Minesite Article on MNRFebruary 01, 2011
Mediterranean Resources Is Not Prepared To Be Steamrollered By Frank Lucas And Friends
By Charles Wyatt
Arguments and rows are always unpleasant, whether they be betweenindividuals, families, religions or nations, but possibly the mostunpleasant are the financial ones, between investors and companies. Aclassic bust up of recent times was that which occurred at Euromax Resources. Euromax’schief executive was kicked off the board in January of last year. Thenew board, led by a man called Christopher Serin, the former financialdirector, then embarked on a row with a past director before advisingshareholders to ignore a proxy vote tabled at the AGM by dissidents,among whom said director and sacked chairman were, not unnaturally,prominent. Not worth going into all the details, but when everything waseventually done and dusted Sherin had gone, another dissident, MarkGustafson, was in charge and the company had not only wasted a sack ofmoney on lawyers and advisers, but had also damaged its own reputation.
These rows start slowly, but then the peopleinvolved tend to get on their high horses and ignore common sense,especially when advisers come on board. That’s why the request for aspecial meeting recently put forward by three shareholders to the boardof Canadian-listed Mediterranean Resourcesis worrying. The three shareholders are Philip Strathy, a past directorof Mediterranean, Frank Lucas of resource boutique Loeb Aron, inLondon, and something called 2013072 Ontario Inc. Philip Strathyresigned from the company only two days before Christmas so wasted notime in slipping across to the opposition. It would be interesting toknow what actually sparked his action and whether it would not have beenbetter if he had done it sometime earlier. The announcement from PeterGuest, the chief executive, of his departure was brief to the point ofbeing minimalist, so there was clearly no love lost between the two.
Since then Peter Guest has brought two new directorsonto the board - Christopher Ecclestone and Jeffrey Nichols - and bothappear to be heavy hitters. Christopher is a principal at the boutiqueNew York investment bank, Hallgarten & Company, which specializes inmining-related concerns. He is well-known for his consultancy to therare earths and specialty metals industries. Prior to his current post,he was the head of research at an economic think-tank in New Jerseywhich he joined in 2001. Jeffrey is a recognized expert on the economicsand finance of precious metals. He is currently the managing directorof American Precious Metals Advisors, where he provides expert analysison the economics of precious metal markets and offers strategicconsulting and market research services to a wide range of corporateclients. Additionally he was a gold analyst, vice president, anddirector of commodities research at J. Aron (no, not Loeb Aron), and hasspent time at Goldman Sachs. Both men have reputations to conserve andwould not join a company where a row was erupting, unless they hadthought carefully about the rights and wrongs of the case.
Frank Lucas is clearly the leader of the dissidents.His problem seems to be that he bought a slug of stock from anotherfund manager some time ago, at a price not that far above the presentprice. He obviously knew what he was doing at the time, but the shareshave not performed as he expected. He reckons that based on the presentprice of C10 cents per share, the market capitalisation of C$10.13million does not reflect the value of the resources at the company’s Tacand Corak projects, which lie within the Yusufeli property in northeast Turkey. These amount to 1.58 million ounces in the indicatedcategory and a further 0.29 million inferred to give a total of 1.87million ounces. The gold in the ground in the indicated category aloneis therefore being valued at just C$6.40 per ounce, which looks on thevery low side, especially as the company has been discovering gold at aprice of C$7.00 per ounce.
As no feasibility study has yet been carried out, however, there is no proof that the gold could be extracted profitably. Mediterranean Resourcesclaims that these estimates, completed in April 2009 by SRK Consulting,are constrained within Whittle pit shells, providing a materiallyenhanced level of confidence in the economic potential of the YusufeliProperty. The resource estimates, it explains, demonstrate that bothCorak and Tac are amenable to open-pit mining with a reasonableassumption of economic viability. Up to a point, Lord Copper.
Minews avoids commenting on legal battles ifpossible as lawyers can become such a nuisance, but this one deserves abit of publicity in London, as Frank Lucas enjoys quite a high profile.He is a man who can be charm itself when it suits, but woe betide anyonewho opposes him. For his part, Peter Guest comes across as too nice aman to get dragged into a brawl. He has run Mediterranean Resourcessince 2004 and was responsible for buying the Corak and Tec propertiesfrom Teck back in 2005. A couple of years ago he had to pump in somemoney of his own to keep the show on the road during the globalfinancial crisis, so he is bound to have a proprietary style about him.As Frank likes to point out, Peter is in his 70s, which is not that oldas far as Minews is concerned, and treats the company as a lifestyleentity. So what has changed since Mr Lucas bought his shares, and doeshe not realise that this is quite a common failing among juniorexploration companies? “If you don’t like it, don’t buy it”, seems thebest advice.
The elephant in the room, however, is not how many Turkish directors are on the board of Mediterranean Resources,but how any projects in that country can be sure of getting intoproduction under current political conditions. Simon Purkiss of European Nickelcan tell a long and sad story of promises broken by TurkishGovernmental bodies, which eventually resulted in his companywithdrawing from the Caldag nickel project. By that time a lot of moneyhad been spent, and investors who came in for the last round of fundingin September, alongside the Canadian group Hunter Dickinson are well outof pocket. There must have been some aggro as a result, but it wasconducted in a very civilised way, not by convening special meetings andshouting the odds from the rooftops.
Maybe Messrs Lucas and Guest should take a leaf outof that book. Meet somewhere solitary and warm and chuck allpreconceived ideas out of the window. Warm would be a nice change fromLondon or Canada, and solitary means that no advisers are involvedwhatsoever. Both have the same interest at heart, namely that
Mediterranean Resourcesgets a proper rating for its assets before someone nicks it on thecheap. Exploration to date has had excellent results and the company hastouched no more than 20 per cent of the Yusufeli property. Feasibilitystudies, however, cost money, and development costs a lot more. As itstands the company cannot afford to do either, so a common andconstructive plan of attack has to be forged. Towards the end of lastyear, it should be remembered, Peter Guest was trying to sell Yusufelito a leading Turkish mining company which then reneged on the deal. Abit of new thinking is what is needed now, and less acrimony.
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