Detour Gold Investor Joins Paulson to Push for Possible Sale
(Bloomberg) -- Another Detour Gold Corp. investor has called for the Toronto-based gold miner to put itself up for sale, after Paulson & Co. said a major mining company was interested in potentially acquiring it.
Coast Capital Management, the investment firm founded by James Rasteh, called for Detour’s board to immediately engage an independent financial adviser to explore a sale after the company declined to do so amid pressure from investors. Rasteh criticized what he called the board and management’s “track record of self-enrichment and value destruction.”
“May we remind you that this company does not belong to you, but rather to us, the shareholders,” Rasteh said in his letter to Detour’s board obtained by Bloomberg. “Your clear refusal to engage in a robust and unfettered sale process violates your most basic duty: to live up to your fiduciary responsibilities.”
The letter was sent after Paulson & Co., the hedge fund run by billionaire John Paulson, said Wednesday that it planned to push ahead with an effort to replace most of Detour’s board. Paulson said it received an “unsolicited written communication” from Detour’s interim chief executive officer, Michael Kenyon, stating that a major gold miner was interested in potentially acquiring the company.
Detour’s shares had fallen 17 percent this year before Paulson’s statement. They jumped as much as 15 percent Wednesday, closing up 9.7 percent at C$13.44 in Toronto.
A representative for Detour declined to comment on the Coast Capital letter. A representative for Coast Capital, which didn’t disclose the size of its holdings in its letter, declined to comment.
Detour disputed Paulson’s claims Wednesday, saying in a statement that it “does not have a sale process in place nor has it received any offers to purchase its shares.” The company, which said it remains focused on its own plans for its business, said it filed a complaint with the Ontario Securities Commission about what it described as Paulson’s “concerning and unlawful behavior.”
“Paulson, in a desperate attempt to resuscitate its flailing reputation in the mining industry, has once again misinformed the investment community,” according to the statement. “This is not the first time, unfortunately, that Paulson has done so. Over the past several weeks, Paulson has run an aggressive and self-serving agitation campaign against Detour Gold with the sole objective of bullying the company into an ill-timed fire sale.”
Paulson responded in a second statement Wednesday to Detour’s assertions, saying they were “false and misleading.” Paulson said in the second statement that it was in contact with the commission before issuing its first statement and gave it the communication it said it received from Kenyon, as well as its request to Detour’s board to disclose that information to all shareholders.
Paulson provided a copy of what it said was Kenyon’s email describing the unidentified potential buyer’s interest in acquiring Detour and a request for Paulson and that company to sign a confidentiality agreement to speed considerations.
A Detour representative didn’t immediately respond to request for comment on those claims by Paulson.
While Detour has resisted pressure to begin a sale process, it said last month that its board would pursue any bona fide strategic alternatives that would compete with the value it plans to create as a standalone company.
Rasteh said in his letter that the company, which operates the Detour Lake mine in northeastern Ontario, is saddled with “a large and extremely well compensated management team, suite of board members, legal staff, consultants, advisers, etc.” The company’s continually shifting strategies and CEOs have contributed to its underperformance, he said. Partly because of Detour’s “abnormally high staff turnover rates and erratic direction,” its utilization rates are “far below” industry best practices, according to the letter.
He said he was also concerned that Detour’s management stands to gain $20 million if the composition of the board is changed to include a majority of individuals who haven’t been nominated by management.
“While we typically endeavor to increase long-term shareholder value by developing operational and other strategic reforms within the companies in which we invest, there is no conceivable rationale for Detour to continue to operate as an independent entity,” Rasteh said. “The inescapable, and sole optimal outcome is indeed a sale of the company.”
Detour investors including Franklin Resources Inc., Mackenzie Investments, Tocqueville Asset Management and Van Eck Associates Corp., the company’s largest holder, have also backed the call for a sale.
The investors only need holders of 5 percent of the company’s stock to support a call for a special meeting to consider proposals, including potentially replacing the board. Paulson said he owns 5.4 percent of the company.
Rasteh said an earlier statement by Detour’s board that it would entertain potential offers ignores the competitive dynamics that could be created by launching a proper sales process.
“None of the potential buyers that we have spoken with would place an unsolicited call into the board to express interest -– such a step would nearly guarantee that they do not get to buy the asset,” he said.
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