COEUR D'ALENE, ID, June 13 /CNW/ - The Board of Directors of WGI Heavy
Minerals, Incorporated (TSX: WG) today recommended that shareholders vote to
support the Company's nominees to the Board at WGI's Annual Meeting scheduled
for June 25, 2008.
In a letter being delivered to all WGI shareholders, the Board advised
them to reject the slate of nominees proposed by dissident shareholder
Passport Capital LLC since the proposals made by the dissident are not in the
best interests of all the Company's shareholders.
Because of the limited time before the Annual Meeting, the Board also
recommended that shareholders vote the WHITE proxy distributed with the letter
issued today as soon as possible and prior to the final deadline for voting of
10:00 AM Monday June 23, 2008.
The Board directs shareholders to please contact WGI's proxy solicitation
North American Toll Free Number: 1-866-676-3029
The full text of the Board's letter to shareholders follows:
June 13, 2008
Dear WGI Shareholder:
By now, you may be aware of three recent and significant developments at
First, on June 3, 2008, Passport Capital LLC, ("Passport" or the
"dissident shareholder") a significant shareholder of WGI, has issued a
dissident proxy circular seeking support for a resolution which would remove
the Company's existing Board of Directors and replace it with Passport's own
nominees. This question will be decided at the Company's Annual Meeting,
scheduled for June 25 in Toronto. The answer will be crucial to the future of
your Company and your investment.
Second, on June 11 after extensive review and negotiations by a Special
Committee of independent Directors, WGI announced the sale of the Company's
interest in its underperforming operations in India, Transworld Garnet India
(Pvt.) Limited ("TGI"). This sale removes a chronic drain on WGI's financial
results, provides a significant infusion of cash to the Company and, equally
important, gives WGI the opportunity to continue as a major international
distributor of garnet, ilmenite and other industrial minerals.
Third, at the same time, your Board announced that it intends to pay a
special distribution of US$0.80 per share, subject to the closing of the TGI
sale in August of this year. This represents a significant return of capital
to shareholders, while leaving the Company with sufficient cash resources for
Passport and your Board agree that WGI is a company with significant
potential. We also agree that the Company's share price performance has been
far from satisfactory.
We disagree, however, that allowing Passport to control your Company
through the Board of Directors is in your best interests as a shareholder.
Equally important, we also believe that Passport's efforts are no longer
relevant since, prior to Passport filing its circular, the Company had already
taken important and concrete steps to rectify the issues that the dissident
shareholder has identified as the reasons for its action.
Your Board of Directors Unanimously Recommends that you:
- Vote FOR the Company's Nominees to the Board of Directors
using the enclosed WHITE proxy
- REJECT the Dissident Shareholder nominees and do not use the
The dissident shareholder announced its intention to force a contested
vote on the composition of the Board after WGI had already mailed its
Management Information Circular and form of proxy for the June 25 Annual
Meeting. To ensure you have the fullest opportunity to consider your vote, we
are now providing you with another copy of that Circular, a duplicate WHITE
proxy you may use to vote in advance of the meeting, and this letter which
provides you with important new information and the reasons for the Board's
- Your Current Board has strengthened and clarified management at the
Company by appointing Gregory Emerson as President and Chief
Executive Officer, effective May 1, 2008. This has separated the
roles of Chairman and CEO in accordance with good corporate
governance practices - one of Passport's complaints about WGI.
- The sale of TGI is a pivotal event for your Company. Your current
Board initiated the strategic review that led to the sale, conducted
the negotiations, and established relationships with the purchaser.
The current Board is in the best position to complete the
- Your current Board of Directors plans to distribute approximately
US$18.8 million in cash (or US$0.80 per WGI share) to the
shareholders of WGI subject to the successful closing of the TGI
- The Strategic Review by the Special Committee is continuing and is
refocusing WGI's operations on existing and identified growth
opportunities that are complementary to our core businesses of mining
and distributing industrial minerals and manufacturing waterjet
products. These efforts are designed to enhance both short and
long-term shareholder value and need to be allowed to continue.
- While developing growth opportunities, your current Board is also
taking steps to bring WGI's fixed cost structure into line with
revenue from its operations. As a result of the TGI sale,
administrative and legal costs will be reduced substantially.
