December 9, 2004

Another Income Fund’s Roots Lead to Belzberg: TorQuest Key Shareholder in Grandby Steel Tanks

This week, the initial public offering of Grandby Industries Income Fund was priced.

TorQuest Partners Inc., a Toronto-based private equity firm formed by Brent Belzberg three years ago, has joined the ranks of investors to have exited an investment via the income fund path. TorQuest, which raised $180-million from a group of outside investors three years ago, was the major shareholder of Grandby Steel Tanks, a company based in Grandby, Que., that describes itself as "a leading manufacturer of high quality tanks for the residential and light commercial storage of heating oil and other petroleum-based products." This week, the initial public offering of Grandby Industries Income Fund was priced. The issuer – which earlier this year expanded its base line of business by purchasing the coated copper tubing business from Kamco Products – raised $73.8-million via the sale of 7.38 million units at $10 per unit. The price was predicated on a yield of 11.25% – at the low end of the 11%-to-12% pre-marketing range.

For its part, TorQuest is retaining a 20% interest. For those with a longer memory, another income fund, Chemtrade Logistics Income Fund, was created from an entity associated with Belzberg. In 2001, Chemtrade was spun out of Marsulex, which a few years earlier had been spun out of Harrowston. – - –

Two days ago, PPI Acquisition Corp. announced that it had acquired 59% of Proprietary Industries Inc., a Calgary-based company that was the subject of two competing offers. On the surface, it seems like the battle for the attention of the company's investors is over. Not so, said Vic Alboini, chief executive of Northern Financial Corp., the other bidder for Proprietary. Northern Financial has an outstanding 70 cents-a-share offer in the market. At that price, the offer, which is set to expire on Dec. 14, is 6 cents more than what PPI Acquisition Corp. offered. Northern was one of the two companies bidding for Proprietary Industries. The other bidder, PPI Acquisition Corp., announced on Monday night that it had snared 59.1% of Proprietary's shares. Northern, which owned 9.9% of Proprietary, has a 70 cents-a-share bid in the market that expires on Dec. 14.

Alboini characterized the situation as "being in the fifth innings," which presumably means the game ain't over, unless a rain delay becomes permanent. "We have options," said Alboini, who runs a public company that owns Northern Securities, a brokerage firm. "There are all kinds of options and we will have to play them out," he added. "We still believe in the investment in PPI." Alboini wouldn't be drawn into detailing those options.

So let's speculate: Northern could retain it stake; it could cancel its offer; it could let its offer lapse when it expires; it could try to do a deal with PPI Acquisition Corp.; it could sell the block, or it could buy more stock. Alboini, who financed his offer with borrowed cash, said he isn't under any financial pressure. He said his cost base on all the Proprietary shares that he has bought is less than 63 cents. On the other hand, the bidder's cost base on the shares that it bought since Northern entered the fray with an offer is about 67 cents a share. At the close of business yesterday, Proprietary closed at 65 cents – - –

One indication of how active the junior resource market is the news that CastleRock Resources Inc. has upped the amount it hopes to raise from a financing of subscription receipts. The company, whose shares are listed on the TSX Venture Exchange, now hopes to raise $9.5-million from an offering of subscription receipts, priced at 12 cents per receipt.

If the agents – First Associates and Canaccord – are successful in reaching that amount of capital, the deal size will be almost double the issuer's original plans. Initially the idea was to complete a financing in the $2-million-to-$4-million range; though the issuer had the ability to raise $5.75-million. Later, the issuer increased the deal size to $8-million. The financing is part of a two-part plan that essentially amounts to a relaunch of CastleRock, a company led by John McBride that fell on hard times as a result of poor exploration result from its copper project in Arizona. McBride and his team looked around for opportunities as a way for giving his shareholder another chance.

In that relaunch, CastleRock will merge with Andina Minerals Inc., a private mining company controlled by Sean Harvey, a well-known mining executive who ran TVX Mining before that company merged with Kinross. Since that deal, Harvey has been exploring in Chile and Mexico. Once the merger occurs – shareholders have to vote at month end – Harvey will emerge as the larger shareholder in the new CastleRock. The $9.5-million financing will help the company further its exploration efforts. In the financing, investors bought subscription receipts which convert to common shares if CastleRock shareholders approve the merger with Andina Minerals. Each receipt consists of a common share plus half a share purchase warrant.

Source: Financial Post