The Mini-Tender Trap « Mining Blog

The Mini-Tender Trap

28. October 2011,

The “From Money to Metals” wiki site, associated with this blog, has just introduced readers to a peculiar type of profiteering from share dealing which seems specifically to target shareholders in mining enterprisess.

It’s something known as “mini tendering”, whereby a private fund offers existing shareholders in a company the opportunity to sell their securities, so long as, collectively, they own less than 5% of the company’s total capital. In effect, the fund offers those shareholders the opportunity to make a quick sell, even though the price of their shares are routinely below the existing market price. What the fund then does with the shares seems far less clear.

Although it isn’t the only firm offering these “mini-tenders” it’s TRC Capital, based in Toronto, that specialises in them. Led by a “securities lawyer” called Lorne Albaum, according to Canadian Business magazine in 2003, Albaum is exploiting “a loophole in securities legislation that has allowed him to fatten his bank account… It may be legal, but his critics–and there is no shortage of them–allege that what Albaum does is annoying, immoral and that he should be stopped. If only the securities regulators cared.”
[Canadian Business , 14 April 2003]..

Apparently they didn’t then – and still don’t now.

Just last week, PRC made such an offer to shareholders in Arch Coal of the USA, the second biggest metallurgical coal miner in the country. The management of Arch Coal urged shareholders to reject the offer in October 2011, telling them that “mini-tender offers do not provide investors with the same level of protections that larger tender offers under United States securities laws provide” [St Louis Business Journal, 21 October 2011].

However, “mini-tenders” aren’t governed by Section 14(d) of the US Securities Exchange Act or Regulation 14D , but are subject only to the anti-fraud rules under Regulation 14E.

Thus, they do not have to comply with the same disclosures required for larger tender offers. The Securities Exchange Commission (SEC) advises “extreme caution” in accepting these offers, especially as many of them relate to companies that do not trade on an established market. But the SEC has taken no steps to outlaw them.

In a brief Google search for recent examples of such “mini tenders”, I came up with numerous instances where PRC Capital has offered them to shareholders in registered corporations, including many mining companies.

These companies include: Potash Corp of Canada; Eldorado Gold (which rejected a mini tender offer in December 2010); and First Quantum (whose shareholders rejected one made by PRC in November 2009).

The world’s second most important mining company, Rio Tinto, also solicited shareholders to throw back a mini-tender in TRC’s face, in November 2007.

Rio Tinto told its the shareholders that TRC Capital’s offer “to purchase up to 250,000 American Depositary Shares (ADS) of Rio Tinto plc…which in aggregate represents approximately 0.1 per cent of its outstanding shares” was “approximately 2.2 per cent below the US$447.25 per ADS closing price of Rio Tinto’s ADS on November 13, 2007, the day before the mini-tender offer was commenced.” [ Rio Tinto press release, 16 November 2007].

In fact, it has proved impossible to find any established mining company (or other enterprise) that has accepted the blandishments of TRC Capital. Nonetheless, this does not mean that shareholders in smaller companies, which fly “under the radar”, have not taken up its offers. Nor that they didn’t secure a profit as a result (especially if the company later went under).

The problem is that noone seems to know whether this happened or not.

Whether the practice of mini-tendering is really less censorious than – say – “shorting” a stock to make a quick killing, and which is emplpoyed by far bigger investment funds and banks seems distinctly moot.
For more on TRC Capital see:

See: http://moneytometal.org/index.php/TRC_Capital

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