei. The exact details of the take-off agreement are confidential, but it does remove Kami from Alderon's direct ownership. It also restricts the number of directors in the new company which would tend to benefit Hebei. It does free Alderon up to pursue other mining developments that it may try and capitalize without jeopardizing the financial health of the Kami interest. It may also reduce the over all value of Alderon in the near and long term. Ms. Zheng Liangjun and Mr. Tian Zejun were appointed to Alderon's Board of Directors and, as has been the practise, Stan Bharti of Forbes and Manhattan left the Board - although he kept his lucrative consulting contract. Alderon and Hebei were required to contribute to capital expenditures for the development of the Kami Project not covered by initial capital contributions and project debt financing, in accordance with their respective interests. That leaves it to Alderon to come up with 75% of the projected $1 billion to bring Kami into production. There is a note in the agreement that Hebei, a state owned corporation, would try and facilitate borrowing from two Chinese banks to fund Kami, but no requirement that the funding is mandatory.

In September 2012, Alderon submitted its Environmental Impact Study (EIS) for the Kami project. It outlines a number of challenges facing the development. One such challenge is electrical power. It calls for a new line to built from the Upper Churchill facility that it estimates will cost Nalcor $150,000,000.00 to build. Curiously, it also outlines the use of hydro power and oil-fired power at Kami. The EIS states aproximately one third of the power needed to run Kami at its original output of 8 million tonnes per year would be produced by oil fired generators. The reason given was it was cheaper to use the oil fired generators. This is fascinating when you consider the provincial government's primary purpose for Muskrat Falls was to generate green power and replace Holyrood. The author of that strategy, Danny Williams, now sitting on Alderon's board, is actively involved in promoting the use of oil fired generators, because they are cheaper than electricity. But, I digress.

Alderon's future as a company appears speculative at best. Its stock is now down to $1.73 on the TSX and $1.76 on the NASDAQ. Its cumlative worth has dropped about 60% in the last seven months. China, Alderon's main partner, is facing large over supply issues with iron ore and a slowing economy - domestically and internally. The ore to be produced at Kami cannot be sold in most markets except China due to its make up. So, Alderon and Kami remain almost completely reliant on the whims of China for their success as a company. As Alderon found out, when the original agreement was ammended to drop share purchase prices by Hebei, China has them in a position where they have very few options.

In the end, Alderon remains essentially a "promoter" type company - not unlike its earlier days. It was set up to take an asset, promote it, "de-risk" it, and then allow someone to take it over. That's the way Forbes and Manhattan rolls, and this one is not much different. Forbes group will not take this project to production themselves. We will likely see the same in the projects that Forbes and Manhattan, and Forbes West, are currently involved in within Newfoundland and Labrador: Cap Ex; Ridgemont Iron Ore Corp; Cross Hair Energy Corporation; and Castillian Resources (Hope Brook Gold Project, located in southwestern Newfoundland).

Tuesday, October 9, 2012

Expose Alderon Iron Ore Corp - Part 2

Alderon entered 2009 as essentially a shell company, and heavily under the influence of Forbes and Manhattan. Enter the Exploration Group, head quartered in Vancouver (run by Mark Marabito), and Altius Minerals of Newfoundland and Labrador. The Exploration Group was shown until recently as a Forbes and Manhattan company. In February, 2012 the Exploration Group made that association clearer by rebranding itself as Forbes West. Forbes and Manhattan's, and Exploration Group's earliest success in Newfoundland and Labrador was launching Brian Tobin's Thompson Consolidated iron ore mine in Labrador. Their other project with a long hisory in the province is Cross Hair Exploration - a uranium exploration company. They were behind the eight ball developing their uranium project compared to fellow promoters Altius.

Altius, incorporated in Alberta on March 5, 1997, traded on the Alberta Stock Exchange, and then the TSX(1999) and TSE(2007). Altius created Aurora Energy in 2003 with Australian, Fronteer Development Group to develop uranium prospects. Australia's Paladin Energy Ltd now owns Aurora with Altius holding shares and a 2% gross sales royalty. On June 23, 2008 Altius announced an agreement to jointly develop its Kami project in Labrador with Norvista Resources Corporation, a Brian Tobin interest. The joint effort failed to produce and Altius turned to Mark Morabito.

