Reader Feedback on Baja Hedges
Silver Stock Report
by Jason Hommel, October 16, 2007
1 Timothy 5:20 Them that sin rebuke before all, that others also may fear.
Some people were concerned that I'd hurt myself, if the share price
goes down on Monday. But I assure you, if the shares drop 40%, I can
handle that more than the company, since my investment in Baja is only
about 10% of my portfolio. In that event, I'd lose 4% of my net
worth. John ought to be thanking me for considering him above
myself. All losses to the company will hurt his company ten times
worse than they will affect me. That's called "Christian love" for
me to be so concerned about him. After all, management owns about
29% of the stock (or they did before the recent share issue.)
I have read with interest the comments of Mr. Hommel relative to the hedging requirement of 5 years still to be negotiated. I shall not endorse his choice of words but I find I must endorse his comment with reference to a 1 to 2 year payoff of the $500 M loan and 5 years of hedging.
As a matter of law, not to mention logic, a lending bank does not have the right to demand hedging after payoff and if such a demand is made it is obviously for the benefit of the bank and not for the corporate borrower. As a licensed attorney in the States of Michigan and Florida and as a retired Judge I am suggesting to you that such an agreement would be considered gross negligence and actionable by the shareholders.
I beg your and your board reconsideration. I am certain that their exists respectable lending institutions that would not force a company to risk its complete destruction in order to obtain ordinary financing.
Robert E. Greenstein (judge,retired)
Copies to Board
I suspect you may have many emails after considering to hedge copper for 5 years so I will keep this short. I invest in many companies to reduce risk and two of the rules for investments in mining are good management and no significant hedges. The hedges simply take away too much of the opportunity and reward for the risk in investment. I realize that you must do what is needed to go forward, but please consider the expense of your investors as many of us expect prices to increase with inflation, and hedging gives a large doubt in management from our point of view.
I have been involved with mining projects since 1974.... and I can't recall any mining project where we hedged anything. (The projects were in gold, copper, coal, nickel, cobalt and more).
We raised loans... but they were secured against the Project.
We negotiated medium and long term sales contracts for most of our projected production.
These contracts were based upon agreed offtake quantities and qualities.
Metal and concentrate prices calculated with reference to published market indices/prices.
We were successful in raising finance because:
- we had a good project (with a great economic engine)
I can't emphasise enough how valuable (and essential) those sales contracts were to us gaining project finance.
I am a Baja shareholder. I learned of the company from Jason Hommel rather than from any of your marketing efforts whatever they may have been. Thus, when you say that "For the record we do not make decisions based on the opinion of Jason Hommel," it seems like you are saying that you do respect or care much about the opinion of your shareholders -- and that would be a rather foolish position for a publicly traded company to take! Of course, I do not think that Jason's email to you all was particularly polite or cordial, but the hedging issues he raised are nevertheless quite important for many shareholders. They should also have been important enough for you as managers -- and shareholders -- that you would overlook his sharp language and actually address the issues and questions raised.
My plea as a shareholder is simple -- and polite too, I hope :-) Please consider upside option protection on any hedges so that the punishment to Baja by a sharply rising copper prices will be minimal! Please also consider hedges of shorter duration. For whatever it is worth, I am not selling my Baja shares at this point but will be watching the news about these hedges carefully.
Thanks for considering my views.
Dear Mr. Hommel:
I do hope, should the assets of Baja be unduly compromised, you will follow up with some legal redress.
Enough of these folks that sell out shareholder interests for their own benefit. They need a lesson in fiduciary responsibility.
Thank-you for the update on Baja.
I was delighted to find a Christian man who stood by Christian principals in his business dealings.
I do want to express my concerns to you about the tone of your letter to John Greenslade. I was really offended by the wording and attitude in the letter. You were very confrontational and rude. What did you expect the man to say. Surely you would know that the average person would respond to that type of a letter by matching your combative attitude.
Proverbs 16:32 - He who is slow to anger is better than the mighty.
I do want to send this to you in the right attitude Jason. I respect you for your diligence in investigating the companies and sharing that information with us. I also appreciate being able to look into your portfolio as I copy what you do.
One of my Investment advisers told me to take a look at your Company as a potential investment. While doing searches on your firm I came across the report from Jason Hommel He is a source that check with, along with Casey Research, Kitco, ETC.
If it is true that you are going to hedge your production in the largest bull market in years, Then I wish that you had options, As I would love to buy Puts.
It looks to me that someone must have hired a government worker or workers, They are only ones I can think of that would propose something that stupid. IE: Canadian Trusts and Alberta Theft.
I never thought I'd be writing you a "Dear John" letter, but here goes:
First, I want this to work out. I'm praying you haven't sold the soul of this company to the "Devil in the details" with another of these grand Faustian deals.
I bought shares in Baja because I found a great property story with grades and volumes in a good mining area with what I was informed were competent People.
