In an earlier article on The Frost Report, I wrote about a great mining company - Baja Mining.
What makes it great? Well, they have a huge, mostly finished mine with great expected cash flow in a known mining district with a low stock price!
Without taking sides, I wrote alot about one problem that was contributing to the low stock price: Mt. Kellett Capital Management, a hedge fund and major shareholder, said that Baja was not being governed properly, and so were attempting to place some new members on the board of directors. Mt. Kellett lost this battle on April 3rd.
It now seems that Mt. Kellett was right all along- Baja's management is indeed incompetent, or at the very least hopelessly confused.
Baja stock sank 40% (!!!) today, after Baja issued a press release saying that, contrary to everything they have ever said before, the project is NOT funded through to completion, and will require substantial new funding ($246 million) - from somewhere.
The issue of funding is especially interesting to me, since in my interview with Baja representative Alex Macdougall in February, I specifically asked him if there was any chance whatsoever of Baja needing to raise capital. Macdougall's answer was: "There is no chance of them [Baja] raising monies before they complete construction." About two months later, Baja issued a subtle press release saying that they were feeling "inflationary pressure," but that they were implementing cost-cutting measures to help offset these. Looking back, I feel like I was sucker-punched.
Today's latest press releases also included a short "by-the-way" statement, which was that three more directors quit because (their words), "In light of recent developments...we are no longer confident that we can ensure the level of good governance and
oversight that the Shareholders of Baja have a right to expect from us." Tellingly, this quote only made the follow-up press release. The first release had no mention of this quote, despite the fact that the exiting directors had specifically asked that it be included. Shady.
The big question is...is Baja still a good investment? The answer is that at $0.57 per share, now more than ever, it is a fantastic investment - for someone. Just maybe not for you, the shareholder.
Whoever provides the funding to completion will find Baja an excellent investment. Mt. Kellett, I'm sure, is wetting their pants with excitement at taking over this flopping fish of a company and its incredible mining assets (either that, or today's drop was because they finally said "**ck it" and sold out!)
For the average shareholder, it is far too early to load up on shares of a company that has proven so opaque and -- as of today -- almost ungoverned. I bought a few hundred more shares just to be crazy, fully recognizing that Baja has turned from an investment into what is essentially an asset-backed gamble.
Bad governance is almost as bad as "unexpected accounting irregularities." When the rules keep changing, you can't play the game.
I have no high expectations.
The Earlier Article (including interviews): Stocks I Like - Baja Mining
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