WGI Heavy Minerals Board Advises Shareholders To Reject Dissident Shareholder Proposal
Fri Jun 13, 12:18 PMCOEUR D'ALENE, ID, June 13 /CNW/ - The Board of Directors of WGI Heavy Minerals, Incorporated (TSX: WG.TO) today recommended that shareholders vote to support the Company's nominees to the Board at WGI's Annual Meeting scheduled for June 25, 2008.
In a letter being delivered to all WGI shareholders, the Board advised them to reject the slate of nominees proposed by dissident shareholder Passport Capital LLC since the proposals made by the dissident are not in the best interests of all the Company's shareholders.
Because of the limited time before the Annual Meeting, the Board also recommended that shareholders vote the WHITE proxy distributed with the letter issued today as soon as possible and prior to the final deadline for voting of 10:00 AM Monday June 23, 2008.
The Board directs shareholders to please contact WGI's proxy solicitation agent:
Georgeson
North American Toll Free Number: 1-866-676-3029
The full text of the Board's letter to shareholders follows:
June 13, 2008
Dear WGI Shareholder:
By now, you may be aware of three recent and significant developments at your Company.
First, on June 3, 2008, Passport Capital LLC, ("Passport" or the "dissident shareholder") a significant shareholder of WGI, has issued a dissident proxy circular seeking support for a resolution which would remove the Company's existing Board of Directors and replace it with Passport's own nominees. This question will be decided at the Company's Annual Meeting, scheduled for June 25 in Toronto. The answer will be crucial to the future of your Company and your investment.
Second, on June 11 after extensive review and negotiations by a Special Committee of independent Directors, WGI announced the sale of the Company's interest in its underperforming operations in India, Transworld Garnet India (Pvt.) Limited ("TGI"). This sale removes a chronic drain on WGI's financial results, provides a significant infusion of cash to the Company and, equally important, gives WGI the opportunity to continue as a major international distributor of garnet, ilmenite and other industrial minerals.
Third, at the same time, your Board announced that it intends to pay a special distribution of US$0.80 per share, subject to the closing of the TGI sale in August of this year. This represents a significant return of capital to shareholders, while leaving the Company with sufficient cash resources for future growth.
Passport and your Board agree that WGI is a company with significant potential. We also agree that the Company's share price performance has been far from satisfactory.
We disagree, however, that allowing Passport to control your Company through the Board of Directors is in your best interests as a shareholder. Equally important, we also believe that Passport's efforts are no longer relevant since, prior to Passport filing its circular, the Company had already taken important and concrete steps to rectify the issues that the dissident shareholder has identified as the reasons for its action.
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Your Board of Directors Unanimously Recommends that you:
- Vote FOR the Company's Nominees to the Board of Directors
using the enclosed WHITE proxy
- REJECT the Dissident Shareholder nominees and do not use the
YELLOW proxy
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The dissident shareholder announced its intention to force a contested vote on the composition of the Board after WGI had already mailed its Management Information Circular and form of proxy for the June 25 Annual Meeting. To ensure you have the fullest opportunity to consider your vote, we are now providing you with another copy of that Circular, a duplicate WHITE proxy you may use to vote in advance of the meeting, and this letter which provides you with important new information and the reasons for the Board's recommendation.
In summary:
- Your Current Board has strengthened and clarified management at the
Company by appointing Gregory Emerson as President and Chief
Executive Officer, effective May 1, 2008. This has separated the
roles of Chairman and CEO in accordance with good corporate
governance practices - one of Passport's complaints about WGI.
- The sale of TGI is a pivotal event for your Company. Your current
Board initiated the strategic review that led to the sale, conducted
the negotiations, and established relationships with the purchaser.
The current Board is in the best position to complete the
transaction.
- Your current Board of Directors plans to distribute approximately
US$18.8 million in cash (or US$0.80 per WGI share) to the
shareholders of WGI subject to the successful closing of the TGI
sale.
- The Strategic Review by the Special Committee is continuing and is
refocusing WGI's operations on existing and identified growth
opportunities that are complementary to our core businesses of mining
and distributing industrial minerals and manufacturing waterjet
products. These efforts are designed to enhance both short and
long-term shareholder value and need to be allowed to continue.
