In a filing with the United States Court of Appeals, an Ad Hoc Committee of shareholders in Allied Nevada Gold Corp (NYSEMKT:ANV) (OTCPK:ANVGQ) (OTC:HYCT) (OTC: HYCTW) allege Allied Nevada misrepresented the value of the Hycroft mine, and identify the concealment of Hycroft director Mike Feehan's affiliation with Barrick Gold (NYSE:ABX) (NYSEARCA:GDX) in support of accusations the bankruptcy plan was a visionary scheme, designed to mask the company's intentions to enter into an undisclosed agreement with Barrick Gold. On appeal, the Ad Hoc Committee seeks relief from confirmation of a bankruptcy, the committee alleges was a "conspired smokescreen, connived to conceal Allied Nevada's plan to transfer assets to insiders at Barrick Gold."
Throughout the underlying bankruptcy case and appeal, the Ad Hoc Committee of Allied Nevada Gold Corp Equity Security Holders ("The Ad Hoc Committee") allege the confirmed Chapter 11 reorganization of Allied Nevada Gold Corp ("Allied Nevada" now operating as "Hycroft Mining") was never the restructuring the company intended on consummating1. On appeal the Ad Hoc Committee proffered further evidence demonstrating how Allied Nevada undervalued their assets, filed misleading financial projections, and concealed their intentions to enter into a deal with Barrick Gold2. In support of such allegations, the Committee refers to a failed strategic transaction as proof the restructuring was a visionary scheme, while exhibiting evidence Allied Nevada willfully concealed board of director Mike Feehan's identity, and affiliation with Barrick Gold, from the bankruptcy court2.
Undoubtedly the plan confirmed by the bankruptcy court, did not meet the disclosure requirements of bankruptcy code. U.S.C. 1129, which explicably states:
"The Court shall confirm a plan only if all of the following requirements are met:
('5')
('A')
('i')The proponent of the plan has disclosed the identity and affiliations of any individual proposed to serve, after confirmation of the plan, as a director, officer, or voting trustee of the debtor, an affiliate of the debtor participating in a joint plan with the debtor, or a successor to the debtor under the plan; and
('i')the appointment to, or continuance in, such office of such individual, is consistent with the interests of creditors and equity security holders and with public policy; and
('B')the proponent of the plan has disclosed the identity of any insider that will be employed or retained by the reorganized debtor, and the nature of any compensation for such insider.
Although the plan of reorganization and disclosure statements were amended numerous times all individuals proposed to serve on the reorganized miners board of directors were never revealed. The only reference to the identity of the reorganized miner's future directors was on page 2 of Exhibit G of plan supplement3 which read "As of the Effective Date, the board of directors of the Reorganized Directors the Board of Directors of Reorganized will consist of the following individuals: Randy Buffington, (Chief Executive Officer and Chairman) David Kirsch, Jacob Mercer, Jonathan Segal and 'the remaining member of the board of directors has not yet been identified'..3"
On October 22nd 2015, Allied Nevada filed a Notice of Effective Date4 , and emerged from bankruptcy as Hycroft Mining Corp. Simultaneously with the docketing of the notice of effective date, Hycroft Mining Corp filed with the Security and Exchange Commission a Form D5, indicating the reorganized debtors' board of directors included Mike Feehan.
Months prior to the inadvertent disclosure of Mr. Feehan's identity, Ad Hoc Committee member Brian Tuttle attempted to depose the disclosed directors proposed to serve on the reorganized debtors' board to inquire about, "mining executives present at previously scheduled conferences in Colorado" regarding "negotiations with mining executives and financial advisors from the likes of Debtors' Ceo's former employer: Barrick Gold"6. Had the Mr. Tuttle known his identity, it's safe to assume Mr. Feehan would have also been noticed for a deposition.
