Photographer: Ben Nelms/Bloomberg

The $750 Million Magnesium Deal That Came Up $750 Million Short

Updated on
  • West High Yield says buyer failed to pay $500,000 deposit
  • Canadian explorer in talks to resume trading of shares

It was one of 2017’s mega mining deals. And then it wasn’t.

West High Yield (W.H.Y.) Resources Ltd. -- the tiny Canadian explorer that surged nearly 1,000 percent last month after announcing a pact to sell its main assets for $750 million -- said the deal has collapsed. The buyer couldn’t come up with a deposit for less than 1 percent of the transaction value, or $500,000.

“The purchaser failed to pay the deposit” by the Nov. 6 deadline, Calgary-based West High Yield, which trades under the ticker WHY, said in a statement late Tuesday. "The board of directors of the company decided to terminate the agreement.”

The collapse ends a transaction that sparked a review by regulators following West High Yield’s extraordinary surge on Oct. 5 after it announced the deal. The stock jumped to C$2, from just 36 cents the previous day, giving the company with no revenue a market value of C$114 million ($89 million). The cash deal to sell the magnesium deposit in British Columbia to Gryphon Enterprises LLC would have been worth about 46 times West High Yield’s value the day before the announcement, making it one of the biggest mining asset sales in the world this year.

From the beginning there were questions about the deal, and the stock surge raised eyebrows among some investors in Canada, where the junior stock exchange has been dubbed the “wild west” for its volatile penny stocks.

Little information could be found on Maryland-based Gryphon Enterprises or its chief executive officer, Stephen Cummins. According to a West High Yield filing, the Toronto office of law firm Baker McKenzie represented Gryphon. Immediately following the announcement, Baker McKenzie’s global head of mining said he was unaware of the transaction.

Named in Error

In a statement last Friday, West High Yield said the law firm had been named in error and that Gryphon “has received advice” from Houston-based Thomas J. Kenan. It also had warned then of “substantial risk” that the buyer might not obtain financing for the deal. The company also warned last week that its prior claim that the assets hold about 3,000 years of magnesium supply “should not be relied upon.”

When reached by phone Monday, Kenan confirmed that he represents Cummins in the U.S., and that two or possibly three companies want to loan Gryphon money. “We’re dealing with reputable companies and people,” he said.

“He’s not a crook, I’ll just tell you that right now, I wouldn’t associate with one,” Kenan said of Cummins. “But sometimes he’s not very practical; he reaches very far and is always working on great big deals.”

West High Yield said that while it’s disappointed the deal was terminated, it "continues to believe, based on testing done to date, that the assets have significant value." It intends to continue its efforts to secure mining and rock quarry permits for the property, it said.

Stock Halted

The stock has been halted since Oct. 6 amid an inquiry by the Alberta Securities Commission.
"The company is in discussions regarding when its shares will resume trading," West High Yield said Tuesday. Hilary McMeekin, an ASC spokeswoman, as well as Cummins and West High Yield CEO Frank Marasco didn’t immediately respond to requests late Tuesday seeking comment.

Grant McGlaughlin, a partner at Toronto law firm Goodmans LLP, said the Baker McKenzie error was a “red flag.”

Lawyers and companies on both sides of large asset sales are always “intimately” involved during discussions leading up to an agreement, McGlaughlin said Monday by phone. “I’ve never seen it in 21 years where someone hasn’t had direct contact with a buyer’s counsel on a $750 million deal.”  

— With assistance by Joe Deaux, and David Scanlan

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