BlackRock fails to block Hong Kong’s G-Resources from selling ‘attractive’ gold mine at near book value

Asset manager called on fellow minority investors to vote against proposal

PUBLISHED : Tuesday, 08 March, 2016, 11:14am
UPDATED : Tuesday, 08 March, 2016, 6:54pm

BlackRock, the world’s largest asset manager, has failed in its campaign to stop G-Resources from selling its crown-jewel gold mine in Indonesia at near book value to a consortium led by a fund partly owned by G-Resources vice-chairman Owen Hegarty.

Some 58.82 per cent of shareholders who voted in Tuesday’s special shareholders’ meeting were in favour of selling the mine, compared to 41.18 per cent against the sale of its main profit generator, the firm said in a filing to Hong Kong’s stock exchange late on Tuesday. It needed at least a 50 per cent “yes” vote for the sale to go through.

“It is a sad day for shareholders, the purchasers of the mine are getting it for a song and the share price will fall on expectation that BlackRock will sell its shares,” said a former shareholder who recently sold all his G-Resources shares at a loss after its share price recovered from a steep sell-off following the announcement of the sale in late November.

It is a sad day for shareholders, the purchasers of the mine are getting it for a song
Former G-Resources shareholder

Its shares are worth less than half what they were when the mine began production in mid-2012.

BlackRock, which owns around 8 per cent of the firm, called last week on fellow minority investors to vote against the proposal to sell the Martabe mine for US$775 million, saying it made little sense. The fund said the mine was highly attractive and opposed the sale, saying the board had not adequately clarified how the proceeds would be deployed.

Glass Lewis and ISS, which provide corporate governance advice to fund managers, both recommended votes against the sale, saying the board had not made a compelling case to justify it.

The board had earlier said the proceeds would be invested in “financial products and other security investments”. These include money lending and securities dealing businesses, and real estate. Executive director Richard Hui Rui said on Tuesday the board “believes the current plan is the best use of the proceeds”.

BlackRock demanded the board distribute the proceeds to shareholders, or initiate a share buy back or tender offer to allow shareholders who invested in the firm on the basis that it was primarily a mining business to exit, and to launch a new capital raising exercise from those who support the firm’s new business. The board has not accepted the proposal.

“We must act according to our fiduciary duties to our investors,” Pru Bennett, BlackRock’s Asia-Pacific head of investment stewardship, said on Tuesday, adding G-Resources’ board had been “very opaque” on the new businesses it was investing in. “We need to understand the risks of the businesses and what type of returns they may be making.”

Hui said information on the new businesses had already been disclosed in a circular.

Pressed by shareholders, Hui told them the board would consider their request for a special dividend after the sale.

Bennett said that if shareholders approve the sale of the mine, it would be up to BlackRock’s portfolio managers to decide what to do with their G-Resources shares.

Asked if some of its funds, such as gold exchange-traded funds (ETFs), might be forced to sell their holdings since G Resources would no longer be in the mining business, she said ETFs were a minority in BlackRock’s 8 per cent holding.

The owners of 26.2 billion G-Resources shares were entitled to vote – representing 98.66 per cent of the firm’s total issued shares – with those holding 21.65 billion shares having done so.

Hegarty and associates who own and control the voting rights in shares equating to a 0.92 per cent stake abstained from voting.