Ursa gets in the ring with Forbes & Manhattan

Struggling junior nickel miner Ursa Major Minerals (UMJ-T) has told Stan Bharti’s Forbes & Manhattan group to put up its dukes and prepare for a fight at the company’s annual general meeting of shareholders in Toronto on June 23.

The Toronto-based Forbes group, which already controls roughly 35 publicly traded natural resource companies, has teamed up with Ontario-based nickel explorer Inspiration Mining (ISM-T) to try and take control of Ursa by way of a proxy battle. Shares of Ursa have languished around a dime since crashing during the 2008 financial crisis, this despite the company resuming production a year ago from its Shakespeare nickel-copper-platinum group metals (PGM) mine 70 km west of Sudbury, Ont., which it had to close in 2008 due to weak metal prices.

The company is now running a slightly profitable direct shipping operation from Shakespeare’s West pit under a custom milling agreement with Xstrata‘s (xta-l, xsraf-o) Strathcona mill. At a nominal rate of approximately 1,000 tonnes per day, Ursa managed to turn a net profit of $667,998 during the fiscal year ended Jan. 31, 2011, with gross metals sales totalling $14.8 million.

Inspiration and Forbes say this level of profits is simply not good enough, however, and want to bring in new management to expand the operation, cut costs and bring up the company’s lagging share price (or in their words, “increase shareholder value”).

How the two dissidents came to be involved is less clear, though the principal motivation behind the proxy battle seems regular enough: to gain control of a profitable mine at a reasonably low cost.

According to Ursa’s investor relations manager, Alison Tullis, Inspiration began buying up shares of the company in the open market around May 2010, and by that fall had acquired over 9 million shares representing about 15% of the voting rights.

On Oct. 31, Inspiration called for a special meeting of shareholders to replace Ursa’s management with its own proposed slate of directors, which Ursa eventually scheduled for March 3. The meeting was cancelled shortly afterward, however, as Ursa claimed Inspiration had refused to disclose its slate of directors or provide a proper business plan. Inspiration tried to get the Ontario Superior Court to overrule the decision but the judge decided in favour of Ursa.

Perhaps smelling blood in the water, Forbes & Manhattan (F&M) approached Ursa in February 2011 with an offer to invest approximately $3.3 million in the company, which Ursa promptly turned down. Typically, the Forbes group buys a 20% minority equity stake in a junior and then replaces most of the existing management with its own executives, usually taken from its 150-person “world-class multidisciplinary team” of geologists, investment bankers and mining executives. It made the offer again in April, according to a report by The Globe and Mail, but was refused a second time.

Insipiration and Forbes were thus resigned to wait until Ursa’s annual general meeting to launch their proxy battle, but the two suitors have not been idle. They (or at least Inspiration, which is required to disclose any changes in its shareholdings being a 10% or more stakeholder), have been buying up more shares on the open market, with the dissidents now controlling 19.8% of Ursa’s outstanding shares or roughly 16 million of the 80 million issued and outstanding.

They also released a dissident’s circular, which proposes a slate of new directors, executives and consultants stacked with experience in Ontario nickel operations. They include Mark Trevisiol, F&M’s vice-president and the former general manager of business development and strategy for Xstrata’s Sudbury nickel operations; Allen Hayward, a mining consultant and the former VP and general manager of Falconbridge’s Sudbury operations; George Faught, F&M’s chief operating officer; Randall Miller, Inspiration’s chairman and CEO; as well as two other former management members of Xstrata, Helio Diniz and David Gower.

According to Forbes & Manhattan, “The issues for Ursa Major shareholders are quite straightforward: Ursa Major’s share price has fallen dramatically in recent years and remains depressed; the Shakespeare mine is not as profitable as it should be; and the capital markets lack confidence in current management.”

Unsurprisingly, Ursa’s management sees the issues quite differently. Led by president and CEO Richard Sutcliffe, they say the proxy battle represents a zero-premium takeover bid for control of the company. “We have advanced Ursa Major to the point where it is the only currently profitable junior nickel mine in Canada; as such, the dissidents are making an opportunistic play for our growing portfolio of profitable assets, notably the Shakespeare mine. Contrary to the unsupported allegations of the dissidents, we have controlled costs to maintain profitability and kept shareholder dilution to a minimum, while achieving mine production.”

Sutcliffe further notes Inspiration shareholders “have experienced a disastrous decline in their investment” over the past few years, with Inspiration’s stock dropping from a short-lived high of $7.69 in mid-2007 to its present stage of stagnating around 25¢. As for Forbes & Manhattan, Ursa’s argument is a little less substantial: “Communications with shareholders have indicated that many are dissatisfied with the performance of a number of public companies that are controlled by the dissidents and their nominees.”

Though Forbes & Manhattan’s several market success stories over the past few years have largely outshone their failures, investors’ confidence in the large F&M portfolio would seem to be considerably larger than those believing in the capabilities of Ursa’s management.

As for the vote on June 23, IR manager Tullis admits “It’s going to be fairly close.” Shares of Ursa closed up 6¢ to 20¢ on June 15 on unusually heavy trading volume of 6.7 million shares, most of which came from a 5.6-million-share cross between GMP Securities and an anonymous brokerage house just 10 minutes before markets closed, at a price of 24.5¢ per share.