VANCOUVER — Proxy battles were a hot topic roughly two years ago, and now producer Timmins Gold (TSX: TMM; NYSE-MKT: TGD) is the latest to be targeted by dissident shareholders looking to remake the company's board of directors. On June 2 Toronto-based Sentry Investments announced its intention to launch a proxy fight against Timmins, with the goal of replacing six of the company's eight existing board members.
Sentry does not have a history of aggressively attempting to re-constitute companies, but the portfolio management firm — which controls roughly $14-billion in assets and holds a 17% equity stake in Timmins — says a "lack of management accountability" and "mismanagement of assets" has negatively impacted shareholder value.
Sentry has accumulated its position in Timmins over the last several years, and notes that the company has consistently missed its production targets and lacks an executive compensation program that is sufficiently linked to operating performance. Timmins flagship asset is the San Francisco heap-leach gold mine 150 km north of Hermosillo, Mexico. The company produced 120,900 oz. of gold equivalent in 2013 at cash costs of US$717 per oz.
Despite setting production records last year, Sentry claims that Timmins has neglected to define a clear strategy for value creation, and that management has not demonstrated a clear long-term growth strategy beyond San Francisco.
The investment firm has criticized the company for maintaining separate president and CEO positions, and notes that three of its board members received "extremely low" voter support in 2013. Sentry also mentions that Timmins has failed to call its annual general meeting within the required Toronto Stock Exchange deadline for a third consecutive year.
"It is time to transform the current board from one that lacks independence and depth of mining industry experience to an independent board of industry veterans that can deliver results and ultimately enhance the value of Timmins for shareholders" said Kevin MacLean, senior vice-president and senior portfolio manager at Sentry.
A major concern for Sentry involves Timmins' apparent hesitation in entertaining takeover offers. The firm claims that the company is not open to a potential sale, and that there has been interest from a number of "stronger companies with superior growth prospects, stronger financial positions, superior technical skills and superior operating performance."
And at least one of Sentry's recommended board members is not new to the proxy ring. Oliver Lennox-King played a prominent role in the successful board takeover of explorer Roxgold (TSXV: ROG; US-OTC: ROGFF) back in July 2012. Lennox-King currently sits as Roxgold's non-executive chairman, and is former chairman of Fronteer Gold, Pangea Goldfields, and Southern Cross. Former Fronteer COO Troy Fierro is also amongst Sentry's list of replacement directors.
The remaining four proposed board members include: former Pan American Silver (TSX: PAA; NASADQ: PAAS) CFO Tony Hawkshaw; Placer Dome alumn Tony Harwood; Northgate Minerals president and CEO Richard Hall; and Grayd Resource president and CEO Marc Prefontaine.
Sentry notes that its board has a history with mergers and acquisitions, and boasts extensive mining and public company experience. The firm contends that the new directors would work to reduce cost redundancies, address the bottleneck in the crushing circuit, and optimize geological assessments.
Timmins issued a brief response following the news, stating that its current board is "committed to considering the views of all [its] shareholders" and that it will "[work] with an independent consultant to consider the qualifications of the nominees of Sentry Investments and other potential candidates." Timmins subsequently delayed its annual general meeting through September 23.
Shares of Timmins rose around 19% over two days of trading following news of Sentry's proxy maneuver. The company gained 25¢ on 8 million share trade volumes during the period before closing at $1.56 per share at the time of writing. Timmins reported cash and equivalents of US$44 million at the end of March, and maintains 163.4 million shares outstanding for a $255 million press-time market capitalization. The company has traded within a 52-week window of $1 and $2.74 per share.
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