Shareholders move to sack Goldfield directors – cite mismanagement, $1B loss in share value

Jan 04, 2019 News

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Shareholders of Guyana Goldfields Inc., a Canadian company, which operates the biggest gold mining operations in Guyana, are moving to sack its current board of directors because of what it says is poor performance.
On Wednesday, the company which has operations in the Cuyuni, Region 7, disclosed that it has received a requisition for a special meeting of shareholders.
Since 2016, the company has emerged as the biggest producer and exporter of gold, which accounts for a significant portion of the country’s foreign exchange earnings.
However, the Canadian company which has several hundred employees, had come under fire last year for their commitment to local content in Guyana.
With regards to this latest development, the company said that the requisition is being made by certain shareholders who in aggregate as of December 31, 2018, own 9.45 million common shares of the company, representing approximately 5.4% of the total shares outstanding in the company.

“The request for the special meeting is being made to consider the replacement of the current board of directors of the company with six new directors nominated by the participants.”
The company insisted that its current board of directors remains committed to constructive dialogue and engagement with all shareholders and will review the requisition and respond appropriately in due course.
However, the reasons by the shareholders for removing the current board are numerous.
They issued a separate statement which said that a group of Guyana Goldfields Inc. shareholders including Northfield Capital Corporation, Robert Cudney, Donald Ross, Gretchen Ross and Patrick Sheridan, together owning not less than 5% of the issued and outstanding shares of the Company, announced they have requisitioned a special meeting of shareholders.
The meeting, it was explained, is for the purpose of replacing the board of directors with a new board, capable of fixing performance issues, leading a share price recovery, and executing a value maximizing transaction.
The shareholders said that the current board of seven has been responsible for the loss of over CDN$1 billion in shareholder value since 2016.
The shareholders want to replace them with six other persons who are independent, highly-qualified and accountable directors.

PRICE FALL
“The concerned shareholders are also seeking a mandate from shareholders for the new board to establish an ethics committee to guide and ensure the ethical conduct of the company’s business, strike a special committee to undertake a strategic review of the company, and engage a leading Canadian bank as financial advisor to assist with such strategic review.”
The statement from the concerned shareholders noted that given the current board’s inability to stop the “freefall” of the share price — and a series of continued “irresponsible statements and decisions” that have instead accelerated the share price decline —they want a special meeting be held promptly, by no later than March 12, 2019.
“The current Board has made a series of seemingly irresponsible and misleading statements and generally questionable decisions that have put Guyana Goldfields’ share price into a freefall. Their track record shows every decision they make further compounds the value destruction. While shareholders have lost over CDN$1 billion in value, the Board has continued to reward itself handsomely, and has made no changes to the operational management of the Aurora Mine,” said Mr. Sheridan, one of Guyana Goldfields’ largest shareholders.
Sheridan was the Founder, former Executive Chairman and former director of the company.
“Without an immediate change in direction and a new board elected with a mandate to aggressively pursue a strategy to maximize value for all shareholders, we have serious doubt Guyana Goldfields will remain a going concern. The path for shareholders to recoup the value of their investment is clear: optimize operational performance, repair the relationship with the Government of Guyana, turn the share price around and execute a value-maximizing transaction.”
The concerned shareholders said that they are not alone in their views.
“As Scotiabank indicated on November 19, 2018: “…we feel confidence in management is likely beyond repair and we do not see any catalysts that are likely to persuade investors to initiate or maintain a position.” It is clear the only way to restore confidence is with a new board.”

QUESTIONABLE DECISIONS
The shareholders claimed that the current board made, and continue to make, questionable business decisions.
“Until now, much of what they have been doing has been hidden from shareholders. The concerned shareholders believe their fellow shareholders should have the benefit of full information regarding the Board’s actions, whether they want to provide it or not.”
In fact, the shareholders said, the Board has allegedly been misrepresenting or incompletely disclosing the reasons for the company’s poor results, using such excuses as the rainy season, slow equipment mobilization and, most recently, problems with the resource model.
It was pointed out that on February 20, 2018; the company provided full 2018 production guidance at 190,000 – 210,000 ounces with an all-in sustaining cost of USD$830 – USD$880 per ounce.
On July 16, 2018 this was lowered to 175,000 – 185,000 ounces at an all-in sustaining cost of USD$945 – USD$995 per ounce.
These figures were re-confirmed by the company on October 9, 2018. “However, on October 30, 2018, just 21 days later, full year guidance was lowered to 150,000 – 155,000 ounces with an increased all-in sustaining cost of USD$1,025 – USD$1,050 per ounce.”
“On a conference call on October 30, 2018, management this time largely blamed the further revised guidance on problems with the resource model, thereby throwing into question the gold resource itself. While some variance in the resource model is common and is to be expected, and certainly nothing new for the Aurora Mine, management’s statement threw into question the viability of the mine itself.”
The shareholders said that in their view, this was an incorrect, misleading and irresponsible statement and it caused the market capitalization of the company to fall by almost CDN$250 million, or about half, in one day.

POOR RELATIONS WITH GOVT.
The statement also noted that there is a deterioration in the relationship between the company and the Government of Guyana.
“On November 9, 2018, the company announced that it “commenced underground development with first portal blast”; however, on November 19, 2018 the Company announced it had suspended work on the portal at the request of the Environmental Protection Agency (EPA).”
The shareholders said that they understand that the EPA had specifically requested on October 24, 2018 that no underground work be commenced without prior approval, which the company seemed to have deliberately ignored.
“Moreover, the concerned shareholders understand that the subsequent investigation by the EPA has outlined “about 50%” non-compliance with environmental regulations. Such actions by management have likely significantly and, possibly irreparably, soured relations with the Government of Guyana, after many years of mutual support and respect.”
Additionally, the concerned shareholders said, on July 31, 2018, the company fired over 80 exploration workers, an event carried widely by the press, which not only diminished the company in the eyes of many Guyanese, but also could potentially cause the Guyanese government to revisit and review its exploration licences.
“It will be a priority of the Nominees to make immediate efforts to repair the relationships with the Government of Guyana.”
They accused the management team of not following best practices with respect to mill security, site security, procurement, internal controls, and the assay lab.

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