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)

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).


  1. Great article. Loved reading all three parts, excellent research.

    One more thing to add, don't forget about Alderon hiring Peter Grandich to promote (pump) Alderon stock since at least June 2010. (Crosshair has also been one of Grandich's clients, via the Mark Morabito link).

    Not that he has any interest in getting other people to buy the stock or anything. $2000 per month fee, plus 225,000 options @ $0.30 (all exercised).


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