Powertech shareholders
approve reverse takeover by Australian and Singaporean investors
Transaction will hand over control to Azarga insiders, add massive
convertible debt to Powertech’s balance sheet, and dilute longtime
shareholders
Posted July 20, 2014
Powertech shareholders voting at a June 30 annual meeting approved a
transaction that would immediately transfer control of the Canadian company
to a group of individuals and companies from Australia, Hong Kong, and
Singapore. The transaction must
be approved by the Toronto stock exchange and is expected to close by the
end of July.
The deal, misleadingly described by Powertech as the acquisition of British
Virgin Islands firm Azarga Resources Limited, is actually a reverse takeover
of Powertech by Australian businessmen Alex Molyneux and Curtis Church, and
Singaporean investment firms Blumont Group Ltd. and Pacific Advisers Pte
Ltd.
 |
| Logo of Singaporean firm Blumont Group Ltd., which could become majority owner of Powertech/Azarga Uranium. |
Under the terms of the transaction, Powertech will acquire all outstanding
Azarga shares by issuing 3.65 Powertech shares for each Azarga share.
Azarga Resources currently owns 45.1% of Powertech.
Upon closing, former Azarga Resources shareholders will hold 77% of
Powertech, which will be renamed Azarga Uranium Corp. (AUC). Current
Powertech shareholders, who now own 54.9% of the Canadian penny stock
company, will experience dilution of their ownership down to 23%.
The board of directors will be "reconstituted", with five Azarga-nominated
directors and only two Powertech directors (Dick Clement and Douglas
Eacrett).
The four largest shareholders of the newly-branded Azarga Uranium Corp. will
be:
|
Alex Molyneux |
19.7% |
|
Curtis Church |
19.3% |
|
Blumont Group/Powerlite Ventures |
11.3% |
|
Pacific Advisers Pte Ltd. |
10.1% |
One of the most significant aspects of the transaction is the assumption by Powertech/AUC of a large amount of convertible debt from Azarga Resources. Upon conversion of this debt, Singaporean investment firm Blumont Group could acquire a majority stake in AUC. This possibility has not been publicly discussed by either Powertech or Azarga officials. But in a February news release from Blumont titled “Blumont emerges as winner in Azarga Resources’ reverse takeover bid for TSX-listed Powertech Uranium Corp”, the Singaporean investment firm praises the transaction without specifically mentioning its potential future control of AUC.
Azarga had previously agreed to borrow up to $26 million from British Virgin
Islands firm Powerlite Ventures Limited, which is solely-owned by Blumont
Group. As a result of the reverse takeover, this debt becomes
Powertech/AUC’s debt. The
principal and accrued interest can be converted into AUC shares at a
conversion price of $0.137 per share.
The conversion will significantly dilute both former Powertech and
Azarga shareholders, with up to $50 million in principal and interest being
converted into 365 million shares.
When added to the 41 million Powertech/AUC shares already owned by Powerlite
following the closing, Powerlite/Blumont could end up with a controlling
stake of 51.7%. This possibility
was not fully disclosed by Powertech in its May 13 meeting notice and
information circular filed with Canadian securities regulators.
This document is the primary source of information on the proposed
transaction, and it is not clear why this potential change of control was
not adequately disclosed.
The Powertech information circular also does not discuss a current
wide-ranging and unprecedented investigation of Blumont by Singapore’s
white-collar police unit and central bank following a 95% drop in Blumont’s
stock price in October 2013.
Singapore police have requested three and a half years’ of corporate
electronic data from the firm, as well as data storage devices belonging to
Executive Director James Hong and Executive Chairman Neo Kim Hock in their
probe of possible breaches of the Singapore Securities and Futures Act.
Also missing from the Powertech filing is any mention of Alex Molyneux’s role
as a consultant and key advisor to Blumont’s board of directors, or his 2013
agreement, rescinded in April, to purchase 135 million shares of Blumont and
become its Chairman.
The information circular also provides little detail on the assets Azarga brings to the deal. For example, Azarga owns 27.9% of Australian firm Black Range Minerals. Black Range has the right to acquire 100% of the proposed Hansen/Taylor Ranch uranium project southeast of Colorado Springs, Colorado. But its most critical asset is its 50% interest in the joint venture Mineral Ablation, LLC. Its joint venture partner is Casper, Wyoming-based Ablation Technologies, LLC, a start-up that is developing the “ablation” technology. Ablation is designed to concentrate uranium ore slurry prior to final processing into yellowcake at a mill.
Black Range’s survival hinges on ablation. The company hopes to sell
ablation machines to other uranium miners, but more importantly, the
Hansen/Taylor Ranch project depends on the successful commercialization of
the technology. But Powertech’s
information circular omits any mention of the ablation technology, including
a problem with rapid erosion of piping, as well as the joint venture’s
failure to determine licensing requirements by the U.S. Nuclear Regulatory
Commission and Colorado radiation control regulators.