After a background check the Ad Hoc Committee found, as of the effective date, Mike Feehan was president of Barrick Gold's pacific division. Shortly thereafter the Form D was entered into evidence in support of a motion to reconsider the bankruptcy confirmation5. On appeal, Ad Hoc Committee alleges the Form D is proof Hycroft Mining knew the identity and affiliation of director Mike Feehan's on the confirmation date, but intentionally concealed it from the bankruptcy court.1
Grievances related to the concealment of Mike Feehan's identity, and affiliation, were not the first time the Ad Hoc Committee raised issues with Barrick's involvement in the bankruptcy. Early on in the proceedings, Ad Hoc committee member, Brian Tuttle, alleged Allied Nevada may have been liquidating assets in a sale "not at arm's length" to insiders affiliated with CEO Randy Buffington's former employer. In a motion to stop the sale of exploration properties to a shell company of Waterton Global, Tuttle noted "Sometime in April 2015… Waterton Global removed references to Barrick Gold from their company website."7 Exhibited in the motion, were cached and un-cached screen shots of changes made to "watertonglobal.com/about"8. The screen shots were identical other then the sentence "Our internal project evaluations group was formerly responsible for evaluating and vetting all asset acquisitions for Barrick Gold, the world's largest gold producer"8 which was changed to "Our internal project evaluations group was formerly responsible for evaluating and vetting all asset acquisitions for some of the world's largest gold producers"8. Suspicious of potential conflicts, Tuttle remarked Allied Nevada CEO Randy Buffington's "last position held before being appointed was with Barrick Gold in a management position".7
In addition to departures from U.S.C. 1129 ('5'), the Ad Hoc Committee seek relief from a bankruptcy plan they allege was a visionary scheme proposed in bad faith1. Pursuant to the Allied Nevada's financial projections- exhibited in their Amended Disclosure Statement- the reorganized miner was to obtain $985 million in financing to expand operations at the Hycroft mine, via a strategic transaction projected to take place on January 1st, 2016.9 Not surprisingly, no such transaction ever took place. Instead within months of failing to secure the projected "strategic transaction" the company retained Goldman Sachs to assist with a "strategic alternative".10 Even with the precious metals mining sector on fire last summer, Hycroft Mining Corp threw in the towel on the projected financing to seek a strategic alternative, but why? Why didn't the restructured miner obtain financing in a business friendly environment that saw the price of precious metals exceeding all disclosed projections? Was it because the bankruptcy plan was never feasible? Or is it because the plan proposed was not the arrangement the company intended on implementing? The answer may be buried in exhibit 3 of the amended restructuring agreement, where exit facility lenders insisted the restructured company establish a demonstration plant "for potential purchasers of the Debtors to view onsite"11.
If the reorganized Hycroft Mining never intended on expanding operations in accordance with the plan of reorganization, then naturally the next question is who was the potential purchaser the demonstration plant was established to provide results for? The Ad Hoc Committee believes the "potential purchaser" - Barrick Gold- is already overseeing the demonstration plant. Exhibited on appeal was the April 25th, 2015 Hycroft Mining Corp press release indicating Steve Newman as the director of 2 feasibility studies10, and Mr. Newman's LinkedIn profile12. Steve Newman's LinkedIn profile indicates he left his position at Barrick Gold to join Hycroft Mining Corp in January 2016.
Upon information and belief the feasibility studies directed by Steve Newman are finished, but will not be released publicly raising additional questions about why the demonstration plant was commissioned and related feasibility studies undertaken.
Starting with stalking horse Waterton Global's removal of references to Barrick Gold from their company website, and ending with the hiring of Steve Newman, the Ad How Committee proffered evidence of Barrick's hidden influence over a reorganization the committee alleges was nothing short of fraud on the Court. For reasons unknown, affiliates of Barrick Gold appear to have went out of their way to conceal their identities in relation to a plan of reorganization the Ad Hoc Committee believes was never disclosed to the court. At the confirmation hearing, members of the Ad Hoc Committee objected to the plan of the reorganization on multiple grounds, with Mr. Tuttle eventually asking the Court "When Barrick Gold buys it two months from now, what is the that they're going to pay?"13. Shareholders believe this question will soon be answered.
1Ad Hoc Committee members filed 3 appeals with The United States District Court for the District of Delaware: see Civ.No.15-946-SLR, Civ.No.15-949-SLR, Civ.No.16-58-SLR. The appeals were dismissed as equitably moot. The dismissals of Civ.No.15-946-SLR, Civ.No.15-949-SLR are currently under review by The United States Court of Appeals for the 3rd Circuit see Case No. 16-3746, Case No. 16-3745 (consolidated).
2see The United States District Court for the District of Delaware Civ.No.15-946-SLR, D.I.12,22; The United States District Court for the District of Delaware Civ.No.15-949-SLR, D.I.18,28; see The United States District Court for the District of Delaware Civ.No.16-58-SLR D.I.21,27.
3see The United States Bankruptcy Court for the District of Delaware Case No.-15-10503-MFW, D.I. 1024, exhibit 3.
4see The United States Bankruptcy Court for the District of Delaware Case No.-15-10503-MFW, D.I. 1190.
5 see The United States Bankruptcy Court for the District of Delaware Case No.-15-10503-MFW, D.I .1361 exhibit 2.
6see The United States Bankruptcy Court for the District of Delaware Case No.-15-10503-MFW, D.I . 1050.
7see The United States Bankruptcy Court for the District of Delaware Case No.-15-10503-MFW, D.I . 423.
8see The United States Bankruptcy Court for the District of Delaware Case No.-15-10503-MFW,D.I . 423, exhibits 1,2.
9see The United States Bankruptcy Court for the District of Delaware Case No.-15-10503-MFW, D.I . 1173.
10see The United States District Court for the District of Delaware Civ.No.16-58-SLR, D.I. 25, TAB 1 "Hycroft Mining provides a Business Update".
11see The United States Bankruptcy Court for the District of Delaware Case No.-15-10503-MFW, D.I. 755, exhibit 3.
12see The United States District Court for the District of Delaware Civ.No.16-58-SLR, D.I. 25, TAB 2.
13see The United States District Court for the District of Delaware Civ.No.16-58-SLR, D.I. 25, TAB 3, page 159.
Disclosure: I am/we are long ANV, ANVG,HYCTW.
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