Gold mining meltdown is so bad As gold prices stumble and mining stocks sink to woeful lows, a lot of investors are asking the same question: where are the activists?
The sad answer, experts say, is that activists dont see any more hope for this sector than anyone else does right now.
It was a given over the past several years that proxy battles would break out across the mining space whenever commodity prices dropped. Frustrated investors would scrutinize the strategy and compensation of boards and management teams, and quickly act when they saw a problem.
Activists overhauled many mining boards during recent bear markets, including HudBay Minerals Inc. in 2009. There was an average of nine mining proxy fights a year between 2008 and 2013, according to law firm Fasken Martineau.
There are more frustrated mining investors today than at any other point in recent memory. But prices for commodities such as gold, silver and iron ore have fallen so much that it is hard to find opportunity in any of the related stocks.
If you take over the board and take over the company, how are you going to create value at a gold price like this? said Wes Hall, head of Kingsdale Shareholder Services.
You dont want to put good money after bad by spending money on a proxy fight, winning the proxy fight, and the company is still a piece of shitte.
Activists want to target companies that are poorly run and could turn around quickly with a change at the top (Canadian Pacific Railway Ltd. is a prime example). But this market has not distinguished between well-run and poorly run mining companies: they have all been slaughtered, leaving little opportunity to create value by replacing management.
In this climate, its not clear to me that anyone is going to do better than anybody else, said Orestes Pasparakis, a partner at law firm Norton Rose Fulbright.
At the current gold price of roughly US$1,160 an ounce, many miners are bleeding cash or struggling just to break even. And raising capital is extremely tough for cash-strapped juniors, leaving them with essentially zero opportunity to create shareholder value.
Theres probably very little an activist can do. They cant increase the gold price, said Brad Freelan, a Fasken Martineau partner.
There were a handful of mining proxy battles early this year, including a high-profile fight at Sherritt International Corp. But there has not been anything of note since the sectors downturn picked up steam in the fall. Indeed, there has not even been a hint of serious shareholder unrest in the public sphere.
Regardless, activity continues behind the scenes. Glenn Keeling, managing director of advisory services at proxy firm D.F. King & Co., said savvier activists continue to scout out targets and run the numbers, but see no reason to move quickly in this market.
I think they will in the fullness of time. I dont think its happening in the next two or three months, he said.
Another reason activists might be reluctant to take on mining companies is the number of past failures.
Given the current state of mining share prices, it is fair to say that none of the mining proxy fights over the past five years has worked out in the long run. They just got over-run by volatile commodity prices.
Sadly, the lesson may be that when markets turn the wrong way in this sector, there is almost nothing an investor or board of directors can do to stop the tide.
The last mining proxy fights of note ended back in July. Timmins Gold Corp. reached a quick settlement after making voluntary changes to its board, while dissidents won board control at U.S. miner Cliffs Natural Resources Inc.
Both shake-ups won praise from investors at the time. But under the onslaught of falling metal prices, the stock charts show no evidence that they ever happened.
peterkoven Financial Post