Augen Gold‘s (GLD-V) board has unanimously recommended shareholders reject an all-share offer from neighbour Trelawney Mining and Exploration (TRR-V) valuing the company at $55 million.
Trelawney’s offer of 0.066 shares for each Augen share held implies an offer price of 32¢ per share, which it says represents a 40% premium to the volume-weighted average price of Augen shares over the 20 trading days before the first bid announcement.
Augen’s management, however, including CEO David Mason, claims the offer substantially undervalues the company and is
“opportunistic,” “financially inadequate” and “volatile and of uncertain value.”
Augen controls 238 sq. km of mining claims adjacent to Trelawney’s fast-growing Côté Lake gold deposit in the southern Swayze greenstone belt of northern Ontario. This includes Augen’s past-producing Jerome gold mine, for which it recently released a National Instrument 43-101 compliant resource estimate outlining a 1.03-million-oz. inferred gold resource contained in 18.7 million tonnes grading 1.7 grams gold per tonne.
According to Tim Peterson, chairman of Augen Gold, “After careful review, the board has concluded that the Trelawney offer does not adequately reflect the value of Augen Gold’s assets, our successful exploration record and our very attractive land position in the south Swayze greenstone belt. In addition, Trelawney’s bid is subject to numerous conditions and does not comply with Augen Gold’s shareholder rights plan.”
In a late effort to boost the value of its holdings, Augen Gold is looking to ramp-up exploration close to Trelawney’s Côté Lake deposit. It has arranged to drill 3,500 metres in nine holes at its West Côté Lake zone, targeting a “new, untested, 1.2-km-long, northeast-striking soil gas hydrocarbon gold-in-soil anomaly that is subparallel to the strike of Trelawney’s Côté Lake.”
Trelawney’s bid is the third ownership challenge in just over a year for Augen Gold’s Mason. In April 2010, several members
of Augen Capital (AUG-V), a resource investment company Mason helped found in 1994, became unhappy with his leadership and ousted him as president and CEO. The dissidents from Augen Capital, which held a 15% interest in Mason’s other company, Augen Gold, then proceeded to launch a proxy battle to overthrow him there, too.
Mason regained control of Augen Capital a few months later along with several other shareholders, by launching and winning their own proxy battle and swinging the vote count in Mason’s favour at Augen Gold’s annual general meeting. Unidentified critics of Mason later took to posting derisive messages about him on the stock blogging website Stockhouse, accusing him – among other things – of not wanting Augen Gold to merge with any other company, so that he could collect excessive management fees.
According to a recent article by Mike Caswell of Stockwatch, this led both Augen and Mason to file a notice of claim in the Supreme Court of British Columbia on July 21, alleging defamation of character. The suit claims that three posters using aliases authored at least 38 defamatory statements between January and May 2011 on Stockhouse.
The suit lists one poster appearing under the alias “Clchan” as saying, “The biggest challenge facing both v.TTR [Trelawney] and v.GLD [Augen] shareholders is the David Mason factor. He does not have much of a holding in v.GLD, and is earning a good living charging fees for raising funds and running v.GLD. He will not have any interest in any merger that would remove his role.”
The Stockwatch article reported, “As Mr. Mason sees it, the statements by the three posters meant that he was not qualified to run Augen and was motivated primarily by self-interest. They also meant that he was dishonest and untrustworthy and had improperly promoted the company.” Mason and Augen are seeking damages for libel and to compel Stockhouse to provide it with the IP addresses of the posters.
Although Mason could not be reached for comment by presstime, Augen Gold’s latest management information circular lists his compensation in 2009 as $2,500 per month, or $30,000 per year, under a management services contract with Augen Capital, which appears to have expired on June 30, 2010. It goes on to state, “Arrangements are currently being considered for the provision of services subsequent to June 30, 2010.” Insider trading reports disclose Mason as owning 1.16 million Augen Gold shares.
After sitting below the 20¢ level for much of the past three years, Augen Gold’s shares surged sharply in November 2010 following positive exploration results from Trelawney and the long-awaited start of drilling at Augen’s South Swayze project. They hit a high of 65¢ at the end of last year before sliding slowly back down to around 23¢ this quarter, at which point Trelawney made its takeover bid.
Trelawney has entered into lock-up agreements with several Augen Gold shareholders, including Augen Capital, which in total control over 53.4 million shares. When added to Trelawney’s 4.29 million shares of Augen Gold, the junior gold explorer already controls 45% of Augen Gold’s 128 million outstanding shares. The minimum amount needed to proceed with the takeover bid is 66.6%.
Shares of Augen Gold remained unchanged at 32¢ on 288,000 shares traded, after the company rejected Trelawney’s offer on July 27.