Core Gold holder calls out lock-up deals with Titan
Source:
stockwatch.com
Shareholder response to the December 17, 2019 Core Gold News Release Updating the Strategic Review Process
Core Gold Inc. provided shareholders with a long overdue, and highly confusing, news release
on December 17, 2019 updating shareholders on the progress of the Strategic Review Process
that was recommenced in July 2019.
Among the concerns raised in the news release are:
1. ”The Board has not made any recommendation with respect to the Titan Original Offer
or the Titan Increased Offer and has not entered into any agreement with Titan. Core
Gold shareholders are continued to be advised to take no further action.
Shareholders were once again advised to not take any action regarding the hostile takeover offer
of Titan Minerals. However, filings on SEDAR.COM indicate that two directors, Javier Reyes and
Gregg Sedun, signed MI 62 -104 lock-up agreements on behalf of associated parties with Titan
Minerals on November 29, 2019 and December 3, 2019 respectively.
These lock-up agreements were signed in direct contradiction to Core Gold’s guidance to
shareholders to “TAKE NO ACTION” regarding the Titan Minerals’ hostile takeover offer, as
tendering to Titan could prevent Core Gold from negotiating any competitive, or superior offers.
Gregg Sedun and Javier Reyes, as shareholders, used their position as directors of Core Gold
to act as shareholders using insider information that was not publicly disclosed to all other shareholders.
Additionally, a number of family members and one business associate of Javier Reyes also signed
MI 62 -104 agreements with Titan Minerals. Exactly what insider information did Javier Reyes provide
these close associates in order for them make a decision to lock-up their shares with Titan Minerals?
In the October 10, 2019 Core Gold Response Circular to the Titan MInerals offer, on Page 5 it states:
“INTENTIONS OF DIRECTORS AND OFFICERS WITH RESPECT TO THE TITAN OFFER
None of the directors and senior officers of Core and their respective associates intends to
tender their respective Core Shares to the Titan Offer until further communication is received
from the Board of Directors“
Directors Gregg Sedun and Javier Reyes signed the MI 62 -104 agreements after the November
25, 2019 offer by the other interested party, and a subsequent vastly inferior final offer was completed
on December 12, 2019.
It is obvious that the actions of directors Gregg Sedun and Javier Reyes, and Javier Reyes’
associates, adversely affected the negotiation process resulting in the terms of the final offer as
compared to the original September 2, 2019 offer. These individuals blatantly disregarded the
company's guidance in the Core Gold response circular to the detriment of all other minority Core
Gold shareholders.
2. “The original September 2, 2019 non-binding proposal from the Interested Party had the
following key terms (the "Original September Proposal"):
- C$0.225 in cash per Core Gold common share
- Issuance by Core Gold of a convertible security prior to completion of the transaction for
gross proceeds of C$5M which would automatically convert to Core Gold common shares
at C$0.225 per share within 60 days of issuance.
- The proceeds from the convertible security would have had a restricted use of proceeds,
with C$1M being used for working capital and C$4M being available only for specific debt repayment.
- Creation of a new company ("SpinCo") which would contain all of Core Gold's projects
(Zaruma, Portovelo, Copper Duke and Linderos), other than the Dynasty Goldfield Project,
and which would be spun-out to Core Gold shareholders but would be unlisted. The Interested
Party would have been entitled to one (1) board seat on the board of directors of SpinCo.
- The Interested Party would invest US$10M into the SpinCo for a 19.9% share ownership
position.
- Creation of a joint venture in respect of mining and processing oxide ore from the
Dynasty Goldfield Project with 60% of the profit to SpinCo and 40% of the profit to the
Interested Party.”
The September 2, 2019 offer has many similarities to the March 2019 offer proposed by Zhaojin
Mining Industry Company Ltd. that director, and former Core Gold CEO and President, Keith
Piggott negotiated, and which Mr. Piggott disclosed to the public in March 2019.
That March 2019 offer would have seen Zhaojin Mining invest approximately C$16 million cash
for a 19.9% equity stake in Core Gold Inc, with shares issued at $0.45. A further investment for
a 60% share of the Dynasty Goldfields Project by paying US$20 million cash and a commitment
to spend up to US$62 million for a new 2000 TPD mill built on site at the Dynasty Goldfields Project
was also included in the March 2019 proposal. Core Gold would have retained control of the
Zaruma, Copper Duke, Linderos and Jerusalem Projects and would have participated with a 40%
share in the upside potential of the Dynasty Goldfields Project and 40% share of the revenues
generated from eventual production from the Dynasty Goldfields.
It is quite evident that the other interested party is indeed Zhaojin Mining Industry Company Ltd.
