A recent turn of events in an escalating fight between mine developer Baja Mining (TSX: BAJ) and a dissident shareholder, Mount Kellett Capital Management, might seem to share a little of the plot from William Shakespeare’s Julius Caesar: Faithful directors once opposed to this very dissident group that has demanded a shakeup of management and directors suddenly cross the line to support the very force trying to oust incumbents to which they were once loyal.
On the face of it, it certainly looks that way. Late Thursday, less than two weeks after they resigned, Mount Kellett said two former Baja directors, Wolf Seidler and Tom Ogryzlo, were now willing to rejoin Baja’s board alongside its two other nominees, Stephen Lehner and Lorie Waisberg. Further, Mount Kellett said, Ogryzlo would step in to act as Baja’s interim CEO were its president and CEO, John Greenslade, to step down.
Et tu, Brute?
Mount Kellett has been fighting for months now to get two directors nominated to Baja’s board and most recently demanded Baja’s Greenslade quit. The new demand – Greenslade’s resignation – came after Baja announced cost overruns on its Boleo copper project in Mexico. It also followed a vicious proxy battle, in which Mount Kellett wanted Lehner and Waisberg elected to Baja’s board, that it ended up narrowly losing.
That two former board members are willing to join forces with the dissident shareholder is a small coup for Mount Kellett. Having two experienced Baja directors supporting its nominees now could lend credibility to Mount Kellett’s position in the eyes of some shareholders that change is needed within Baja’s ranks. And meanwhile an Annual General Meeting (AGM) looms.
But in the details the plot here does not seem to run as thick as Shakespearean drama. While the two former Baja directors have certainly changed positions, Seidler adamantly denied any preconceived plan to do so before resigning two weeks ago. There was no approach by Mount Kellett to him or Ogryzlo prior to leaving the board of directors last week, he said. “Certainly not before I resigned from the board,” Seidler told Mineweb over the phone Friday. Seidler also emphasized that Ogryzlo would only consider serving as CEO on an interim basis, were that to pass, and would be replaced through a proposed hiring committee process.
Not the makings of pure corporate backstabbing in other words.
Still, Mount Kellett, and now Ogryzlo and Seidler, have cast themselves the role of saving the Republic – Baja as it builds its Boleo copper project – from its leader, Greenslade, who they contend has failed at ensuring solid corporate governance.
Seidler, aiming his comments squarely at Greenslade, said he left the board because there was “unsatisfactory information flow to directors from management.” The turning point came two weeks ago when Baja announced major cost overruns and, critically, that it faced a $246 million funding shortfall. The scope of the cost overrun came as a surprise to many analysts and apparently to board members Seidler and Ogryzlo. Baja’s shareprice fell heavily.
But the overrun itself was not Seidler’s point of contention with Baja management (or Ogryzlo’s according to Seidler). Seidler was clear on what was not behind his leaving Baja: “Not because I don’t believe in the project and not because of the cost overruns.”
Instead Seidler contended management did not communicate well with the board. He blamed Greenslade, as the “direct contact” between the board of directors and management, for a lacklustre flow of information on company progress at Boleo. “There is no other answer,” Seidler said.
Baja, however, has strongly disagreed with the position that it was not forthcoming about cost overruns. In an emailed answer to a Mineweb question about whether board members commonly complained about lack of communication from management, a Baja spokesperson stated: “No.” Baja has also stated previously to Mineweb that management did not know the scope of the overrun until recently either. Last week a Baja spokesperson said: “In March Baja saw, on a preliminary basis, that cost trends were not favourable and such information was disclosed in a news release on March 28, 2012. Baja’s management was not aware of the magnitude of the potential overruns at that time as the review of costs had not yet been completed.”
Mount Kellett has undoubtedly used the shortfall – its magnitude – and the timing of its announcement – just after the proxy battle – to underscore its position that Baja management has underperformed. While Baja has stated it is working with its 30-percent Korean partner on the Boleo project to find extra funding, Mount Kellett has claimed the cost overruns are “egregious” and that Greenslade’s actions have “destroyed” shareholder value.
But Baja has argued that Mount Kellett is merely trying to get onto the board of directors to pursue its own more or less hidden agenda: to get a bigger slice of the Baja/Boleo pie. In that context, Mount Kellett could be seen as using the shortfall and now the support of Seidler and Ogryzlo as leverage to get what Baja has alleged Mount Kellet wants.
“Listen. Tom (Ogryzlo) and I have had to give some thought to this,” Seidler said, referring to the subject of Mount Kellett’s intentions.
