Heron Resources Intrigue: Board Faces Spill

Dual-listed Heron Resources (TSX:HER,ASX:HRR) has been forced to call a “board spill” meeting at which all directors apart from the managing director must stand for re-election. The move follows the second strike, or rejection, of its remuneration report at its recent AGM on November 21.

By Australian law, if more than 25 percent of voting shareholders vote against a company’s remuneration report on two occasions, a board spill motion must be put to shareholders within 90 days. The first strike was received at the AGM in November 2013.

The revolt is being led by major Canadian shareholders Sprott (TSX:SII) and Exploration Capital Partners, which jointly hold 10.4 percent of the company’s issued capital, purchased in August 2014 from BHP Billiton( ASX:BHP,NYSE:BHP,LSE:BLT). It was announced by Heron that representatives of Sprott presented the company at the AGM with a Notice of Proposal to Move Resolutions aimed at changing the board of Heron. The company said the document outlines various grievances related to company direction, strategic investments and the level of corporate overhead, although no specific details have yet been provided.

Sprott has also proposed to nominate three new directors, two of whom (Dr. James Gill and William Killinger) were directors of TriAusmin at the time of its merger with Heron, and voted in favor of the deal.

A cursory examination of the remuneration report reveals a total executive and board cost of almost AU$1.7 million per year, including a CEO package of over AU$400,000, a GM of strategy and business development earning almost AU$300,000 per year and executive director (and former CEO of Heron pre-merger) Ian Buchhorn being rewarded with a package of almost AU$350,000 despite there being little outline of what his executive duties actually involve now that he is no longer CEO.

Whether or not these payments are excessive is open to debate, but it’s interesting to note that the salary levels of most of the executives have not increased since the previous year, and as such were fully disclosed in the 2013 annual report, well before Sprott took its stake. The exact reason why a large and sophisticated institutional investor would take a major stake in a company, and then almost immediately seek to replace the board, remains unclear. However, it is likely that objections to remuneration are simply the trigger to call the spill vote, with other issues at play.

Lately Heron has been active drilling out, with positive recent results, the mothballed Woodlawn copper-zinc mine in New South Wales, which was acquired as part of its merger with TriAusmin. Prior to the merger, the company’s flagship asset was the Kalgoorlie nickel laterite project; it boasts a JORC-compliant resource of 796 million tonnes at 0.7 percent nickel and 0.048 percent cobalt. Heron also has several smaller nickel projects, and a recently acquired 19.9-percent stake in Golden Cross Resources (ASX:GCR), which is progressing the Copper Hill deposit in New South Wales. It holds a resource of 154 million tonnes at 0.32 percent copper and 0.27 percent gold.

No doubt Sprott’s motivations will become clear prior to the spill meeting. That said, it is likely that a spin-out deal on one or more of those other assets may be its primary objective.

Securities Disclosure: Brad George holds no investment interest in any of the companies mentioned. 

Brad George is a geologist by trade, and has spent over 25 years working in the mining industry around the world in a variety of capacities. Primarily focused on exploration, Brad has gained extensive experience in iron ore, base metals and gold on five continents. He has extensive experience in the management of public resource companies.

Upon completing an MBA, Brad spent several years in London as a partner in a boutique brokerage house, developing a franchise as a rated mining and metals analyst. Brad now resides in Perth, Western Australia.

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Heron Resources Frees Up Register to Progress Woodlawn