Diego Benavides

Minera IRL EGM Fiasco

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On Thursday the Board of Minera IRL Ltd - the existing parent company of the Peruvian operating subsidiaries Minera IRL SA and Minera Kurri Kullu SA - presided over an Extraordinary General Meeting (EGM) - held in Toronto although the company is registered in Jersey, Channel Islands - to consider a vote to completely replace the Board of Directors with a new slate made up with some top Latin American experienced mining figures, bankers and lawyers.  By several accounts (unsubstantiated by the parent company I should add though), the votes counted were enormously in favour of replacing the existing Board with the new slate, but by invoking a technicality the validity of the vote has been set aside pending a new EGM to be held within 3 weeks.

The battle for control of Minera IRL, which operates the small Corihuarmi gold mine which generates positive cash flow and is nearing the end of its life, and is developing the far bigger Ollachea gold mining project, has to say the least been bitter with innuendo after innuendo being put out about Diego Benavides, who currently controls both Peruvian operating subsidiaries and who would presumably be the new CEO if the new Board is voted in.  Indeed the Board of Minera IRL Ltd has even gone so far  as to try to initiate criminal proceedings in Peru over the financial deal with Peruvian bank, COFIDE, which had been fully approved by the full board at the time.  The impression gained by outsiders was that this move was both without foundation, and entirely aimed at trying to muddy the waters re Benavides ahead of the EGM vote and thereby convince some shareholders to vote in favour of the current board - a move which seems to have failed completely.

But back to the decision by current Minera IRL Ltd chairman, Jaime Pinto - who appears himself to be under criminal investigation by the Peruvian Government - to suspend the EGM without an official vote count.  Here’s how London broker/investment bankers SP Angel views this fiasco:

“Minera IRL EGM adjourned despite Rebels holding >90% of votes, questions over handful of shares
• The chairman yesterday adjourned the Minera EGM.  We are told the adjournment was over potential irregularities over a handful of shares.
• Diego Benavides and his supporters are now forced to wait till the next EGM which can be called at any time but no later than 17 December.
• Long suffering shareholders must now wait, while the company is effectively paralysed, racking up costs at a time when, we believe >90% of the shares have been cast in support of sacking the entire board.  Do Turkeys ever vote for Christmas?  We hope these turkeys get a proper roasting by shareholders when this is all said and done.
• In a further twist:  we are also told that a key shareholder has agreed to buy Rio Tinto’s 19% stake and is seeking to be elected to the board
Conclusion:   Do Turkeys ever vote for Christmas?  We hope these turkeys get a proper roasting by shareholders when this is all said and done.
* SP Angel analysts are expressing their own views and opinions in this analysis.  SP Angel has no corporate connection with Minera IRL or its subsidiaries.  SP Angel holds no shares in Minera IRL and does not have any current financial arrangements with the company.”

For longer standing - and hugely outspoken - comment on the whole Minera IRL control saga it is well worth reading a Latin American mining focused blog called Inca Kola News, the author of which certainly does not mince his words.  He has put out a series of anti-current Minera IRL board comments which focuses on totally countering the various anti-Benavides and anti-new Board statements which have been disseminated by the parent company.

In a nutshell, the Minera IRL dispute followed on from the death of company co-founder (with Benavides), Courtney Chamberlain.  Under the original Chamberlain/Benavides control the former was chairman of the parent company and the latter of the Peruvian operating subsidiaries.  Thus Peruvian national Benavides was responsible for building the very positive relationships with the Ollachea community, without whose support the proposed new mine would not go ahead, and also negotiating the key loan agreement with COFIDE.  The work with the Ollachea Community has been widely seen as the ideal model for mining companies to utilise in Peru where community support is so important.

With Chamberlain’s death, board member Daryl Hodges, assumed executive control and reports suggest he then tried to dismantle many of the old relationships with the Peruvian end of the business.  The motivation behind these moves is perhaps more uncertain, but presumably a huge clash of personalities between Hodges and Benavides as to who should take the company forward precipitated much of the unpleasantness which has since ensued.  This culminated in a vote to remove Hodges from the Board (with around 90% supporting the decision to remove him and thus of executive responsibility for the company)  However the Benavides led rebels believe Hodges may still be pulling the strings over control of the company and its decisions.

With Hodges off the Board, the remaining directors co-opted Pinto as the new chairman - he has never been voted onto the Board - and the anti-Benavides campaign continued.

