Some Timminco brass cashed in early
ANDY HOFFMAN, JACQUIE McNISH, ANDREW WILLIS
00:00 EDT Tuesday, April 22, 2008
As TSX high-flier Timminco Ltd. hunkered down yesterday to defend its stock against bearish short sellers, at least one group of early investors had already pocketed more than $390-million (U.S.) by indirectly spinning off their holdings.
Safeguard International Fund LP (SIF), a private equity fund based in Wayne, Pa., and headed by Timminco's chairman and chief executive officer Heinz Schimmelbusch and Timminco vice-chairman Arthur Spector, transferred the fund's controlling interest in Timminco to another subsidiary company on March 29, 2007, according to regulatory filings.
That company, Amsterdam-based AMG Advanced Metallurgical Group NV, conducted an initial public offering on the Euronext in July. The IPO and subsequent stock sales provided proceeds to SIF and its senior officials, including Mr. Schimmelbusch and Mr. Spector, of more than $390-million.
"To the layman, it is a complicated structure, but to us, it was a very logical endgame for how to take this group of companies and get value for them for the limited partners," Mr. Spector said in an interview yesterday.
His comments came on a hectic day of trading for Timminco shares on the TSX yesterday.
The company's stock slipped 3.5 per cent on heavy volume of more than five million shares. Major shareholder Eric Sprott, whose Sprott Asset Management Inc. owns nearly 18 per cent of Timminco's stock, said his firm added to its position on the weakness.
"To doubt is easy," Mr. Sprott said in an interview. "What you get paid for in this business is figuring out if something is right early, while everybody else is doubting. That's how you make money."
Mr. Spector, who's also deputy chairman of AMG, said SIF, whose investors included the "usual suspects" of large U.S. pension funds, was reshuffling its assets and was due to expire next year.
SIF's reorganization, that transferred its Timminco stake to AMG, came within weeks of the Toronto company's stunning announcement on March 15, 2007, that it had won a contract to provide solar-grade silicon to a major solar cell maker.
The surprise contract was the initial catalyst spurring Timminco's meteoric ascent on the TSX, which saw its stock climb from roughly 40 cents to a recent high of more than $28.
Timminco said it had developed a metallurgical process to make solar-grade silicon at a cost lower than its competitors, which include well-established players such as Dow Chemical.
Ravi Sood, president of Lawrence Asset Management Inc., is among a group of short sellers who have been critical of Timminco's lofty valuation and said it is "very peculiar" that insiders transferred the stock and profited through its IPO.
"It is curious that the major shareholders have effectively been reducing their stake," Mr. Sood said. "It makes you raise your eyebrows."
In an unusual development, some investors complained of a dearth of available Timminco stock to short.
"There is no place to borrow Timminco stock," said one hedge fund manger that was trying to do just that yesterday. A number of fund managers said institutional investors that currently own Timminco, including Sprott, are refusing to lend their shares to investors that want to bet on a drop in price of the silicon producer.
Short sellers profit from borrowing shares from other investors or dealers, and selling the stock. The shorts then buy the shares back at a lower price and replace what they borrowed.
"Preventing borrowing doesn't change fundamentals from dictating the price of Timminco. It just stops the shorts from profiting on any decline," said one equity trader who covers hedge funds and other short sellers.
Until the transfer to AMG, Safeguard had been Timminco's controlling shareholder. In 2006, Safeguard added to its position after making a series of loans to what was then a cash-strapped producer of industrial-grade silicon, magnesium and magnesium extrusions.
For example, in September of 2006, while Timminco was working on its process to use metallurgy to make solar-grade silicon, Safeguard agreed to lend Timminco $3-million (U.S.) in exchange for the right to buy an equal amount of shares at 40 cents each.
At the time, Timminco had not publicly disclosed it was working on the solar silicon process.
On February 8, 2007, Safeguard agreed to lend Timminco $4.5-million (Canadian) for the right to buy an equal amount of stock at 42 cents a share.
Mr. Spector said Safeguard was aware at the time that Timminco was working on the project, but didn't know if it would win the contract with the solar cell maker.
"What is, is," Mr. Spector said.
TIMMINCO (TIM)
Tuesday, April 22, 2008
Tim:t "To doubt is easy," Mr. Sprott said in an interview.