- While developing growth opportunities, your current Board is also
taking steps to bring WGI's fixed cost structure into line with
revenue from its operations. As a result of the TGI sale,
administrative and legal costs will be reduced substantially.
- The key issues of operating problems, costs, corporate governance and
return to shareholders raised by Passport either have been, or are
currently being, addressed by your Board for your benefit.
- The strategy proposed by the dissident shareholder is fundamentally
consistent with the Company's strategy, as demonstrated by the sale
of TGI and the commitment to the waterjet business.
- Passport criticizes the current Board for WGI's share price but -
illogically - has nominated two former Directors of the Company,
including the Chair of the Audit Committee, who served on the Board
in 2004 and 2005 - the very time the WGI share price began its sudden
and precipitous decline.
- Should it gain control of the Board, Passport can take control of the
cash resources of WGI but is not making a fair offer to all
shareholders to purchase the Company. It would be more reasonable to
all shareholders if Passport were to make a proper offer to acquire
the Company, rather than seeking to take control with no compensation
to shareholders.
Background to the Annual Meeting: Summary
Strategic Review by the Special Committee
In May, 2007, your Board created a Special Committee of independent directors to review a full range of strategic alternatives, including a business combination or the outright sale of the Company, and to make recommendations to the full Board. The Special Committee comprised three independent directors: Gordon Fear, as Chair, Robert Ackerman and Mark Curry.
A key issue considered by the Special Committee was the continuing uncertainty of the Company's business in India - its 74% interest in Transworld Garnet India (PVT) Limited ("Transworld Garnet" or "TGI"). The Committee believed the best interests of shareholders would be served by clarifying the value of that business, most likely by selling it if a fair price could be achieved. Proceeds would be returned to shareholders through a special distribution, or reinvested in more profitable assets, or both.
Given WGI's experience, it believed the most likely buyer would be an Indian-owned company with experience operating in the beach sands mining business within that country. Over the following months, a number of parties were contacted, three likely candidates emerged and negotiations began. Critical criteria for the transaction were price, the inclusion of a distribution agreement, that the transaction not be conditional on financing and that there be a high likelihood that the sale could be completed within a reasonable time.
At the same time, the Special Committee considered both the optimal level of distribution of the proceeds to shareholders that would also allow WGI to invest for future shareholder value.
The Sale of TGI
On June 11, 2008, WGI announced it had agreed to sell its 74% interest in Transworld Garnet, our subsidiary in India, through which it has invested in mining operations in Tamil Nadu and Andhra Pradesh in India, to V.V. Mineral, a substantial Indian partnership with 20 years experience in mining and producing beach minerals in India.
As part of the sale, TGI will repay loans owed to WGI in the amount of approximately US$11,025,000. The aggregate cash proceeds will be approximately US$17.3 million (depending upon currency exchange rates at the time).
The transaction with V.V. Mineral met the criteria set by the Special Committee. It provides both fair value for the TGI shares sold and a valuable distribution agreement that supports the Company's continued participation in the world garnet markets and the addition of ilmenite to WGI's product offering. The Special Committee recommended, and the full Board approved, the sale, convinced that it represents the best available and reliable value for these assets.
The sale is expected to close in August of this year.
Benefits to WGI: Exiting a Troubled Business
Selling our mining operations in India is a very significant milestone for WGI. In 2004, the Board and Management of WGI at the time made a substantial investment in India. Subsequently it has made significant investments in mining licences and production facilities in Tamil Nadu and Andhra Pradesh that have been troubled for some time. In addition, the direct and indirect costs of administration, travel and regulatory compliance have been high and unavoidable since they stem from government requirements. We now know that the investment was a disaster for shareholders.
Governments in India have not proven to be supportive to foreign investment in the mining sector and the de facto policy is to require local control. Achieving local licensing requirements proved unexpectedly difficult and all of our operations at Andhra Pradesh have been suspended since March 2005. The decision of the Indian government to revoke our licence to handle ilmenite in March 2005 was a very serious setback for WGI.
Management of a business halfway around the world has been an expensive challenge. The sale of these operations will allow WGI to focus its management efforts on businesses with greater potential and to redeploy both the capital and management time that was previously committed to India.
