Taseko Mines shareholder proxy battle heats up

Allegations of insider trading met with threats of defamation suit and legal action in U.S.

Despite moving a proposed tailings pond to avoid impacts on Fish Lake, Taseko's New Prosperity mine project was rejected by the federal government. | BIV archives

The Vancouver mining company that’s suing the federal government for rejecting the New Prosperity copper mine and tried unsuccessfully to sue the Wilderness Committee for defamation is now fighting another legal battle in the U.S.

Taseko Mines Ltd. (TSX:TKO; NYSE MKT: TGB) is embroiled in a nasty proxy battle with a dissident shareholder group that wants to elect four of its own members to Taseko’s board of directors, ostensibly to conduct a housecleaning.

In January, a group of shareholders collectively known as Raging River Capital LP acquired 5% of Taseko’s common shares and demanded a shareholder vote.

On February 26, Taseko filed a complaint in U.S. district court, alleging violations of Securities and Exchange Commission regulations by Raging River.

Taseko claims Raging River failed to disclose that, in addition to its 5% equity stake in Taseko, it owns $22 million in bond debt.

That’s important, said Taseko investor relations vice-president Brian Bergot, because Raging River directors could vote to sell Taseko assets to improve the value of their own bonds, while negatively affecting the share price.

“Any reduction in our corporate debt improves the value of our bonds,” Bergot said.

“As a bond holder, and with [seats on the board], this parternship – Raging River nominees – could take certain action to liquidate Taseko assets, which they stated they would do, and that could have very bad consequences for shareholders.”

Raging River, meanwhile, has sent a letter to the BC Securities Commission seeking an investigation into what it alleges is insider trading on the part of two Taseko executives.

Taseko responded to those allegations March 1 with a lawyer’s letter to Raging River managing partner Mark Radzik demanding a retraction and apology and threatening a defamation suit.

Radzik shrugs off the threat, saying it’s just a distraction from legitimate concerns shareholders have about the company’s performance, which includes a 90% loss in market cap since the beginning of 2011.

“They get mad, they lose, they sue everyone,” he told Business in Vancouver. “That’s what they do.”

In  its letter to Radzik, Taseko denies Raging River’s allegation that Taseko CEO Russell Hallbauer and company vice-president of corporate affairs Brian Battison had bought Taseko stock between January 15 and January 25 “while in possession of non-public, material information.”

The information in question was a $70 million credit facility with an affiliate of RK Mine Finance (Red Kite) that Taseko announced on February 1.

In its letter to Radzik, Taseko disputes the claim that Hallbauer and Battison knew that the deal would be done.

“In particular the shares were acquired by our clients well before the credit agreement with Red Kite was entered into and at a time when it was not known whether the transaction would proceed or not,” the letter states.

Among its other complaints, Raging River questions the “conflicted” relationship between Taseko and Hunter Dickinson Inc. (HDI), a private mining house whose board of directors includes Hallbauer and two other Taseko directors.

According to Raging River, Hunter Dickinson has received $25.8 million from Taseko in fees and investments since 2012. 

"Raging River is focusing on a relationship which we have with Hunter Dickinson which is a very beneficial relationship to Taseko," Bergot said. "They provide cost effective services from high-quality individuals, professionals. They are trying to make something out of conflict which does not exist."

Raging River also questions Taseko’s friendly acquisition in 2014 of exploration company Curis Resources Ltd. Hallbauer and two other directors were Curis shareholders, holding 8% of the company’s stock, according to Taseko.

Radzik said it was a bad deal for shareholders.

“That’s a deal they paid almost $100 million for and the company was almost bankrupt,” he said.

Curis had three directors in common with Taseko.

“They were completely recused from the entire process," Bergot said. "So they had no say.”

He said an independent committee was struck to evaluate the friendly acquisition.

Mickey Fulp, publisher of the Mercenary Geologist, was a Curis shareholder and through the transaction became a Taseko shareholder. He doesn’t share Raging River’s view that there is an inherent conflict of interest between Taseko and HDI.

Fulp has criticized such arrangements in the past with junior mining companies. He has, for example, questioned the practice of CEOs of junior exploration companies hiring their own drilling companies.

But Fulp said HDI and Taseko are both “real companies,” and he doesn’t have a problem with the arrangement.

“That said, they [HDI] have a reputation of being a high-cost outfit,” Fulp added.

In a press-release response to some of Raging River’s questions about its relationship with HDI, the company said it conducts regular reviews of the mining services HDI provides and compares its rates with those of other companies.

“Taseko is satisfied the rates are competitive with, if not lower than, other suppliers of similar services,” it said.

As a shareholder, Fulp’s biggest beef with Taseko was its acquisition of Curis.

“I was not happy with the terms of that takeover,” Fulp said.

Radzik said there are a lot of shareholders who are unhappy and that they want to see a change in Taseko’s direction and governance.

He characterizes Taseko management and directors as being overly litigious and confrontational, citing the New Prosperity project as an example.

The Tsilhqot’in First Nation vigorously opposed the project over concerns that the area’s Fish Lake would be drained in order to build a tailings pond.

Two iterations of the mine project were rejected by the federal government.

Taseko responded by filing for judicial review. It later asked the Federal Court to convert that application to a lawsuit against the federal government. The court rejected the second application to convert to a lawsuit but allowed the judicial review to proceed.

Just last week, Taseko filed suit against the Attorney General of Canada and Canadian Environmental Assessment Agency over their rejection of the New Prosperity mine project.

Taseko also tried to sue the Wilderness Committee for defamation over public criticisms it made about the New Prosperity project.

In January, the BC Supreme Court dismissed the defamation suit against the Wilderness Committee and awarded the environmental organization court costs.

Taseko responded by filing an appeal of the court’s dismissal of the defamation suit.

Should Raging River succeed in replacing some of Taseko’s directors with its own designates, Radzik said he would hope to see a different approach.

He thinks the only way the New Prosperity project could go forward is if the company changes its attitude towards the Tsilhqot’in.

“The first thing we would do is try to re-engage the First Nation and rebuild trust and try to start over again,” he said.

To address concerns about HDI, Taseko said it will add two new independent directors to the board and will change governance policies to give shareholders greater say on the relationship with HDI.

A Taseko shareholder meeting has been scheduled for May 10.

But between now and then, the war of words between Raging River and Taseko appears unlikely to abate. Taseko has told shareholders via a press release that Raging River may have misled them when it failed to disclose that Radzik had, at one time, been a director for an American company that had gone bankrupt.

In a press release naming four nominees for director positions, including Radzik, Raging River stated that “to the knowledge of Raging River,” none of the four nominees were a director or chief executive or financial officer for a company that had been subject to cease trade orders or bankruptcy proceedings.

Taseko points out in a February 25, 2016 press release that Radzik had been a director for a U.S. company, Support Plus Medical, which went bankrupt in 2013.

“The bankruptcy involves troubling circumstances that illustrate the danger of corporate directors who are also lenders,” Taseko said in its press release.