Details are slim on the backers of a proposed US$750 million deal to buy assets from West High Yield Resources Ltd. by Gryphon Enterprises, said to be a Maryland-based company. The potential deal caught the market off guard Oct. 5 and propelled West High Yield shares, briefly, up nearly 1,000%.
Some market watchers were skeptical, noting that it was unusual for assets to sell for US$750 million when the market cap of the company that owns them is a small fraction of that sum.
"You don't offer them US$750 million for their property," Eric Coffin, a mining analyst with Hard Rock Advisors said.
A more typical deal would be to try to take over the company for a modest premium to its market cap, Coffin said. The Gryphon offer "just doesn't make sense," he added, noting the small market capitalization of West High Yield before the announcement.
S&P Global Market Intelligence sought additional details on the proposed deal from West High Yield President and CEO Frank Marasco. Marasco, speaking over the phone Oct. 5, made bold claims about backers in the proposed acquisition but was tight-lipped on details, citing confidentiality and lack of knowledge. He said there are two Fortune 500 companies backing the deal but would not name them.
"You know them," he said. "Everybody knows them in the world. They're world-renowned. But I'm not allowed to mention their names." Describing the companies, he said, "They probably, if I had to guess, I'd say the two of them probably had more than US$500 billion." He added, "I'm just guesstimating it."
Marasco said Gryphon Enterprises is headed up by Stephen Cummins, who is not well known in the Canadian resource sector. Marasco acknowledged that he knew little about Cummins' background. "I don't know much of his history," Marasco said. "I know he used to be a vice president of a top [Fortune] 500 corporation." Marasco said he did not know which one.
"Done many things this man," Marasco said. "I just don't know his full history. I just know he got the financing." Marasco said the deal was five years in the making, with other parties interested in West High Yield assets. The company is focused on magnesium.
Pressed on whether he was sure Cummins had the money and had seen proof of funds to back the deal, Marasco said, "I couldn't press release without that in order. He's already got signed contracts, 100%."
The promised deposit on the proposed deal, US$500,000, is small relative to the proposed sale price of US$750 million. Marasco said the small deposit size reflected confidence in the funders.
The deal includes the Record Ridge South, Midnight and OK mineral properties, part of the Rossland gold project.
West High Yield is planning to call a shareholder meeting in December to seek approval for the deal. The company plans to distribute the sale proceeds, should they come, to its shareholders and explore other business opportunities.
Marasco said Gryphon Enterprises did not already own shares in the company and he was not selling shares. "No way," he said.