- The key issues of operating problems, costs, corporate governance and
return to shareholders raised by Passport either have been, or are
currently being, addressed by your Board for your benefit.
- The strategy proposed by the dissident shareholder is fundamentally
consistent with the Company's strategy, as demonstrated by the sale
of TGI and the commitment to the waterjet business.
- Passport criticizes the current Board for WGI's share price but -
illogically - has nominated two former Directors of the Company,
including the Chair of the Audit Committee, who served on the Board
in 2004 and 2005 - the very time the WGI share price began its sudden
and precipitous decline.
- Should it gain control of the Board, Passport can take control of the
cash resources of WGI but is not making a fair offer to all
shareholders to purchase the Company. It would be more reasonable to
all shareholders if Passport were to make a proper offer to acquire
the Company, rather than seeking to take control with no compensation
Background to the Annual Meeting: Summary
Strategic Review by the Special Committee
In May, 2007, your Board created a Special Committee of independent
directors to review a full range of strategic alternatives, including a
business combination or the outright sale of the Company, and to make
recommendations to the full Board. The Special Committee comprised three
independent directors: Gordon Fear, as Chair, Robert Ackerman and Mark Curry.
A key issue considered by the Special Committee was the continuing
uncertainty of the Company's business in India - its 74% interest in
Transworld Garnet India (PVT) Limited ("Transworld Garnet" or "TGI"). The
Committee believed the best interests of shareholders would be served by
clarifying the value of that business, most likely by selling it if a fair
price could be achieved. Proceeds would be returned to shareholders through a
special distribution, or reinvested in more profitable assets, or both.
Given WGI's experience, it believed the most likely buyer would be an
Indian-owned company with experience operating in the beach sands mining
business within that country. Over the following months, a number of parties
were contacted, three likely candidates emerged and negotiations began.
Critical criteria for the transaction were price, the inclusion of a
distribution agreement, that the transaction not be conditional on financing
and that there be a high likelihood that the sale could be completed within a
At the same time, the Special Committee considered both the optimal level
of distribution of the proceeds to shareholders that would also allow WGI to
invest for future shareholder value.
The Sale of TGI
On June 11, 2008, WGI announced it had agreed to sell its 74% interest in
Transworld Garnet, our subsidiary in India, through which it has invested in
mining operations in Tamil Nadu and Andhra Pradesh in India, to V.V. Mineral,
a substantial Indian partnership with 20 years experience in mining and
producing beach minerals in India.
As part of the sale, TGI will repay loans owed to WGI in the amount of
approximately US$11,025,000. The aggregate cash proceeds will be approximately
US$17.3 million (depending upon currency exchange rates at the time).
The transaction with V.V. Mineral met the criteria set by the Special
Committee. It provides both fair value for the TGI shares sold and a valuable
distribution agreement that supports the Company's continued participation in
the world garnet markets and the addition of ilmenite to WGI's product
offering. The Special Committee recommended, and the full Board approved, the
sale, convinced that it represents the best available and reliable value for
The sale is expected to close in August of this year.
Benefits to WGI: Exiting a Troubled Business
Selling our mining operations in India is a very significant milestone
for WGI. In 2004, the Board and Management of WGI at the time made a
substantial investment in India. Subsequently it has made significant
investments in mining licences and production facilities in Tamil Nadu and
Andhra Pradesh that have been troubled for some time. In addition, the direct
and indirect costs of administration, travel and regulatory compliance have
been high and unavoidable since they stem from government requirements. We now
know that the investment was a disaster for shareholders.
Governments in India have not proven to be supportive to foreign
investment in the mining sector and the de facto policy is to require local
control. Achieving local licensing requirements proved unexpectedly difficult
and all of our operations at Andhra Pradesh have been suspended since March
2005. The decision of the Indian government to revoke our licence to handle
ilmenite in March 2005 was a very serious setback for WGI.
Management of a business halfway around the world has been an expensive
challenge. The sale of these operations will allow WGI to focus its management
efforts on businesses with greater potential and to redeploy both the capital
and management time that was previously committed to India.