My faith in your competence was shaken back in September when, to my shock, I learned that the sharp rise in my shares value got slammed back down before I could do anything...because the announcement was that you agreed to a 5-YEAR HEDGE. Why do you think people slam a company when it hedges? hmmm...
VANCOUVER, BRITISH COLUMBIA--(MARKET WIRE)--Sep 12, 2007 -- Baja Mining Corp. (the "Company") (Toronto:BAJ.TO - News) is pleased to announce that it has...hedged? That was nowhere in the initial press releases, but hidden in the information those in-the-know found at the company site and dumped stock.
I have held on through the excuses, the promises of a negotiation on the actual hedging details, and see little to guarantee the value of my shares in your company. I have held on for the hoped-for recovery in share price once the shock wears off and a few newbies find out about Baja's mine through the news releases and the bankers spreading the news. YOU should have been spreading the news. We would all have been enjoying a $3-$4 share price, as it should be.
Here is my position, and my questions for anyone reading this:
IF you are not "bullish" on the price of copper, why bother investing your LIVES into a copper mine, and why should I invest a precious portion of my future lifestyle in something you yourselves do not believe in? but...
IF you ARE bullish on the value of your copper mine and the price of copper, and
IF you have been reporting the truth about the potential cash flow once in operation, and
IF my reading of this financing is correct, and you need to come up with ~$500 million to begin mining that will profit about $500 million in the first full year after it opens...
THEN why would ANY SANE PERSON WITH A CALCULATOR think that they need to give away more than ONE year's worth of ANY hedging at all?
...and that is only if they aren't savvy enough to come up with enough authorized shares...say, 2 million at ~$2.50 each...maybe with a warrant to sweeten the deal?
...and only after spending a few thousand on a select group of marketing and newsletter efforts with varied audiences, to TELL THE STORY the rest of us believe in...to raise the stakes?
I'm setting a limit to make sure I don't lose money on your gamble, and I'm pulling half our family's shares as they hit my limit. I don't like your odds.
EVERY company I have researched or invested in that took the hedging gamble with bankers has LOST significant income in this rising resources market - particularly those who forgot that manipulation of the markets has been affecting metal prices through naked shorts, and prices could skyrocket during any near-future scenario with a single default. (*or "delivery delay," as the Chinese and the creative fiction writers at the CFTC like to say).
PLEASE GIVE US SOME INDICATION THAT YOU HAVE SECURED BAJA AGAINST LOSSES IN THE EVENT OF A SHARP INCREASE IN THE COPPER PRICE.
If and when you do, I'll dip back into our MoneyMarket and buy our shares back.
In fact, if you FORCE the banker-protection-hedging deal to be either invalid or limited by parallel futures/options in the case of prices above the hedge, then I'll be quickly becoming an even larger shareholder.
Just grab your calculator, and figure out the average slope of the price increase in copper for the LAST 5 years, then see what would happen to your hedging if that trend continues, or accelerates, over the next 5!
How much would BAJA, and we shareholders, LOSE if copper hits only $6 or so (my conservative estimate) by 2008 and stays there?
How much would EACH OF YOU, and we little shareholders, stand to GAIN if your entire resource was able to be freely sold at market prices above even a paltry $4 during the span of 5 years?
Thank you for your consideration.
Just 2-cents from another little shareholder,
Jason; Your letter to the pres. may be entirely factual but certainly not the way to go. Insulting him doesn't solve the problem. I understand your concern with the large investment you have in Baja, but wouldn't it have been better to pick up the phone and call him first He may have had all the answers. By sending this email to all your subscribers you have put him in a very embarrassing position and people in that position lash out and make stupid decisions that may be even worse than the original decision he made.
I like people like you who are passionate about what they do but cool heads usually win the battle.
Jason as an accountant I approve and applaud your commitment and actions.
thanks for all your work on silver, but i must say i am dismayed by your harshness. to call someone stupid, when you lack all the evidence, seems mean. i confess, part of my ministry is to help change the idea that many folks have of jesus followers that we are a mean spirited and arrogant people. just a little feedback
To Karl, I replied:
I professed my ignorance of the terms of the hedges.
I expressed my dismay at the fact that the man decided to borrow $500 million without even spending $100,000 on advertising.
That is truly an abomination of orders of magnitude.
Read Acts 2 and Acts 7. and Matthew 23. and Galatians We need to call
a spade a spade, and to call murderers murderers, and to call fools, fools.
thank you for your quick and thougthful reply. blessings
The response by John Greenslade shows that he CHOOSES to be a fool.
Dear Jason Hommel,
A key issue in your letter to John Greenslade is the cost of the hedging. While the cost could be billions, a reasonable estimate of the cost would be the price of calls to offset the hedge. Maybe it would be a good insurance for Baja to buy the calls. More likely, if one considered the cost of calls that expire up to five years in the future, one would quickly conclude that the hedging should be limited to the shortest possible time and the smallest possbile amount of metal.
