Just a week after the New York hedge-fund, Casablanca Capital, won its intense proxy fight over the $2.7 billion Cliffs Natural Resources (CLF:NYSE), another New York based fund has sent a warning to Madalena Energy's management this morning.
In a powerful yet to the point press release this morning, Joshua Silverman of Iroquois Capital Management, LLC stated, "As a shareholder of Madalena we are very concerned with management's failure to generate shareholder value. We expect to hear some concrete steps the Company is taking to better manage their assets for maximum value creation during their investor conference call tomorrow."
In May, Madalena (MVN:TSX) surprised investors by acquiring Gran Tierra Energy's Argentinian assets. Although the deal was accretive on most measures, the rationale for the purchase was unclear due to the fact that management had been telling investors that they were trying to find a farm-in partner for the expensive drilling in Argentina and would be focusing their efforts on their Canadian production.
Haywood Securities' Senior Energy Analyst, Darrell Bishop said in a note: "there are some investors disappointed that the first major news coming out of Argentina was not a JV deal, as most had expected."
Madalena holds over 950,000 net acres in Argentina including 130,000 acres in the heart of the Vaca Muerta (which translates to 'dead cow' from Spanish) shale play which has been garnering the attention of the global super majors. Land in the Vaca Muerta has been fetching over $10,000 per acre. Management has yet to find a farm-in partner for their land there.
It is a fickle market and investors are restless. As a result, there has been a steady increase in the number of dissident shareholders in the mining and energy sectors.
The surge in proxy battles started late last year when Renegade Petroleum began a very public battle for control of its own company against FrontFour Capital. FrontFour ended up losing the fight, but Renegade was merged with another company to become the market darling it is today, Spartan Energy (SPE:TSX).
In the mining sector, many of the underperforming producers have seen activist investors circling them.
This culminated in the very public battle for Cliffs. On July 29th the company announced their shareholders elected all six of Casablanca's director nominees which effectively gave the hedge fund control the Board with 6 of the 11 seats.
“There were two messages that the shareholders have sent,” Douglas Taylor, a co-founder of Casablanca and another of the candidates on the hedge fund’s slate, said in a telephone interview to the New York Times. “One, to the incumbent board, they said, ‘You need to be held responsible.’ And two, the right people to lead change are Lourenco and the other Casablanca directors.”
Although unconfirmed by Casablanca, it is believed the hedge fund will split and sell Cliffs in pieces to unlock value.
Sherritt International also came under attack by a group of dissident shareholders led by Clark Inc. who was seeking to control 3 of 9 seats on the Board of Directors.
Sherritt successfully defended itself against the proxy with the majority of shareholders backing management. The company sold its coal business in the midst of the battle to raise $946 million.
Dissidents have been present across the full spectrum of commodities. In the gold space, Timmins Gold (TMM:TSX) was accused of entrenched management and was the target of Sentry's wrath as a result of it.
“It is time to transform the current board from one that lacks independence and depth of mining industry experience to an independent board of industry veterans that can deliver results and ultimately enhance the value of Timmins for shareholders,” said Kevin MacLean, senior vice-president and senior portfolio manager at Sentry.
Quickly after announcing their intentions, Timmins and Sentry came to a resolution whereby Sentry was granted a nominee to represent the 17% holder's interests and presumably the two parties came to an agreement as to the strategic direction of the single-asset gold producer.
There is a clear pattern from these activist attacks.
First, you have an underperforming company. Second, you have shareholders that believes management is to blame. Third and finally, you have an investor willing to take their unhappiness to a proxy fight.
There are a number of other companies that could find themselves the focus of an activist investor.
These companies include Barrick Gold (down 46% over the past 5 years) and Kinross (down 80% over the past 5 years). To compare, the Market Vectors Gold Miners ETF (GDX) is down 30% over the same timeframe.
Madalena's management is hosting a conference call tomorrow, August 7 at 8:00am PDT. To participate please call (888) 390 0546 (toll-free in North America), (416) 764 8688 (Toronto and International).