Mediterranean shareholders force management shake-up

Dissident shareholders of Turkey-focused gold explorer Mediterranean Resources (MNR-T) appear to have forced the resignation of the company’s president and CEO, Peter Guest, aged 73. Newly appointed director Christopher Ecclestone of New York has assumed the role of interim CEO, and director John Clarke of Vancouver has taken over as interim chairman.

Guest joined Vancouver-based Mediterranean in 2004, when the company was called Manhattan Minerals and was frantically trying to recover from a disastrous foray into South America. It had spent $60 million trying to develop the Tambo Grande massive sulphide deposits in an agricultural region
of northern Peru, only to have the government cancel the company’s option agreement amid fierce
local opposition to the project.

Guest was hired to sort out the mess, and quickly made a deal with the company’s creditors, got a cease-trade order lifted, rolled back Manhattan’s shares on a 1-for-10 basis, changed the company’s name and raised $6.6 million to acquire a prospective set of Turkish gold-copper properties from Teck Cominco, now Teck Resources (TCK-T, TCK-N).

Half a decade later, a group of dissidents are complaining about a
lack of progress being made at the Turkish properties. After completing almost 10,000 metres of drilling in 2008, Mediterranean drilled just 1,350 metres on its properties in 2009 and has completed no drilling since then. The dissidents say they also dislike Mediterranean’s “excessive” general and administrative expenses – which totaled $1.09 million in 2010, down from $1.25 million in 2009 – and Guest’s annual base salary, last reported for 2009 at $312,670. As at Dec. 31, 2010, the
company had negative $73,050 in working capital.

While Manhattan’s shares reached $13 at their peak in 1996, Mediterranean’s shares have failed to climb past 60¢ even once and until recently were trading at less than a dime.

Promoting the company from New York in a telephone interview, Ecclestone suggests there will be brighter days ahead for Mediterranean shareholders. “There are few companies out there that have a $20-million market cap and a
2-million-oz. gold resource.

“With Turkey being almost a treasure house of potential minerals, there are a lot more things we can look for in Turkey than just gold.” He notes Mediterranean’s main Tac and Corak deposits in Turkey hosts lead and zinc, as well as 95 million lbs. of copper. He expects the company will release a preliminary economic assessment for the properties in late April.

“We’re going to be doing all sorts of things now and really jazz up an operation that has been on care and maintenance for a very long time,” Ecclestone says.

Mediterranean’s most recent downfall began in late 2008, when the company’s stock fell to a low of 3¢ during the financial crisis. With capital markets all but dried up, the company penned a letter of intent to joint venture (JV) its gold projects with Cengiz, a large private Turkish mining conglomerate. In early 2009, however, the deal collapsed and the company treaded water while the Turkish government made changes to the country’s mining laws. Eventually, in June 2010, Mediterranean signed another JV deal, this time with a different Turkish miner, only to change the terms a few months later to sell the project entirely.

In December 2010, the Turkish company backed out (Mediterranean said it “chose to focus on opportunities in the energy sector”), and in the absence of a buyer Mediterranean kept the project and decided to continue with its advancement.

Curiously, in January 2011, Guest announced the company had received an unsolicited merger approach from an unnamed company. He also said Mediterranean had received “several unsolicited proposals for financing the company,”
including one at above-market prices.

Four days later, a dissident group went public with its concerns. The group comprises: Philip Strathy, a former director of
Mediterranean who resigned in December 2010  and is the manager of Toronto-based investment fund Fairlane Asset Management; Frank Lucas, the managing director of British mining consultancy and brokerage firm Loeb Aron & Co., which has helped Mediterranean raise money since the mid-2000s; and 2013072 Ontario Inc., a private company with as yet undisclosed principals.

The dissidents hoped to replace all of Mediterranean’s directors except Clarke with: Strathy; Toronto mining promoter Lewis Lawrick; Turkish investor Huseyin Gun, who claims to be one of the “leading private investors” in neighbouring Iraq; and 34-year-old Kerim Sener, currently the managing director of Alternative Investment Market-listed Ariana Resources (AAU-L), which trades for around five pence a share.

Responding to the dissidents in a press release, Guest said the request for a shareholder meeting was “clearly an opportunistic attempt to force a business combination between Mediterranean (and) Ariana.” He went on to explain how Loeb Aron had heavily promoted Ariana in the past and even “insisted upon the attractions” of a merger between it and Mediterranean. According to Guest, a merger of equals is not attractive – Ariana’s 50% owned Red Rabbit project has a gold resource “a mere fraction of the size of Mediterranean’s resource” (450,000 oz. versus 1.87 million oz.).

Guest then moved into action in the hopes of keeping his job. He helped arrange a $1.5-million financing, appointed a new director (gold analyst Jeffrey Nichols), applied for more Turkish operating licences and rehired SRK Consulting to complete a preliminary economic assessment which had previously been placed on hold.

The frantic progress all came to naught, however. On March 16, Mediterranean announced Guest “is no longer acting as president and CEO” of the company. Shortly
afterward, dissent nominee Sener was appointed to the board and Ec-clestone took over as interim CEO.

Ecclestone says the dissident shareholders are “very happy” at
the moment.

“I would not be surprised if the shareholder meeting did not take place. We haven’t had that confirmed to us yet, we’re just waiting to hear from them what their response is.

“To my knowledge, and I admittedly only arrived in January, I have not heard of any discussions with Ariana about any merger. I’ve just been involved in getting this new director on board (Ariana’s Sener), and there was no discussion at all between me and him about a merger with Ariana. And there is no evidence that I’ve seen that suggests that there were any discussions before with Ariana.”

Mediterranean’s stock is up from a 52-week low of 7.5¢ in early January 2011, and at presstime on March 28 closed at 17¢.