The mine-safety poster child (MEE)

What is the latest news on Massey Energy, the troubled mining company? Three points:

1. At the annual meeting on May 18th, the three incumbent directors up for re-election won. They remain on the board.

In a display of hubris, though, the company immediately announced its directors had been "overwhelmingly" elected. The numbers don't bear that out.

2. What has been happening with the price of Massey stock lately? It is almost enough to say that it can be and has been bracketed with recent performance by BP and Toyota.

3. On the other hand, there is always the possibility that it has fallen too far. Short interest is high, which means that should an upward tick begin, a rush to cover could give the upward move momentum.

Nothing I say here is to be interpreted in any way as investment advice.

Canadian mining

Here's a link to a very well-written article about the Canadian mining industry, a story that ran April 6 in the Financial Post Magazine.

Reporter Karen Mazurkewich adopts an almost elegaic tone as she ticks off the names of the great mining companies who have played a big part in that country's history:
Barrick Gold Corp., Falconbridge Ltd., Noranda Inc., Inco Ltd., Teck Resources Ltd.
These companies have either been swallowed up by foreign concerns, or they are now doing their mining outside Canada.

Is this because Canada's mineral wealth has been exhausted? Not at all. As Mazurkewich notes, the industry momentum has stalled due to "rising energy and labour costs, First Nations' protests, a provincial stealth tax on diamonds in Ontario and moratoriums on exploration."

She quoted Warren Irwin, a name that leaders of this blog may remember. Irwin, president and president and chief investment officer of Toronto's Rosseau Asset Management, which is invested in Noront Resources, says that battles with First Nation groups have made the climate too uncertain.

"Ontario thinks of itself as a stable world-class mining jurisdiction, but the reality outside is that it can get pretty lawless for exploration companies, and the government has been turning a blind eye to it," says Irwin. "As a direct result of the uncertainty in investing in mining in Ontario we have been forced to go to other jurisdictions for investments."

This blog can offer him nothing but a sympathetic ear, but it does offer that.

China v. Four Rio Tinto Execs

On July 5, 2009, four Rio Tinto employees, one of whom is a citizen of Australia, were arrested in Shanghai for corruption and espionage. The Rio Tinto Group is a diversified, British-Australian, multinational mining and resources group with two headquarters -- one in the UK, the other in Melbourne, Australia. Rio Tinto was founded in 1873, and is named for the site of its first mine, on the Rio Tinto river, in Huelva, Spain.

The four defendants are to be put on trial this week. Their names: Liu Caikui, Ge Minqiang, Wang Yong, ands the Australian citizen, Stern Ho. They were initially charged with stealing state secrets, which is a capital offense. Perhaps in response to diplomatic protests from Canberra, that charge was dropped, and they stand accused now of taking bribes and related acts of corruption.

Foreign businesses will be looking carefully at the trial as an object lesson in the risks of doing business in the People's Republic.

Question: is this trial really just revenge for the failure of the Chinalco deal? Chinalco is the major Chinese state controlled mining enterprise that offered in early 2009 to make a major infusion of cash into Rio Tinto in return for ownership interest in certain assets. Stockholders in Rio Tinto didn't think they were getting a fair shake, and the deal never went through.

Hell hath no fury like a dragon scorned?

A Stroll Down Memory Lane with Bre-X

My mind wanders back past out 21st century corporate/financial scadals to one from the final years of the last century -- and the alleged bounty of gold that Canadian company Bre-X claimed it had discovered in Busang, Indonesia.

I re-read recently an article that appeared in FORTUNE in June 1997, by Richard Behar. Behar had visited Busang in the weeks before the fraud was exposed, but as a matter of his good fortune he didn't end up writing a credulous piece about the wonders of the place, the benefits Bre-X and a boom were bringing to the natives, etc. For a variety of reasons he held off on writing, and the scam was exposed in the interim.

Here is the story that resulted from Behar's fortunate procrastination. Writing such a story is rather like taking an exam after peeking at the answers in the back of the teachers' edition of the textbook.

The opening is amusing. Behar tells us how Bre-X vice chairman John Felderhof explained the geology of the (fictitious) deposit to him, that a volcano had essentially "collapsed back onto itself" three million years before, which had created a massive buildup of pressure, which had created the wonderful deposit.

"He drew a diagram. It made sense. After all, he was on his eighth beer of the evening; I was on my fourth."

Wouldn't that make more sense as an explanation of a diamond deposit that as an explanation of a gold deposit? After all, gold is an element (like carbon). Gold is still gold whether it has been under pressure over geological ages or not -- carbon only becomes a diamond under pressure. I think I would have needed more than four beers to make that story plausible. Still, I have proven gullible in my own way, so I can't sit in judgment of Behar.

Although I don't know how it is with volcanoes, I'm sure that salted-mine frauds are bound to collapse into themselves sooner or later. The timing of that event is important, though, and the sooner the better. The longer a fraud goes on, the more it intertwines itself with legitimate businesses, and the more innocent victims there are when everything implodes. In the case of Bre-X, the government of Indonesia has to take a bow (I say this despite being an avowed anarchist) -- for Indonesia insisted that it would not leave the site to be exploited solely by Bre-X. It insisted on a partner, involving Freeport-McMoran Copper & Gold, which then had to do its own tests.