3. “Through October and November, numerous discussions and negotiations were held with
the Interested Party and its representatives. On November 25, 2019 Core Gold received a draft
form of arrangement agreement from counsel to the Interested Party that reflected the
non-binding proposal at that time. Subsequently, the proposal continued to evolve until the
last and final non-binding proposal was received on December 12, 2019 from the Interested Party.”
Core Gold states that; ” On November 25, 2019, Core Gold received a draft form of arrangement
from counsel….” That implies a serious offer, once the lawyers are involved.
Was the November 25, 2019 offer similar in nature to the initial September 2, 2019 offer?
Did Core Gold ever respond to that November 25, 2019 offer?
Why did Gregg Sedun and Javier Reyes sign MI 62 -104 lock up agreements in the immediate days
after the November 25, 2019 offer?
Was the intent of Gregg Sedun and Javier Reyes to never seriously consider the Zhaojin Mining offer?
Was the drastic reduction in the final offer by Zhaojin Mining a direct result of actions taken by certain
Core Gold Inc. directors during negotiations?
Core Gold shareholders would very much appreciate that if Zhaojin Mining Industry Company is the
“other interested party”, that Zhaoijin Mining would come forward and issue a public statement in
support of their September 2, 2019 offer, and provide some commentary on the September 2, 2019
and November 25, 2019 offers, and why the final December 12, 2019 offer is drastically reduced from
the initial September 2, 2019 offer.
Zhaojin Mining should be well aware that they have the support of a large number of long term,
significant shareholders who would support their involvement in Core Gold, but would be much
more accepting of the September 2, 2019 offer.
Zhaojin Mining should not judge the actions of certain members of Core Gold’s board of directors
as indicative of the interests and wishes of many of the large minority shareholders who do not
agree with, nor have much respect for, certain members of the Core Gold board of directors.
Was there a concern by Zhaojin Mining that certain Core Gold Inc. directors were not bargaining in
good faith?
Did the signing of MI 62 - 104 agreements by Core Gold directors Gregg Sedun and Javier
Reyes adversely influence Zhaojin Mining Industry Company’s stance when submitting their final
offer on December 12, 2019?
4. “Interested Party would assume all of Core Gold's Corporate Level Debt. All of the proposals
from the Interested Party reflect that it would assume all of Core Gold's corporate level debts
and none of those obligations would be transferred to SpinCo, and which was considered
carefully by the Board in assessing the proposals. “
Titan Minerals hostile takeover offer does not address Core Gold Inc.’s legacy debts from its
predecessor company, Dynasty Metals and Mining. The other interested party, again believed to
be Zhaojin Mining Industry Company, would assume all debts of Core Gold.
Titan Minerals does not fully address the potential legacy environmental clean up costs associated
with Titan Minerals previous Tulin Gold Plant in Peru, with estimates as high as $45 million in liabilities.
The Titan Minerals offer also does not address the current legal issues regarding the permitting process
of its main asset, the Vista Gold Plant, a toll mining operation in Peru. The operating permits for the
Vista Gold Plant are in jeopardy of being nullified, or have already been nullified. Titan has failed to
provide the market with any disclosure of this Adverse Material Event so there is no way to know the
current legal status of the Vista Gold Plant. Is the Vista Gold Plant impaired?
As Titan Minerals shares are the currency of their hostile takeover offer, Core Gold Inc. shareholders
have no ability to ascertain the actual value of Titan Minerals shares to make a fully informed decision.
_____________________________________________________________________________
Calculations using Titan Minerals Half Year Accounts for June 30, 2019, show that Titan Minerals has,
at most A$0.011 per share of net tangible asset value.
Titan states A$11,952,365 of "goodwill" in "intangible assets" in relation to the purchase of
Andina Resources in 2018. This “goodwill” is included in the total asset value of A$28,468,519.
It appears the only solid asset that Titan has is the 9,151,363 shares of Core Gold that Titan obtained
in a March 2019 private placement, but Titan had to borrow the US$3 million from a key backer of
Titan Minerals to pay for those shares. And Titan Minerals had to use the Core Gold shares as collateral
for that loan, a loan that has already had its maturity date extended to December 20, 2019.
Titan currently has approx. 296 million shares outstanding, and "tangible assets" of Titan are
approximately A$16,516,154 (A$28,468,519 - A$11,952,365)
Total liabilities are stated as A$13,259,851
A$16,516,154 - A$13,259,851 = A$3,256,303 net asset value
296,566,718 shares issued and outstanding
A$3,256,303 / 296,566,718 = A$0.011 tangible net asset value per share
___________________________________________________________________________________
Titan Minerals shares are currently halted and have been since November 18, 2019, with what appears
to be an artificially supported share price of A$0.18.
