MAC: Mines and Communities

The Curious Case of the Canadian hedge funder and his bid for Deep Sea Control

Published by MAC on 2013-01-21
Source: Nostromo Research (2013-01-14)

Canadian citizen Michael Bailey, is described as "an experienced investor and resident of Canada...an algorithmic trader and formerly a member of the Band of Scoundrels, an elite group of high frequency proprietary traders that successfully shorted Citigroup and profited [by] over US$130 million in October 2008" [PRWEB, 9 January 2013].

Don't be fooled by the fancy talk: Algorithmic trading (aka automated trading, black-box trading, algo trading) is simply use of electronic means to execute trading orders, using pre-programmed instructions which factor in timing, price, or quantity of a trade; in many cases initiating it without any human intervention.

It's widely used by investment banks, pension funds, mutual and hedge funders - of whom Mr Bailey is one.

On 7 January 2013, Bailey merited front page coverage in the Mining Journal when he was "said" to have "launched a hostile Cdn$238 million bid for undersea explorer Nautilus Minerals, sending the shares up by around 25%" [MJ 4-11 January 2013].

Nautilus is currently bent on exploiting huge riches on the seabed and its shareholders include Anglo American plc (with and 11.1% stake) and Canada's Teck Resources, with 4.5%.

The Mining Journal's misgivings about Bailey's takeover bid seem appropriate for - as it pointed out - "confusion" arose the day after it was made, when Nautilus said it hadn't received any formal offer for the company. Bailey's Canadian advisor, Gannibal Securities, "managed to misspell" the name of Robbert (sic) Gooden, the former chief scientific advisor to Nautilus, chosen by Bailey as Nautilus' chairman, should his bid succeed.

Moreover, says the MJ: "Bailey has not made it clear how he plans to finance the deal. Mystery also surrounds the role of law firm Fasken Martineau...said to be representing Bailey...a spokesman for the law firm said it was not involved in any transactions related to Nautilus or Bailey".

Whether Bailey intends "shorting" Nautilus' shares, once he's secured control (a typical hedge fund tactic) it's too soon to tell. Gannibal claims he's interested in the company because it "own[s] some of the highest-grade gold deposits and ha[s] a low share price"; once in production it, would "change the industry".

However, of late, Nautilus has been in fairly deep water as it struggles to bring on-stream its major Solwara-1 project in waters off Papua New Guinea. See: Nautilus seabed mining project jeopardized again

Algorithmic merchants of Bailey's ilk certainly aren't beneath taking huge profits when a project or company hits the rocks - whatever the expense to other "more responsible" investors.

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