Taseko and dissidend shareholders at loggerheads

TORONTO (miningweekly.com) – Base metals producer Taseko Mines this week cried foul when it reported that activist shareholder Raging River Capital (RRC) were involved with secret bond buying activity, which put it at odds with fellow Taseko shareholders.

RRC, which had a 5.1% stake in the company that owned 75% of the Gibraltar copper/molybdenum mine – the second-largest openpit in Canada – approached Taseko in January requisitioning a special shareholder meeting for which it wanted to nominate its own slate of director nominees.

Taseko said on Thursday that the bond register for its 7.75% senior notes, due 2019, showed that RRC owned Taseko bonds with a face value of $10.9-million, along with that of another entity registered at the same address, Raging River 2 (RRC2), which owned Taseko bonds with a par value of $5-million.

Taseko noted that the face value of about $15.9-million for the bonds held by the activist shareholders was significantly greater than RRC's holdings of about $3.4-million in Taseko shares.

Taseko stated that the activist investors’ financial interests were “now severely at odds with shareholders”. Taseko chairperson of the independent special committee of directors Linda Thorstad added: "This matter raises serious questions about whether RRC hopes to profit from its bond ownership at the expense of Taseko shareholders in the event that RRC's nominees are elected to the board."

‘NONSTORY’
Taseko argued that the activist shareholders were acquiring the bonds to find ways to force Taseko to redeem the bonds at par to get a 100% windfall in the value of the bonds, should their board nominees be elected during the requested shareholder meeting, which was scheduled for March 11.

Taseko argued that its bonds, which had a total face value of $200-million, would be prioritised over shareholders for repayment and cash distributions if RRC's nominees could cause the company to undertake certain kinds of transactions.

“We, like Taseko's other largest shareholders, hold both shares and bonds. Raging River has built up a bond position as an alternative strategy for participating in the turnaround of the company and provide protection from the current board’s continued mismanagement and self-interested decisions. We are one of the largest shareholders of the company and hold more shares than all of the board members combined,” an RRC spokesperson told Mining Weekly Online on Friday, adding that this was not news, just an attempt to distract from the ongoing conflicts of interest and underperformance at Taseko that Raging River was seeking to correct.

Central to those concerns was the role played by Vancouver-based professional services firm Hunter Dickenson International and that the three Hunter Dickinson affiliated directors had a disproportionate say in Taseko decisions.

The activist shareholders also argued that, since 2012, total fees and investment paid to Hunter Dickinson related entities totalled $25.8-million. According to RRC, Hunter Dickinson-related entities had received from Curis Resources unusually high management and service fees of $5.4-million over the 2013 and 2014 Curis fiscal years, during which time Taseko invested $7-million in Curis. This meant more than half of the money Taseko invested in Curis had been paid back to Hunter Dickinson-related entities in fees.

“The bonds are trading at 50c because of the poor management of the company, including the acquisition of Curis – at a premium when on the verge of bankruptcy – and expenditure on a mixed bag of untenable assets, as well as the insider [Hunter Dickinson] fees. The shares have limited liquidity for the same reason, limiting the potential to acquire any sort of larger position. We bought the bonds to increase our exposure. Their release is an act of desperation,” the RRC spokesperson said.

Adding to the shareholder discontent, Vertex One Asset Management, also one of Taseko's largest shareholders with a 3.92% equity stake, recently published a press release in support of RRC, to focus Taseko's business strategy, evaluate the relationship with Hunter Dickinson and address Taseko's balance sheet.

HIT BACK
However, Taseko spokesperson Brian Bergot hit back during a recent interview with Mining Weekly Online, saying RRC had raised misplaced concerns with Taseko's 2014 acquisition of Curis, and the involvement of Hunter Dickinson-affiliated personnel. Curis owned the advanced-stage Florence copper development-stage project, in Arizona.

Bergot stated that the three Hunter Dickinson directors recused themselves from the acquisition process and all voting decisions. “Taseko took exhaustive steps to ensure that best practices in corporate governance were applied throughout the 18-month process leading up to the transaction,” he said.

He also pointed out that Taseko had paid special attention to procedures involving Hunter Dickinson, including adopting a ‘related party investment protocol’. As described in the governance manual available on Taseko's website, the protocol ensured that directors followed best practices in related party situations, including review by a special committee of directors who were independent of Hunter Dickinson and who consulted outside advisers.

Bergot also drew attention to the Taseko board’s comprehensive procedures, conducted by independent directors, for ongoing and incoming director evaluation and nomination before each shareholder meeting. These procedures would continue for the meeting requisitioned by RRC, advised the company.

“Despite current low commodity prices, which have impacted Taseko like all copper producers, Taseko has confidence in its business strategy and its ability to create value for all shareholders,” stated Bergot.

However, RRC charged: “It is unfortunate that rather than work constructively with its largest shareholders, the board chose to engage in an unnecessary proxy fight, especially when their conflicts of interest are so obvious. The early indications of support we have received from shareholders who have contacted us underscore the need for change on an expedited basis. The longer the current Taseko board goes without addressing the ongoing conflicts of interest, the more shareholder value is at risk of being destroyed,” stated RRC.

FEDERAL LAWSUIT
Taseko last week started a civil claim in the British Columbia Supreme Court against the Canadian federal government, seeking damages regarding the February 2014 decision to reject the New Prosperity project, a multibillion-dollar gold/copper deposit in the province’s Cariboo region.

The lawsuit claimed that the federal government and its agents failed to meet the legal duties that were owed to Taseko and that, in doing so, they caused and continued to cause damages, expenses and loss to Taseko.

The federal government had officially rejected Taseko’s C$1.5-billion New Prosperity project for a second time, saying that it was "likely to cause significant adverse environmental effects that cannot be mitigated".

Government had rejected the project owing to Taseko intending to drain a lake to use as a tailings pond. Taseko had been pushing the mining project for almost two decades. Government ruled that the mine should not be built, as it could threaten water quality in a trout-bearing lake beside the mine site, as well as impact land and resources used for traditional purposes by local Aboriginals.