Muddy Waters targets Mayfair Gold for board takeover

Muddy Waters Capital, the American hedge fund that often short-sells companies, is instead taking a long position in plans to take over Mayfair Gold (TSXV: MFG) with its prefeasibility stage Fenn-Gib project in northern Ontario.

Patrick Evans, CEO of the circa $200-million market value Mayfair, and chairman Harry Pokrandt are urging shareholders to reject Muddy Waters’ plan to install its own chairman and slate of directors at the company’s annual general meeting on June 5 in Vancouver.

Mayfair increased Fenn-Gib’s indicated mineral resource by 63% since the company went public in March 2021 at a drilling cost of less than US$10 per added oz., Pokrandt said by email on Thursday. The stock trades at a price-to-net asset value premium to its peer group (Osisko Mining (TSX: OSK), Skeena Resources (TSX, NYSE: SKE), Probe Gold (TSX: PRB; OTC: PROBF) and Tudor Gold (TSXV: TUD) among others), he added.

“We have a team of seasoned veterans who have added significant value by every measure,” the chairman said. “In stark contrast, Muddy Waters has made its name as an activist short seller best known for value destruction, not long-term growth.”

But at least 51% of shareholders support the takeover, according to an April 19 letter to Mayfair from Muddy Waters. The hedge fund controls almost 17% that it’s built up over a few years while Mayfair co-founder Henry Heeney, a New York-based investment banker, is supporting the move with his nearly 13%. Other shareholders make up the remaining 21% backing the plan for a new board.

Co-founder resigns

Mayfair co-founder Sean Pi, a partner in Heeney Capital, declined to comment when The Northern Miner reached him in New York by phone on Thursday. Mayfair said on March 27 that Pi resigned as a director from the company’s board.

Anthony Jew, head lawyer for Muddy Waters, didn’t immediately reply on Thursday to an email seeking comment.

The Fenn-Gib project 80 km east of Timmins holds 113.7 million indicated tonnes grading 0.9 gram gold per tonne for 3.8 million oz., according to a resource update last June. The company says it intends to issue a prefeasibility study this year with a resource update.

Since San Francisco-based Muddy Waters first announced its plan on March 19, shares in Mayfair rose from $2.10 apiece to a near record high of $2.60 in April before sliding back to $2.10 by Thursday, valuing the company at $210.1 million.

Evans, a previous CEO of Mountain Province Diamonds (TSX: MPVD), said May 9 Mayfair’s share price is up 27% compared to the average of its peer group, which he says are down 19%. The company contends its share price has outperformed the 17% increase in the price of gold during the same period and its price-to-net asset value multiple of 0.56 exceeds its peer group average of 0.26.

Poison pill

Mayfair says it will proceed with a poison pill attempt to thwart the takeover by exercising clauses in executive pay contracts that would wipe out the company’s roughly $4 million in cash. The proposed shareholder vote would trigger a change in control of the company, and Evans, chief financial officer Justin Byrd, vice-president of exploration Howard Bird and some other employees would take the payouts and quit, it said.

Muddy Waters said it would go after any employees who take change-of-control payments to return the money, according to the April 19 letter.

The Muddy Waters directors proposed for a reconstituted board are the hedge fund’s founder and chief investment officer, Carson Block; Freddy Brick, a partner at Muddy Waters who leads its resource investments; chief counsel Jew; and Darren McLean, a former vice-president at Toronto-based hedge fund K2 & Associates Investment Management.

K2 & Associates backed the removal of a CEO at GT Gold, which held the Tatogga gold-copper project in northwest British Columbia, before Newmont (TSX: NGT; NYSE: NEM) bought the company for US$393 million in 2021. The hedge fund also supported last year’s all-share merger of Moneta Gold and Nighthawk Gold, two juniors with development projects in Canada, to form STLLR Gold (TSX: STLLR).

Muddy Waters contends Mayfair rejected its earlier proposal to appoint a new chairman and one board member nominated by the fund. It also says the board emptied the options pool within two years of going public, threatened to raise its pay and said it would deny a co-founder a board seat, all showing a fear of oversight. 

“Our trust in the board had deteriorated over the previous four months,” McLean said in an April 2 letter to shareholders. “Our patience ran out, and the chairman’s seat needed to be occupied by somebody whom shareholders trusted.”