Ursa Major gets in the ring with Forbes & Manhattan

Struggling junior nickel miner Ursa Major Minerals (UMJ-T) has told Stan Bharti’s Forbes & Manhattan to put up its dukes and prepare for a proxy fight at Ursa’s annual general meeting on June 23. 

The Toronto-based Forbes group, which controls roughly 35 publicly traded natural resource companies, has aligned itself with Ontario-based nickel explorer Inspiration Mining (ISM-T) to undertake control of Ursa by way of a proxy battle. Shares of Ursa have languished around a dime since crashing during the 2008 financial crisis, despite the company resuming production a year ago from its Shakespeare nickel-copper-platinum group metals mine 70 km west of Sudbury, Ont. The company suspended mining there in 2008 due to weak metal prices.

Ursa now runs a slightly profitable direct shipping operation from Shakespeare’s west pit under a custom milling agreement with Xstrata‘s (xta-l, xsraf-o) Strathcona mill. At a nominal rate of 1,000 tonnes per day, Ursa turned a net profit of $667,998 before the fiscal year ended on Jan. 31, 2011, with gross metal sales totalling $14.8 million. 

Inspiration and F&M say this level of profits is not good enough. They want to bring in new management to expand the operation, cut costs and bring up the company’s lagging share price.

But Ursa’s management has its own plan for expansion, including building a $100-million, 4,800-tonne-per-day mill to enable mining operations at Shakespeare’s east pit, which already boasts 9.7 million tonnes of reserves and continues to expand under ongoing exploration. The problem is raising the money needed to build it, given Ursa’s depressed share price.

It is unclear how the two dissidents came together to challenge Ursa’s management and take control for themselves. The principal motivation behind the proxy battle seems standard: to gain control of a profitable mine at a reasonably low cost.

Ursa’s investor relations manager, Alison Tullis, says Inspiration had no prior relationship with the company before it began
buying Ursa’s shares in the open market around May 2010. By November, it had acquired over 9 million shares representing 15% of Ursa’s common shares.

On Oct. 31, Inspiration called for a special meeting of shareholders to replace Ursa’s management with its own proposed slate of directors. 

Ursa eventually scheduled the meeting for March 3, but it was cancelled shortly afterwards, however. Ursa claimed Inspiration had refused to disclose its slate of directors or provide a proper business plan. Inspiration tried to have the Ontario Superior Court overrule the decision, but the judge decided in Ursa’s favour.

Perhaps smelling blood in the water, Forbes & Manhattan approached Ursa in February 2011 with an offer to invest $3.3 million in the company, which Ursa promptly turned down.

The Forbes Group typically buys a 20% minority equity stake in a junior, and replaces most of the existing management with its own executives. These executives are usually taken from what Forbes describes as a 150-person “world-class multidisciplinary team” of geologists, investment bankers and mining executives. 

Forbes made the offer again in April, according to a report by The Globe and Mail, but was refused a second time.

Inspiration and Forbes decided to wait until Ursa’s annual general meeting to launch their proxy battle, but the two have not been idle. They – or at least Inspiration, which is required to disclose any changes in its shareholdings as it is a 10+% minority shareholder – have been buying up more shares on the open market, with the dissidents now controlling 19.8% of Ursa’s outstanding shares, or roughly 16 million of the 80 million issued and outstanding.

They have also released a dissident’s circular, which proposes a new slate of directors who are executives and consultants stacked with experience in Ontario nickel operations. The directors include Mark Trevisiol, F&M’s vice-president and the former general manager of business development and strategy for Xstrata’s Sudbury nickel operations; Allen Hayward, a mining consultant and the former vice-president and general manager of Falconbridge’s Sudbury operations; George Faught, F&M’s chief operating officer; Randall Miller, Inspiration’s chairman and CEO; and two other former Xstrata managers, Helio Diniz and David Gower.

According to Forbes & Manhattan, “The issues for Ursa Major shareholders are quite straightforward. Ursa Major’s share price has fallen dramatically in recent years and remains depressed. The Shakespeare mine is not as profitable as it should be, and the capital markets lack confidence in current management.”

Ursa’s management sees the issues quite differently. Led by president and CEO Richard Sutcliffe, it says the proxy battle represents a zero-premium takeover bid for control of the company. “We have advanced Ursa Major to the point where it is the only currently profitable junior nickel mine in Canada. As such, the dissidents are making an opportunistic play for our growing portfolio of profitable assets, notably the Shakespeare mine. Contrary to the unsupported allegations of the dissidents, we have controlled costs to maintain profitability and kept shareholder dilution to a minimum, while achieving mine production.”

Sutcliffe further notes Inspiration shareholders “have experienced a disastrous decline in their investment” over the past few years, with Inspiration’s stock dropping from a short-lived high of $7.69 in mid-2007 to its present stagnation around 25¢. As for Forbes & Manhattan, Ursa says, “Communications with shareholders have indicated that many are dissatisfied with the performance of a number of public companies that are controlled by the dissidents and their nominees.” 

This would likely include Crowflight Minerals (cml-t), a Manitoban nickel junior which the Forbes Group took over several years ago. Crowflight briefly featured Trevisiol as its president and CEO. After facing production problems and financing issues at its underground Bucko Lake nickel mine in northern Manitoba, Forbes lost control of Crowflight in 2010 to its current Chinese backers, the Hebei Wenfeng Industrial Group, who are now trying to make the company profitable again and bring the stock back up from its current low of 7¢. Another example of an F&M-controlled underperformer is Alexis Minerals (amc-v), which is limping along at 8.5¢ with cash costs from its Lac Herbin gold mine in Quebec spiralling out of control. Last quarter, they reached a dizzyingly high $2,555 per oz. gold produced.

Nevertheless, Forbes & Manhattan’s several market success stories over the past few years have outshone their failures, and the group retains the confidence of many retail investors, brokerage firms and banks. 

As for the vote on June 23, Ursa’s Tullis admits that “it’s going to be fairly close.” Shares of Ursa closed up 6¢ to 20¢ on June 15 on an unusually heavy trading volume of 6.7 million shares, most of which came from a 5.6-million-share cross between GMP Securities and an anonymous brokerage house just 10 minutes before markets closed, at a price of 24.5¢ per share.

An insider disclosure report filed on June 16 revealed an Ontario company controlled by Wesley Hall has acquired another 6.6 million shares of Ursa, bringing his total position to 11.6 million shares or roughly 15% of the company. Ursa’s CEO Sutcliffe
describes Hall as a “significant supporter” of company management, and hinted the share purchase might tip the odds in Ursa’s favour for the upcoming vote.