Benefits to WGI Shareholders: The Distribution Agreement
Concurrently with the sale of TGI, the Company entered into a three-year Distribution Agreement with V.V. Mineral covering garnet, ilmenite and other minerals that may be present in the beach sands mined by V.V. Mineral. The Distribution Agreement provides WGI with a continued supply of garnet quantities and grades currently provided by TGI. Additional quantities of garnet will be supplied as V.V. Mineral's capacity expands.
In addition, WGI will act as a broker for the sale of V.V. Mineral's ilmenite products and will have first opportunity to negotiate contractual arrangements for other minerals with V.V. Mineral once production begins.
Your Board believes this Distribution Agreement will be a valuable asset to WGI in both the short and long term. In the short term, it will add 10,000 metric tons to existing volumes and secure the supply of garnet for our global distribution network, including Kominex, our German subsidiary, and for our waterjet business. Longer term, it offers the opportunity for WGI to become a distribution leader - possibly the leader - in its category. It also offers the opportunity for WGI to enter the titanium and related minerals distribution business from a position where it has a reasonably assured, lower-cost, and reliable supply base.
Benefits to WGI Shareholders: New Strategic Investment
Management of the Company and the Board of Directors are currently evaluating business opportunities that are complementary with our existing operations. We are looking in particular at the waterjet industry. Even after the special distribution, WGI will have cash resources that can be reinvested where we see profitable growth opportunities for the Company.
Special Distribution to Shareholders
Completion of the TGI sale will significantly enhance the already strong cash position of the Company. The WGI Board of Directors intends to make a substantial cash distribution to our shareholders subject to the closing of the transaction, which is expected in August, 2008. The Board intends to distribute approximately US$18.8 million in cash in aggregate or US$0.80 per share.
Response to the Dissident Proxy Circular
On June 3, 2008, Passport Capital, LLC, a San Francisco-based investment firm that owns or manages funds that own 13.1% of the outstanding common shares of WGI, filed and commenced distribution of a Dissident Proxy Circular for the stated purpose of replacing the current Board of Directors of WGI with its own nominees at the Company's Annual Meeting, scheduled for June 25, 2008. Passport took this initiative without prior notice or consultation with WGI's Board or management.
Your current Board of Directors believes the change contemplated in the Dissident Proxy Circular is not in the best interests of WGI shareholders. We recommend you send in the enclosed WHITE proxy form to vote for the current Board of Directors and allow us to complete the sale of TGI, return capital to you, and focus on the development and execution of our strategy for the future.
Passport is not offering to buy your WGI shares; it simply wants control of the WGI Board that will give it control over the Company's cash resources.
Passport and the current Board of the Company share common ground on some important aspects of WGI. We agree that WGI is a company with significant potential. And we agree on some of the ways the Company can achieve that potential for all shareholders.
The Dissident Proxy Circular raises a number of complaints, but essentially it is concerned with the financial performance of WGI and the related share price, both of which were driven by the disastrous foray into India initiated by the former Board. It proposes a "new" strategy which is remarkably similar to the strategy being pursued by the current Board. It also has some issues with the current Board's actions, but these are generally unfounded and misguided.
Here is our response:
Share price
The existing Board of WGI understands the frustration of our shareholders, including Passport, with the performance of the Company's shares over the past few years, but we do not agree that it is now in the best interests of WGI or its shareholders to replace the existing Board and hand over control of the Company to the Passport nominees. If for no other reason, a change at this time jeopardizes the completion of the TGI transaction since carefully established and maintained relationships are particularly important to doing business in Asia.
There can be no doubt that the major challenge facing WGI for the past several years has been the Company's operations in India. In January of 2004, WGI filed a prospectus and raised C$38 million (at C$10.85 per share) with the proceeds to be invested in mining operations at Tamil Nadu and Andhra Pradesh in India. By the end of 2004, it was becoming apparent that WGI was having difficulty opening its operations in Andhra Pradesh. The share price was declining and traded at about $6 at the end of that year. On March 7, 2005, WGI was obliged to announce that it had declared force majeure under its ilmenite supply contracts because it was no longer able to handle ilmenite produced in India since its government licences had been summarily revoked. At the same time, the Company announced the resignation of its Chairman, Ian Falconer. Before the March 7, 2005, announcement, WGI's shares were trading at $5.65. By the end of the day, they were trading at $3.02.
