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

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.

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