Roxgold and Maudore the latest of many hit with proxy battles

VANCOUVER — Frustrated investors are increasingly resorting to proxy battles as share prices languish, with Maudore Minerals (MAO-V) and Roxgold (ROG-V) two of the latest to see a shareholder revolt.

The two have ample company, as many investors are looking at management as a clear place to lay blame for declining stock prices in this bear market. Fights for board control have taken place at a wide range of companies in recent months, from the high-profile fight over control of Baja Mining (BAJ-T) and its under-construction Boleo mine – won by dissident shareholders, to the much lower-profile fight over control of junior molybdenum company Mosquito Consolidated Gold Mines (MSQ-V) – won by management.

Other companies recently subject to proxy battles include Avion Gold (AVR-T), Jaguar Mining (JAG-T),  Argonaut Exploration (AGA-V), Mundoro Capital (MUN-V), MGold Resources (MNI-V), Bison Gold Resources (BGE-V), and while most of those have already been resolved at annual general meetings, the shareholder opinion war is still raging at Maudore Minerals and just starting up at Roxgold.

At Maudore, a group of shareholders holding about 18% of shares and led by Rex Harbour have portrayed the current board of directors as lacking technical experience and not capable of driving the company forward. Current CEO Ronald Shorr has countered that the Rex Harbour group are attempting a “stealth takeover” of the company by imposing an entirely new board that is “inexperienced and beholden to Mr. Harbour.”

At the centre of the argument is who is more capable of moving the company’s high-grade Comtois gold project in Quebec towards production.

The Harbour group complain that after seven years of exploration the company still does not have an economic study out on the project; that they have been waiting for a promised resource update for eight months; and that the discovery cost of $18.80 per oz. gold achieved so far is well above the industry average of $10.18 per oz. gold. The group contents that the lack of progress is in no small part due to the lack of technical expertise on the board, particularly singling out Shorr, 76, as having no mining experience.

Management has responded that it has been successful in outlining a 1.2-million-oz. gold resource, that it recently announced new gold discoveries, and that it is indeed moving the project forward, all with minimal dilution. The board has also moved to establish a technical advisory committee to increase expertise, and that the proposed Maudore team has two mining engineers while the proposed Harbour group have none.

Both sides have drawn up supporters, with proxy advisory firms Institutional Shareholder Services and Glass Lewis & Co. recommending that shareholders vote with the current board, while Harbour has announced that Anglo Pacific Group, Maudore’s second largest shareholder, will be voting with the dissident group.

From there the debate goes into all sorts of side issues, from how many options the company has allowed itself to issue and that Shorr was both chairman and CEO until recently, to the apparently questionable financial independence of Rex Habour’s charitable Harbour Foundation and the Harbour group’s unwillingness to negotiate. The press release battle has also led to strong language on both sides, though certainly more colourful in the Shorr camp. Most recently Shorr framed the choice as between “stability and progress” versus the dissident’s “half-baked plans and nepotism” with their “hare-brained scheme.”

The annual general meeting, which has been twice postponed, is scheduled for July 19.

At Roxgold the proxy fight only started on July 9 when a group led by Oliver Lennox-King, former chairman of Fronteer Gold, Pangea Goldfields, and Southern Cross, put forth a slate of directors just in time for the July 12 AGM. In response, Roxgold decided to postpone the meeting more than two months to September 25.

The company says it delayed the meeting to “provide shareholders with ample opportunity to consider all of the issues in what is now a contested election”. In response, Lennox-King stated the delay is “a stunning betrayal of shareholder rights” and shows a “complete lack of respect for shareholder democracy.”

The Lennox-King group have raised numerous concerns over how the current board have run Roxgold, covering much the same ground as in the Maudore debate. On the project level concerns include slow progress on a number of fronts at the company’s flagship Yaramoko gold project in Burkina Faso, while on management the concern is again the lack of technical experience in senior management. And while the issuing of options is a small part of the Harbour group’s concerns at Maudore, the Lennox-King group sees the compensation practices at Roxgold as a main concern.

Lennox-King points out that since late 2010 the board has awarded 12.5 million options for 98% of available options under the company’s rolling 10% stock option plan, with most going to the board. Outstanding shares, meanwhile, have increased nearly ten times from 12.5 million in October 2010 to 122 million in early June. At the same time non-executive directors paid themselves aggregate cash bonuses of $240,000 in the 2011 financial year and paid CEO Robert Sibthorpe an additional $113,000 for serving as a director.

The Lennox-King group has also raised concerns over Roxgold’s steeply declining share price, which traded at a high of $2.27 in March but was at 56¢ on July 6. The stock got some relief, however, on news of Lennox-King’s action, jumping 19¢ to 74¢ with 3.7 million shares traded on July 9.

Roxgold has stated that it “does not want to get drawn into a back-and-forth debate on the many statements made by Mr. Lennox-King at this time,” in contrast to the Maudore debate. The one clarification the company made was that there is no basis for concluding Lennox-King had the shareholder support needed going into the July 12 vote. Lennox-King has stated that his group represents 28.5% of outstanding shares, and that since going public with his alternate board slate, shareholders representing a further 21.1% of outstanding shares have thrown their support behind the group.

Roxgold’s share price recovery was short lived, dropping down to 63¢ on the latest company update. Maudore’s share price, which peaked at $6.15 in November, has since been on a steady decline, hitting a 52-week low of $2.69 on the company’s latest salvo before closing at $2.78 with 26.9 million shares outstanding.