This led to another awkward moment that Behar relates in his story. During his visit to Indonesia, he heard that Freeport was coming into the picture. He naively thought it was quite a coup for Bre-X -- that they'd be thrilled.

"In one of my last meetings in Jakarta with Felderhof, de Guzman walked in. I rose and slapped him on the back, congratulating him on Freeport's emerging as Bre-X's new partner. He should have been thrilled. Instead, he was stone cold. Grim. Icy. He didn't even look at me. It was clear he wanted to talk to Felderhof alone."

Chinalco boss gives an interview

The Financial Times yesterday ran an interview with Wang Wenfu, president of Chinalco Overseas Holdings, with regard to the Rio Tinto deal.

Chinalco is a state-owned Chinese mining concern, and in February it struck a "strategic partnership" deal with the Melbourne-Australia based mining Rio Tinto Group.

As part of that deal, Chinalco is paying Rio Tinto US$7.2 billion for convertible bonds. If Chinalco were then to convert those bonds into equity, its equity share of the Rio Tinto Group would double, from the present 9% to 18%.

Many shareholders are ticked off, because of the obvious dilution effect such newly-created equity will have upon the value of their own shares.

Their concern has been sharpened by the recent increase in the value of their (and Chinalco's) shares. The shares (which are denominated in pounds and traded on the LSE) become convertible -- or, the first $3.1 billion tranche becomes convertible -- if the price gets to 30 pounds. That seemed somewhat theoretical in February, but the price is now at 28.50 pounds, so the threshold is within striking distance.

So what did Wang Wenfu have to say? Two things:

1) "This investment is a package. It is a result of two months of very intensive negotiations. It cannot be viewed separately."

2) "We respect the rights of shareholders. Shareholders should have the right to help their company and Rio management has to assess the situation and it is their judgment that this transaction is in the best interest of all shareholders."

It does not sound like he plans to do any re-negotiating. In still blunter western-world language, "A deal's a deal, suckahs."

Palmiere resigns at HudBay Minerals

HudBay Minerals is a mining company working copper and zinc deposits especially in Manitobe. It trades on the Toronto Stock Exchange.

Its chief executive, Allen Palmiere, has resigned in the face of shareholder discontent resulting from a failed effort to acquire Lundin Mining, another Toronto-listed compamy, last year.

SRM Global Master Fund LP is seeking to replace the whole board at HudBay, and a special meeting has been called for March 25 at SRM's request for the purpose of this vote.

The official announcement of Palmiere's departure says the usual nice things: "The Board of Directors thanks Allen for his service to HudBay, first as chairman, then as chief executive officer and director." But there is no effort to answer the obvious question: why?

SRM doesn't call the shots yet, surely, so its discontent can't be the only operating factor here. Did Palmiere jump or was he pushed?

Let's get the Sccoby-Doo gang to work on this mystery. Maybe the new interim CEO, Colin Benner, will end up telling them "I would have gotten away with it too, if not for you meddling kids!"

Probably not. I'm just free associating.

Best Way to Ensure Competition

A deal long in the making, the acquisition of one global mining company by another, won't happen. It has been sideswiped not so much by the credit markets (just two weeks ago BHP insisted it was going forward notwithstanding) -- it has been sideswiped by the competition policy of the EC.

I refer of course to BHP Billiton, the Anglo-Australian company that had planned to buy the Rio Tinto Group with a share swap at 3.4 to 1.

As I noted back in June, when world credit conditions looked a lot better than they do now, even then the stock of the target company was trading at a level below that suggested by the 3.4 to 1 ratio suggesting that even then the market was concerned that regulators would scuttle the deal.

BHP is the larger of the two concerns, but Rio has the more illustrious history. Rio traces its origins to Spanish mines so old the ancient Roman empire had minted coins from the metal taken from that earth. In 1873, two Rothschild firms -- the Parisian and the London -- joined with other investors to buy the Spanish government's interest in these mines. They restructured the company and turned it into a profitable business run from London.

At any rate, the deal faced scrutiny from regulators in several of the countries in which both companies did business, including South Africa and Australia. But it was the EU that did the scuttling, by making unexpectedly severe demands in terms of the assets that would have to be sold off by the combined entity.

I'll use my humble blog to express baldly an opinion. Scuttling mergers is NOT the best way to ensure competition. There are several reasons for this. One of them is that the predictable action of authorities along such lines preserves incumbent managements against the threat of takeover -- and that the threat of takeover is a valuable deterrent to laziness or self-dealing by incumbents. I'm not making any such charge against the Rio Tinto management, by the way. I'm only saying that in general when authorities act as those in the EU have done, they remove a worry from corporate managers -- and the public needs to have corporate managers worry. Takeovers are among the things they should be worried about.

The best way of ensuring competition is to look for barriers to entry and then lower them. Why is some well-capitalized industrial company somewhere not even now putting money into a start-up iron ore mine? Because the market demand for iron ore doesn't make it profitable? or because there are administrative barriers? If the latter, then the EU might look into how those barriers can be lowered. That would give existing managements more, rather than less, to worry about

Rousseau's deal with Noront

A considerate reader has answered a question I asked in mid-October.

