Is Breakwater Resources In Play?

In my routine check of stocks in the MFI universe with interesting buying activity, I've happened across another potential takeover candidate, specifically Breakwater Resources (OTC:BWLRF). This Canadian mining company's stock currently appears in the top 100 screen for $50+ million market caps on the MFI Web site. Its web site can be found at http://www.breakwater.ca.

A review of recent Schedule 13 filings for Breakwater on the SEC web site shows some interesting activity by another Canadian firm, Dundee Corporation. First, on March 13, Dundee filed a 13-D disclosing a 21.55 percent stake in Breakwater on an undiluted basis and a 24.45 percent stake on a partially-diluted basis when giving consideration to warrants held by Dundee to purchase an additional 15+ million shares of Breakwater. Obviously, that's a very significant stake, but it's not much of a change from the 13-G filed in October of 2005. What is significant is that Dundee switched from a 13-G to a 13-D status, which is generally only done when the reporting shareholder in interested in taking a more "active" stance with the investment.

Then, on March 16, Dundee filed an ammended 13-D disclosing a 24.4 percent interest in Breakwater. Basically, the filing was intended to indicate that Dundee had exercised the Breakwater warrants it held. The filing didn't explicitly state that, but you can come to that conclusion by comparing "box 11" of the respective 13-D filings ... or you could have taken the easier route and checked for a press release.

According to its web site (http://www.dundeecorporation.com), Dundee is "primarily a holding company dedicated to wealth management, real estate and resources." Its Dundee Resources Limited subsidiary is responsible for its natural resource activities. To add further fuel to the potential for a Breakwater buyout, it's interesting to take a look at the make-up of Breakwater's Board of Directors. Its chairman is Garth MacRae, a former vice-chair of Dundee. What's even more interesting, however, is that two current Dundee employees, Jonathan Goodman (President and CEO of Dundee Precious Metals) and Ned Goodman (President and CEO of Dundee Corp.) also sit on Breakwater's Board.

Now, there's no question speculating on a Breakwater buyout isn't something to bet the farm on, but I do think this is a situation well worth watching, especially given the facts above as well as recent takeover activity among mining stocks, e.g., Freeport-McMoRan's acquisition of Phelps Dodge, Xstrata Plc's cash bid for LionOre Mining International, and Quadra Mining's recent offer for International Molybdenum. I, for one, will certainly consider plowing some speculative funds into the stock after researching a bit further.