It's an underwriter's worst nightmare: you launch a bought deal, making you liable for any unsold shares, and then some shocking news about the company comes out.
That exact scenario played out this week. On Monday evening Belo Sun Mining Corp. launched a $50-million bought offering of common shares. Shortly after, the Financial Times' Sao Paulo bureau wrote a short story about Belo Sun's flagship project with the following lede: "Brazilian federal prosecutors have opened an investigation into the biggest gold mine under development in the country..."
The story went on to explain that federal prosecutors were looking into whether the project would endanger indigenous communities.
This, of course, put investors on edge. The stock fell to $1.28. The bought deal launched at $1.40 per share.
With so much confusion in the market, Belo Sun withdrew the financing. "When there's huge uncertainty, you don't ram a deal down people's throats," said chief executive officer Mark Eaton, reflecting on the situation, adding that the decision to pull the deal was his own. Mr. Eaton knows a thing or two about financings, considering that he previously worked on CIBC World Market's institutional sales desk.
Ultimately, Mr. Eaton said the FT's story was "a slightly unfortunate translation of Brazilian terms." All permitting in Brazil is done at the state level, but any time a permit is applied for, the federal government gets involved to make sure there are no native issues, and things of that sort. In other words, what he calls a run-of-the-mill review was translated as an investigation. If someone wants to create "a cow shed, the federal prosecutor has to open an 'investigation,'" he said.
But it also hurt that it was the federal prosecutor who was looking into the file. However, Mr. Eaton said that doesn't mean it's anything bad. That office is just simply who takes care of these cases.
Once potential investors, some of whom are long-time supporters of Mr. Eaton's, had a better grasp of this, they indicated that they'd still support the deal – hence the decision to re-launch.
And after the initial chaos, Mr. Eaton suspects there was some short covering, which sent the stock higher. That allowed the firm to re-launch at the exact same price it came to market at.
Three days later, he's letting out a big sigh of relief.