Battle lines drawn at Eco Oro
Activist investor Courtenay Wolfe wants new board
Courtenay Wolfe, a veteran of the investment world, won the only other proxy contest she spearheaded, the drive, in 2013, to reconstitute the board at Brilliant Resources and create long- term value, a plan that included the successful resolution of a dispute with a foreign government.
Now she’s determined to make it two for two.
Wolfe, along with people who helped win the earlier battle, is seeking major change at Eco Oro Minerals, a precious metals exploration and mining development company with operations in Colombia. Those operations are under a cloud because last December the company filed an arbitration request that could be worth at least $250 million.
“The rot goes deep. Nobody stood up for shareholders who are now left to pick up the pieces,” Wolfe said this past week, the day after a 40- page circular was filed for the meeting her group requested and where she hopes her six nominees win.
And Wolfe’s group — which has set up a website, www.fixecooro.com — doesn’t hold back. The front page of the circular is titled: Wasted Money. Corrupt Leaders. Broken Rules. Enough is Enough.
Wolfe’s group fired back after Eco Oro issued its own circular last week. The group claimed the current board and management “are out of touch and live in an alternate universe,” and then asked shareholders to review what the company said and what her group said. “It will ( then) become abundantly clear that the board and management are not fit to run your company.”
For Wolfe the situation at Eco Oro was both so predictable and so avoidable: Two years back when she was asked to get involved, her message to management was to focus on cutting costs, reducing waste, preserving cash — and creating shareholder value. ( And cutting costs is still her message.)
But management chose to ignore all those suggestions, she said. Then, when faced with “a liquidity crisis of its own making,” ( it was down to $31,000 of cash last July), management made what she terms “an untenable deal” with an outside investor, Tenor Capital Management.
In return for an initial investment of US$ 3 million, the “management- friendly” Tenor received a 9.99- percent stake. A further investment of US$ 11 million — enough to give Tenor a 49.99- per- cent interest — was contingent on a shareholder vote.
But that vote — held last November after a delay because of shareholder protest — was between sub-optimal choices: issue common shares to give Tenor effective control (49.99 per cent) or issue contingent value rights that gave Tenor 51 per cent of gross proceeds from the arbitration.
In Wolfe’s words, it was either “death by 1,000 cuts or death by 2,000 cuts.”
By a vote of 94 per cent against, shareholders overwhelmingly voted down the share option, an option that would have cost Tenor US$11 million. Instead Eco Oro issued CVRs and convertible notes — which raised US$15 million — to Tenor, certain participating shareholders and insiders, who now stand to receive 78 per cent of the gross proceeds from arbitration.
Those actions stirred shareholders, motivating one to file an oppression action. Those efforts grew this year when Eco Oro allowed the “partial conversion” to equity of some of the convertible debentures. The Wolfe group then launched proceedings in the B.C. Supreme Court and before the OSC.
It’s clear where the interests of the Wolfe Group lie.
In its letter, Eco Oro said: “Your board saved the company. They preserved and then generated substantial shareholder value in the face of difficult market conditions.”
We were unsuccessful in reaching Eco Oro.