Coalcorp shareholder blasts planned financing, says there may have better choices

By Romina Maurino, The Canadian Press

TORONTO - A major shareholder of Coalcorp Mining Inc. (TSX: CCJ.TO) is blasting a planned financing by the company and its move to end a strategic review, saying the firm should have considered more alternatives.

Coalcorp, which had announced a strategic review in February after turning down a takeover offer from Pala Investments, said Thursday it was no longer trying to sell itself, and was choosing instead to focus on developing its La Francia project and increasing production to take advantage of high coal prices.

It also said it signed a deal with GMP Securities LP to raise $120 million by issuing 66.7 million units at a price of $1.80 per unit on a bought deal basis. GMP also had an option to purchase up to an additional 10 million units at the offering price.

Coalcorp currently has 89.7 million shares outstanding.

The company has said it had also received an alternate financing plan from an unnamed stakeholder, but opted for the deal with GMP.

Joseph Belan, a managing director of Switzerland-based advisory firm Pala Investments AG, wouldn't confirm whether Pala had been that unnamed party, but expressed dissatisfaction with the plan.

"There are a number of very angry shareholders," Belan said in an interview.

"This is not a fantastic outcome for the company, because it does create dilution for existing shareholders." Pala Investments Holdings Ltd. holds a 19 per cent stake in Coalcorp.

Belan said his firm's previous takeover offer for Coalcorp provided significantly higher value than the current equity.

Despite its frustrated takeover bid, Pala had been trying to get a meeting ahead of Thursday's announcement to discuss financing options.

"When we heard some rumblings about a month ago that the sale of the company was not going very well, we knew that the company would need financing to proceed with the development plan," he said.

Pala and some of the other shareholders, representing 40 per cent of the company's shareholders, spoke with Coalcorp's board and its chairman and had scheduled a meeting for next Tuesday to discuss the financing alternatives, Belan said.

"They tried to pre-empt that meeting by doing this," he said. "It's a real slap in the face to shareholders ... We'd been requesting a meeting since April."

Michael Davies, Coalcorp's chief financial officer, declined to comment on the specifics of its choice to go with the GMP offer, but maintained it was the right decision.

"There was an alternative proposal that was made and the board considered it and in the end selected the GMP offer as being in the best interest of the company and its shareholders," he said Friday.

Asked about whether he had received any shareholder complaints since Thursday's announcement, he said any unhappiness was "primarily" from Pala.

Coalcorp let the potential takeover from Pala expire in February without an agreement on due diligence and exclusivity. Pala said at the time it was still interested in the company and believed the miner should generate better value amid soaring coal prices and strong demand.

"How could you not sell a company like this in the best coal market we've seen in 40 years?." Belan charged. "There's serious flaws in how the process has been run and the decision-making process of the board."

The alternative Pala planned to propose next week, he added, would have been more favourable than the one Coalcorp chose to go with.

"They clearly were not prepared to engage and then they played dirty tactics by going out and raising nearly double the share capital of the company in a single transaction at a discounted rate so that certain new investors could make money," he said.

"With that, you would have imagined a good corporate government practice would have resulted in there being some sort of shareholder vote. This is a very significant transaction."

Despite their dissatisfaction, Belan said the hadn't yet decided, what, if any, action it would take.

"Things are still very fresh so I think what we're going to do is asses the situation and consider what our alternatives are."

On the TSX Friday, Coalcorp stock traded down a penny at $1.60, with 3.4 million shares traded.