Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Ravi Sood (right) thcought Timminco’s technology couldn’t work. Eric Sprott (left) thought it couldn’t miss (Sean Sprague (left) and Tim O’Rourke (right) For Report on Business magazine)
Ravi Sood (right) thcought Timminco’s technology couldn’t work. Eric Sprott (left) thought it couldn’t miss (Sean Sprague (left) and Tim O’Rourke (right) For Report on Business magazine)

ROB Magazine

Timminco: How Eric Sprott got solar burn Add to ...

As part of a 1996 agreement, which was amended in 2001, Timminco agreed to pay Timmins approximately $250,000 per year for consulting services once he was no longer CEO, above and beyond remuneration for remaining on the board.

The monthly payments of $20,833.33 began after Timmins resigned as CEO in 2001, and continued after Timmins granted Safeguard voting control of his shares in 2003. In a sworn affidavit filed in Timminco’s bankruptcy proceedings, Timmins said he occasionally counselled Timminco management, including Schimmelbusch, on staffing, strategy and other matters during this period. But after he resigned from the Timminco board and sold the rest of his shares in mid-2007, his consulting services were no longer requested. Still, the monthly cheques continued to be issued right up to the month that the company filed for bankruptcy protection.

“I’d been with the company a long time,” Timmins says when asked about his role in what became of Timminco. “We had a lot of wonderful people in that company. They helped me do what I would consider a pretty good job. I’m sorry the way things turned out. Commenting on that is not my function.”

Once Safeguard had control of Timminco, Schimmelbusch and Spector joined the board and brought in their own directors. Having steered Timminco through its financial crisis, John Crow was informed by Spector that he was no longer needed on the board.

Under CEO Schimmelbusch, Timminco’s shares plodded along on the TSX, hovering around $1 most of the time. Then, in July, 2004, in a related-party transaction that was fully disclosed, Timminco announced plans to buy Bécancour Silicon from Safeguard for $34-million in stock. Timminco would also assume about $17-million of Bécancour’s debt. The deal is difficult to evaluate, because the price that Safeguard paid for Bécancour in 1999 was not revealed.

If approved, the deal would require Timminco to issue 30.9 million shares to pay for the acquisition. Since the transaction was conducted in stock, it would also solidify Safeguard’s control over Timminco, boosting its stake from 26 per cent of the shares to 59 per cent and taking its voting control over the company from 50.3 per cent to 72.4 per cent.

Because the deal involved related companies, bankers from RBC Dominion Securities were asked to issue a fairness opinion to an independent committee of Timminco directors. The bankers concluded that the Bécancour acquisition was “fair, from a financial point of view, to Timminco.”

Shareholders approved the deal. If the company had any plans of producing solar-grade silicon, they were not mentioned at the time.

 

__________________________________________________

When it comes to stock-picking, Eric Sprott and his investment team like to get in early and they like to get in large. A knack for finding overlooked, underperforming junior companies has been the cornerstone of the Sprott modus operandi since he founded his eponymous firm in 1981. Unlike at most Canadian funds, Sprott portfolio managers shun the big banks and blue chips, preferring to back stocks that have the potential to provide massive gains rather than slow and steady returns. “My favourite investment is to own 0.1 per cent of something and have it become 30 per cent of my portfolio,” Sprott told The Globe and Mail’s Globe Investor magazine in 2008, when Timminco was in its heyday and his firm, Sprott Asset Management LP, was preparing to launch an IPO. “We have a lot of those stocks that were really, really little and became winners.”

Sprott’s firm had about $7-billion in assets under management at the time–more than enough cash to move company share prices, particularly those of penny stocks. Sprott’s team of analysts and stock pickers closely adhered to their leader’s deep-rooted doomsday convictions–that gold is money, peak oil is a reality and hard assets are superior investments to banks and financial services companies.

Timminco fit the pattern at Sprott–at least in the short term. So did Ceramic Protection Corp., a Calgary company whose story anticipated Timminco’s in several respects.

Ceramic manufactured bulletproof vests and other armour designed for the security and military sectors. According to regulatory filings, in June, 2004, Sprott funds owned about 10 per cent of the company. In September of that year, Ceramic purchased a Delaware-based company, Alanx Wear Solutions, for about $30-million (U.S.) in cash and stock. At the time of the sale, Alanx was controlled by Allied Resource Corp., whose chairman was the future driving force of Timminco, Heinz Schimmelbusch. Alanx’s CEO at the time of the sale was John P. Walsh, who joined Ceramic and was later named president of the merged company.

A few months after the Alanx acquisition, Ceramic raised $17.25-million through a bought-deal financing led by Clarus Securities, a small sell-side brokerage firm that concentrates on lesser-known Canadian stocks, with a focus on resources and technology. Ceramic shares soared as high as $29.90 in late 2004, thanks in part to a $30 price target issued by an analyst at Clarus itself, David Tomljenovic.

Single page

Follow on Twitter: @iamandyhoffman

 
Security Price Change
SII-T Sprott Inc. 2.86 -0.01
-0.348 %
Add to watchlist
Live Discussion of SII on StockTwits
More Discussion on SII-T

Topics:

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories