BlackRock seeks unity with minority shareholders in blocking ‘primary’ gold mine asset sale by G-Resources
Hong Kong-listed goldminer is proposing asset sale to consortium led by its vice chairman
BlackRock is calling upon fellow minority investors in Hong Kong-listed G-Resources Group, to vote against the board’s proposal to sell its crown jewel Indonesian gold mining business to a consortium led by a fund partly owned by its vice-chairman.
BlackRock, the world’s largest asset manager, said plans to sell the recently opened mine for close to its book value made little sense.
“We considered the primary asset of the company, the Martabe mine, to be particularly attractive based on its low costs of production, long mine life and significant exploration potential,” BlackRock said in a letter addressed to all other G-Resources shareholders.
“We strongly oppose the sale of the mine and urge all shareholders to reject the proposed sale at the special general meeting on March 8.”
BlackRock has invested in G-Resources since 2009 to gain exposure to the “highly attractive” mine and for exposure to the gold sector.
Its funds own a combined 8 per cent stake in the firm that runs the mine in western Sumatra, Indonesia, which began production in 2012 and made an operating profit of US$55.5 million (HK$431.4 million) in the first half of last year.
G-Resources plans to sell the mine for US$775 million, compared to its net asset value of US$725.8 million.
As part of the plan, unveiled in late November, proceeds from the sale will be invested in “financial products and other security investments”. These include money lending and securities dealing business, and real estate.
The mining business accounted for 99 per cent of G-Resources revenue and 89 per cent of its operating profit in the first-half of 2015. Money lending and financial investments made up the rest.
BlackRock said it is not opposed to the sale at the disclosed price, but it cannot support it because of a lack of clarify on how the proceeds will be deployed, a “complete disregard for all shareholders who invested in the company on the basis of its mining assets and patiently waited for two years for the mine to commence operations,” and little track record of the board and senior management in the new businesses.
G-Resources last August raised HK$1.2 billion via a rights shares issue, which it intended as general working capital.
BlackRock said it assumed the funds raised were for its primary mining business, but was disappointed to find they was used to buy “a variety of unlisted debt securities and stakes in unlisted real estate funds.”
G-Resources had also spent HK$780 million on 10 car parking spaces and 3 commercial office units in Wan Chai subsequent to the rights issue.
BlackRock said it had lengthy discussions with G-Resources’ chairman Chiu Tao and vice chairman Owen Hegarty and requested the board to distribute all of the sale’s proceeds to shareholders, or initiate a share buy-back or tender-offer to allow those shareholders who invested in the firm on the basis that it was primarily a mining business to exit, and launch a new capital raising exercise from those who support the firm’s new businesses.
Pru Bennett, BlackRock’s Asia Pacific head of investment stewardship told the Post: “We have had several meetings with G-Resources’ management in the past 12 months including one earlier this month, but they have not responded to our concerns.”
Glass Lewis, which provides corporate governance advice to fund managers, recommended in a report that they vote against the sale, saying there is little reason for investors “to fully abandon [G-Resources’] core operating asset in favour of an uncertain and largely undefined focus on financial services,” which management has yet to establish it has the experience to profitably manage.
G-Resources executive director Richard Hui Rui told the Post: “Different shareholders may have different views on the future path of G-Resources. We have already provided all necessary information in relation to this transaction in our shareholders circular dated February 18. We believe we have put forward for our shareholders’ consideration what is best in the interest of G-Resources.”
Shareholder activist David Webb said it is unusual for a conventional institutional investor like BlackRock to speak out against a major transaction of a firm it invested in, unlike nimbler hedge funds which have been more vocal, possibly due to compliance restrictions that made it harder for bigger firms to publicly comment.
BlackRock did not comment when the Post first reported minority shareholders’ opposition to the mine disposal two months ago.
“It is better late than never ... hopefully we’ll see more institutions speaking out like BlackRock, which is a sign of progress on shareholder activism in Asia,” Webb said.
In May 2015 Webb urged Hong Kong’s securities regulators to amend regulations to help retail investors become more aware of important shareholders meetings. These included changes that would bring Hong Kong inline with practises in the United States.
The Securities and Futures Commission declined to comment on the proposed rule amendment.