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Stickhandling boardroom brawls

Junior resource companies face onslaught of proxy battles as they deal with market volatility and tight-fisted lenders
Baja Mining CEO John Greenslade is in the midst of a nasty boardroom battle for control of his company

Ongoing market turbulence is fuelling boardroom brawls among Vancouver's junior mining companies.

In the last several months, a renewed level of tension has descended on the city's mining cluster as exploration companies struggle to access capital, battle depressed share prices and fend off opportunistic buyers.

This situation has generated higher income for a quiet corner of Vancouver's business community – proxy solicitation firms.

"There's an increase in it … we're going to continue to see it, particularly in the mining industry," said David Salmon, senior vice-president of Laurel Hill Advisory Group in Vancouver, which specializes in shareholder communications for companies in the midst of hostile takeovers.

According to Laurel Hill data, there were 17 publicly disclosed proxy battles last year compared with 14 in 2010.

That's not a huge increase, but Salmon said there were just as many battles that weren't publicly disclosed or that were headed off before they became full-blown boardroom wars.

The lion's share of those fights revolved around junior resource companies, which, despite relatively high commodity prices in the last year, have had a tough time raising money to fuel drilling programs in the far-flung corners of the world.

One of the more recent victims of a nasty proxy fight is Vancouver-based Baja Mining (TSX:BAJ).

Twenty years ago, John Greenslade staked the Boleo copper-cobalt-zinc-manganese property in Mexico's Baja California peninsula.

Since then, Greenslade, now president and CEO of Baja Mining, has slowly developed the property toward production.

In 2010, the company secured an $823 million debt package to build Boleo.

The mine is expected to start churning out copper early next year and, at last count, had generated some 2,500 jobs.

All was going according to plan for the Vancouver junior until Greenslade began to suspect a creeping takeover by one of its key shareholders – Mount Kellett Capital Management.

"I think it's probably coming about now because the share price is relatively low," said Greenslade.

Mount Kellett, a New York-based investment firm headed by former Goldman Sachs executives, has invested some $80 million in Baja.

The firm has hired Kingsdale Communications, a Toronto proxy solicitation firm, to launch a public relations war against Greenslade.

The chief executive officer has been accused of nepotism, cronyism and designing financial deals that would benefit a select few individuals, notably his daughter.

Baja has retaliated, retaining Laurel Hill to combat Mount Kellett's claims, arguing the financial firm is looking to place key executives on Baja's board and engineer a takeover while the company's share price languishes.

What story shareholders decide to believe will be determined at a special meeting scheduled for April 3.

And Baja isn't the only local company that's faced a proxy war in recent months.

Mosquito Consolidated Gold Mines (TSX-V:MSQ) dealt with a boardroom battle last year, while Hathor Exploration became the subject of a bidding war between giants Rio Tinto plc (NYSE:RIO) and Cameco (TSX:CCO).

Glenn Keeling, co-founder of proxy solicitation firm Phoenix Advisory Partners, said although ongoing market volatility is one reason for an increase in boardroom brawls, another reason is that junior resource companies are facing more oversight than ever before.

"Some of these companies are … actually starting to grow up … and with sophistication comes a great deal more oversight of how they actually operate their businesses," said Keeling.

In recent years, junior companies have attracted more institutional ownership in their stocks, which has brought increased oversight of corporate governance, said Keeling.

As well, a growing number of junior companies are concerned about the possibility of being taken out while their share prices remain low.

That's causing many of them to adopt shareholder rights plans, otherwise known as poison-pill strategies that stymie hostile takeover attempts, a trend Business in Vancouver pointed out last year. (See "Mining companies popping pills" – BIV issue 1126; May 24-30, 2011.)

All this boardroom activity has meant proxy solicitation firms are busier than ever, said Salmon.

"Business has been going very strong, we're seeing a lot of retainer business … we're finding people are bringing us to the table prior to it getting to the stage where it's a full-blown proxy battle," Salmon said.

Keeling said the best way for junior mining companies to avoid full-blown proxy battles is to start acting and behaving like big companies.

"Adopt some of the governance practices the market is really demanding … even when you don't have an institutional play in your stock, because the time will come when you will," said Keeling.

Companies should also think about moving to individual director voting on their boards, and ensure their poison pill strategies are compliant with regulatory standards.

"It's a tough place for people running small-market resource-based companies to be," said Keeling, "but it's a very exciting time." •