Fight for Hudbay descends into name-calling
‘Snakes’, ‘predatory scheme’
TORONTO • The battle for control of one of Canada’s oldest mining companies, Hudbay Minerals Inc., has spilled into the courtroom, and turned into a mud-slinging contest as the company and one of its largest shareholders lash out at each another.
So far, investors appear to love it: The company’s stock has nearly doubled in the past six months, soaring from $5.17 on Oct. 1 to $9.98 on the Toronto Stock Exchange at close on Tuesday.
That surge began the day mining-focused private equity firm Waterton Global Resource Management, which controls 12 per cent of Hudbay’s shares and has been leading a campaign to replace most of the board and the chief executive, filed a lawsuit accusing the company of depicting it as “snakes” in a circular sent to other investors.
“Hudbay issued a Circular that is replete with inflammatory and inaccurate aspersions against (us), including graphics throughout that characterize (us) as snakes,” Waterton’s lawyers at Stikeman elliot LLP wrote in the lawsuit.
Filed in the Ontario Superior Court of Justice, Waterton’s lawsuit claims Hudbay management violated the Canada Business Corporations Act by issuing the proxy circular to its shareholders last week that is laced with errors and misleading statements and omits material facts.
The proxy is significant because it provides notice to shareholders on how to vote on the board of directors’ election on May 7; and it offers recommendations to guide their vote, and other information about the company, its strategy and the two competing sets of nominees.
Titled, “Waterton Threatens Hudbay’s Positive Momentum & The Value of your Investment,” the cover of the proxy features a graphic illustration of a man midstride, whose head casts a reptilian shadow — like a snake hissing.
“Shareholders should be concerned that Waterton may be putting its own interests ahead of those of other shareholders,” the circular alleges.
In one section, the circular alleges Waterton has a “track record of value destruction,” and accuses the company of acquiring assets from companies it invested in via bankruptcy proceedings.
According to the circular, Gryphon Gold Corp. filed a lawsuit against Waterton in Nevada that accused the private equity firm of a “predatory scheme” to install officers and board directors who would assist it in buying one of its mines out of bankruptcy court.
A spokesperson for Waterton declined an interview request, saying they cannot comment because the matter is in litigation.
Waterton is asking the court to require Hudbay “to correct” the circular, declare all currently issued proxies invalid and/or other relief, including reimbursing its costs for bringing the lawsuit.
Its lawsuit also provides Waterton an opportunity to lay out its case for why Hudbay’s board needs to be replaced: Hudbay shares declined by 44 per cent between January 2018 and October 2018, according to the suit.
A key dispute in the current proxy battle concerns an Aug. 4 meeting between Waterton and representatives of Hudbay, including chief executive Alan Hair, at which Hair allegedly promised Hudbay would not undertake material acquisitions, according to the suit.
On Oct. 4, Bloomberg News reported that Hudbay was in “advanced talks” to purchase Mantos Copper SA for $1 billion, citing people familiar with the matter. Hudbay declined to refute the report at the time.
But the transaction never took place and instead, on Oct. 31, Hudbay announced a $15-million acquisition of Mason resources Corp., a smaller, copper-focused company. Hudbay also acquired some Mantos shares in that deal, according to the lawsuit.
“It was only after the market absorbed this news and got comfort that a larger acquisition was not pending that Hudbay’s share price started to recover,” the lawsuit alleges.
In december, Waterton announced its intention to replace the majority of the board of directors.
even though Hudbay never bought Mantos, Waterton alleges in its lawsuit that the deal “progressed significantly,” and undermined its confidence in the company’s board and management.
“The Mantos Transaction would have been dilutive to Hudbay shareholders, stressed the company’s balance sheet … and would have distracted the company from optimizing the value of its current operations,” the lawsuit states.
Its current portfolio includes its planned rosemont mine in Arizona, which if built, could produce 112,000 tons of copper per year. It also has a copper mine and development properties in Peru, and operations in Manitoba that produce zinc, copper, gold and silver.
Waterton’s lawsuit claims that while Hudbay’s circular touts the company’s environmental, social and governance record, it fails to disclose that it is a defendant in three lawsuits in Canada that relate to accusations of rape, murder and other human rights violations in the community at a mine in Guatemala.
In an ironic twist, however, Waterton is proposing to make Peter Kukielski the next chief executive of Hudbay, the former CEO of Nevsun resources Inc. — a company that also faces a lawsuit accusing it of human rights violations including the use of forced labour at one of its mines.
The circular and the lawsuit contain other attacks on each party, and Hudbay declined to make anyone available for an interview but has called the lawsuit “frivolous.”
“It is imperative that this application be heard on an urgent basis,” the lawsuit states.
“Hudbay is soliciting proxies … on the basis of a Circular that is misleading and fails to state required material facts.”