Hecla's bid for ATAC

My order for ATAC (ATC.V) was filled at $0.135. Sure I would have preferred to get the shares lower but I am satisfied as the Hecla deal prices those shares at $0.14 and promises shares in a new, copper focused, company which will take on the non-Rackla (with the exception of the Connaught copper project) assets of ATAC.

Those assets, along with ATAC’s remaining cash balance and a 2 million cash investment from Hecla for 19.9% of Spinco have a deemed value for purposes of the transaction of 10.05 million. Prior to the announcement of the Hecla bid ATAC was trading at around $0.09 with 221 million shares out for an implied market cap of just on 20 million. So Spinco is being endowed with assets worth about half of the pre-bid ATAC market cap.

In itself, this makes the Hecla offer attractive. However, there is another element which needs to be considered.

ATAC’s plans for the Rackla project came to a grinding halt when the Government of the Yukon denied permission for the construction of a tote road into the property. The reasons for the denial and the fact it is not seen as permanent by the now Premier of Yukon are, in a sense, immaterial. For a junior resource company there is only so much runway, waiting out a reversal of the road decision was not at all a viable or attractive option. Hecla, on the other hand, is the largest US silver producer with a 3 billion market cap. It can afford to wait.

In many ways, ATAC as a junior exploration company, had reached an impasse with the Rackla project. It had defined a significant gold resource but it was always going to need help to develop that resource. The tote road issue was a red flag for most majors and many mid-tier companies. In effect, Rackla was a stranded asset.

Assuming the Hecla bid goes forward, Graham Downs and his team can do what they do best, explore prospective ground and discover and define resources. Cold comfort for shareholders who invested during ATAC’s periods of much higher share prices, but not a total loss.

The Idaho Creek, Catch, Rosy and PIL projects are all very early-stage exploration situations. ATAC has been press releasing its progress on each of them for the last few years. When the deal is finalized I’ll take a closer look at each of these projects.

My own strategy here will likely be to hold the ATAC shares until the deal is finalized and the record date for the Spinco shares is announced. Once my position qualifies for the Spinco shares I expect I will sell the ATAC/Hecla shares at breakeven and take the Spinco shares as a house money bet on Downs and the ATAC exploration team.

Of course, holding the ATAC shares at the moment also gives an investor a seat at the table if another offer for ATAC comes in the door, which it could. Even without the tote road, the Rackla property is huge, holds 43-101 gold resources and will, almost certainly, become a profitable mine. Now that Hecla has bid, the tote road red flag may fade for other majors eager to acquire gold assets.

[Disclaimer: This is not investment advice. I am not an investment professional. I am down about 30% at the moment. I will write about companies that I hold. I will disclose any holdings. Do your own due diligence. Do it hard. Call the CEO.

I currently hold shares in ATC.V and while I have no plans to sell anytime soon I reserve the right to take profits as they arise.]