If the Titan Minerals hostile offer were to succeed, Core Gold shareholders would see Titan Minerals
with over 816 million shares outstanding, and over 885 million shares on a fully diluted basis. Titan
shares are relatively illiquid on the Australian Stock Exchange. There would be no North American
listing for Titan Minerals shares.
Core Gold shareholders are being offered 3.1 Titan shares for each share of Core Gold, which, in
effect, implies an offer of only A$0.033 in tangible value of Titan Minerals shares.
Whereas, the Zhaojin Mining Industry Company's final offer, which assumes the legacy debts of Core
Gold, provides Core Gold shareholders with an immediate C$0.33 per share in cash and a pro rata
share position in a debt free SpinCo which would control the highly prospective Copper Duke and
Linderos Projects, by far a much superior offer to the “all share” offer by Titan Minerals and its
near worthless shares.
5. Market Perception
If the Titan Minerals offer is “allegedly” worth A$0.54 (3.1 shares X A$0.18 closing Titan share price),
why are Core Gold shares not trading at a substantially higher price at the present time?
Core Gold has purposely delayed reporting to Core Gold shareholders on the progress of the
Strategic Review Process for a reason.
Based on the actions of two Core Gold directors, Gregg Sedun and Javier Reyes, it is more
than apparent to many minority shareholders that these two directors may have attempted to
jeopardize, perhaps sabotage, the entire negotiation process with the Zhaojin Mining proposed
September 2, 2019 offer.
The four Core Gold Inc directors who prevented the March 2019 original Zhaojin Mining offer that
the fifth director, at that time CEO and President, Keith Piggott negotiated with Zhaojin, appear to
be, once more, showing prejudice and favoritism towards Titan Minerals and their new hostile
takeover offer. There is the appearance that certain members of the Core Gold board of directors
were purposely bargaining in bad faith with Zhaojin Mining Industry Company.
Would it have something to do with three of the seats on the Titan Minerals board would be filled
with current Core Gold directors?
Are there conflicts of interest between a number of Core Gold directors and their business associations
with shareholders and principals of Titan Minerals?
Past and present business associations between current CEO Mark Bailey and Lead Director Gregg
Sedun would indicate this as a fact, with documented evidence already provided to the Canadian
securities agencies.
6. Canadian Securities Regulators.
The British Columbia Securities Commission, The Toronto Venture Stock Exchange, and the
Ontario Securities Commission all have received countless filings submitted by more than 20
individual Core Gold shareholders expressing serious concerns about the actions of certain
members of Core Gold’s directors and management. While there are active, ongoing investigations,
which the various regulators can not comment on, Core Gold shareholders have grown extremely
frustrated with these agencies’ inactions, which are supposed to be ensuring the integrity of the
Canadian stock markets. The regulators inactions are in effect, along with at least two or three
of Core Gold’s directors, Gregg Sedun and Javier Reyes, and Mark Bailey, have been assisting
Titan Minerals acquisition of additional shares of Core Gold, due to the confusion that has been
created with Core Gold’s much delayed progress update, and the now well documented actions
by directors Gregg Sedun and Javier Reyes in signing MI 62 -104 agreements on behalf of
associated parties. It is of note that the Toronto Venture Stock Exchange has still not approved
of the restructuring of the Core Gold promissory notes that were held by Vertex One, and that
were apparently transferred to Titan Minerals on August 8, 2019, according to Titan Minerals
Circular for the takeover offer of Core Gold. The TSXV rescinded its initial approval on
September 13 2019, and has not re-approved of the restructuring of the Vertex One promissory
notes, Is there some indication of impropriety?
7. Core Gold Directors acting improperly.
As shown above, the lack of discretion demonstrated by directors Gregg Sedun and Javier
Reyes repeatedly instructing Core Gold shareholders to “TAKE NO ACTION”, but doing so
themselves using insider, confidential, information, has proven they have little regard for the
best interests of Core Gold and its shareholders. They appear to be acting in their self-interest
and continue to issue false and misleading guidance to Core Gold shareholders.
Gregg Sedun and Javier Reyes should immediately offer their resignations and step down from
the board of directors. Their lock-up agreements with Titan Minerals should preclude them from
engaging in any discussion or negotiations with any other party, so exactly what purpose do they
serve now? All they will do is continuously provide Titan Minerals with any and all progress with
other interested parties’ negotiations, also a condition of their MI 62 -104 lock up agreement.
They now appear to be in a conflicted position by sitting on the Core Gold board of directors.
Paul Tadeson ,
Long term shareholder of Core Gold Inc.
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