Allied Nevada equity holders say plan based on inadequate valuation

By Kali Hays

New York, June 2 – Allied Nevada Gold Corp.’s official committee of equity security holders objected to approval of the disclosure statement related to the company’s proposed plan of reorganization on Monday, claiming that Allied’s going-concern valuation is billions of dollars below what it should be, according to a filing with the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, the company filed the plan and disclosure statement, which contemplates a financial and operational restructuring, on April 24.

The committee’s main objection surrounds the valuation of Allied’s business as a going concern, which the company claims is between $360 million and $510 million based on analysis by Moelis & Co. LLC.

However, the committee asserts that Allied is “literally sitting on a pile of gold (and silver)” with proven and probable mineral reserves at the company’s Hycroft mine amounting to 10.6 million ounces of gold and 465.3 million ounces of silver and that the valuation is far below the company’s actual worth.

According to the objection, the market value of the gold would be about $12.7 billion while the silver would have a market value of about $7.9 billion.

The committee admits that the cost of extracting the minerals is “a critical factor in determining its true value” but said that a technical report conducted by Canadian regulatory authorities in November 2014 placed capital expenditures for the completion of a mining project at $1.3 billion.

As the objection claims that Allied’s bankruptcy filing “came out of the blue” for shareholders, the committee said that these circumstances “only heighten the need for full and fair disclosure in conjunction with this proposed reorganization.”

“Unfortunately, the debtors’ proposed disclosure statement fails to provide such disclosure. To the contrary, the disclosure statement lacks fundamental information necessary to evaluate the debtors’ current financial situation and the reasonableness of the proposed plan,” the objection stated.

Beyond what it suspects to be a faulty valuation analysis, the committee said that the plan “fails to identify or analyze any alternative means for extraction of gold and silver from sulfide ore” and that the plan also contains a “deathtrap provision” whereby certain shareholders will receive no distribution unless they vote in favor of the plan.

Calling the period for discovery under the confirmation schedule “woefully inadequate,” the committee asked that a letter outlining its objections be attached to the plan upon solicitation or that the court extend the discovery period by one month.

A hearing on approval of the disclosure statement is set for June 8.

Allied Nevada is a Reno, Nev., gold and silver miner that filed for bankruptcy on March 10. Its Chapter 11 case number is 15-10503.

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