Chariot and Lundin battle intensifies

Some key members of Lundin Mining’s (LUN-T) board, are making a bold move on Chariot Resources (CHD-T).

The company’s chairman and namesake, Lukas Lundin, along with fellow Lundin board member Brian Edgar, issued a dissident proxy circular urging Chariot’s shareholders to vote in a new group of directors.

“We believe that Chariot has suffered from entrenched and ineffective management,” a letter signed by Edgar and Lundin that accompanied the dissident proxy circular reads. “Further delay in progressing the Mina Justa Project and destruction of shareholder value appears inevitable unless there is real change at Chariot.”

Chariot’s president, chief executive and director Ulli Rath calls the charges preposterous, and explains that any perceived delays in advancing the project had to do with a decision — made in consultation with shareholders — to conserve cash and weather out the financial crisis.

The company did get a feasibility study completed on the oxide ore portion of the deposit and released it in April of this year, but the sulphide portion is still in the prefeasibility stage.

If Lundin and Edgar are successful they say they will transform the current feasibility study “into a true ‘bankable’ feasibility study that considers all available mineral resources.”

Until that is done, however, the dissident shareholders say that it is impossible to accurately value the project, and because of that a bona-fide offer for the company will not come through.

Lundin and Edgar make the point in an Aug. 25 release that argues their board is the right one to get maximum value from the sale of the company.

In the initial circular, however, the desire to sell wasn’t stated so clearly.

In fact, Lundin sounded like a man intent on driving the project into production – a scenario that would leave Mina Justa as an asset of Lundin Mining without the company paying one cent for it.

Lundin said in the initial circular that if a feasibility study warranted it, he would use all of his resources to get the project into production.

The perception that Lundin Mining could be acquiring a prime copper asset for free gave Chariot the leverage it needed to mount a spirited defense.

“If Lundin Mining wants to take control of Chariot, it should make a take-over bid directly to the shareholders of Chariot. Instead they are trying to steal control without paying for it,” Ulli Rath, Chariot’s chief executive said in a statement.

Perhaps sensing shareholder sentiment turning against the dissidents, Lundin Mining was left to try and distance itself from its chairman’s offensive.

In a press release issued on Aug. 25, Lundin Mining said it had no interest in acquiring the Mina Justa project or Chariot, but that it supported the “concerned” shareholders – Lundin and Edgar – in that it too had lost confidence in Chariot’s management.

Lundin Mining is a major shareholder in Chariot with a roughly 18% stake in the company.
“Why doesn’t Phil Wright (Lundin’s chief executive) pick up the phone and call me if has problems,” Rath says.

He says neither Wright, nor anyone else at Lundin, has ever taken the initiative to discuss any issues they might have had with the way the project was unfolding, and finds it bizarre that given their silence over the years, that they would now be leveling such hardened criticism.

Lundin disputes that point and claims that Colin Benner – one of people that the dissidents are putting forward as a new board member – offered technical assistance to Chariot while he was vice-chairman of Lundin mining but was re-buffed. That, however, was back in 2007.

Regardless, by Lundin Mining stepping out of the picture it is clearly trying to reduce the shareholder vote to a call on who they think is best positioned to get maximum value for the company.

In that vein the dissidents tout the experience that the collection of Benner, Donald Charter, Richard Clark, Wojtek Wodzicki, Edgar and Lundin would bring to the table.

But Rath points out that it is Chariot’s board that has more mining experience – 175 years combined, 80 of which was accumulated in Central and South America.

In addition, casting Chariot’s management as incompetent may be a bit rich for Chariot shareholders to swallow when Lundin Mining – a company that five of the six directors have been or are currently tied to — reported a year-end loss of US$957 million.

Rath argues that the best scenario for Chariot shareholders is to let the current board continue to drive forward at the project with the aim of selling the project via an auction when market conditions are at their best.

He says Mina Justa will be “shovel ready” by the end of the year, with an environmental assessment ready for submission at the end of the month.

The government has given the company permission to begin its permitting process while its environmental review is being assessed.

Rath says, despite the dissidents’ claim to the contrary, the company has excellent relations with the government, and has been a leader in establishing community involvement in the environmental process.

Much of the dissidents’ chances for success rest on just how frustrated shareholders have become with the pace of development and how much faith they have in the current board going forward.

But it is hard to imagine how the Lundin group would be able to accelerate the permitting and environmental assessment process any further than is currently being done.

The one area where they can make a point is on the feasibility study. Chariot seems to have left an opening by not getting the sulphide portion of the project beyond the prefeasibility stage.

Chariot shareholders will have to decide whether or not such a lapse is punishable to the extent of bringing in an entire new board.

Because if the Lundin group wins, there is no guarantee that it won’t simply hold on to the project and quietly envelope it under the Lundin Mining umbrella as an asset acquired for no more than minimal effort required to agitate the wrath of some frustrated investors.