So there we have it.  The EGM vote suspension is a total fiasco and is put down to some irregularities with some of the votes in terms of Ontario securities legislation - here its should perhaps be noted that Minera IRL Ltd. - the parent company - is not actually a Canadian company and the TSX is one of three exchanges on which it is quoted with shareholders virtually split between the three (LSE AIM, TSX, and Lima) as we are given to understand it. Shares are currently suspended effectively awaiting the outcome of the new EGM.

The Board statement on the adjournment of the EGM is as follows: “Information was brought to the attention of the Board early on the morning of the meeting suggesting that there may have been irregularities in the way the vote for the EGM was conducted. As Chair of the EGM, it is my responsibility to determine the validity of the votes cast by proxy or in person. I have received evidence of a potential violation of Ontario securities laws as a result of which a substantial proportion of the votes cast by proxy, significant enough in number to alter the outcome of the matters to be decided at the EGM, were cast on behalf of persons who do not have a corresponding economic interest in the future of the Company. Given the significance of the decisions made at the EGM to the future of this Company and my duties both to the Company and to the meeting, I therefore felt that I was unable to rule on the validity of the votes in question without conducting a proper investigation.”

To an outsider it does appear that this has been another tactic to delay the inevitable or perhaps lead to a change in the votes cast, but for Minera IRL shareholders it is yet another kick in the teeth in terms of additional costs which a smallish mining company in the gold space can ill afford - particularly in the current gold price environment.  We see it as just a postponement of the inevitable, with the only way for the company to move ahead as a potentially much more significant gold miner in the future is to put the proposed new Board in place and take it from there.  However it is possible that perhaps the existing Board may somehow manage to disqualify sufficient of the votes cast to alter the decision in their favour with the help of its Canadian law firm Fasken Martineau looking at legal technicalities.  If it does so, in our view it would be a tragic miscarriage of justice.

To us it seems pretty obvious that relationships between the existing Board and executive management of the parent company with the Ollachea Community and COFIDE are somewhat more than fragile, whereas Benavides’ relationships with these remain strong.  And without COFIDE and the Ollachea community behind it, the company is unlikely to be able to move ahead with the mine on which its whole future depends.  We don’t see that the interests of the shareholders could be served better than the new Board to be appointed if Minera IRL is to have a future as a significant gold miner in Peru.

Minera IRL – AIM, TSX and Lima listed Peruvian gold miner in turmoil

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The late Courtney Chamberlain, founder along with Diego Benavides, of Peruvian gold miner Minera IRL must be turning in his grave.  His untimely death seems to have unleashed an almost unprecedentedly bad-natured battle for the company of which he was co-founder.

On the one hand we have Diego Benavides the other co-founder of the company with Chamberlain, and a number of the company’s old key managers and advisers who have been either dismissed, or sidetracked by a Toronto-ensconced board of directors – despite most of the shareholders being located in Peru and the UK and the company being registered in Jersey.  On the other side there is the constituted board of the company, previously led by former executive chairman, Daryl Hodges, who was voted off the board by an enormous majority in the Annual General Meeting a couple of months ago, but who is still seen as pulling the strings of a board which he would have largely been responsible for appointing and leading following Chamberlain’s death.

In truth some of the existing board’s decisions for taking the company forward do seem puzzling.  It appears to have stirred up antagonism with the company’s key lender – Peruvian state bank COFIDE – and has also, perhaps inadvertently, also stirred up bad feeling with the communities in which Minera IRL’s two key operations, Corihuarmi and Ollachea, are located.  And in Peru, without community support, it is virtually impossible to operate.  The board’s  approach is seen by the old Minera IRL management as perhaps designed to see the relatively small, but still cash-generating Corihurami mine shut down and the likely selling of the company’s flagship Ollachea mine, which is still a work in progress.

However, for the moment Benavides and his team still control the local Peruvian operating subsidiaries (which receive and sell the gold produced at Corihuarmi) – Minera IRL SA and Minera Kurri Kullu SA but the Toronto-centred parent company board is working to try and have Benavides dismissed and thus take full control.

The old Minera IRL under Chamberlain and Benavides had been a model for community relations in the country and had succeeded also in becoming the very first Peruvian mining company to gain financial support in terms of a major loan from COFIDE – something Chamberlain and Benavides had worked on for a long time and safely saw through to reality.  Benavides had also had the key role in the community relations work and is seen as someone who the local people trust, and was designated by Chamberlain as interim CEO for the company, so his initial sidelining by the post-Chamberlain board did not go down well with the mining communities in Peru or with many other of the company’s shareholders – particularly the strong percentage domiciled in Peru.