Monday, April 21, 2008
Timminco Ltd. is facing mounting pressure from one of Wall Street's most feared short sellers
From hot stock to target
ANDY HOFFMAN AND JACQUIE McNISH
Monday, April 21, 2008
It was the top performing stock on the TSX last year and a home run for investing guru Eric Sprott, but market darling Timminco Ltd. is facing mounting pressure from one of Wall Street's most feared short sellers to defend claims it has developed a breakthrough method for producing solar grade silicon.
Manuel Asensio, a flamboyant New York-based investor who boasts a trophy case full of corporate hides, is challenging the Toronto-based metals firm's assertion it can cost-efficiently purify metallurgical grade silicon to a level high enough for solar cell use.
By targeting Timminco, the controversial Cuban-born money manager has set a collision course with Mr. Sprott, whose investment firm, Sprott Asset Management Inc., owns more than 19 million Timminco shares.
Over the weekend, an article in financial journal Barron's raised many of the same questions about Timminco that Mr. Asensio has been asking.
Among them, how the company can claim its unique process allows it to refine silicon at half the cost of its competitors. Timminco's Quebec solar silicon plant began operating in December, but the company has yet to release detailed cost information for the new plant or its pilot trials.
Reached yesterday, chief financial officer Robert Dietrich said Timminco's contracts with several solar cell manufacturers, including the world's largest, Q-Cells AG, offer proof that the technology works.
Timminco has already delivered more than 89 tonnes of solar grade silicon to customers.
"They are very impressed. It meets or exceeds their specifications and it certainly meets their expectations. They're finding it to be material they can use. We haven't had any returned. We haven't had anybody not pay for it. We ship it and they pay for it and they're happy," Mr. Dietrich said.
Once Timminco's new plant is up to full capacity by the end of the second quarter, the company expects to produce 3,600 tonnes of solar grade silicon a year. It plans to expand annual capacity to 14,400 tonnes by mid-2009.
Timminco's claim it had developed a revolutionary way to purify silicon helped its stock skyrocket from 30 cents to more than $22 last year, generating massive returns for its major investors - including Mr. Sprott's firm, which owns nearly a fifth of the company. In the past 12 months, the stock has gained 490 per cent, giving the company a market value of $2.4-billion.
Demand for solar grade silicon is soaring. But it is expensive to produce. Attempts by companies such as Dow Chemical to develop cost-efficient ways to convert metallurgical silicon into solar grade silicon, with a grade of 99.9999 per cent, have been largely unsuccessful.
Timminco is spending about $87-million to construct its plant in Becancour, Que., while a competitor called Elkem AS is spending more than $700-million to build a plant with less capacity.
Mr. Dietrich says Timminco's costs are so much lower because its "admittedly simple" process is very different than Elkem's.
"There are a number of people who would read our patent applications and nod their heads knowingly and say, 'Yep, that makes sense.' They may not be people that are shorting our stock," he said, presumably referring to Mr. Asensio.
Short sellers such as Mr. Asensio borrow stocks from their owners and then sell the shares on the bet that they can profit by buying them back at lower prices. Last month he went public with his Timminco criticisms in an interview with the Business News Network. He has also spoken frequently with Globe and Mail reporters about Timminco's alleged shortcomings.
Mr. Asensio, nicknamed Demolition Man for his aggressive tactics, won't say when he began to bet against Timminco or how much he is wagering.
He has been chased off company properties by security guards and was once fined by the National Association of Securities Dealers for "misrepresentation" in one of his many lawsuits. He raised early alarms about such high fliers as dotcom darling Winstar Communications and onetime Canadian hot stocks such as Crystallex International Corp. and Biovail Corp.
Mr. Sprott first made his name as a stock spoiler in the 1980s by accurately spotting such troubled companies as Grandma Lee's Inc. and Geac Computer Ltd. He parlayed his short selling successes into his investment firm, which is preparing for an initial public offering that values Mr. Sprott's stake in the company at about $1-billion.
Timminco Ltd.
Friday's close: $22.95, down $3.20
SOURCE: THOMSON DATASTREAM
The Timminco story
The edge
Timminco said last year it had invented a way to affordably refine highly pure silicon for use in solar panels.
The new market
The solar panel business is booming. And the highly purified silicon sells for a higher price than the metallurgical-grade product that has been Timminco's mainstay for years.
The doubter
One short seller, who profits when a stock falls, is questioning Timminco's claim that it can produce solar panel silicon for far less than its competitors do.
