Corporate Epitaph: Baja Mining runs from major player to junkyard picker

POSTED ON December 03, 2013 BY Chris Parry
CATEGORY Central America, Cobalt, Copper, Mining, Regions, Resource Stocks, Zinc,

Author Chris Parry

In the mining game, one dumb mistake can lead to years of decline. See Mining, Baja.

Baja Mining? More like Ba-ha-ha-ha-ha Mining.

“Shares of Vancouver-based Baja Mining Corp. (TSX:T.BAJ, Stock Forum) climbed 37% to 35 cents after the company provided revised capital cost estimates for its Boleo Project in Mexico after Monday’s market close,” – so said a Stockhouse news story on March 17, 2009, during times when Baja Mining was high-flying and full or promise.

“Baja notes that the slowing of the original construction schedule at Boleo has allowed it to take advantage of a reduced cost environment. As a result of recent changes in world economic conditions, the company says it has “prepared an updated preliminary internal trending analysis of Project capital costs, showing a 12% decrease”, suggesting a revised cost estimate of US$767 million. […]Assuming a reduced capital cost of US$767 million, the after-tax net present value of the project, at an 8% discount rate, is estimated at US$682 million. The company has US$40 million cash on hand.”

Aw. Happy times. Those were the days of optimism and potential and hundred-million dollar market caps! When a CEO could order room service at the Four Seasons and walk into boardrooms with confidence and a smile.

Not today. Today, 32 million shares in Baja were traded to anyone prepared to cut a penny in half with a bandsaw, based on no public news but an overriding sentiment that the end is very nigh.

That happy rosy story quoted above was bogus. It took around six weeks to be walked back, as the company soon after announced a $246 million (21.5%) capital cost increase for what was, at the time, its 70% owned Boleo copper-cobalt-zinc project in Mexico.

Few realised it at the time, but that cost overrun was the end. Whether it was a mistake or malfeasance is open to debate, but that it was the deathknell of this company, and millions of shareholders dollars, is not in any doubt.

May 7 2012: “The company met in South Korea last week with the members of the Korean consortium who are Baja's partners in the Boleo project, and while Baja considered the discussions with the consortium as being positive, the company is concerned that an approval process in regards to the potential funding solutions being investigated may not be completed as quickly as required even if approved by the consortium.”

IR talk: We're in discussions and we're positive we can work it out.
Real talk: They’ve got us over a barrel and they want our piece.

A week later, the CEO John Greenslade resigned on prodding from the largest shareholder, Mount Kellett Capital Management. An interim CEO was appointed while the search for a replacement began.

A month after that, another shareholder, Louis Dreyfus Commodities Metals Suisse, filed litigation to investigate the cost overruns.

Days later, the cost estimate blew out to $1.7 billion, basically entering Apollo Mission territory and pushing way beyond Baja’s fundraising capabilities.

A Korean consortium, composed of Korea Resources Corp., LS-Nikko Copper Inc., Hyundai Hysco Co., SK Networks Co., and Iljin Materials Co., came to the rescue in July 2012, taking a majority 51% stake in the project, up from their previous 30%, which gave investors reason to be cheerful. The stock price rose, and even doubled – tripled – quadrupled!

But that Korean stake would grow over the months to follow, as Baja management failed to raise their side of the project funding, driving their share in the action down again (26%!) and again (20.9%!) and again (15.7%!).

In June of this year, as management appeared to come to terms with the reality that they were no longer relevant and needed to show some point to the action of coming to work every morning, the company paid $72,000 for an option agreement where it could earn “up to an 80% interest in Cinto Colorado S. de R.L. de C.V., a private Mexican company.”

The jewel in Cinto’s crown? A Mexican slag and tailings heap that Baja would be allowed to ferret through for residual copper and cobalt, like a barefoot junkyard picker.

From the company’s almost comical news release on the topic, “This Agreement represents an opportunity for Baja to generate positive cash flow relatively quickly," said Tom Ogryzlo, Baja's Interim CEO. "Baja can use its knowledge of the region and its extensive process expertise to advance this project as a low risk, low cost mining project."

Also, maybe they could collect bottles and cans for the recycling deposit. Maybe hold a bake sale? Pub trivia night?

Two months later, the Korean consortium continued eating Baja’s lunch, driving more money into the Boleo Project and diluting Baja to just 10% of the action.

Finally, in mid-November of this year, Baja put out one of those quarterly results news releases that contain no actual data from the results at all – you know the ones; they usually come from companies with two zeroes after the decimal point in their share price, and they point you to SEDAR for the actual results, and when you find those results they focus on how they’re ‘limiting losses’ and ‘looking for new exploration opportunities..”

Let’s be honest, if you still held the stock at that point, it’s because you had already lost 98% of your vig and didn’t fancy paying a $20 brokerage commission to get $19 back.

But that $19 is all but gone today, as the exodus out of Baja’s stock has commenced.

Will they find the lost treasure of the Sierra Madre in the Cinto Colorado slag heap? Will the Koreans suddenly decide to be charitable and deal them in for another few points? Will the company exist in any real form for longer than however long it takes to sell off some office furniture and paint over the signage?

Will it heck.

It’s been a wild ride, if your definition of a wild ride is a short rise and a long, agonizing, sorry slope downward.

Baja is done. It was done, in reality, in March 2009, when the market cap was in the hundreds of millions of dollars.

Today: An optimistic $1.7 million, but only because a share can’t go lower than half a cent on the TSX.

So hey, looks like a spot's going to open up on the TSX. Lightly used, very abused, yours for cheap.

One point to note to management: When your ‘interim CEO’ has been in place for a year and a half, maybe it’s time to admit to shareholders that you’ve given up looking.

---Reposted with permission from Stockhouse.com

Chris Parry

Chris Parry is the Director of Editorial at Stockhouse.com, Canada's most trafficked financial web site, where he focuses on the marijuana and technology beat. Previously, Chris oversaw the Vancouver Sun and Province online news teams in the areas of digital products, social media strategy, traffic development, directed content revenue programs and news. More →

Twitter: @ChrisParry

centrifoogle@gmail.com

Chris Parry

Twitter: @ChrisParry

centrifoogle@gmail.com

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