Copper Mountain Mining – Malicious or just Neglectful?
Welcome back to Copper Mountain Mining Corporation (TSX: CUM), where “…misunderstandings and neglect create more confusion in this world than trickery and malice.” (Johann Wolfgang von Goethe, 1774)
“Misunderstandings and neglect” have taken their toll on Copper Mountain. Since first production Copper Mountain has not once hit its guidance, creating ongoing confusion among analysts, mining magazines and financial publications. (See here, here and here.)
A possibility of “trickery or malice” does arise when we look at how Copper Mountain is responding to serious allegations of non-compliance.
Factual overview: since its prospectus was receipted in 2007, Copper Mountain has said that the Net Smelter Royalties on the Copper Mountain Mine cover “10% of the claims”. That’s the wording it has used over and over again in its core and non-core disclosures. In direct contradiction, Hornby Bay Mineral Exploration Ltd. alleges in its disclosures that it owns NSR’s covering over 22% of the Copper Mountain claims. That doesn’t include the Teck / Cominco NSR’s which would push that 22% ratio upwards, far above what Copper Mountain holds to be the truth.
This is a serious issue with severe consequences. To Hornby Bay, this is the difference between selling the potential royalty stream for one million dollars and selling it for six to ten million dollars, depending on the Copper Mountain mine plan. If HBE is correct, then its shareholders are being intentionally victimized by a much larger, much better funded company. IF HBE is wrong, then it has made unfair allegations damaging to Copper Mountain’s already fragile reputation.
Hornby Bay is not letting this go. It issued a press release on June 9/15 alleging that Copper Mountain’s management team (later identified as Mr. O’Rourke, the CEO) recently met with HBE to discuss HBE’s NSR. The contents of that discussion are confidential, but it’s obvious Copper Mountain knows a problem exists and is trying to quietly deal with it .
Two things stand out, and there are two things to watch for.
First, where are the regulators? Either Copper Mountain or Hornby Bay is perpetuating a deemed “fraud on the market”. It is not possible that both of them are right on this material issue. This deserves to be investigated and the guilty party punished, to preserve the integrity of Canada’s capital markets. The shareholders of both companies deserve to know the truth.
The second item is the deafening silence from Copper Mountain. I have emailed the CEO, CFO, VP Exploration and the newly appointed head of Investor Relations, politely asking fair questions. I’ve entered my contact information through Copper Mountain’s website. I’ve left voicemail messages. So far, no response.
Contrast this with Hornby Bay’s response. They immediately sent me historic mining maps and the Sept 4/79 original NSR agreement, and then telephoned me to talk me through how the claim numbers in the NSR agreement fit into Copper Mountain’s current mining map and possible mine plan. Then I did my own research based on this information. I found no contradictions between what HBE had told me and what was in the documents.
Then I again tried contacted Copper Mountain. You’ve seen their response, which was no response at all.
What inferences do you draw from Copper Mountain’s conduct?
Coming up next is Copper Mountain’s shareholder meeting, on June 18, 2015 in Vancouver. Copper Mountain is already in very public conflict with one of its largest shareholders, Montrusco Bolton of Montreal (see Copper Mountain’s June 9/15 press release). Monstrusco Bolton wants better governance in place, and Copper Mountain is resisting. This conflict could escalate into a very nasty, very public proxy battle at the next shareholder meeting.
The second thing to watch for would be the wording that Copper Mountain will use to describe the NSR’s in its upcoming NI 43-101 report. It’s a requirement of the National Instrument that Copper Mountain must disclose, “…the terms of any royalties, back-in rights, payments, or other agreements and encumbrances to which the property is subject” (Item 4 in the Form).
The penalties for getting it wrong in a report like this are fairly severe, for the company and the authors personally. Both the securities regulators and the professional geologist associations take this kind of report very seriously.
Will Copper Mountain continue with “10% of the claims” or will they try to water down that wording to appease Hornby Bay?
Expect more confusion in the market as Copper Mountain continues to test von Goethe’s theory.
Mr. Clausi is an experienced investment banker, executive, director and shareholder activist. A graduate of Osgoode Hall Law School called to Ontario's bar in 1990, ... <Read more about Peter Clausi>