I observed, on October 13, that the hedge fund Rousseau Asset Management was challenging the incumbent board at Noront Resources Ltd. and I wondered aloud what was the inspiration for the fund's name? the painter? the Enlightenment philosopher?

So today I make an overdue acknowledgement of reader "Rosedale," who told me (on October 28, the very day on which the meeting was scheduled) that RAM is named after Canada's Lake Rousseau, where the fund's manager, Warren Irwin, has his boat.

Noted. Now ... what happened about the proxy fight?

The day before the meeting, October 27, Noront and Rousseau settled their differences. Noront's president, Richard Nemis, agreed to step down as Prez and to become instead "chairman emeritus" and "special advisor" to the board.

The office of president is now occupied by two men, Joseph Hamilton and Paul Parisotto, as a team. But they are doingso only on an "interim basis" while theboard looks for someone to take the job on permanently.

As to the question of who is to sit on the board (which is after all at least the headliner issue in most proxy fights), the two sides worked out an elaborate ballet. They jointly recommended the election of three nominees from the incubent board and four nominees from the challenge slate. So they have a seven seat board, right? Wrong.

Immediately after the election, by agreement, one of he nominees from the challenge slate and two of the nominees from the former incumbent slate resigned as directors. The challenge-slate resignee, Michael Woollcombe, was not replaced. But the two incumbent resignees, Maurice Stekel and John Blancheflower, were immediately replaced by two appointees nobody had nominated.

So the company now has a six-seat board of directors. One of these was a member of the previous board, three were from the challenge slate, and two are agreed-upon appointees from either.

Curious. And as theatrical in its own way as any drama ever barred from the City of Geneva.

Cliffs meeting re-scheduled

The Cleveland, Ohio based mining company, Cliffs Natural Resources, has rescheduled its special shareholder meeting, called to approve its proposed merger with Alpha Natural Resources.

The company was known as Cleveland-Cliffs until last month, and it had planned to hold the special meeting on November 21.

Now they have set a new date -- almost a month later. The meeting will take place December 19, with a "record date" of November 19.

Ohio statutes require a supermajority of shareholders to approve of such a merger, so opponents can block this deal with 35%. Such opposition does exist, as those who've been following the matter along with me know.

My reading of the delay is that the management at Cliffs knows they don't yet have the votes to push this through. But they think they can persuade some of the dissidents to vote their way given the extra month they've now given themselves.

Alpha is unhappy. It has brought a lawsuit in Delaware seeking to obtain an order invalidating this re-scheduling. What gives there? Does Alpha want to push the deal through quickly? or do they want to kill the deal by holding the vote befoe any of the dissidents can be persuaded to change their views? (Seller's remorse?)

What a cool name for a hedge fund!

Noront Resources Ltd., a Toronto-based minerals-exploration company, has a shareholders meeting scheduled for October 28.

Its incumbent board faces a challenge led by a hedge fund named Rousseau Asset Management Ltd., which owns or controls approximately 9.2% of Noront's common shares.

I know very little about the underlying dispute. But I was intrigued by the name. Rousseau Asset Management? Do they often use the acronym "RAM".

I'm reminded of the song "High Hopes." Maybe they should wage a proxy fight against some company that has just finished construction of a million kilowatt dam.

Aside from the acronym: Is "Rousseau" the family name of the founder? Or was he paying a tribute to the famous painter?.

Or perhaps, less likely I suppose, it was a tribute to the philosopher of the state of nature and the debilitating consequences of civil society.

More prosaically, there's an Henri Paul Rousseau who was the chairman and chief executive of Caisse de dépôt et placement du Quebec, from 2002 until earlier this year. Does RAM have any connection to him or his kinfolk?

If anyone in the wide readership of Proxy Partisans knows anyone connected with RAM, let them know I'm curious. About the name, as about the specific strategy and performance record. [I don't see any "Rousseau" in the TASS database.] Curiosity may have killed a cat or two but I doubt its done any harm to a RAM of late.

How to draft a resolution

Suppose you, dear reader, are an activist.

You believe something wrong is underway, and want to use the mechanisms of capitalism to help make it right. You're concerned, for example, that a certain mining company, operating in a tropical region, may expand its operations in a way that would run roughshod over the interests of the indigenous inhabitants.

You might want to introduce a resolution at the next shareholders' meeting asking that the company postpone that expansion "until a just, accepted, peaceful and permanent resolution of local indigenous concerns can be reached in consensus-based process with all stakeholders."

Then you'll be happy to know that, at least if you word your resolution with some care, you can require the company to include it in the proxy materials sent to all shareholders, under existing Securities and Exchange Commission regulations.

I mention this because there is a fascinating discussion of this point on the Friends of the Earth website here.

Through that page and the others to which it links, FoE examine both resolutions that have been accepted onto the proxy materials (sometimes over management objections) and those that the management have successfully managed to exclude. A neat dos-and-don'ts primer.