Grande Cache rises as deal nears completion

Investment Canada shunned critics and gave a nod to Winsway Coking  Coal’s bid for Calgary-based Grande Cache Coal (GCE-T).

The deal had come under more scrutiny after short-seller Jonestown Research issued a report in January alleging that Winsway’s financial reporting wasn’t up to snuff. The report alleged that the company’s imports were inadequately reported and that its inventories were overstated. If proven accurate, such accounting fraud could jeopardize the deal for Grande Cache.

Investors proved sensitive to the Jonestown report and began selling Grande Cache’s shares almost immediately after its release. That downward pressure sent the company’s share price down 5.8% as its shares closed at $9.21 on Jan. 20 — their lowest level since the Winsway offer was first announced last October.

The power of the Jonestown report, even though it was released by a research firm with little credentials and even less transparency about its own operations, can be better understood in the context of recent troubles with Sino-Forest (TRE-T). That company had its share price demolished after short-seller Carson Block blew the whistle on the company for accounting irregularities. Block alleged that accounting irregularities and poor corporate governance are more rampant at Chinese-based firms than Western investors expect. Winsway Coking Coal is a Hong-Kong based company. 

But with Investment Canada’s Feb. 8 approval, Grand Cache Coal’s shares ran back up towards the all-cash offer value of $10 per share as the company’s shares finished the day up 4%, or 38¢, to $9.73 on heavy volume of 9.5 million shares.

Investment Canada says the $1 billion deal is “likely to be of net benefit to Canada,” leaving only the Hong Kong Stock Exchange’s approval needed for Winsway’s participation.

On Jan. 19 Winsway asked the Hong Kong Stock Exchange for more time to complete a required filing, and said its circular will be submitted by Feb. 22. Provided that approval comes, the deal is expected to close by the end of this month.

The offer for the Grande Cache is a joint bid between Winsway and the Japanese trading house Marubeni.

Winsway, which processes and transports coal to China from Mongolia, called the Jonestown allegations unsubstantiated and false, and Grande Cache has stood behind the company in its denial.

Grande Cache Coal’s management hasn’t been untarnished by scandal itself. Last December the Alberta Securities Commission accused its president and chief executive, Robert Henry Stan along with  his wife and four other current and former senior executives of irregular insider trading.

Grande Cache holds 220 sq. km of land in Alberta that contains over 300 million tonnes of coal. It has been mining metallurgical coal at the property since 2004 using open-pit and underground methods.