Proxy circular lists reasons for Polar Star battle

It was a small high-grade copper gold mine in southern Chile that led to a clash in the boardroom of Polar Star Mining (PSR-V), says the proxy circular issued by the company’s former president and CEO, Douglas Willock.

The circular, filed on SEDAR yesterday, says that executive chairman, Stephen Roman, and some of the other board members disagreed with Willock about viability of pursuing the acquisition of the Chepica copper-gold mine.

The company acquired a 15% interest in the mine with an option to acquire the remaining 85% in the spring of 2008.

Willock’s circular says that both he and investors thought that Chepica was a good-short-term investment that could help the Polar Star pay for the company’s exploration programs elsewhere in Chile.

When the markets deteriorated last fall, Willock renegotiated the terms of the option agreement to acquire Chepica on more favourable terms, ensuring the company had enough time to finish its due diligence program and to finance the acquisition.

Willock then sought board approval but there was little time given for the completion of the transaction. The board didn’t give its approval, instead it agreed to talk about it at the next board meeting in a month’s time. Because of the delay, the mine’s owner changed his mind and the deal was taken off the table.

Willock blames the board for this lost opportunity, which he says could have secured Polar Star with a source of cash. And since then, Willock says the board has been divided on the merits of Chepica.

Polar Star’s most prospective exploration project is the Montezuma copper property, which covers about 20 km of strike of the west fissure fault system and the related sub-parallel and northwest-southeast cutting ancillary faults of Chile’s porphyry belt. The Chuquicmata open pit copper mine – the world’s largest open pit which has been in operation for century – is a part of the same fault system. Polar Star began an initial 4-5,000 metre drill program there in February.

Polar Star’s board voted in favour of firing Willock in February after he called for a shareholders’s meeting to replace the board. Before that, the board had rejected a financing with GMP Securities and Deacon and Company Capital Markets, that required the removal of four members of the board.

The circular calls for a new board that will include Willock and David Speck, the company’s current vice president of corporate development, and five new members. He says he would eliminated the position of executive chairman, instead operating with a chairman whose duties are clearly identified, helping to clarify the role and responsibilities of the president and CEO.

Last week, Polar Star announced that Willock had rejected a compromise to end the dissident proxy contest.

The proposal suggested a board that would include Willock, a nominee of his choice, three of the current directors and two new directors with mining expertise.

It was also suggested the neither Roman nor Willock could stand for election as chairman and that neither would accept a management position either.

Finally, the company suggested that the two parties end their litigation against one another and that Polar Star would pick up the tab for their litigation costs so far.

Polar Star has filed a claim against Willock that he has breached the Canada Business Corporations Act by improperly soliciting proxy votes before filing a circular. Willock said he had 53.6% of shareholder support prior to filing the circular, but said he had not violated the act.

The proxy vote will be held on April 17 at Polar Star’s annual shareholder meeting.