Benefits to WGI Shareholders: The Distribution Agreement
Concurrently with the sale of TGI, the Company entered into a three-year
Distribution Agreement with V.V. Mineral covering garnet, ilmenite and other
minerals that may be present in the beach sands mined by V.V. Mineral. The
Distribution Agreement provides WGI with a continued supply of garnet
quantities and grades currently provided by TGI. Additional quantities of
garnet will be supplied as V.V. Mineral's capacity expands.
In addition, WGI will act as a broker for the sale of V.V. Mineral's
ilmenite products and will have first opportunity to negotiate contractual
arrangements for other minerals with V.V. Mineral once production begins.
Your Board believes this Distribution Agreement will be a valuable asset
to WGI in both the short and long term. In the short term, it will add
10,000 metric tons to existing volumes and secure the supply of garnet for our
global distribution network, including Kominex, our German subsidiary, and for
our waterjet business. Longer term, it offers the opportunity for WGI to
become a distribution leader - possibly the leader - in its category. It also
offers the opportunity for WGI to enter the titanium and related minerals
distribution business from a position where it has a reasonably assured,
lower-cost, and reliable supply base.
Benefits to WGI Shareholders: New Strategic Investment
Management of the Company and the Board of Directors are currently
evaluating business opportunities that are complementary with our existing
operations. We are looking in particular at the waterjet industry. Even after
the special distribution, WGI will have cash resources that can be reinvested
where we see profitable growth opportunities for the Company.
Special Distribution to Shareholders
Completion of the TGI sale will significantly enhance the already strong
cash position of the Company. The WGI Board of Directors intends to make a
substantial cash distribution to our shareholders subject to the closing of
the transaction, which is expected in August, 2008. The Board intends to
distribute approximately US$18.8 million in cash in aggregate or US$0.80 per
Response to the Dissident Proxy Circular
On June 3, 2008, Passport Capital, LLC, a San Francisco-based investment
firm that owns or manages funds that own 13.1% of the outstanding common
shares of WGI, filed and commenced distribution of a Dissident Proxy Circular
for the stated purpose of replacing the current Board of Directors of WGI with
its own nominees at the Company's Annual Meeting, scheduled for June 25, 2008.
Passport took this initiative without prior notice or consultation with WGI's
Board or management.
Your current Board of Directors believes the change contemplated in the
Dissident Proxy Circular is not in the best interests of WGI shareholders. We
recommend you send in the enclosed WHITE proxy form to vote for the current
Board of Directors and allow us to complete the sale of TGI, return capital to
you, and focus on the development and execution of our strategy for the
Passport is not offering to buy your WGI shares; it simply wants control
of the WGI Board that will give it control over the Company's cash resources.
Passport and the current Board of the Company share common ground on some
important aspects of WGI. We agree that WGI is a company with significant
potential. And we agree on some of the ways the Company can achieve that
potential for all shareholders.
The Dissident Proxy Circular raises a number of complaints, but
essentially it is concerned with the financial performance of WGI and the
related share price, both of which were driven by the disastrous foray into
India initiated by the former Board. It proposes a "new" strategy which is
remarkably similar to the strategy being pursued by the current Board. It also
has some issues with the current Board's actions, but these are generally
unfounded and misguided.
Here is our response:
The existing Board of WGI understands the frustration of our
shareholders, including Passport, with the performance of the Company's shares
over the past few years, but we do not agree that it is now in the best
interests of WGI or its shareholders to replace the existing Board and hand
over control of the Company to the Passport nominees. If for no other reason,
a change at this time jeopardizes the completion of the TGI transaction since
carefully established and maintained relationships are particularly important
to doing business in Asia.
There can be no doubt that the major challenge facing WGI for the past
several years has been the Company's operations in India. In January of 2004,
WGI filed a prospectus and raised C$38 million (at C$10.85 per share) with the
proceeds to be invested in mining operations at Tamil Nadu and Andhra Pradesh
in India. By the end of 2004, it was becoming apparent that WGI was having
difficulty opening its operations in Andhra Pradesh. The share price was
declining and traded at about $6 at the end of that year. On March 7, 2005,
WGI was obliged to announce that it had declared force majeure under its
ilmenite supply contracts because it was no longer able to handle ilmenite
produced in India since its government licences had been summarily revoked. At
the same time, the Company announced the resignation of its Chairman, Ian
Falconer. Before the March 7, 2005, announcement, WGI's shares were trading at
$5.65. By the end of the day, they were trading at $3.02.