An Extraordinary General Meeting has been requisitioned by two key Peruvian shareholders to dismiss the current board and replace it with a slate of six others including Mr Benavides.   The EGM is to be held on 26th November in Toronto – home ground for most of the current board.  In its statement in support of its own position the board accuses Mr Benavides of failing to carry out instructions from the former Executive Chairman and the Board and a number of other misdemeanours and that the board is taking steps to have him removed from his control of the Peruvian subsidiaries.  Benavides would no doubt answer that any decisions he took would be for the benefit of the company and its shareholders.

Overall, the Board’s description of the events which have led to the current dispute look pretty damning at face value – but a well respected and much followed blogger running a site called  Inca Kola News (IKN), who obviously favours the pro-Benavides camp, has taken the trouble to dissect some of these statements effectively describing them as lawyer-speak and manipulations of the true situation, and he obviously has a very poor impression of lawyers!  The blogger is, as I understand it, a Minera IRL shareholder and one who has very little time for the current Minera IRL board.  Those interested enough to read the specific item on the Minera IRL EGM statement on his blog – which covers also other aspects of Latin American mining and politics -  click here for a link.  It makes for very interesting reading.  His opinions are very forthright.

It is also perhaps illuminating that the analysts from the corporate finance division of London broker/investment banker – SP Angel – have gone out hugely on a limb in favour of the Benavides camp.  As SP Angel says this is not something they would normally do, but obviously the authors of the note feel extremely strongly about the situation.  Their comments are set out below:

  • It is rare that as analyst we offer advice on the voting of EGM resolutions.  It is even rarer that we should offer this advice so publicly.
  • We have considered statements made by the company Minera IRL (London) and Minera IRL SA (Peru) a subsidiary of Minera IRL in London. 
  • Minera IRL SA (Peru) are proposing to replace the board of Minera IRL (London) with a set of new directors – we agree with their strategy and with believe this is in shareholders’ best interests.
  • A former ceo, Daryl Hodges, was recently ousted in a shareholder vote – we believe shareholders cast their votes correctly in this move.
  • Minera IRL (London) are trying to sack Diego Benavides, a founder of the company alongside the late Courtney Chamberlain.
  • The board are going through a legal process in Peru to sack Mr Benavides on undisclosed evidence from a ‘whistle-blowers’ hotline in Peru – we believe this is the wrong thing to do as we see Diego Benavides as a dedicated, loyal and critically important character in the running of the mining operation in Peru and important in terms of community relations.
  • We see the Corihuarmi gold mine and Ollachea gold project as valuable assets which the company should maintain and progress. 
  • We do not see the actions of the Minera IRL (London) board as indicating the best strategy for building shareholder value.
  • We suspect the board may be happy to allow the default and closure of the Corihuarmi gold mine and the potential sale of the Ollachea gold project which we do not see as being in shareholders’ best interests. 
  • We view the posting of the ‘Notice of EGM and Posting of Circular’ in an RNS on Friday afternoon in the UK at 2.30pm as designed for investors to miss this announcement.
  • We see the holding of the EGM in Toronto as being contrary to the interests of many UK based shareholders who might wish the EGM to take place in London.
  • Votes must be cast and received by Computershare in Jersey by 24 November for UK shareholders.
  • Minera IRL (London) has published information in Friday’s circular in an attempt to discredit Mr Lema and Mr Jorge Ramos who are proposed as directors of Minera IRL (London) board.

Conclusion:  We believe Minera IRL shareholders should support Diego Benavides and the new proposed directors in the EGM vote to reconstitute the board.

Overall it will thus be down to the long-suffering shareholders of Minera IRL to vote on whether to dismiss the current board and set up the proposed new slate of directors – all of whom have first rate mining and associated backgrounds.  Going by the strength of the vote which dismissed Daryl Hodges from his executive chairmanship and from the board (around 92%) one suspects the Benavides camp will have the upper hand, but ultimately it may all boil down to which way the company’s biggest shareholder – Rio Tinto – with around 20% of the shares, casts its vote and both sides will be putting their positions forward to the mining giant.

As we see it, the vote is all about refocusing Minera IRL back on to its original path and rebuild its bridges with COFIDE and the Peruvian communities where it operates (the Benavides option) or going with a board whose overall policy towards the future of the company is somewhat uncertain and whose heavy-handed approach has brought it to the position in which it currently finds itself.  I don’t think it is necessary to read between the lines of the above comment to see where the writer’s sympathies lie.