Australian-listed Titan Minerals makes a play for Vancouver-based Core Gold in deal opposed by some investors
A boardroom battle for control over a small Canadian mining company with untapped gold assets in South America has unearthed reports from Peruvian authorities of improperly stored toxic waste — and allegations of corporate malfeasance — in the rough and tumble world of junior resource firms.
Some shareholders of Core Gold, a Vancouver-based and Toronto-listed junior mining company, are adamantly opposed to a takeover bid by Australian-listed Titan Minerals.
Supporters of the deal, including Core Gold’s board of directors, say the takeover is crucial for bringing fresh capital into the cash-poor company so it can start developing a series of potentially lucrative mineral concessions in Ecuador.
As part of their effort to rebuff the takeover, Core Gold’s former CEO and some shareholders have been leveraging serious environmental violations reported by Peruvian prosecutors at a facility Titan was leasing in Peru, including improperly disposing of cyanide-laced tailings.
The corporate showdown illustrates how duelling mining executives can leverage environmental complaints for their own economic interests, said Pablo Heidrich, a Carleton University political economy professor specializing in Latin America.
“It’s a business conflict and there is an overlap with an environmental crime committed by this junior mining company in Peru,” said Heidrich, after reviewing documents from Peruvian state prosecutors sanctioning a Titan subsidiary for its environmental conduct.
“This isn’t necessarily common but it’s not unusual … There are never any good guys or bad guys in a story like this.”
Core Gold shareholders will vote on Titan’s takeover proposal on June 12 in Vancouver. Both sides have launched public relations offensives ahead of the meeting.
The stakes
Core Gold controls three significant mining concessions in Ecuador, according to corporate statements. Together, these largely untapped properties could yield more than $1 billion in minerals, said Keith Piggot, who was Core Gold’s CEO for more than two years before he was ousted by the board in March.
His estimate could not be independently verified and Core Gold’s current valuation — essentially a penny stock — comes nowhere close to justifying such projections.
In a statement, Titan said it’s offering each shareholder in Core Gold 20 shares in the newly merged company. It also pledged to bring $25 million in new financing so the firm can meet debt and other obligations.
Some shareholders think that’s not a good deal. “We feel this [proposal from Titan] is vastly undervaluing the assets of our company,” said Paul Tadeson, a retired GM employee living near Sharbot Lake, Ont., who invested much of his savings in Core Gold.
He said the Australian-listed Titan is “basically a shell company,” and its environmental record in Peru could “put up red flags” with the government of Ecuador for getting mining permits to start developing Core’s concessions there.
Titan and Core Gold’s current board said the company has continued to receive environmental permits from Peruvian authorities, underscoring their view that the firm has a solid environmental record. They say the vast majority of Core Gold shareholders — more than 80 per cent of votes cast so far — support the deal as the corporation’s best option.
Titan “has had a great response to the merger with Core Gold, with a large range of sophisticated and generalist funds participating in the placement, with continued support from our existing shareholders as well,” Titan executive chairman Matthew Carr said in a statement.
Titan did not respond to repeated requests for comment. A receptionist at the co-working space in Australia listed as its office said Carr rarely checks his official email, and messages left for the company were not returned.
The Australian Securities Exchange is probing whether Titan breached regulations on overstating assets, according to an email from the ASX compliance division. “We are looking into the issues you’ve raised to see if there has been a breach of our rules,” an ASX spokesperson wrote in May to a Core Gold shareholder concerned about Titan’s assets.
Environmental fines
The concerns about Titan’s environmental track record stem from its activities between 2012 and 2018, when the company’s subsidiary, Tulin Gold, was leasing a processing facility in southern Peru’s Ica province from a Russian-owned company, according to reports from Peruvian state prosecutors.
Titan was not directly mining gold in the facility. Instead, the company was using it to process ore collected by smaller miners in the mountainous, wind-swept region.
Tailings — waste created in the process of separating gold from rocks using cyanide — weren’t disposed of properly by Titan, said state prosecution reports reviewed by CBC News.
Cyanide is a rapidly acting, potentially deadly chemical that can exist in various forms, according to the U.S. Centers for Disease Control and Prevention.
Poisonous tailings were stored without being properly covered, allowing cyanide-laced dust to blow onto neighbouring villages in what prosecutors described as a “very serious” infraction.
In another report, prosecutors said the company breached occupational health rules by exposing workers to cyanide tailings.
Multiple fines for these and other environmental and labour violations were levelled at the company between 2012 and 2017, the prosecutors’ reports said.
“They hid what I estimate to be thousands of tons of waste within, and outside of the Tulin plant,” said Lucio Dario Meza, 34, who worked at the facility from 2015-2018, in a sworn statement to a Peruvian notary, which was collected by Piggot’s research team as part of his campaign against the deal.
“In 2016-2017, they buried tons of tailings without treating them,” Meza said in the letter. CBC News could not independently verify Meza’s account. He was dismissed from his job in 2018.
Core Gold’s current board of directors dismissed concerns over Titan’s environmental record.
“Core Gold does note that if its former CEO’s assertions regarding Titan were true, that it seems unlikely the Peruvian authorities would have provided the final permit for Titan’s Vista Plant in Peru, which it announced on May 27, 2019,” Mark Bailey, the interim CEO of Core Gold, said in a statement.
Competing claims
Sam Wong, Core Gold’s chief financial officer, initially expressed interest in an interview with CBC. But neither he, nor other members of Core’s board, nor the public relations company hired by the company to advise on Titan’s proposal responded to written questions or repeated followup calls.
Piggot said fines issued by Peruvian prosecutors for environmental violations were not disclosed to Titan’s shareholders in Australia, and he believes the company faces serious liabilities.
Sooner or later, someone will have to clean up all this cyanide material.
– Keith Piggot, ex-CEO of Core Gold
“Sooner or later, someone will have to clean up all this cyanide material,” Piggot said in a phone interview from Peru. “Titan has a terrible track record with this environmental liability and it probably has negative value.”
Piggot said he still controls about seven per cent of Core Gold’s shares, and claimed he was turfed for opposing the Titan merger.
In a press release, Core Gold interim CEO Mark Bailey on Thursday accused Piggot of being “disgruntled and self-interested” while peddling “misleading claims.”
Core’s current board said Piggot was fired for poor performance. They point out that during his tenure the company’s liabilities rose by 27 per cent, its assets dropped by 60 per cent, and the stock tanked.
According to a press release from Titan, two independent advisory firms, Institutional Shareholder Services Inc. and Glass Lewis & Co., on Thursday recommended Core Gold shareholders back the deal with Titan, arguing that Piggot bears “significant responsibility for the company’s financial condition.”