The decision to invest in India was made by a Board and management of WGI
that has now been largely replaced. The former Chairman, Ian Falconer,
resigned in November 2004 and Mr. Brown assumed the role of Chairman of the
WGI Board of Directors. Mr. Brown had first joined the Board in June of 2004
together with John Nugent and Don Siemens, two of the individuals who are
proposed by Passport to be re-appointed directors of WGI (they resigned from
the WGI Board in March and May 2005, respectively).
The employment of Mr. Lindsay Gorrill as Chief Executive Officer was
terminated in April, 2005 and Mr. Brown was named to that position.
The current management and Board of Directors have been focused for the
past several years on finding a solution to the issues the company faced in
India, while seeking to maintain the rest of WGI's business, much of which, as
Passport states, is very promising.
Passport claims that "Since the time Mr. Covell Brown took over as
Chairman of WGI in November 2004, WGI has lost 87% of its share value". That
is misleading. Between the January 2004 financing and the announcement of the
revocation of the ilmenite licence, WGI's share value declined drastically --
from approximately $11 to $3. Mr. Brown joined the WGI Board only after the
financing and Indian investment had been completed. He did not become Chief
Executive Officer of the Company until Mr. Gorrill was terminated in April
2005, a month after WGI reported that its ilmenite licence had been revoked.
Those events are behind the most significant loss of shareholder value and
Mr. Brown does not bear responsibility for either of them.
Continuing erosion in the share price is the result of the poor financial
performance of the Indian operations. Mr. Brown and the rest of the current
Board have been focused on resolving that situation and they have achieved it
with the sale to V.V. Mineral.
WGI has turned a significant corner and can focus on moving forward.
Passport Capital's complaints, while once justified, are now outdated and
irrelevant. They have been corrected - not caused - by the current Board. The
changes being directed by your current Board and management should be allowed
time to take effect and improve operating results for the benefit of all
The Dissident Proxy Circular inaccurately criticizes compensation for
senior management and Directors. They state that the CEO's compensation in
2004 was $313,297 and compare that to the CEO's compensation in 2007 of
$528,330. However they do not account for the fact that in 2004, the Chairman
was separately paid $74,353 and in 2007 the CEO was also the Chairman of the
Board and received compensation for both positions. The CEO's compensation was
set by a committee of independent directors who have taken into account the
difficult circumstances at WGI.
Passport inappropriately links compensation paid to the current directors
to a low share price caused by the actions of a previous Board, which has
largely been replaced. The current directors and management are correcting
those past mistakes. WGI's compensation to the directors is comparable to what
other Canadian public companies pay. Information about compensation is fully
disclosed in the enclosed Management Information Circular.
The roles of Chairman of the Board and Chief Executive Officer, held for
a time by Mr. Brown, were once again separated, in accordance with good
corporate governance practices, when Greg Emerson was appointed CEO by the
Board in May, 2008.
Mr. Brown was asked to join the Compensation Committee when he first
joined the WGI Board as a Director and prior to being named Chairman. He
remained on the committee because this was helpful when the committee
discussed compensation issues relating to individuals that reported to
Mr. Brown. When issues related to Mr. Brown's compensation were under review,
Mr. Brown properly absented himself, leaving these issues to be determined by
the independent directors on the committee.
In the view of the WGI Board, there are no material flaws in the existing
corporate governance practices at WGI. The issues raised by Passport have
either been addressed by the current Board or were never issues in the first
Despite the obvious problems in India, the Dissident Proxy Circular
offered no solutions. They did not contemplate the sale of the Indian
operations and a promising distribution agreement. The current Board delivered
both of these achievements. Instead, Passport says it should control WGI -
without having actually offered shareholders anything to buy the Company --
because they have a strategic vision to expand into the waterjet business.
They are not wrong since expanding into the waterjet business does merit
consideration. The current Board has been carefully analyzing it. We believe
it may be possible to build WGI into a company with significantly increased
sales from the waterjet market within five years through targeted acquisitions
- using existing cash resources and cash generated by the distribution
business. This is a growing industry and WGI plans to grow with it.
