In the second major week of proxy season, it’s been a tough gig for the activists. Consolidated-Tomoka Land and GAM Holding both saw management slates re-elected, while Wells Fargo’s directors clung on in the face of uncertain odds.
Eco Oro Minerals
A small but interesting campaign up in Canada was also due to climax this week, ultimately ending up with a court-imposed delay to allow management and the dissident to resolve contradictory verdicts from the courts and securities regulators.
The company, Eco Oro Minerals, is one I’ve mentioned before but not covered in depth here. It has a good backstory, and is at an interesting pivot. To simplify greatly, Eco Oro owns a gold and silver mine in a part of Colombia now declared a protected environment, preventing it from extracting the metals. That gives it a claim against the government, but shareholders including Harrington Global Opportunities have called foul on management’s approach to the arbitration, saying the Eco Oro team has used cash wastefully and traded much of the likely value of the award for new funding.
Warren Buffett: If You Own A Good Business, Keep It
Harrington’s solution has been to bring in Courtenay Wolfe, who has run arbitration claims in the past, and to launch a proxy contest. Wolfe knows a bargain. According to Bloomberg, she paid $1.6 million to have lunch with Warren Buffet in 2009. In both 2008 and 2010 the cost was over $2 million. She told me last month that standard arbitration financing typically offers 25-50% of net proceeds, while the Harrington group, with Wolfe at its head, claims that Eco Oro’s management-friendly shareholders and directors will account for 78% of the gross proceeds, likely leaving common shareholders with zilch.
Where this got interesting is with a 2016 agreement to issue shares representing around a 10% stake in Eco Oro. By management’s account, the purpose was to deleverage the company, but the dissidents called foul and commenced litigation. Earlier this year the Toronto Stock Exchange allowed the issuance to proceed, but this week the Ontario Securities Commissioner ruled that a shareholder vote was required.
Harrington and Wolfe claim to have the support of 48% of shareholders, the latter saying on Wednesday, “We are so confident in our position that, if validly submitted proxies do not give us a majority of the voted shares (excluding the 10,600,000 New Shares), we will immediately withdraw our requisition and stand down.”
Confusingly, the Supreme Court of British Columbia ruled almost at the same time that the share issuance was not oppressive and did not deprive shareholders of their right to a free election. Further, according to an Eco Oro statement, it ordered, “that the meeting be adjourned to a date to be set by the board of directors prior to September 30, 2017, to allow the parties an opportunity to take whatever steps they deem appropriate to resolve the conflict between the OSC’s decision and the Court’s decision.”
That’s not much of an order. Getting the incumbent board and the dissidents to agree on how to move forward doesn’t look particularly easy, given that holding the meeting could see the directors booted out, but a settlement would probably require a lot of steps backward for the arbitration funders, which include Amber Capital and Paulson & Co (who likely did not appreciate being pulled into litigation by the activists). Something ought to give, but the chances favor a cold war over a summer of love.
Article by Activist Insight