Candid Cambior? Why Some Shareholders Feel Left Out

All That Glitters ... Not

SAN FRANCISCO -- Almost immediately after the gold market exploded in late September, the vultures began circling. Hedge funds and so-called bullion banks believed to be massively short gold were proffered as likely candidates for big losses, if not worse. Admittedly, this column played a part in perpetuating that idea.

Yet as the (gold) dust settled, the real victims (or near victims) proved to be small gold mining companies that hedged against a big rise in gold, only to find themselves exposed to big trading losses when bets went awry (as I subsequently reported). Ghana-based Ashanti Goldfields (ASL) proved a prime example and was forced to broker a deal with its lenders in order to stay solvent.

Faced with a similar situation with its hedged book, Montreal-based Cambior (CBJ) forged a similar deal with its creditors on Oct. 27. On Nov. 12, the company issued a news release saying it had until Nov. 26 to reach "definitive arrangements for the orderly fulfillment of Cambior's obligations."

Matthew Ford, a research analyst at U.S. Global Investors, which sold its stake in Cambior when the company first announced the problems with its hedged book, estimated the company's hedge position is about $45 million in the hole at this point.

"They clearly can't fund it out of cash. They need some kind of additional agreement with counterparties," Ford said. "What form that will be, I'm not sure. But they've got until the end of the week to work it out."

With that kind of pressure, it's not hard to imagine that Cambior's management might go to extraordinary means, which is exactly what shareholder Asher B. Edelman alleged in a recent letter to the company.

The letter from the New York-based investment house charges that the company met with a "targeted" group of shareholders who were required to enter into a "confidentiality agreements" in return for their participation.

Scott Kasen, a partner at Asher B. Edelman, said fellow shareholders -- with whom he had previously discussed the "steps an activist shareholder" would undertake (i.e., replacing or retooling the board of directors) -- have since "refused to talk" because of the confidentiality agreement. He declined to name them.

"Reading between the lines, they've co-opted their ability and freedoms to exercise their rights as shareholders [because] they now have insider information and can't act" on it, Kasen said. Secondly, "we feel every shareholder is entitled to receive similar information."

Asher B. Edelman owns less than 5% of Cambior, he said.

I doubt this will raise the kind of scrutiny as Webvan (WBVN) drew when it said more behind closed doors during its pre-IPO roadshow than it told the public in its Securities and Exchange Commission filings. But if the allegations are true, it strikes me as being nearly as onerous. And just because Cambior is a thinly traded small-cap -- it closed unchanged at 1 1/8 today with 68,100 shares traded -- doesn't make sharing info with certain shareholders at the exclusion of others any less untoward.

Kasen said the company's response to the letter was of the "standard canned" variety. (He declined to specify, but it's not hard to imagine.) Currently, Asher B. Edelman is "seeking proper counsel" for dealing with the alleged improprieties by the Canadian-based firm and may contact the SEC as well, he said.

Cambior officials did not return numerous inquiries seeking comment. Bunting Warburg Dillon Read, Cambior's financial adviser, declined to comment.

However, Alan Snyder, president of Snyder Capital Management of San Francisco, Cambior's second-largest institutional shareholder, did comment. Snyder denied the company held exclusive meetings with only certain shareholders.

"I know they've talked to a lot of people, but it's in the normal course of the way things are done," he said.

But following the "normal" course of business is potentially the problem here. Moreover, given that Snyder Capital owns about 8.1 million shares of Cambior, or roughly 11.5% of the company's outstanding common, it's highly unlikely that particular shareholder was left out of any get-together.

By the Way

"Big whoop" was the general reaction to the market's downturn today (vs. the specific "oh my lord" reaction of shareholders of stocks such as Extreme Networks (EXTR), which slumped 25.5%.). Given the recent gains by major averages and expectations the rest of the week will be sparsely attended because of Thanksgiving, one day of setbacks is not going to rattle many traders.

But William Erman, founder of Ermanometry Research, a Nashville, Tenn-based quant shop, said something more serious is afoot.

Since Sept. 28, Erman has been warning clients that Nov. 18 was a major "E-zone," essentially a critical juncture in the market's long-term technical chart.

On Nov. 18, the S&P 500 closed at a record 1424.94 after trading as high as 1425.31 intraday.

That intraday high is "a very important top that could hold for the rest of the year," Erman said this afternoon.

I know Erman isn't exactly a household name (except in his own household, I trust), but his work is followed by some big institutions. Also, he was last quoted in this space on Aug. 4 forecasting a significant decline for the S&P, which closed at 1305.32 that day. It subsequently rose as high as 1381.79 on Aug. 25 before tumbling to as low as 1247.41 on Oct. 15.

And, no, he didn't make a forecast for the Nasdaq Comp or TheStreet.com Internet Sector index, much less JDS Uniphase (JDSU) or Red Hat (RHAT), which each established all-time highs (again) today.

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