ANDY HOFFMAN AND JACQUIE McNISH
Monday, April 21, 2008
It was the top performing stock on the TSX last year and a home run for investing guru Eric Sprott, but market darling Timminco Ltd. is facing mounting pressure from one of Wall Street's most feared short sellers to defend claims it has developed a breakthrough method for producing solar grade silicon.
Manuel Asensio, a flamboyant New York-based investor who boasts a trophy case full of corporate hides, is challenging the Toronto-based metals firm's assertion it can cost-efficiently purify metallurgical grade silicon to a level high enough for solar cell use.
By targeting Timminco, the controversial Cuban-born money manager has set a collision course with Mr. Sprott, whose investment firm, Sprott Asset Management Inc., owns more than 19 million Timminco shares.
Over the weekend, an article in financial journal Barron's raised many of the same questions about Timminco that Mr. Asensio has been asking.
Among them, how the company can claim its unique process allows it to refine silicon at half the cost of its competitors. Timminco's Quebec solar silicon plant began operating in December, but the company has yet to release detailed cost information for the new plant or its pilot trials.
Reached yesterday, chief financial officer Robert Dietrich said Timminco's contracts with several solar cell manufacturers, including the world's largest, Q-Cells AG, offer proof that the technology works.
Timminco has already delivered more than 89 tonnes of solar grade silicon to customers.
"They are very impressed. It meets or exceeds their specifications and it certainly meets their expectations. They're finding it to be material they can use. We haven't had any returned. We haven't had anybody not pay for it. We ship it and they pay for it and they're happy," Mr. Dietrich said.
Once Timminco's new plant is up to full capacity by the end of the second quarter, the company expects to produce 3,600 tonnes of solar grade silicon a year. It plans to expand annual capacity to 14,400 tonnes by mid-2009.
Timminco's claim it had developed a revolutionary way to purify silicon helped its stock skyrocket from 30 cents to more than $22 last year, generating massive returns for its major investors - including Mr. Sprott's firm, which owns nearly a fifth of the company. In the past 12 months, the stock has gained 490 per cent, giving the company a market value of $2.4-billion.
Demand for solar grade silicon is soaring. But it is expensive to produce. Attempts by companies such as Dow Chemical to develop cost-efficient ways to convert metallurgical silicon into solar grade silicon, with a grade of 99.9999 per cent, have been largely unsuccessful.
Timminco is spending about $87-million to construct its plant in Becancour, Que., while a competitor called Elkem AS is spending more than $700-million to build a plant with less capacity.
Mr. Dietrich says Timminco's costs are so much lower because its "admittedly simple" process is very different than Elkem's.
"There are a number of people who would read our patent applications and nod their heads knowingly and say, 'Yep, that makes sense.' They may not be people that are shorting our stock," he said, presumably referring to Mr. Asensio.
Short sellers such as Mr. Asensio borrow stocks from their owners and then sell the shares on the bet that they can profit by buying them back at lower prices. Last month he went public with his Timminco criticisms in an interview with the Business News Network. He has also spoken frequently with Globe and Mail reporters about Timminco's alleged shortcomings.
Mr. Asensio, nicknamed Demolition Man for his aggressive tactics, won't say when he began to bet against Timminco or how much he is wagering.
He has been chased off company properties by security guards and was once fined by the National Association of Securities Dealers for "misrepresentation" in one of his many lawsuits. He raised early alarms about such high fliers as dotcom darling Winstar Communications and onetime Canadian hot stocks such as Crystallex International Corp. and Biovail Corp.
Mr. Sprott first made his name as a stock spoiler in the 1980s by accurately spotting such troubled companies as Grandma Lee's Inc. and Geac Computer Ltd. He parlayed his short selling successes into his investment firm, which is preparing for an initial public offering that values Mr. Sprott's stake in the company at about $1-billion.
Timminco Ltd.
Friday's close: $22.95, down $3.20
SOURCE: THOMSON DATASTREAM
The Timminco story
The edge
Timminco said last year it had invented a way to affordably refine highly pure silicon for use in solar panels.
The new market
The solar panel business is booming. And the highly purified silicon sells for a higher price than the metallurgical-grade product that has been Timminco's mainstay for years.
The doubter
One short seller, who profits when a stock falls, is questioning Timminco's claim that it can produce solar panel silicon for far less than its competitors do.
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