Paulson Calls for Detour Shareholder Meeting to Change Board

(Bloomberg) -- Hedge fund Paulson & Co. ratcheted up its campaign for an overhaul at Detour Gold Corp. by calling for a special meeting of shareholders with the aim of replacing the majority of its board.

Concerned about “meritless litigation strategies,” the fund run by billionaire John Paulson said Thursday in a statement the special meeting should be held no later than Sept. 28.

The news follows 24 hours of increasingly acrimonious public commentary by the two companies, with each accusing the other of providing false and misleading information and both saying they have complained to the Ontario Securities Commission. Paulson alleged the gold miner had failed to share information about a possible buyer, and filed an email with regulators from the company’s interim chief executive officer, Michael Kenyon, asking the would-be buyer to sign a confidentiality agreement. Detour said it hasn’t received any offers to purchase shares in the Toronto-based gold miner.

‘That Simple’

Detour said in a statement Thursday it didn’t disclose material information to the hedge fund because “the company already had written evidence that Paulson was in possession of that precise information from a third party -- it’s really that simple.” Detour said it sent a “litigation hold letter” to ensure the hedge fund and its senior executives keep records of their activities with other market participants.

“As for Paulson’s threat of running a proxy battle, we have heard this for many months now,” Detour said in the latest statement. “If they choose to proceed, shareholders will have a stark choice -- a fire sale by a U.S. hedge fund versus an experienced team executing the 2018 life of mine plan while remaining open, as it has historically been, to value accelerating opportunities.”

The hedge fund has become increasingly vocal about its grievances with the gold sector and is looking to form a coalition of investors to tackle some of its biggest complaints.

‘Unnecessary Embarrassment’

This week’s back-and forth with Detour followed public pressure from the hedge fund in June. Supported by several other Detour investors, Paulson last month urged Detour to put itself up for sale, citing stock losses and accusing executives of poor management. Subsequently Paulson also said it would push to replace the board of directors. On Wednesday, Coast Capital Management, the investment firm founded by James Rasteh, joined the push for a sale.

Rasteh said he believes the gold industry is ready for consolidation. Detour, as a single asset, is “saddled with a high cost, non-performing management team and board,” which makes it a prime example of a company that would create value for an acquirer both operationally and financially, Rasteh said Thursday in a phone interview.

“Detour’s ad-hominem attack on Paulson and other investors denotes the lack of substantive arguments in favor of independence,” Rasteh said. “It was also a great and unnecessary embarrassment for the company and its board.”

Detour’s principal asset is the Detour Lake mine in northeastern Ontario. The shares sank in April after the company revealed a mine plan that increased the cost for the operation and lowered 2018 production guidance. The shares have rebounded since Detour updated its mine plan last month and Paulson increased its push for the company to sell itself.

CIBC analyst David Haughton said in a research note that 12 miners could potentially be acquirers of Detour. He speculated only a few among the list, including Barrick Gold Corp., Goldcorp Inc., Kinross Gold Corp., and Newcrest Mining Ltd., may be interested.

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