VANCOUVER/TORONTO (Reuters) - Shareholder activism in the Canadian mining sector will gather pace this year, driven by investor fatigue after years of share price weakness and concerns about high executive pay levels and slim insider stock holdings, advisors to such situations said.
With few options left to salvage investments hit by a prolonged downturn in commodity prices, more shareholders are demanding change at miners they perceive to have strong assets but weak boards and management. Proxy advisers and lawyers said these shareholders see an opportunity to force more effective capital allocation and lower executive compensation.
An early year bounce in prices of metals like gold and silver may provide comfort to some activists who have been keen to pounce but concerned that metal prices could drop further.
“The reality is there’s some settling in the mining space,” said Amy Freedman, Canada president for Kingsdale Shareholder Services, a Toronto-based proxy solicitation firm.
“A lot of the juniors are susceptible,” she added. “They’re sitting on cash that’s not being deployed properly, there are often governance concerns and the ability to do a shakeup does not require as much capital.” Shareholder pressure for change began rising in 2015. Forty-eight mining firms globally faced public demands from activists in 2015, up from 30 in 2014, figures from London-based Activist Insight show. In Canada, where more than half of the world’s public mining companies are listed, proxy contests in the materials sector rose by nearly a third to 17 last year, according to Kingsdale.
Currently, U.S. investment firm Raging River Capital, formed by a handful of industry veterans, is targeting Canadian copper miner Taseko Mines (TKO.TO).
“The mining sector has been under pressure and shareholder value in the sector has been under pressure, due to the decrease in commodity prices and leverage issues,” said Michael Pickersgill, a partner at Torys. “All that is driving up shareholder activism.”
Pickersgill said activists are increasingly favoring constructive discussions and resolutions over a hostile proxy contest that could be messy and expensive.
Toronto-based activist group K2 & Associates, which targeted Canadian miner Dominion Diamond DDC.TO in December, has since received requests to help launch campaigns against other miners, a source close to the group said.
“There will be a healthy dose of activism fueled by very unhappy shareholders,” said Brad Allen, founder of Toronto-based Branav Shareholder Advisory Services, warning that executives in the sector getting pay hikes could face shareholder wrath.
(This version of the story corrects the ninth paragraph to add first name Michael Pickersgill.)
Reporting by Nicole Mordant in Vancouver and John Tilak in Toronto; Editing by David Gregorio