TSX Symbol: VGM
TORONTO, July 17 /CNW Telbec/ -
Dear Shareholders,
Yesterday a Dissident Circular was filed on SEDAR in preparation for next week's adjourned annual and special meeting. A dissident group of shareholders is seeking to replace the Board of Directors. I would like to comment on some of the issues raised (and not raised) in that circular.
Firstly, the Dissident Circular does not give any reasons for replacing the board, does not state any future plans for the company and fails to address who is going to manage the company in the event the Dissident Shareholders manage to replace the Board of Directors. One might expect a cogent, closely argued logic as to what added value the dissident slate of directors brings to the company and all other shareholders. Apart from a number of largely irrelevant comments about the independence of one board member and a completely erroneous summary of the role of our CFO, the Dissident Circular lays out no grounds whatsoever for replacement of the current Board.
I would like to share with you how Mr. Lucas Ewart (defined in the Dissident Circular as "the Dissident Shareholder") came to control the large block of shares that he does (or did at the record date). During May 2009, the Company received several offers of financing for the Company. The Company made the determination to accept the offer of GC-Global Capital Corp. ("GGCC") for three main reasons:
(1) GGCC advised the Company that the financing would be completed
quickly, which occurred; and
(2) GGCC represented to the Company that this initial financing, which
was being done at a low price compared to the historical trading
range of the Company's shares, would be a precursor to discussing
future financings, including a convertible debenture financing.
(3) It was the best serious offer that had been received.
Unfortunately no such further financing discussions between GGCC and the Company have ever occurred. GGCC requested a seat on the Board of Directors of the Company as a condition of the financing. The Company was happy to accommodate this request and as a result included GGCC's nominee, Lucas Ewart, on the proposed slate of directors in the Management Information Circular of the Company dated May 26, 2009.
As described in an earlier press release, the Dissident Shareholders, which includes GGCC, has subsequently informed the Company of its intention to replace the entire board of directors. In subsequent conversations, GGCC has modified its demand for a wholesale replacement of the board of directors of the Company, which would be very damaging to the Company in terms of continuity of management, to the extent that they would ask myself to remain on with the Company. I have subsequently made it quite clear to GGCC that I would not remain with the Company under these circumstances. I and the Board have offered to the dissident shareholders to discuss and modify Board structure in a manner that will give continuity of management and ensure protection of the assets.
Shareholders of the Company should be aware that while the Company was in discussions with GGCC about the equity financing, the principals of GGCC indicated that they have "neither the expertise nor the inclination" to run a junior resource company. This should be very concerning to shareholders of the Company as it raises important questions: What is their motivation in this process? And will their plans benefit all shareholders? At least one of the dissidents has intimated that they intend to "reduce expenditures to zero" and to "hold an auction of the assets". This would imply to us a cessation of development efforts and the implementation of an "asset stripping" policy. In effect, the dissidents would, because of the low price of the Company's shares, have acquired control of the Company for a very small amount of money and would then dispose of assets. It should be noted that in addition to the 12,500,000 common shares of the Company acquired by GGCC in May 2009 at a price of $0.04 per share pursuant to a private placement, the Company has been advised that another approximately 10 million common shares of the Company were acquired by three persons included in the Dissident Shareholder group from an institutional shareholder at a price of approximately $0.01 per share. It should also be noted that shortly after the Record Date of May 26th 2009, GGCC distributed the majority of their shares to 6 individuals, each of whom are known to have given their proxy to Mr. Ewart. Therefore, although they held these shares as of the Record Date, it is clear that GGCC never had any intention of retaining those shares.
Although the Company's current management and board agree that the Company's current share price does not reflect the value of the Company's assets, they do not believe that selling these assets in a depressed environment will lead to the best result for all of the Company's shareholders. And given the manner in which GGCC has proceeded in the past few months in its relationship with the Company, including its attempt to take control of the Company in relative secrecy, it is hard to imagine a scenario beneficial to all of the Company's shareholders if the Dissident Shareholders succeed in their attempt to replace the current board of directors of the Company.
In the discussions that the Company has had with the Dissident Shareholders, the Company has attempted to determine what issues have resulted in the Dissident Shareholders believing that a change in the board of directors of the Company is necessary. The Company has been informed by the dissidents that they are angry at the level of salaries within management. Quite apart from the fact that salary levels within the Company, managed by a conscientious compensation committee, are at or below industry norms, management have themselves elected for the past nine months initially to defer substantial portions, and, for several months, all, compensation. Management has, in effect, financed the continuity of operations in the face of the refusal of established shareholders (who are among the Dissident Shareholders) to provide financing for the Company.
The Company understands that members of the dissident group claim that the current board is attempting to entrench itself. The independent members of the board manage the Company on behalf of shareholders for little or no compensation. The independent directors of the Company have no financial incentive to entrench themselves and have offered to discuss and modify Board structure. In their Circular, the Dissident Shareholders have questioned the independence of one of the directors by referring to certain securities policies, but their analysis is incorrect. More importantly, their proposed slate of directors appears to be lacking in independence. The Dissident Circular also makes erroneous statements about the role of Mark Shonnard, the Company's CFO who does most certainly take an active, day-to-day role in the management of the company; he has simply elected to do so while minimizing the cost to the Company of his services. In addition, the Company's financial controls, designed and implemented by Mr. Shonnard, including control of cash, are extremely robust as is the corporate governance function of the Board. We believe that the comments of the Dissident Shareholders on these issues are based on only the shallowest analysis and complete ignorance of the company's affairs.
The Company has been working on a business plan to bring the Los Verdes project to production and generate cash flow from a small scale high grade underground project. When metal prices improve it is intended that the operation would be converted to the open pit project contemplated in the pre-feasibility study that was issued in 2008. This high grade project is not yet NI-43-101 compliant and the Board considers that it is a high priority to dedicate management time and funds to bringing the project into NI-43-101 compliance. We see no comparable plan from the Dissident Group.
In summary, I am of the opinion that a group of people have amassed a large block of shares at a low cost and would like to install their associates as your Board without providing you with their plans for the company or to maintain continuity of management.
Yours truly,
Chris Davie, President & CEO
About Virgin Metals
Virgin Metals is a junior exploration and development company; its projects include two copper-molybdenum porphyry properties in Sonora, northern Mexico. One of these, Los Verdes, has been the subject of a pre- feasibility study and is expected to evolve rapidly towards production while the other, Cuatro Hermanos, has been the focus of an intense exploration effort.
FORWARD-LOOKING STATEMENTS
This press release includes certain "forward-looking information" within the meaning of the Securities Act (Ontario), including, but not limited to, statements as to: development of the Los Verdes project; future exploration of the Cuatro Hermanos project; timing and extent of exploration programs; and, the availability of exploration results. As such, forward-looking information addresses future events and conditions and so involves inherent risks and uncertainties, as disclosed under the heading "Risk Factors" and elsewhere in Virgin Metals documents filed from time to time with the Ontario Securities Commission and other regulatory authorities. Actual results could differ significantly from those currently projected as a result of, among those factors, adverse weather, regulatory changes, delays in receiving permits, accidents and delays in completing exploration activities not all of which are in the control of Virgin Metals. The forward-looking information contained herein is Virgin Metal's reasonable estimate today of future events and conditions, but no assurance can be given that such events or conditions will occur.