The decision to invest in India was made by a Board and management of WGI that has now been largely replaced. The former Chairman, Ian Falconer, resigned in November 2004 and Mr. Brown assumed the role of Chairman of the WGI Board of Directors. Mr. Brown had first joined the Board in June of 2004 together with John Nugent and Don Siemens, two of the individuals who are proposed by Passport to be re-appointed directors of WGI (they resigned from the WGI Board in March and May 2005, respectively).
The employment of Mr. Lindsay Gorrill as Chief Executive Officer was terminated in April, 2005 and Mr. Brown was named to that position.
The current management and Board of Directors have been focused for the past several years on finding a solution to the issues the company faced in India, while seeking to maintain the rest of WGI's business, much of which, as Passport states, is very promising.
Passport claims that "Since the time Mr. Covell Brown took over as Chairman of WGI in November 2004, WGI has lost 87% of its share value". That is misleading. Between the January 2004 financing and the announcement of the revocation of the ilmenite licence, WGI's share value declined drastically -- from approximately $11 to $3. Mr. Brown joined the WGI Board only after the financing and Indian investment had been completed. He did not become Chief Executive Officer of the Company until Mr. Gorrill was terminated in April 2005, a month after WGI reported that its ilmenite licence had been revoked. Those events are behind the most significant loss of shareholder value and Mr. Brown does not bear responsibility for either of them.
Continuing erosion in the share price is the result of the poor financial performance of the Indian operations. Mr. Brown and the rest of the current Board have been focused on resolving that situation and they have achieved it with the sale to V.V. Mineral.
WGI has turned a significant corner and can focus on moving forward. Passport Capital's complaints, while once justified, are now outdated and irrelevant. They have been corrected - not caused - by the current Board. The changes being directed by your current Board and management should be allowed time to take effect and improve operating results for the benefit of all shareholders.
Executive Compensation
The Dissident Proxy Circular inaccurately criticizes compensation for senior management and Directors. They state that the CEO's compensation in 2004 was $313,297 and compare that to the CEO's compensation in 2007 of $528,330. However they do not account for the fact that in 2004, the Chairman was separately paid $74,353 and in 2007 the CEO was also the Chairman of the Board and received compensation for both positions. The CEO's compensation was set by a committee of independent directors who have taken into account the difficult circumstances at WGI.
Passport inappropriately links compensation paid to the current directors to a low share price caused by the actions of a previous Board, which has largely been replaced. The current directors and management are correcting those past mistakes. WGI's compensation to the directors is comparable to what other Canadian public companies pay. Information about compensation is fully disclosed in the enclosed Management Information Circular.
Corporate Governance
The roles of Chairman of the Board and Chief Executive Officer, held for a time by Mr. Brown, were once again separated, in accordance with good corporate governance practices, when Greg Emerson was appointed CEO by the Board in May, 2008.
Mr. Brown was asked to join the Compensation Committee when he first joined the WGI Board as a Director and prior to being named Chairman. He remained on the committee because this was helpful when the committee discussed compensation issues relating to individuals that reported to Mr. Brown. When issues related to Mr. Brown's compensation were under review, Mr. Brown properly absented himself, leaving these issues to be determined by the independent directors on the committee.
In the view of the WGI Board, there are no material flaws in the existing corporate governance practices at WGI. The issues raised by Passport have either been addressed by the current Board or were never issues in the first place.
Business Strategy
Despite the obvious problems in India, the Dissident Proxy Circular offered no solutions. They did not contemplate the sale of the Indian operations and a promising distribution agreement. The current Board delivered both of these achievements. Instead, Passport says it should control WGI - without having actually offered shareholders anything to buy the Company -- because they have a strategic vision to expand into the waterjet business.
They are not wrong since expanding into the waterjet business does merit consideration. The current Board has been carefully analyzing it. We believe it may be possible to build WGI into a company with significantly increased sales from the waterjet market within five years through targeted acquisitions - using existing cash resources and cash generated by the distribution business. This is a growing industry and WGI plans to grow with it.
