To an extent I can see it Taseko’s way. The Vancouver based copper miner lashed out at Raging River today, outlining a plot that casts the dissident shareholder as working against the best interests of stock holders, amassing a stake in the company’s debt in “secret”, as Taseko Mines (TKO-T) put it. So it warns of a two-faced exploit in Raging River’s drive to replace Taseko’s board. “This matter raises serious questions about whether RRC hopes to profit from its bond ownership at the expense of Taseko shareholders in the event that RRC’s nominees are elected to the Board,” Taseko stated Thursday.
In this Taseko is not completely grasping at straws. That Raging River owned, or planned to own, Taseko bonds wasn’t disclosed in its bid to remake Taseko in its preferred image. No doubt this discovery adds a wrinkle in Raging River’s aim – or the trust it may engender with other shareholders – as it argues for Taseko to consider options including asset sales to wring, it hopes, more value out of the company, particularly battered in this mining market.
(Taseko’s only producing asset is the 75%-owned Gibraltar copper-molybdenum mine in south-central B.C. Development projects include the Florence copper project in Arizona and New Prosperity in B.C. The latter mine project — with a measured and indicated resource of 5.3B lbs copper and 13.3M oz gold — was approved by British Columbia, declined twice by Ottawa, and is now the subject of lawsuits.)
As for the proxy fight, maybe this serves as a learning moment in Raging River’s communication strategy: Be more forthcoming about your bonds or plans to amass them, which only give your target fodder to fight back.
Yet Taseko’s missive about the potential for ulterior motives in Raging Rivers shareholder dissension is overwrought. Sure, Taseko rightly points out that by holding bonds Raging River puts itself in the front of the line, ahead of shareholders (itself included) to potentially benefit from asset sales. Taseko lays out the problem, as it sees it, this way: “Moreover, if RRC’s nominees were successful in their publicly stated strategy of asset divestitures, the cash proceeds would have to be used to repay other debt holders ranking ahead of the bonds, and therefore would enhance the value of the bonds at the expense of growth initiatives that might benefit shareholders.”
But can’t bondholders and shareholders also get along? It’s not clear to me that a Raging River nominated board would necessarily go out, sell a bunch of assets, and pay itself and other bondholders back and in the process bilk shareholders of value – itself included in the process. I’d say it’s also possible a bondholder who is also a shareholder could want and argue for the same thing. That is a stronger balance sheet, as they perceive it, can be good for both debt and equity holders.
Indeed, bonds and they’re pricing have a lot to do with perception of default and however a company does it, decreasing the risk – or perceived risk – of holding debt can increase the value of the bond. And shares. This doesn’t necessarily require a company to sell its crown jewel(s) and have its board pay back bondholders.
To be clear, I’m not advocating one way or the other here on who would be the better board of Taseko. But when it comes to shareholders and bondholders, I’m not convinced they must be at odds. Maybe you can have your cake and eat it too.