It all started last year
HALIFAX, NS (MINEWEB) -
It all started last year after media reports in mid-November said Shandong Gold Group wanted to buy Jaguar Mining (TSX, NYSE: JAG), a Brazil-focused gold miner. That led to a strategic review in which a couple of potential alternate buyers emerged - one of which reportedly dangled what would have been a better takeover price than Shandong's.
It all went nowhere, however. Jaguar Mining called off the strategic review process in early May, without a takeover to chase, but with a much diminished shareprice that had crashed from over C$6 in early 2012 to under C$2 in May, where it has since remained.
To Jaguar Mining's largest shareholder, Bristol Investment Partners, which has seen its Jaguar Mining stock value plummet, the whole strategic review was a debacle in which the Jaguar Mining directors bungled a potential takeover at a premium. This is a view it is making public, having released a letter it wrote to the Jaguar Mining board this week. In it, on top of heaping scorn on Jaguar Mining, it also promises to try and rip the Jaguar Mining board apart through an upcoming shareholder vote.
But to Jaguar Mining the griping is nonsense. It would have Bristol look in the mirror to find the ultimate cause of its disappointment.
One of Bristol's biggest gripes is that Jaguar Mining only initiated a strategic review process last year after media reports surfaced Shandong Gold Group had made a proposal for a possible takeover at $9.30 per share - a hefty premium even at the time.
"What motivations could possibly lead a board to sequester from shareholders a 73-percent premium change of control proposal?," Bristol asked in its letter to Jaguar Mining this week.
Jaguar Mining was not tiptoeing around the Bristol accusations, however. In a press release on Friday Gary German, Jaguar Mining's chairman prefaced a rebuttal to Bristol, stating: "We want to set the record straight by putting the facts on the table. Bristol's recent public assertions are simply too inaccurate and misleading to leave them unanswered."
The reason it didn't rush into Shandong's arms, Jaguar Mining maintains, was that it wanted to keep the process open to include other interested parties, two of which subsequently showed a high degree of such interest, it said. This was a different time in the equity markets, Jaguar Mining also pointed out, just a couple months before gold miners took a nasty fall when investors started to turn in force against them.
But that argument does not hold water for Bristol. It argues in its letter to Jaguar Mining's board that it should have forged ahead with the Shandong proposal, regardless of the exclusivity it would entail. Not doing so, Bristol said, was a "reckless gamble."
After the Shandong deal was proposed, Jaguar Mining started to negotiate with another party that, according to a post-mortem of the strategic review by Jaguar Mining in May, it thought was a strong contender and might offer more than Shandong. Indeed, it looked like a deal was close at hand after initial due diligence.
It was not to be. Negotiations fell through with this unnamed North American company in April, Jaguar Mining said, and at that point it tried to resuscitate the Shandong deal. To no avail.
Bristol is incensed by this sequence of negotiations.
"By rebuffing Shandong's good faith proposal in November, on the grounds granting exclusivity would have been ‘irresponsible for our board,' lead directors (of Jaguar Mining) effectively embarrassed Shandong principals," Bristol stated. "To reach out to Shandong, five months after spurning Shandong's 73-percent premium proposal, with a 10-day ultimatum proposing the same exclusivity previously denied, strikes Bristol as amateurish behavior."
Jaguar Mining sees it much differently, however, and rebuffed Bristol on its view that the board was a negligent negotiator. Chief among Jaguar Mining's arguments is that it genuinely thought it had a better deal in the works. Jaguar Mining said this potential buyer had a proposal "that included a price higher than the price proposed by Shandong in November 2011."
But the deal failed to go ahead, Jaguar Mining said, because of the fall in gold equities in early 2012. Had that not happened, Jaguar Mining said, it was "confident that a transaction would have been consummated."
Indeed, with that in mind, Jaguar Mining told Bristol it should blame itself for its disappointment in the outcome of the strategic review. Jaguar Mining noted that it had warned the markets throughout the review process - during which time it said Bristol bought more Jaguar Mining shares - that there was no guarantee of a deal going ahead.
"We were as disappointed as Bristol and our other shareholders with the outcome of the strategic review", Gary German, Jaguar Mining's chairman said in a prepared statement. "But Bristol is pointing its finger at the wrong target. It is obvious that Bristol acquired a large number of shares after the strategic review was announced on the gamble that a change of control transaction would occur. Their gamble did not pay off, and now they are looking for a scapegoat."
In its letter to Jaguar Mining's board, Bristol also alleged Jaguar Mining directors were in conflict of interest during the strategic process. It pointed out that while Jaguar Mining directors hold few securities in the company, they were set to get cash sweeteners if a takeover deal went through at more than $10 per share through a share appreciation rights (SAR) policy.
"In black and white terms, this class of Cliff SAR's would pay Jaguar Directors nothing for a change of control transaction at a purchase price below US$10.00, but millions of dollars for a transaction at US$10.00 or higher," Bristol said.
Jaguar Mining rejected the allegation of conflict of interest, however, saying it was "unfounded." As evidence, Jaguar Mining noted it continued to negotiate on a deal between March and April "with the full knowledge that any such transaction would have been below $10 per share."
"The implications of the Cliff SARs to the directors and officers of Jaguar were never considered by either the board or the special committee members in any way whatsoever, and it is a complete fabrication to suggest otherwise," Jaguar Mining said.
Now this tussle over board performance is set to come to a head June 29. Bristol says it intends to use its voting power at Jaguar Mining's annual general meeting, currently scheduled for that day, to try to upset the re-election of Jaguar Mining directors Gary German, Gil Clausen and John Andrews.
To do so Bristol said it intends to use Jaguar Mining board policy that, according to Bristol, forces board members who receive more withheld votes than votes of support to tender their resignations. "Bristol expects withheld votes for these three directors to exceed votes supporting their re-election to the Board by a wide margin," it said.