Fight for Valerie Gold heats up

Vancouver — The battle for control of Valerie Gold Resources (VLG-V) has entered the final round with both the current management and a rival group backed by Atna Resources (ATN-T) landing serious body blows.

The fight began in early January, when a limited partnership called Valerie Good Corporate Governance tabled a dissent proxy circular aimed at removing Valerie Gold’s current board of directors at the annual general meeting, slated for Jan. 30. Atna, which holds 750,000 shares, or 6%, of Valerie Gold’s stock, was subsequently identified as the financier for the proxy fight (T.N.M, Jan. 14-20/02).

The limited partnership, which was formed in mid-December 2001 in the Northwest Territories, accuses Valerie Gold’s current management of poor corporate governance, lack of good business judgement, and multiple conflicts of interest.

Valerie Gold forms part of the Lang Mining group, which includes fellow juniors Sultan Minerals (SUL-V), Emgold Mining (EMR-V) and Cream Minerals (CMA-V). Valerie’s president, Frank Lang, is the largest shareholder of the three sister companies, with 5.3 million shares of Sultan, 5.1 million shares of Emgold and 3.2 million shares of Cream, whereas Valerie Gold holds 665,000 shares of Sultan, 400,000 shares of Emgold and 135,000 shares of Cream.

The limited partnership believes these holdings represent property conflicts between the companies, and, as an example, cites Sultan’s option on the Kena gold property near Nelson, B.C. Moderate drilling success over the past year has propelled the stock to a capitalization in excess of $7 million. With Lang holding 1.8 million shares of Valerie Gold, the partnership questions why the project went to Sultan, which had no cash in its kitty at the time, instead of cash-rich Valerie.

Lang Mining, a private management company, has charged Valerie Gold some $4.6 million in management fees for overseeing day-to-day operations during the past five years. Valerie’s current board has agreed to pay more than $200,000 to the company for termination of the previous management contract, while, at the same time, agreeing to a new contract with LMC Mining Services, another Lang company.

Also at issue are interest-free loans handed out by Valerie to Lang Mining. The proxy says loans of up to $600,000 have been made to management, without interest charges, without a repayment schedule and without security as collateral.

“Management has been run for the benefit of Lang Mining and not the shareholders of Valerie,” charges Atna’s president, David Watkins.

Spurned suitor

Valerie Gold counters that the proxy fight is all about Atna’s attempt to gain control of its treasury through the back door. Says Lang: “Atna Resources is behaving like a spurned suitor unable to cope with rejection.”

He adds that representatives of Atna attempted to buy his Valerie Gold shares in July but were turned down. Atna then tabled a merger proposal for the two companies but was again turned away.

According to the Lang group, Atna acquired an unknown percentage of its stake in Valerie Gold through a share swap with TVX Gold (TVX-T) in August 2001. Valerie’s management was advised that TVX received one Atna share in exchange for one share of Valerie.

In a letter to shareholders, Lang states: “Atna Resources is spending its money to mine for votes from Valerie’s shareholders, rather than seek out promising mineral properties.”

He also takes aim at the slate of directors proposed by the partnership: “The Valerie Good Corporate Governance LP is a most curious partnership. We wonder why James Dunnett and David Birkenshaw are named directors of the partnership that is being secretly funded by Atna and are the named proxy holders for the dissident group but are not standing for election as directors of Valerie Gold.”

According to Lang, Dunnett was introduced to Valerie Gold last summer as Atna’s financial advisor in relation to a proposed merger. As for Birkenshaw, he has a history of taking over cash-rich companies.

“It appears [Birkenshaw] and his associates found the treasuries of those public companies most helpful in maintaining their personal life styles.”

Lang points to Atlas Corporation, which he alleges was taken over by Birkenshaw in the early 1990s. According to security and exchange commission filings from 1993 to 1996, Atlas posted losses of US$69 million and was delisted in 1997.

In response to allegations of excessive costs, Lang says Valerie Gold has in fact realized cost savings by sharing administrative costs with the other publicly listed company under its umbrella, and that 82% of the $4.6 million in management fees paid over the past five years are the reimbursement of actual costs paid by Lang Mining. He further states that the $5,000-per-month management fee charged by Lang Mining is consistent with the fees paid by other junior issuers and was fully disclosed and approved by all applicable regulatory authorities.

Barreal Seco

Lang’s says Atna acquired its original interest in Valerie Gold so that it could use its treasury to finance development of the Barreal Seco copper project in Chile.

However, due diligence by Valerie Gold revealed that metallurgical tests on oxide copper project have returned low recoveries and high acid consumption.

A consultant hired by Valerie Gold concludes: “I believe that Atna knows that Barreal Seco is uneconomic at current and probable near-future copper prices. The question remains why they appear to want to advance this project at the present time.”

Atna acquired Barreal Seco in June 2001 and has since conducted prefeasibility work, including metallurgical tests and more than 2,400 metres of drilling.

Based on 20,000 metres of drilling by Rio Tinto (RTP-N) and Chilean state-owned Enami, the property is believed to host 17 million tonnes of oxides grading 0.7% copper at a cutoff grade of 0.3% copper, and 54 million tonnes of sulphides averaging 0.65% copper at a 0.4% copper cutoff.

Atna has been considering the possibility of producing at a minimum rate of 10,000 tonnes per year over at least 10 years using solvent extraction-electrowinning. Capital costs are no expected to exceed $25 million, and metallurgical test results are slated for release by March.

Atna downplays the role of the project in its growth plans. “Barreal Secco is a good prospect,” says Watkins, “but it is not the most important project we are working on.”

Despite recent events, Atna denies it is taking a run at Valerie Gold, insisting it is only concerned about its investment.

“To keep separate from Atna, we set up a new entity in the limited partnership with an independent board,” says Watkins.

The alternate slate of six directors proposed by the partnership for Valerie Gold includes a number of experienced mining men. Among the nominees are: Mario Caron, vice-president of operations for Geomaque Explorations (GEO-T); David Watkins, president and chief executive officer of Atna; and Frank Wheatly, general counsel for Gabriel Resources (GBU-T).

Valerie Gold currently has $3 million in cash and $2 million in investment securities, with 14.5 million shares fully diluted.

Atna Resources, at Sept. 30, 2001, had $8.6 million in cash and 25.2 million fully diluted shares.