Of course, I completely agree with all the economic points that you make and I appreciate your making an effort to protect the value of our Baja stock. Still, I think you will get further in persuading Mr. Greenslade if you stick to the economic arguments and skip the personal insults. Our object should be to his minimize his hedging, not to have him dig in his heels in defense of a costly strategy.
Nicely done. Your transparency is commendable.
You do great work and I read all your stuff.
In my opinion, however, you’ve gone over the top with Mr. Greens lade on this issue.
Bear in mind that copper is not gold or silver. It is very recession sensitive. If the global market moves into recession, the intermediate value of copper could be hit very hard. Also, hedging is often preferable to share dilution – think what that would do to your $1.3 million investment position.
Honestly, your point is well founded, but your tone is disrespectful. Perhaps you are over-invested in a single company, and you need to diversify.
I suggest that you owe Mr. Greenslade an apology for your derisive tone, though again I commend you for raising the issue. Be cautious of getting into a “trip” based on your success to date. Note that the market rewarded the Baja news, and this reinforces the value of your position in the company.
As a Christian, remember that humility is indicated. This means that your wisdom is not God’s wisdom. Don't walk around with your ego puffed up too big. Be modest, and I suggest that such an attitude will be rewarded. (For example, the Shanghai exchange could collapse at any time like 1929. That could trigger a recession that would reduce the copper price by half or more, and it could last for years. Truly – be humble! Nothing goes straight up, it’s a difficult journey. No one knows the future except our Lord.)
Dr. Laurence Hunt
To Dr. Laurence, I replied:
Thank you for your advice. It is good advice to both be humble, and to listen to others with advice.
Mr. Greenslade was neither humble, nor did he listen to my numerous warnings to date.
If the copper price is so at risk of being cut in half, all the more reason to not hedge, in my opinion.
I do not want my gains coming at another's loss.
I'm not a gambler, I'm an investor.
I can make my own choices about where I think the copper prices are going, but if they hedge, they rob me of my trust in the Lord.
Dear Mr Greenslade, et al
I am a stockholder in Baja Mining
Based on trends in world wide consumption of copper, your company has a very bright future (which is why I bought your stock, held it and have been planning to buy more)
However it has come to my attention to you plan to hedge copper production for 5 years to raise capital, though the terms are not yet finalized (??)
Please provide us investors with the specific business case (with all assumptions and calculations) on why hedging is advantageous in both the short term and long term to other means of raising capital to pursue your plans to mine copper.
If you cannot make this case for hedging, regrettably I will sell your stock and invest the money in other "up and coming" mining companies who plan to sell what they mine at market price.
However if you reverse your plans to hedge I will certainly buy additional shares of your company (and doubtless many other current investors will too!!)
Your patient investor
Thak you for bringing this issue directly to Mr.Greenslade.Here is a copy of the letter I just sent to him.
I am a shareholder in Baja mining.I became aware of your company thru my friend Jason Hommel.
I strongly suggest you contact Mr.James Sinclair, CEO of Tanzanian Royalty Exploration (TRE) on the AMEX.
He can be reached thru his website at jsmineset.com. Mr.Sinclair has over 50 years in the business and is very generous with his vast knowledge of the mining business and in particular the subject of hedging and derivatives.
I am in contact with many investors involved in the minig sector. We have been following the recent developments with Baja with great interest.
We hope that you will take this time to deeply consider the very negative implications for current and future shareholders of the decision to hedge the the future price of copper for a period of five years.
I bought 200 shares of Baja about three months ago solely because of Hommel's advice. I know nothing about mining or copper and very little about fiance. I do know a little bit about hedging when it comes to selling a valuabe resource in an up market. I lost $150/hd on 204 fat steers in June 1975 because my banker thought it would a smart thing to do(wanted the security). Never will forget it. If you're pretty sure you have the metal in the ground and have the technology and manpower to get it out please don't even consider hedging in an up market. Look for another banker or hire a good salesman. I see you have a spat going with one of the best. Sincerely, Ken Hilton Cambridge, Nebraska
In conclusion, I urge you to continue to write to Baja Mining. Now is the time! Shareholders have a voice, but you have to speak up.
To make your own feelings known about hedging, to help John in his negotiations with the bankers who are trying to rape him and enslave him, and steal from the shareholders of Baja Mining, email:
It is my hope that this loan deal will fall through, or that every "hedge" comes with an "option" so that it will be impossible for Baja Mining to lose money in an environment of rising copper prices.
It is my hope that the stock price rises enough to give John the incentive to raise all the money he needs by issuing stock, at well above $2.50/share.
It is my hope that my fellow shareholders will shame John into actually spending just a tiny bit of money to advertise their company, so they don't have to rely on the bankers that can steal value from the company through hedging.