But Seidler argued Mount Kellett, in his estimation, did not have wicked motives. He said that Mount Kellett, which he noted owns just under 20 percent of Baja, ultimately had the best interests of the company in mind. “They have more to lose than any other shareholder,” Seidler said.
He then said of Mount Kellett: “We are reasonably convinced that they are willing to do what is right.”
(Ogryzlo could not be reached as of presstime to confirm he held the same view as Seidler suggested.)
There are also these questions: What kind of sway will Mount Kellett have on the proposed board were it to come to be? Would Mount Kellett be able to gain and exert outsized influence?
Seidler argued that he and Ogryzlo, as a bulwark against any decisions that might not be in the best interest of shareholders, could balance Mount Kellett influence were it to go against the interests of the larger shareholder base. That board, with he and Ogryzlo on it, along with Mount Kellett’s Lehner and longtime nominee Lorie Waisberg, “would have the responsibility to assess the issues to do what is right for all shareholders,” he said.
But what would happen if Mount Kellett tipped the balance of the board with additional nominations in its favour just as it alleges Greenslade has done? “Good question,” Seidler said, though in answer he was ultimately only willing to state that “nothing has been decided” about the full composition of a possibly reconstituted Baja board. Mount Kellett, through spokesperson Dan Gagnier, did not comment on what the Baja board might come to look like were its current proposal to go forward.
One possible scenario, however, would appear to diminish Mount Kellett’s potential sway. Mount Kellett said in its press release on late Thursday that it supported the right of another large Baja shareholder, Louis Dreyfus Commodities Metals Suisse (which has an offtake agreement with Baja) to nominate someone to the board as well. If this happened, and Mount Kellett’s board composition proposal went ahead, then the Baja board would have Ogryzlo, Seidler, Lehner, Waisberg, a Louis Dreyfus nominee and Baja’s two current directors Francois Marland and Giles Baynham on it. Hardly stacked in Mount Kellett’s favour.
But there are still less easily got at answers to thorny hypothetical questions about Baja’s possible board composition which remain: Would Marland and Baynham stick around? If they didn’t stay on board, who would replace them? And who would Louis Dreyfus nominate? It is worth noting that Mount Kellett has previously called for Baynham’s resignation, suggesting it may not want him to stay on Baja’s board.
While Baja has not responded to Mount Kellett’s demands publicly, a betting man or woman would probably peg the chances of Baja’s existing board of three (Greenslade, Baynham and Marland) acquiescing to Mount Kellett’s demands as slim. Of course Mount Kellett would rather the Baja board accept its nominees now and for Greenslade to quit. “The board has the power to put these directors in place today to be confirmed by shareholders within a month,” stated Gagnier to Mineweb. It seems unlikely, however, Greenslade would vote himself out of a job and also quite possible that he holds some sway with Marland and Baynham.
This leaves Mount Kellett to turn to a Plan B. This could be another proxy battle for Baja’s board at a forthcoming AGM and this time with Mount Kellett having Ogryzlo and Seidler on its side. When the AGM will happen, however, is not entirely clear. Baja applied to the Toronto Stock Exchange (TSX) to delay the AGM’s scheduled date of June 21, 2012. The status of that request is unclear, however. Baja stated by email: “The meeting is currently scheduled to take place on June 21″ and the TSX declined comment. Furthermore Mount Kellett has not stated what it will attempt to do if Baja does not agree to its current terms.
In the meantime Baja’s quest for financing also faces stiff opposition from Mount Kellett. While rather short on details in its press release, Mount Kellett threatened legal action if it doesn’t like how Baja sources the extra funding. “Mount Kellett is prepared to take legal action to protect shareholder interests, including contesting any agreement the company may enter into that adversely affects the investment of all Baja shareholders.” In a followup statement, Gagnier said that Mount Kellett “would be concerned with any transaction agreed to by the current board if the board is not reconstituted.”
In response, Baja said the legal threat would not be a consideration as it sources funding. “No,” a Baja spokesperson said. “The company is focussed on securing the requisite funding and is currently working with lenders and partners to develop a funding plan.”
Gagnier also confirmed Mount Kellett, as previously announced, was willing to consider being part of a funding solution for Baja. “Mount Kellett is still interested in working with the company to come up with a financing solution with other investors or alone following a period of due diligence.” So far, however, Baja has not shown much love for Mount Kellett’s money.
Update: Late Friday Mount Kellett announced it had petitioned the BC Supreme Court to appoint Ernst & Young as auditors of Baja Mining to look into the disclosure of cost overruns of the Boleo copper project.