A LETTER CONCERNING MIDWAY FROM A FUND MANAGER........
To our Midway Management and Directors:
I had hoped to be at the annual meeting to meet those directors whom I have not met and to convery the following opinions in person, but a conflict prevented that, and I must communicate with all of you via this e-mail. For some odd reason, my computer will not let me add Mr Bayley or McAlister. I will send this e-mail to them seperately.
A little more than two years ago in mid May of 2006, I invested quite a bit of money (for me) in the Midway private placement. As I recall, the bulk of the offering was bought by me, Barrick, and the Sprott funds (which I understand have since sold their Midway holdings). I found it interesting, as a comparison or benchmark, that the same week in May of 2006 that I did the Midway investment at $1.80, I also bought stock on the open market in Quaterra at $.40. Both companies are Canadian junior mineral exploration stocks, hoping to discover minerals that enhance their companies share price. Since mid May of 06, Midway is up roughly 8% to $1.94 and seems to be heading lower, and Quaterra is up roughly 850% to $3.40 and seems to be headed higher. Quaterra may be overachieving, but there is no doubt that Midway is grossly underachieving. Neither Quaterra or Midway has any revenue, and I find it interesting that Midway pays its CEO more than Quaterra pays their CEO. Midway seems to pay very well and distribute lots of options. Please tell me and other shareholders what are the performance criteria we use for pay and options.
I am getting a number of phone calls from other major Midway shareholders suggesting a change in management. I tell them that I believe that we have extremely inexperienced management, but an equally large issue in my opinion, is that the board has let management and all shareholders down. In my opinion, when the board knowingly hires someone like Alan, who is a very nice guy, has a reputation of being a good geologist, and is a person of quality and integrity---but --who has zero experience running a public company--the board must be heavily involved. Alan needed good mentoring and guidance-- which he did not seem to get; savvy advice about how to create a loyal and dedicated shareholder base --which he did not seem to get; and board members that demonstrate by their actions (buying stock rather than selling) that they believe in Midway--which he definitely did not get. If the board is not going to greatly help Alan, then I would agree that we then need more savvy management.
Here are what I (and many others), see as the problems at Midway, and some potential solutions to these problems:
-Investor relations at Midway is an oxymoron. Midway has no relations with its investors. Zero. We are now on our third inexperienced investor relations person. Alan and his helpers mean well and try very hard, but Alan knows little about investor relations, so how can he train someone? Alan does not know what he does not know. Often when Midway does a news release the stock goes down. Witness the last release in the midst of a fund raising, that tells the world that Midway is buying proven gold reserves in the ground for I believe it was $1.50 per ounce....investors know that Midway's proven reserves are valued by the market at I believe roughly $150 per ounce...prospective investors do the math and Midway appears grossly overvalued and the offering falters, and our stock goes down even more! How inept! Midway needs a savvy investment pro that is known and trusted by the investment community. If this person cost $200,000 per year with expenses, he or she could 'cover their cost' by getting the stock up only $.04 per year! Or, one of our more savvy board members must work directly and often with Morgan to mentor and guide her.
-Insider selling should never ever ever happen in a company like Midway. With Midway having no revenue, and the Vancouver junior stock history of 'pump and dump stocks', ANY insider selling is a signal for investors to bail out or for prospective investors to not come in. Over the last 6 months, insider selling at Midway has outpaced insider buying by roughly a 5 to 1 ratio! This should be an embarrasment to those of you who have been selling (Bill Sherriff-- thanks for your buying). A huge percentage of investors find this very scary--why should they buy or even hold, if the 'guys in the know' are selling? Please no talk about the expenses you have, or balancing your investment portfolio, or that being a Midway director is unpaid. Nobody is forcing any of you to be directors. If you want to sell your stock, no problem--resign from the board. Even worse than the board selling is seeing Alan sell stock. Also a bad omen is that it appears Alan has never purchased Midway stock--only exercised options and sold stock. Shame on those of you who have been selling!
