Thursday, August 07, 2008

National Post: Aurelian draws online storm

Investors vent on Kinross merger

Peter Koven, Financial Post

Published: Thursday, August 07, 2008

For the past couple of years, Aurelian Resources Inc. was the darling of retail investors.

But some of those same people are mobilizing online against the company's proposed $1.2-billion merger with Kinross Gold Corp., an effort that shows how the Internet has brought retail investors together and given them common cause as shareholders.

A message board on the Agoracom Web site has become the venting ground for furious Aurelian shareholders who are watching Kinross buy out their company at a considerably lower price than it was trading at earlier this year.

They have sent an angry letter to analysts and media decrying the deal, and both Aurelian and Kinross themselves have taken notice of the opposition.

The retail crowd cites a number of alleged problems with the Kinross arrangement, but the main argument involves the investment climate in Ecuador.

Aurelian shares were flying high until April, when the government put a temporary halt on its mining sector with the infamous "Mining Mandate." The stock almost immediately lost more than half its value.

Conditions in Ecuador have improved, and the investors argue Kinross is taking advantage of lingering political uncertainty to steal Aurelian and its world-class Fruta del Norte gold deposit at a bargain-basement price before Ecuador establishes its Mining Law. The fact that Kinross shares have dropped nearly 15% since the deal was announced (thus lowering the value of the share offer for Aurelian) supports that belief.

Patrick Anderson, Aurelian chief executive, said in an interview it is not so easy to dismiss the political risk that has weighed down his stock.

"I think a lot of people are thinking of our share price in terms of what it was six months ago or even a year ago. Or even before the election of the current administration in Ecuador, when we didn't have such a significant political risk discount," he said. He called the retail investor letter a "pretty skewed document."

Despite the protests of the retail community, the bid for Aurelian appears poised to succeed. The shares are trading below the Kinross offer price, and institutional investors have expressed support for the deal. (Retail investors are thought to own around 30% of the stock.)

As well, some analysts have not been nearly as bullish on Ecuador's prospects as the retail investors, and contend Kinross is paying a full price. And if the offer is as low as retail investors claim, a rival company could top it.

But the Aurelian backlash speaks to a more important issue: The Internet message boards are bringing the retail crowd together and giving them a louder voice.

"In the past, retail shareholders had no way to get together without it being extremely costly and onerous," said George Tsiolis, Agoracom president.

"But now you've got this viral thing where people are creating their own groups and figuring out a way to analyze if it's a good deal for the company, and figuring out how to vote. That's the way the stock market should work."

As evidence, he points to Eric Jackson, a private investor who used blog posts and YouTube videos to wage successful proxy fights against U. S. giants Yahoo! Inc. and Motorola Inc.

Canada experienced its first big piece of online shareholder activism this year when an Alberta investor used a Facebook page to rally fellow investors stuck with asset-backed commercial paper. They generated a powerful lobby and became major players in the talks to restructure the frozen market.

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