Grande Cache rises as deal closer to completion

Investment Canada doesn’t believe the haters, as the Feds have given the nod to Winsway Coking Coal’s bid for Calgary-based Grande Cache Coal (GCE-T).

The deal had come under more scrutiny after short-sellers Jonestown Research issued a report in January alleging that Winsway’s imports were less than reported and that its inventories were overstated. If proven accurate, such accounting fraud would jeopardize the deal.

The Jonestown report sent Grande Cache’s share price down 5.8% after it was released, as its shares closed on Jan. 20 at $9.21 – their lowest level since the deal was first announced back in late October.

The power of a report, even though it was released by a research firm with little credentials and even less transparency about their own operations, comes from the recent situation with Sino-Forest (TRE-T). The company had its share price demolished after short seller Carson Block blew the whistle on the company for accounting irregularities.

But with the approval granted to today, Grand Cache Coal’s shares have moved back up towards the all cash offer value of $10 per share. In Toronto on Feb. 8 the company’s shares were up 4% or 38¢ to $9.73 on heavy volume of 9.5 million shares.

Investment Canada said the $1 billion deal “is likely to be of net benefit to Canada” leaving only the approval of the Hong Kong Stock Exchange for Winsway’s participation to be completed.

Provided that approval comes, the deal is expected to close by the end of February.

On Jan. 19 Winsway asked the Hong Kong Stock Exchange for more time to submit a filing it needs to complete the acquisition and says its circular will be submitted by Feb. 22.

The offer for the company is a joint bid made up of both Winsway and the Japanese trading house Marubeni Corp.

Winsway, which processes and transports coal to China from Mongolia, called the Jonestown allegations unsubstantiated and false, and Grande Cache has stood behind the company in its defense.

Grande Cache coals management hasn’t been untarnished by scandal itself. In December of last year the Alberta Securities Commission accused its president and chief executive, Robert Henry Stan, along with his wife and four other current and former senior executives of insider trading.

Grande Cache holds 220 sq. km of land in west-central Alberta which contains over 300 million tonnes of coal. It has been mining metallurgical coal at the property since 2004 using both open pit and underground methods.