Morabito formed a shell company, 0860132 BC Ltd (Privco) and entered into an agreement with Altius known as the Privco - Altius Option Agreement. Essentially, it had the following elements:

1.) Privco gained the right to a 100% interest in the Kami project;
2.) Privco had to assign that option to a mutually agreed public company listed on the TSX or TSE;
3.) Meet seperate exploration funding targets of $1 million and $5 million within a year at the Kami site;
4.) Altius was to receive a 3% gross sales royalty; and
5.) Altius was to receive 50% of the shares in the public company.

The deal was announced on November 2, 2009. On Decenber 3, 2009 a private placement of 10,000,000 shares was issued by Alderon at $.15 per share. The offering was carried out by Delano Capital Corp, owned by Julian Bharti - Stan Bharti's son, and Axeman Capital Corp, which had a history of brokering offerings for Forbes and Manhattan companies. On December 8, 2009 the Annual Meeting of Alderon authorized a 2 for 1 reverse share split as required by the Privco sale agreement. On December 16, 2009, barely one month after the Altius Option was announced, Mark Morabito announced he had entered into an agreement to sell Privco to Alderon.

2009 was a transitional year for the company as it entered the Forbes and Manhattan fold as a shell company with a future purpose. Its annual financial statement for the year showed a cash balance of $4,920.00 and an accumulated deficit of $20,631,963.00. It was now in the hands of Emprise Capital for the apparent purpose of rescuing it to the point that it could be functional - even as just a shell company. Emprise was to receive 3,500,000 shares as compensation for debts owed to it by the company. The company had reached such a low point that on June 30, 2009 a cease trade order was issued by the BC Securities Commission for failure to provide audited financial statements. The order was revoked upon their submission on August 13, 2009. Alderon was ready for a change for the better. That started in 2010.

On January 15, 2010 Alderon issued another private placement of 10,000,000 shares - this time at $1.00 per share. Delano Capital was again a broker on this placement, as was Axeman Resources Capital and PI Financial Corp.
On January 19, 2010 Alderon completed another requirement of the Privco purchase and replaced its entire board with the Forbes and Manhattan team: Out - Jeff Durno, Robert Chisholm, Aron Buchman and Craig Goldenberger; and In were - Mark Morabito, Stan Bharti, Bruce Humphrey, Brad Boland and Patrick Gleeson. In addition, Altius as the controlling shareholder gained the right to name three members to the board, but chose to name two - John A Baker, and Brian Dalton. On February 19, 2010 Alderon listed on the American NASDAQ exchange.

On March 3, 2010 the Privco/Alderon deal was completed. Mark Morabito received 5,000,000 post consolidation shares in Alderon for acting as essentially the middleman between Alderon and Altius. Altius received 31,778,081 post consolidated shares, and a controlling interest in Alderon. Alderon also agreed to fund exploration on the Kami project of $1 million in the first year and $5 million in total in the first two years . Altius had already completed aerial reconnaissance on the Kami project in 2006-2007, but there remained drilling, etc ahead.

On November 26, 2010 Alderon announced a private placement of 7,300,000 share units . The price per unit was $2.20 and entitled the holder to a warrant of one common share and one half a common share exercisable at $2.80 for a period of 24 months from the closing of the offering. The original offering was valued at $16,060,000.00 with an additional over-allotment option of upto $4,015,000.00. The Alderon press release named Haywood Securities as the lead underwriter. However, Delano Capital Corp, owned by Stan Bharti's son, claims to have conducted the transaction: 9,125,000 units at $2.20 per unit for $20,075,000.00. The press release states there is a 6% commission, so one could assume the return for Delano Capital Corp would have to be around $1,204,500.00. The purchaser of these share units remains confidential.

In Part 3 of this series the Americans and the Chinese arrive at Alderon; Alderon gets political; and Muskrat Falls gains a new champion in Alderon.