Black Range’s current share price is only $0.006 AUD.
The takeover of Powertech by Azarga investors follows Clement’s failed
eight-year effort to fully permit either the Dewey-Burdock or Centennial
projects. The permitting
difficulties, along with the Fukushima meltdowns and low uranium prices,
have depressed the stock price and made it nearly impossible to find financing –
until Azarga showed up. Azarga is the third foreign entity to make a
significant investment in Powertech, but the first to attempt a takeover.
Both Belgian firm Synatom and Canadian hedge fund K2 Principal Fund
have made big bets on Powertech only to see their investments wither as mine
permitting efforts floundered.
Both companies have since divested their Powertech shares.
Azarga rescued Powertech from financial disaster in mid-2013, in a deal that
was the first in a series of transactions ending with the current reverse
takeover. It was apparent as
early as fall 2013 that Azarga CEO Alex Molyneux had his sights set on
taking control of Powertech’s uranium properties and adding them to his
stable of properties in Kyrgystan, Turkey, and south-central Colorado.
None of Powertech’s or Azarga’s uranium properties are permitted to
operate.
The reverse takeover of Powertech by Molyneux and other Azarga investors
gives them a public listing on the Toronto Stock Exchange without the
trouble or cost of conducting an initial public offering, a strategy employed by
Dick Clement and Wallace Mays when they took over boiler manufacturer Powertech Industries in
2005. A public company provides a range of benefits to Molyneux and
the other major shareholders, including increased liquidity, more financing
options, and greater prestige.
Molyneux, an Australian and former investment banker who currently lives in
Hong Kong, incorporated Azarga Resources in the
British Virgin Islands in 2012.
The BVI is a British territory with a population of about 28,000, and is the
world’s biggest provider of offshore entities.
The BVI’s popularity is due to financial secrecy and favorable tax
laws. BVI companies are exempt
from taxes on operating income, capital gains, dividends, interest, rents,
and royalties. The BVI also has
no sales taxes or value added taxes.
There was initial confusion about Azarga based on Powertech news releases
issued last year. Azarga is
“based in Hong Kong” according to the releases.
Molyneux is a Hong Kong resident, and Azarga’s offices are in
Central, Hong Kong, but the company is incorporated in the BVI.
Adding to the confusion, Azarga has a wholly-owned subsidiary, Azarga
Resources (Hong Kong) Limited, which was incorporated in Hong Kong in early
2013. This subsidiary is one of
a series of three shell companies that hold a 60% stake in the Centennial
uranium project, which was purchased from Powertech last year.
If the merger is approved by the Toronto Stock Exchange later this month,
AUC will have a complex corporate structure made up of multiple subsidiaries
located in five different countries.
The structure is likely designed to provide tax benefits and
liability protections to Molyneux, Church, and other Azarga officials and
investors.
Even though the takeover has yet to close, Molyneux has moved rapidly to
promote AUC and raise its public profile.
He has hired Toronto branding agency Baustein Strategic Design Group,
which has already posted a web page complete with dubious claims regarding
the company’s uranium deposits.
And in a biographical sketch of AUC on the website of the upcoming Sprott
Vancouver Natural Resource Symposium, several inaccurate and misleading
statements are made, including “Azarga is listed on the main board of TSX
with a market capitalization of C$35 million.”
In fact, since the reverse takeover has not yet closed, the claim of
a Toronto stock exchange listing is premature.
And as of July 18, Powertech’s market capitalization is only $9.9
million CAD.
The Sprott blurb goes on to state that “Dewey Burdock received Nuclear
Regulatory Commission approval in April 2014” without mentioning the ongoing
contested hearing process before the NRC’s Atomic Safety and Licensing
Board, or the fact that EPA and South Dakota permits have not been obtained.
The transfer of control of the proposed Dewey-Burdock project to Molyneux,
et al., has spurred some to question the legitimacy of the contested NRC
operating license. In a November 2013
news story in the Black Hills Pioneer, reporter Adam Hurlburt asks “Who are
we permitting?”. As reported by
Hurlburt, Powertech responded by email that “If ownership should change, the
new owner is bound by all permit and license conditions…”
NRC regulations include a requirement that “the applicant is qualified by
reason of training and experience to use the source material for the purpose
requested in such manner as to protect health and minimize danger to life or
property”. Although Powertech
has never operated a uranium mine, the Canadian company does at least employ
a couple of individuals with such experience.
The two, John Mays and Frank Lichnovsky, are expected to keep working
for AUC, but control of the company will be held by persons with absolutely
no experience with in-situ leach uranium mining.
However, NRC staff is not expected to raise concerns regarding the
change of control, according to someone with knowledge of the matter.
JW