Atticus Capital’s Position in Legend International Holdings (LGDI.OB)

A strange investment, this time by Atticus Capital, considered one of the best run hedge funds with billions under managment. They own approximately 23 million shares (out of 177 millon shares- thus a market cap of $350 million) of a phosphate exploration company that has a VERY bizarre history (and they just added 69k shares on April 16th). The stock is an OTC Bulletin Board stock trading at $2.31 as of 4/24/08 with an average volume of 95k shares (shown on Yahoo)- but OTC trading is typically double counting, so the real average volume is only 1/2 of that number. So, there really is no liquidity in the stock if Atticus wants to get out of its position. They bought about 19 million shares in a private offering at $.80 back in December 2007, and the shares were registered in February, which gives them the ability to sell the shares in the open market.

If the company’s exploration efforts are successful, then there might very well be some major upside:

“At between $350 and $400, Morocco-based OCP Group’s second quarter prices for phosphate rock, which is used to manufacture fertilizers and chemicals, are roughly $150 to $200 higher than they were in the first quarter of 2008, according to Fai Lee at RBC Capital Markets.

This will mean higher production costs for non-integrated phosphate fertilizer producers, which could drive prices even higher than current record levels, the analyst told clients in a note.“

Interestingly enough, the stock has moved from $.99 on February 7, 2008 to $2.31 on 4/24/08, thus a 131% increase in 2 1/2 months. The company has $17 million in cash, but it burned through $9 million in the past 18 months, so it is likely they will have to raise more money.

I don’t typically like OTC Bulletin Board Stocks, but something is up with this one as Atticus put a lot of money in this deal. Their valuation (based on $2.31) gives them close to 3x their money in 4 months, but again they can’t just unload 23 million shares with an average daily volume of 48k or they will kill the stock. So, they are definitely in this for a longer period of time; plus, they just picked up some shares. It kind of looks like a “pump and dump” deal when you read the 10K (cashless options, the private offering, registration rights, no revenues, etc.). However, Atticus could not afford to get involved in such a scheme or their reputation would be ruined.

I don’t really have an opinion about the company, since it is phosphate exploration, but why would Atticus put even $15-20 million in a company that has no real chance of producing and at this point no real liquidity. Something is up. In any event, here are Atticus’ buys and sells and the performance since their transactions were made public:

http://www.trackthepros.com/categories.php?category_id=377

Below is the history of the company for your reading pleasure….again, very bizarre:

History

Legend was incorporated in the State of Delaware on January 5, 2001 under the name Sundew International, Inc., to engage in the business of selling compatible inkjet cartridges and refill kits on the Internet.

On March 13, 2003, Legend filed for an Amendment to its Certificate of Incorporation (the “Amendment”) pursuant to which the name of Sundew International, Inc. was changed to “Legend International Holdings, Inc.”

In November 2004, Renika Pty Ltd, an Australian corporation (“Renika”) acquired an 88% interest in Legend from William and Michael Tay (the “Tays”), the Tays resigned as Directors and Officers of Legend, Joseph Gutnick was appointed President, Chief Executive Officer and a Director and Peter Lee was appointed Secretary. The Tays also granted Renika an option to acquire an additional 578,240 shares of Common Stock that Renika exercised in 2005. Commencing in fiscal 2005, Legend has decided to focus its business on mineral exploration activities.

Effective as of March 3, 2006, the Company entered into a Contract for the Sale of Mining Tenements (“Contract”) with Astro Diamond Mines N.L. (“Astro”) an Australian company pursuant to which the Company shall acquire certain diamond mining tenements in Northern Australia from Astro, which is described above.

In November 2007, Legend acquired a number of phosphate exploration interests in the State of Queensland in Australia

Legend is an exploration stage company. Legend has not been involved in any bankruptcy, receivership or similar proceeding. Legend has not been involved in any material reclassification, merger consolidation, or purchase or sale of a significant amount of assets not in the ordinary course of business.

Business

The Company has never generated any significant revenues from operations and is still considered an exploration stage company. The Company was initially formed to engage in the business of selling compatible inkjet cartridges and refill kits on the Internet for the consumer printer market. In March 2003, management of the Company decided to engage in the business of building and acquiring controlling or other interests in one or more companies engaged in the contract sales and distribution of specialty medical products, and raise additional capital for this purpose. Neither business was successful and operations of both were eventually discontinued. During fiscal 2004, management of the Company developed a plan of operations to acquire income-producing real property. The Company did not acquire any properties pursuant to such plan.

Following the change of management in November 2004, the Company developed a new plan of operations, which was to engage in mineral exploration and development activities. Legend’s business plan calls for the identification of mineral properties where it can obtain secure title to exploration, development and mining interests.