February 16, 2009
Arian Silver Could Be Just Weeks Away From Production, If The Irish Listing Of Grafton Resource Investments Goes Well
By Alastair Ford
There have been one or two announcements out from Arian Silver recently regarding some adjustments to the company?s proposed fundraising through emerging London investment fund Grafton, so Minesite thought a quick call to Jim Williams, Arian?s driving force, was in order, just to check that things aren?t getting a little over-complicated. And Jim?s answer is simple enough. ?It shouldn?t be complicated?, he says, ?We get Grafton shares. They get Arian?. It takes a man with a no-nonsense approach like Jim to cut through all the legal froth that surrounds such deals, but in essence, he?s right ? a straight swap is all there is to it.
Grafton is a relatively new fund, set up by London resources veterans Sam Hutchens and Kjeld Thygesen. It plans to acquire strategic positions in a variety of resources companies by means of such share swaps. The details of each specific deal are different of course, but a quick trawl on the internet shows that the ?We get Grafton, they get Arian? formula has been successfully applied recently to Zoloto Resources, East West Resource Corporation, and Savant Explorations. A Dublin listing for Grafton is imminent, at which point all the companies that took Grafton shares in exchange for their own equity will be able, at least in theory, to crystallize some value by selling in an orderly fashion. The attraction for any buyer in Dublin, which is home to a number of similar closed-end investment funds, is the exposure to a diversified resources investment portfolio.
In theory that makes it a win-win for all concerned, and Jim Williams certainly hopes so. His own deal with Grafton will lock down a theoretical C$6 million in funding, which, if it actually materializes on the balance sheet of Arian Silver, will go towards putting the company?s lead San Jose silver project in Mexico into production. There?ll be a proper ramp up later, says Jim, but the money from the Grafton share swap will at least allow a 500 tonnes per day operation to get going. It?ll be a key moment for Arian, and not just because of the symbolism of moving from the development stage into production. It?ll also mark the theoretical end of the absolute necessity of shareholder dilution every time Jim wants to make a move. The Grafton deal itself is, he concedes, significantly dilutive. But Jim?s view is that it is necessarily so, and he argues with some cause that any type fundraising in these markets would likely be hugely dilutive for Arian. We might add that, even in the good times, development funding was always more dilutive than chief executives were happy with, but even so the 42 per cent stake that Grafton will eventually hold in Arian is quite a big chunk of equity to part with for an initial 500 tonnes per day.
Still, you take what you can get, especially in the bad times, and the Grafton deal at least offers the advantage that Arian can manage when the new money comes in by choosing when and how to off-load its Grafton shares. Jim?s realistic about what?s involved too. Like any punter who?s been round the block a few times, he knows that investment companies are rarely ever rated up to the full value of their portfolio (NAV), and more often trade at a discount. But, he says, even if Arian ends up with 90 cents in the dollar, it?ll be enough to get San Jose going, and after that Arian will be able to call more of the shots. It will have a Grafton nominee on the board, and Grafton will own a massive slice of the equity, but that in itself may make for a useful situation.
Jim argues that it will be in Grafton?s own interests to make a success of Arian. To that end, Grafton ought to be supportive in the event of new cash calls as and when Jim decides to ramp up San Jose, or go back to work in earnest on any of Arian?s many other promising development properties. There?s also the possibility of consolidation as more and more assets become distressed. With the backing of Grafton the idea that Arian could act as a consolidator at least becomes a possibility. As Jim Williams says, in the current market, ?why drill holes in the ground when you can buy a project from a company that?s in trouble?? And it?s in that context that you could argue that Grafton has timed things very nicely indeed.
By Minesite?s own unscientific reckoning we hit the bottom of the current stage in the market cycle back in November, just when Grafton was beginning to close a few deals. With valuations still on the floor, comparatively speaking, Sam and Kjeld should be able to pick up plenty of bargains. And any recovery in equities prices would leave Grafton looking better off, and would benefit any of the companies which took its shares too. So it might be worth Jim Williams stashing one or two Grafton shares away in a drawer if he?s got any to spare once the money needed for San Jose is in.
Jim Williams
CEO
Arian Silver Corporation
Carlyle House
235-237 Vauxhall Bridge Road
London SW1V 1EJ
United Kingdom
T: +44 (0)20 7963 8670
M: +44 (0)777 427 4836
www.ariansilver.com
Alison
Alison Tullis
Senior Account Manager
CHF Investor Relations
Toronto . Calgary . Sao Paulo . Shanghai . New York
90 Adelaide St. West, 6th Floor
Toronto, Ontario, M5H 3V9
t. 416.868.1079 x233
f. 416.868.6198
c. 647.409.1699
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