TORONTO, April 5, 2013 /CNW/ - Waratah Advisors ("Waratah") has submitted a letter to the Board of Directors of Labrador Iron Ore Royalty Corporation ("LIORC") dated April 5, 2013 requesting that a non-binding shareholder proposal be included on the agenda for the upcoming May 29, 2013 annual meeting of LIORC's shareholders.
RESOLVED, that the shareholders of Labrador Iron Ore Royalty Corporation ("LIORC") recommend and request that the Board forthwith take such steps as are necessary and advisable, including engaging legal and financial advisors, to initiate a formal process to explore the separation of LIORC's 15.1% equity stake (the "IOC Equity") in Iron Ore Company of Canada ("IOC") from the 7% royalty on the sales of IOC, through a tax efficient spin-out of the IOC Equity to LIORC's shareholders or otherwise.
Waratah originally reached out to the Board and submitted a letter dated February 8, 2013 and an accompanying presentation (the "February 8 Letter") at the request of board member and CEO, Bruce Bone. In that letter we made the case that if LIORC's 15.1% equity stake (the "IOC Equity") in Iron Ore Company of Canada ("IOC") and LIORC's 7% royalty on the sales of IOC (the "Royalty") were separated from each other, the world class Royalty asset would trade at a significant premium to its current implied value. Subsequent to this submission, BMO Capital Markets issued a research report dated March 25, 2013, entitled "Labrador Iron Ore Royalty: Valuation, Asset Reorganization and Bid Prospects Examined", in which they reached similar conclusions. In our February 8 Letter and subsequent communications we stressed the need for Board action to formally review strategic alternatives available to LIORC and to hire legal and financial advisors to assist in this process. Our recommendations to the Board were to:
- Initiate a formal strategic review of LIORC in order to maximize shareholder value;
- Initiate a process to monetize the IOC Equity through a tax efficient spin-out to shareholders;
- Initiate a process, both as a shareholder of IOC and through its IOC Board representatives, to review strategic alternatives for IOC, specifically a partial or full sale of QNSL and the Sept-Iles port and related assets;
- Initiate a formal review of LIORC's balance sheet as an asset to reduce taxes and return capital to shareholders;
- Raise the profile of LIORC and its assets through a dedicated investor relations initiative, specifically highlighting the premium royalty asset; and
- Establish appropriate alignment between LIORC's management/Board and shareholders.
Notwithstanding our repeated attempts to communicate with the Board and reports that majority IOC shareholder, Rio Tinto, is selling its shares, the Board has made no public comments. In the absence of formal communication with shareholders, we are left to presume that the Board is not taking action. Since our February 8 Letter, Waratah has received numerous unsolicited calls in support of our proposals from significant shareholders of LIORC.
We applaud the Board for responding to our request to file publicly the material documents of LIORC: the amended and restated sublease dated September 1, 2006 (the "Royalty Agreement") and the amended and restated certificate of incorporation of IOC dated May 25, 1995 (the "IOC Shareholders Agreement"). We note that the IOC Shareholders Agreement confers significant rights on LIORC as a shareholder of IOC, specifically in the context of a change of control of IOC. These shareholder rights, enjoyed equally by minority and majority shareholders, could have significant financial value to LIORC in the context of a change of control of IOC.
We recognize that the deadline under the Canada Business Corporations Act for submitting a shareholder proposal at the 2013 annual meeting has technically passed. However, given recent reports concerning the majority shareholder at IOC and our February 8 Letter, we urge the Board to act appropriately and put this proposal in front of LIORC's shareholders at the meeting. An overwhelming number of significant LIORC shareholders have voluntarily expressed support for the various initiatives outlined in our February 8 Letter, including separating the IOC Equity from the Royalty.
We reiterate that the Royalty is a premium financial asset which is having its true value diminished by the IOC Equity. The Board should move to separate these two discrete assets, through a tax efficient spin-out of the IOC Equity to LIORC's shareholders or otherwise, so that shareholders can then act according to their own agenda and choose whether they want to invest in a pure play royalty interest, equity in a miner, or both.
We urge the Board to hire financial and legal advisors and disclose publicly that they have done so in connection with evaluating our proposals, commencing a strategic alternatives review, and assessing options in connection with a possible change of control at IOC. This would demonstrate that the Board is acting pro-actively, being diligent and exercising proper care in the face of shareholder proposals and possible change of control transactions with respect to LIORC's fundamental assets. Such public disclosure would rebut the current presumption of entrenchment.
We call on the Board to clarify its mandate and put our proposal before shareholders at the annual meeting.
SOURCE: Waratah Advisors
For further information:
WARATAH Advisors at (416) 637-5622