VANCOUVER — Gold miner Timmins Gold (TSX: TMM; NYSE-MKT: TGD) is being targeted by dissident shareholder Sentry Investments in a proxy fight that aims to replace six of the firm’s eight board members.
Sentry does not have a history of aggressively reconstituting companies in the public arena, but the Toronto-based portfolio management firm — which controls $14 billion in assets and holds a 17% equity stake in Timmins — says a “lack of management accountability” and “mismanagement of assets” has hurt shareholder value.
Sentry accumulated its position in Timmins Gold over the last several years, and now complains that the miner has missed its production targets and lacks executive compensation that is 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 equivalent oz. gold 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 strategy for value creation, and that management has not shown a long-term growth strategy beyond San Francisco.
The investment firm has criticized the company for having separate president and CEO positions, and argues that three of its directors received “extremely low” voter support in 2013. Sentry adds that Timmins has failed to call its annual general meeting within the required Toronto Stock Exchange deadline for a third straight 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 management’s apparent hesitation in entertaining takeover offers.
Sentry claims 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.”
At least one of Sentry’s recommended board members is familiar with proxy fights: Oliver Lennox-King played a prominent role in the board takeover of explorer Roxgold (TSXV: ROG; US-OTC: ROGFF) in July 2012. Lennox-King sits as Roxgold’s non-executive chairman, and is former chairman of Fronteer Gold, Pangea Goldfields and Southern Cross. Former Fronteer chief operating officer Troy Fierro is also amongst Sentry’s list of replacement directors.
The remaining four proposed board members include former Pan American Silver (TSX: PAA; NASDAQ: PAAS) chief financial officer Anthony Hawkshaw; Placer Dome alumnus Tony Harwood; Northgate Minerals president and CEO Richard Hall; and Grayd Resource president and CEO Marc Prefontaine.
Sentry notes that its proposed slate of directors has carried out mergers and acquisitions, and boasts extensive mining and public company experience.
The firm contends that the new directors could reduce cost redundancies, address a bottleneck in the crushing circuit and optimize geological assessments.
Timmins responded to Sentry on June 6 by establishing a special committee to “identify additional independent director candidates for its [board of directors], with skills and experience that complement and augment [the existing board’s] capabilities.”
Timmins Gold charged that Sentry “refused to compromise” during discussions before launching its proxy contest.
The company describes Sentry’s statements regarding potential takeover offers as “false assertions,” and claims that when one interested party inquired about an acquisition, the potential suitor was “granted exclusivity and afforded the opportunity to undertake due diligence, but declined to make a binding offer.”
The company had rescheduled its annual general meeting to Sept. 23, but has now moved up that date to July 31.
“We responded immediately to Sentry’s concerns, seeking to address them privately through constructive action aimed at enhancing the quality and independence of our [board],” chair of the special committee Paula Rogers said. “This included inviting Sentry to propose director candidates for the board’s consideration as a means of enhancing [the board], and avoiding a costly, distracting and, in our view, counterproductive, proxy contest. We are disappointed that Sentry rejected our good-faith efforts and is proceeding with an action that would have the effect of transferring corporate control.”
Shares of Timmins rose 19% over two days of trading after news of Sentry’s proxy manoeuvre. They gained 25¢ on 8 million shares traded during the period before closing at $1.57 per share at press time.
Timmins reported cash and equivalents of US$44 million at the end of March, and has 163.4 million shares outstanding for a $255-million market capitalization. Shares have traded within a 52-week window of $1 and $2.74.
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