Battle pits Hunter Dickinson backed management against a Chicago private equity firm for control over Taseko Mines Ltd.
SmallCapPower | May 6, 2016: As far as proxy battles go, it doesn’t get much nastier than this. In one corner is the management of Taseko Mines Limited (TSE:TKO), which has the backing of Hunter Dickinson Inc. In the other is Raging River Capital LLC, the Dissidents, a Chicago-based private equity and investment firm, which wants to replace the current Board of Directors with its own slate of nominees.
Taseko Mines’s flagship asset is its 75% owned and operated Gibraltar copper-molybdenum mine in British Columbia, the second largest open pit copper mine in Canada, which produced a record 142 million pounds of copper in 2015. The Company also owns the Florence Copper Project, an advanced-staged development project in Arizona, which it acquired when it bought Curis Resources in 2014.
Interesting upside for Taseko Mines could come from its Aley Niobium Project in northern British Columbia, the third-largest niobium deposit in the world, which it purchased for $5.4 million in 2007. After the Company invested $30 million into exploration and development work, it claims the project has an $860 million net present value.
Niobium is used primarily in the manufacturing of high strength, light-weight, and corrosion resistant steel. Brazil has a dominant share (about 85%) of the world’s niobium output. Despite the fact that Aley’s grades are about one-third of those found in Brazil, it would offer up a new supply source for North American buyers, although the project’s remote access could be a problem.
Weighing on Taseko Mines’ stock price during the past few years, in addition to falling commodities prices, has been the First Nations and Canadian government’s opposition to the Company’s New Prosperity project in British Columbia, a large gold-copper porphyry deposit.
All in all, the sum of Taseko’s parts seems to be worth much more than the market is currently valuing the Company as a whole.
This is why both sides are working hard to emerge victorious.
Raging River’s beef is that it believes Taseko Mines is putting the interests of Hunter Dickinson over that of its own shareholders. It views its executive and Board compensation as excessive, given the recent years of declining commodity prices, and says it has been investing in development projects outside its area of focus. And, at least one dissident nominee has expressed concern of future shareholder dilution given the fact that some of Taseko’s debt will need to be re-financed in the near future.
Raging River is clearly representing the interests of the bondholders here. Regardless of which side gets TKO’d in this fight, investors could still end up on the winning side. A Raging River-led Board, for example, could push for immediate asset sales.
In the longer term, though, shareholders might end up doing better by sticking with the current management, as Hunter Dickinson has done for well for its investors historically. And, Taseko’s stock price could continue to benefit from an improved resource sector sentiment and a further increase in base-metal prices. At its present share price of $0.68, Taseko’s stock is well off its multi-year low of $0.35 that was reached back in January of this year.
Current shareholders have until 10 am (Pacific Time) on May 6, 2016, to vote their proxies. The end of this battle, whenever that should occur, will likely lift at least some of the uncertainty that seems to be weighing on Taseko’s stock.