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Verbal warfare as SRM battle to oust HudBay management, directors

Just days after the failed merger between HudBay Minerals and Lundin Mining, the battle of activist hedge fund SRM Global Master Fund to oust the board of directors and management of HudBay has escalated into a verbal and media war.

Author: Dorothy Kosich
Posted: Friday , 06 Mar 2009

RENO, NV -

The battle by activist hedge fund SRM Global Master Fund Limited Partnership to wrest control of HudBay Minerals away from its current management and board of directors escalated Thursday as HudBay's current chief executive went after the company's former CEO who reportedly is seeking to regain his former post at SRM's behest.

SRM said it has filed a circular in advance of HudBay special shareholders meeting on March 25 in support of its campaign to remove the current HudBay board of director and replaced them with its own board, including former HudBay CEO Peter R. Jones.

The proxy circular, which had not been made public on Sedar's website as of Mineweb's deadline early Friday, plans to appoint Jones as the new HudBay chief executive. The announcement generated a strong blast of criticism from current HudBay CEO Allen Palmiere during a conference call Thursday to discuss the mining company's financial results.

Palmiere told analysts that Jones "simply had the good fortune to be in charge of a highly leveraged mining company just before a dramatic rise in metals prices." He claimed that Jones' only significant growth initiative during his tenure as HudBay CEO was the reopening of the Belmont zinc mine in New York State, which was later determined to be a mistake.

Palmiere was also critical that Jones, who reportedly took a $4.5 million severance package when he left HudBay, was now trying to get his old job back. SRM's proposed nominee as chairman of the HudBay board, Wesley Vooreis allegedly is a paid consultant to the hedge fund, Palmiere asserted.

However, the Globe and Mail recently reported that Palmiere could be entitled to a $3.8 million severance if he is terminated without just cause or if he resigns for good reason following a change of control.

"What is stopping SRM from coming up with a growth strategy?" Palmiere asked analysts on Thursday's conference call. The answer, he claimed, is that SRM is trying to conduct a major share repurchase "which would drain HudBay's treasury in a misguided attempt t generate a short-term boost to HudBay's share price at the expense of HudBay's future. "

Monaco-based SRM, which owns 11% of HudBay's stock, has been pushing the Toronto-based miner to spend some of its $686-million cash balance to buy back shares, a move which Palmiere has told the news media, is still the fund's plan.

Palmiere asserted that almost half of SRM's proposed nominees to the HudBay board "have no significant mining experience," while "more than half have no significant experience as independent directors of public companies." However, SRM's nominees include former HudBay CFO John Knowles and former general counsel Brian Gordon.

Meanwhile, HudBay says its lenders have refused to renew an $80 million credit facility due to SRM's activities seeking removal of the current HudBay board. In a news release, the miner said, "The lenders noted the uncertainty regarding the future direction of HudBay and expressed concern that a new board may distribute much of HudBay's cash balances to conduct a major share repurchase program.

In a statement released Wednesday, SRM said it is not trying to take control of HudBay. "SRM, like its fellow shareholders, wants to see a positive change at HudBay and believes this can only happen with a new Board of Directors that is committed to enhancing long-term shareholder value."

SRM's proxy circular apparently claims HudBay's current board "is incapable of creating value and serving the best interest of the shareholders." The hedge fund called HudBay's unsuccessful attempt to merge with Lundin "a slip-shod process."

SRM Advisers is run by former UBS proprietary trader Jon Wood, who is suing the Wall Street Journal for articles which claim the SRM Global Master Fund has allegedly lost 85% of its value since its launch in September 2006. The case is scheduled to be heard before the High Court in London. SRM is expected to argue the WSJ received the performance information from an investor who was bound by a duty of confidentiality.

HudBay reported a net income of $73.35 million or 54-cents per share for 2008, down substantially from the $227.14 million or $1.79/sh in net profit reported for 2007.