We also believe that WGI shareholders want both a substantial cash
distribution from the sale of TGI and a continued investment in a viable
business with cash resources to invest for future growth. The current Board
has delivered both. There is no reason to change course now.
Passport was not wrong to demand change. It was just too late. The
current Board has dealt effectively with their concerns and positioned WGI for
enhanced shareholder value.
It is not in the best interests of WGI shareholders to simply turn the
Company, with its significant cash resources, over to Passport Capital.
Shareholders are better served by the current Board, its new structure, its
new strategy and its new senior management team.
We urge you to vote the WHITE form of proxy to elect the Company's
nominees to the Board and protect your own interests.
Yours very truly,
The Board of Directors,
WGI Heavy Minerals, Incorporated
THE PROXY TO VOTE IS WHITE - HERE'S HOW
Your Board of Directors, which is acting in the best interests of all
Shareholders, recommends that you act to protect the value of your investment
in WGI Heavy Minerals .
Please review the attached letter carefully. If you agree that your best
interests are being served by your current Board of Directors, it is crucial
that you sign, date and return the enclosed WHITE proxy as soon as possible.
Time is short. To be counted at the Annual Meeting, your proxy must be
submitted by no later than 10:00 am EDT, Monday June 23, 2008
You may vote your Common Shares by internet, telephone, facsimile or
mail. We suggest voting today or no later than 24 hours prior to the deadline
to ensure your vote is received in a timely manner to be voted at the Meeting.
Mail is not recommended.
Please note that if you have mistakenly voted using the wrong proxy, you
have every right to change your vote by simply voting the enclosed WHITE
proxy. This action will cancel all previous votes since it is the later-dated
proxy received that will count at the Meeting.
What material do I need to submit?
As a Shareholder, you only need to submit your WHITE proxy which
accompanies this material. The WHITE proxy must be signed, dated and returned
using any of the methods described on the WHITE form of proxy. Because time is
of the essence, the recommended voting methods are telephone or internet
Your Board recommends that you VOTE:
- FOR fixing the number of directors at 7
- FOR the election of Covell D. Brown, Michael C. Burns, Kitson M.
Vincent, G. Mark Curry, Robert W. Ackerman, Gordon A. Fear and
Gregory S. Emerson
- FOR the appointment of Auditors
Who do I call if I have any questions about the proxy or if I need help
If you have any questions about the information contained in this document
or require assistance in completing your WHITE proxy, please contact our proxy
solicitation agent at:
North American Toll Free Number: 1-866-676-3029
Whether or not you plan to attend the meeting, we ask that you complete
and return the enclosed WHITE proxy promptly and discard any materials
that you may receive other than from management.
WGI Heavy Minerals, Inc. is a fully integrated miner, producer, and
marketer of industrial-grade minerals and replacement part for ultra-high
waterjet cutting systems. The Company's shares are listed on the Toronto Stock
Exchange under the symbol WG.
This press release contains forward-looking statements concerning the
business, operations, and financial performance and condition of WGI Heavy
Minerals, Incorporated. A number of the matters discussed and statements made
in the press release contain forward-looking statements reflecting current
expectations regarding future assets. When used in this press release, the
words "believe", "anticipate", "intend", "estimate", "expect", "project", and
similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such words. These
forward-looking statements are based on current expectations and are naturally
subject to risks, uncertainties, and changes in circumstances beyond
management's control that may cause actual results to differ materially from
those expressed or implied by such forward-looking statements. Factors that
may cause such differences include but are not limited to: exploration and
development risks; risks related to permits and title to property; risks
related to foreign countries and regulatory requirements; operating hazards;
foreign currency fluctuations; competition; fluctuations in the market price
of mineral commodities and transportation costs; uncertainty as to
calculations of mineral deposit estimates; uninsured risks; and dependence
upon key management personnel and executives. Actual results may differ
materially from those expressed here. You should not place undue reliance on
such forward-looking statements. The Company is under no obligation to update
or alter such forward-looking statements, whether as a result of new
information, future events, or otherwise.
For further information:
For further information: Ed Kok, Investor Relations, 810 East Sherman,
Coeur d'Alene, ID, 83814, U.S.A., (208) 770-2208, Fax (208) 666-4000,
www.wgiheavyminerals.com, E-mail: email@example.com