Event
On June 3, 2008 Passport Capital, a San Francisco based global investment firm
with approximately US$4.5 billion of assets under management announced today that it had filed a dissident proxy circular in which it recommended that WGI's shareholders vote FOR a slate of directors proposed by Passport.
Takeaways From The Event
Fund managed by Passport collectively own or control an aggregate of 3,080,500 common shares of WGI, representing approximately 13.1% of the currently outstanding common shares, making them today the largest shareholders of WGI.
The news release goes on to say that
“Passport believes that a complete change of leadership is absolutely necessary to unlock the value that exists in WGI. Since the time Mr. Covell Brown took over as Chairman of WGI in November 2004, WGI has lost 87% of its share value. During such time, in Passport's opinion, the WGI Board has been complacent about operational under-performance and has lost the faith of many shareholders. In addition, the WGI Board has approved excessively high director and management compensation which seems to indicate that it is more preoccupied with its own interests than with those of WGI's shareholders. In Passport's view, this deplorable situation is no longer tolerable and the status quo is unacceptable.
Passport asks that WGI's shareholders read the dissident proxy circular in which Passport highlights a comprehensive plan to turn WGI around so as to unlock value for its shareholders. The new independent directors being proposed, consisting of Donald Siemens, Robert Atkinson, Daniel Burns, John Nugent, Timothy Ryan and Johann Tergesen, are persons with direct industry experience and skills and with a superior track record of producing results for shareholders. Passport urges shareholders to vote the YELLOW form of proxy in order to implement this needed change in WGI's leadership. Passport is a long-term, value oriented investor and funds it manages have been a shareholder of WGI since 2003. Passport's ultimate goal is a stronger WGI that is able to deliver the returns its shareholders deserve.”
About WGI Heavy Minerals (WG: TSX)
WGI Heavy Minerals currently operates garnet mines in Idaho, USA and Tamil Nadu, India; it also operates an abrasives recycling company in Germany, produces ultra-high pressure waterjet replacement parts in Washington, USA and maintains global sales and marketing activities to link their products and service to customers.
For Q1/08 WGI Heavy Minerals reported revenues of $6.9 million, up 10% from the same period in 2007. Abrasives revenues were up 8% as growth in other abrasives (60%) offset a 4% decline in garnet revenue. Abrasives sales volumes dropped 17% but prices increased 33%, fuelling the revenue growth. Waterjet parts revenue jumped 24%, primarily due to continued growth in sales volume. Gross profit margins decreased to 19% in the first quarter compared with 27% in the first quarter of 2007. Contributing to the decrease was extreme cold temperatures and snow in Idaho and at the same time, unseasonal rainfall and flooding in India. The decreases were in garnet & other abrasives decreasing to 18% gross margin in the first quarter 2008 from 26% in the first quarter 2007 and waterjet replacement parts decreased to 21% gross margin in the first quarter 2008 from 26% in first quarter 2007. The Company posted a net loss of $0.68 million, or $(0.03) per share, for the first quarter 2008, compared with a net profit of $0.02 million, or $0.00 per share, for the first quarter 2007.
My Take
While hedge fund activism isn’t new, it definitely isn’t regularity in the resource sector, especially among the micro cap stocks. Hedge fund, Passport Capital is a fairly routine investor in Canadian resource stocks, having invested in Wavefront Energy and Environmental Services, Academy Ventures, Northern Freegold Resources, East Asia Minerals Corp. and North American Tungsten Corp. in 2008 but has never been known to initiate a proxy battle with the management of its Canadian investments. Passport founder John H. Burbank III is an incredibly smart and savvy investor and a simple glance at the 1 year stock chart of WGI Heavy Minerals is telling of Mr. Burbank’s and Passport’s disappointment with the company. In the last year, shares of WGI Heavy Minerals have slipped from $1.30/sh to the $0.78/sh mark at which they currently trade today. I’m not sure if Mr. Burbank and Passport will be successful in their attempt to replace the board of WGI Heavy Minerals but I hope they are simply because their actions might instil some fear and encourage the boards and management of a number of junior resource companies to clean up their acts and focus on creating shareholder value.
Click here for previous coverage of Passport Capital and John H. Burbank III from May 7, 2008
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Last update : 03-06-2008 16:30
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