-More than a few times over the past two years, Alan or a director have made statements to me and various shareholders about size of resource, timing of announcements, sucess of an offering etc. Unfortunately, many of those statements have later been shown to be at best inaccurate. For instance, I and others had been told weeks ago things like 'the offering is going well and should close today or tomorrow'. These inaccuracies erode shareholder confidence and trust in Midway's governance. You are 'waterboarding' your shareholders by overpromising and underdelivering.
-Protecting your warrant holders is something good and growing companies I have invested in always try to do. They recognize that they must structure pricing, conversion periods etc. to protect those valuable people who step to the plate and do their placements. I have had one company I hold stock in tell me they will even find a way to extend the conversion period to ensure that their investors are looked after. One Midway director made it clear to me and to several other people by his attitude and comments that Midway did not really care about the people that participated in their placements. Midway warrant holders are all financially under water.
-Budgeting and fund raising for Midway has been inept and badly mismanaged. I read a news release last night that 'Barrick steps up'--unfortunately few others did. I learned from my parents back in high school that you always line up or raise money before you need it, not when you need it. Why you folks did not forsee that this year you would need money and raise it last year at $4.00 per share, rather than wait till now and dilute all of us at $2.00--and worse yet only raise a portion of what you need. To go out and raise eight million dollars and only wind up with three after many weeks of uncertainty---a very poor performance, and that scares all of your shareholders!
-Owning a lot of stock does not necessarily make one a good director, and Midway has proven that. I have not met Mr Bayley or Mr. Mc Alister, but they do not outwardly appear to be helping raise money though I would assume they have extensive contacts, and at least one is selling stock, not buying. Bill Sheriff is buying stock, but I am sure Bill is also very involved in running Golden Predator. Bill Lupient I met and really liked and had high hopes for, but I have no way to know if he is contributing. George Hawes I like as a person, and I know that George means very well, but as a director, George is a disaster for the shareholders (including himself). For instance, I overheard two large Midway institutional shareholders talking last October at the Midway get together in Reno--one said that George's involvement with shareholders takes AT LEAST $1.00 per share off the Midway share price, and the other heartily agreed, and said it was a good bit more that $1.00. A friend of mine had 250,000 shares of Midway, and says he liked Alan, but had such issues with George he sold all 250,000 shares and put that money into Terraco and Quaterra. Unfortunately, this friend also has a large following who now share those views. What George must realize is that he is not only killing me and the other shareholders, he is hurting himself even more!
-Creating positive change with Midway should start with the board. It takes a good bit to change perceptions of investors or prospective investors---much like a married couple where the husband has cheated and been caught by the wife--he cannot just announce that 'he has changed and will sin no more'--it takes years to restore trust and is never really the same trust level that had been there. I recommend that you as a board actively seek new, talented, and connected board members to add and to replace some of you. This change alone could add immediately to the share price and restore at least a portion of the one hundred million dollars of shareholder value that we have dissipated in recent months. The board chair, whomever that is, should recognize that much like the manager of a baseball team, when the players consistenty lose and are in or near last place, should say...'maybe we need some new players in the lineup'. I urge you to make some changes in the Midway lineup starting at tomorrows annual meeting.
-If there is not going to be a change in management or directors as a result of this annual meeting or soon after, I then encourage you to sell the company soon to the highest bidder, and I would bet lots of money that much more than 50% of your shareholders would agree with me. You have had lots of time to make this work and it is not working. Either make severe changes in governance (board or management) soon or let's sell it and all get on with our lives. Without some personnel changing, it will be terribly hard, if not impossible, to get the stock price up, because with more of Midway's typical drill result news releases, any uptick in shares will be used by people like me to bail out. With personnel changes, shareholders might see that maybe now we can achieve our potential, and rather than sell, your existing shareholders may buy more. Daily we see and hear announced changes in management and directors at public companies whose stock has been punished. Midway needs and must have some changes.
I would much rather be thanking you for your performance than criticizing your results. However, with proper and needed additions or changes in governance, hopefully I can do that in the next e-mail. I do thank you for your service and strongly urge you to make the hard but proper choices now at this meeting. I look forward to a response from the board or from individual members either by phone or e-mail.
Best personal regards,
Mark D. Johnson
mark@kaizenpartners.com
(651) 260-2880 phone
(614) 386-2734 fax |