We also believe that WGI shareholders want both a substantial cash distribution from the sale of TGI and a continued investment in a viable business with cash resources to invest for future growth. The current Board has delivered both. There is no reason to change course now.
Passport was not wrong to demand change. It was just too late. The current Board has dealt effectively with their concerns and positioned WGI for enhanced shareholder value.
It is not in the best interests of WGI shareholders to simply turn the Company, with its significant cash resources, over to Passport Capital. Shareholders are better served by the current Board, its new structure, its new strategy and its new senior management team.
We urge you to vote the WHITE form of proxy to elect the Company's nominees to the Board and protect your own interests.
Yours very truly,
The Board of Directors,
WGI Heavy Minerals, Incorporated
THE PROXY TO VOTE IS WHITE - HERE'S HOW
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Your Board of Directors, which is acting in the best interests of all Shareholders, recommends that you act to protect the value of your investment in WGI Heavy Minerals .
Please review the attached letter carefully. If you agree that your best interests are being served by your current Board of Directors, it is crucial that you sign, date and return the enclosed WHITE proxy as soon as possible.
Time is short. To be counted at the Annual Meeting, your proxy must be
submitted by no later than 10:00 am EDT, Monday June 23, 2008
You may vote your Common Shares by internet, telephone, facsimile or mail. We suggest voting today or no later than 24 hours prior to the deadline to ensure your vote is received in a timely manner to be voted at the Meeting. Mail is not recommended.
Please note that if you have mistakenly voted using the wrong proxy, you have every right to change your vote by simply voting the enclosed WHITE proxy. This action will cancel all previous votes since it is the later-dated proxy received that will count at the Meeting.
What material do I need to submit?
As a Shareholder, you only need to submit your WHITE proxy which accompanies this material. The WHITE proxy must be signed, dated and returned using any of the methods described on the WHITE form of proxy. Because time is of the essence, the recommended voting methods are telephone or internet
Your Board recommends that you VOTE:
- FOR fixing the number of directors at 7
- FOR the election of Covell D. Brown, Michael C. Burns, Kitson M.
Vincent, G. Mark Curry, Robert W. Ackerman, Gordon A. Fear and
Gregory S. Emerson
- FOR the appointment of Auditors
Who do I call if I have any questions about the proxy or if I need help
voting?
If you have any questions about the information contained in this document
or require assistance in completing your WHITE proxy, please contact our proxy
solicitation agent at:
Georgeson
North American Toll Free Number: 1-866-676-3029
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Whether or not you plan to attend the meeting, we ask that you complete
and return the enclosed WHITE proxy promptly and discard any materials
that you may receive other than from management.
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WGI Heavy Minerals, Inc. is a fully integrated miner, producer, and marketer of industrial-grade minerals and replacement part for ultra-high waterjet cutting systems. The Company's shares are listed on the Toronto Stock Exchange under the symbol WG.
This press release contains forward-looking statements concerning the business, operations, and financial performance and condition of WGI Heavy Minerals, Incorporated. A number of the matters discussed and statements made in the press release contain forward-looking statements reflecting current expectations regarding future assets. When used in this press release, the words "believe", "anticipate", "intend", "estimate", "expect", "project", and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. These forward-looking statements are based on current expectations and are naturally subject to risks, uncertainties, and changes in circumstances beyond management's control that may cause actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that may cause such differences include but are not limited to: exploration and development risks; risks related to permits and title to property; risks related to foreign countries and regulatory requirements; operating hazards; foreign currency fluctuations; competition; fluctuations in the market price of mineral commodities and transportation costs; uncertainty as to calculations of mineral deposit estimates; uninsured risks; and dependence upon key management personnel and executives. Actual results may differ materially from those expressed here. You should not place undue reliance on such forward-looking statements. The Company is under no obligation to update or alter such forward-looking statements, whether as a result of new information, future events, or otherwise.
ContactsEd KokInvestor Relations
810 East Sherman
Coeur d'Alene
ID
83814
U.S.A.
(208) 770-2208
Fax (208) 666-4000
www.wgiheavyminerals.com
E-mail: ed@wgiheavyminerals.com
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