Monsters of Rock: Whitehaven fires back at activist shareholder by calling in the referee on eve of big vote
Annual general meetings or for brevity’s sake AGMs, as they are labelled by the type of people who would lose $1,000 every minute they’re stuck talking to my sorry ass, are generally pretty dull affairs.
Aside from the occasional thrown punch and casually rejected green group proposal, major items like directors’ appointments, executive remuneration and share issues tend to be voted up by investors who have only given the most casual side-eye to their company’s annual report with the sort of numbers not seen since 1,660% of Liberian voters turned out to elect Charles D.B. King with over 96% of the vote in 1927.
Yet the handful that capture the eye really do have get-me-some-popcorn energy.
The main event tomorrow is without doubt the AGM of Whitehaven Coal (ASX:WHC) D-Day for a stockholder vote on executive pay now fraught with implications thanks to the company’s deal of up to $6.4 billion to acquire BHP’s (ASX:BHP) Daunia and Blackwater met coal mines in Queensland.
The remuneration report is expected to get up with two of the major proxy advisors, who advise holders on how to vote their stock and hold considerable sway in AGM season, backing Whitehaven’s resolutions.
But near 5% holder Bell Rock Capital, which has warned other investors the purchase of Daunia and Blackwater will enrich MD Paul Flynn and his management at the expense of capital returns, wants investors to reject a remuneration package into incentives it says favour M&A and production growth at the expense of buybacks and dividends.
Whitehaven has rejected suggestions its decision to bid for the BHP mines, which will turn it into the ASX’s largest non-diversified met coal producer, are not in the best interests of all shareholders, previously noting around 92% of investors supported the same remuneration rules last year, before it decided to halt a share buyback which returned ~$950 million in FY23.
Now the company has mounted a new defence, countering Bell Rock with the best form – attack.
It’s called on the Takeovers Panel to get involved, alleging that at various times since May this year Bell Rock has represented to Whitehaven it holds a combined physical and derivative interest in $6.5 billion capped Whitehaven of around 11%.
In representations to shareholders, Bell Rock has maintained it manages a little less than 5% of the company.
The company claims Bell Rock’s “non-compliance” on this front has risen since it sought to “exercise control or influence over the affairs of Whitehaven” by writing to shareholders to to vote against the remuneration report and incentives for MD Flynn as well as vote against the election of three directors including decade-long servant Raymond Zage.
Another proxy advisor, ISS, has recommended shareholders also reject the remuneration report.
With all due respect the campaign is unlikely to succeed — and investors gave the Daunia deal a massive thumbs up last week on its announcement. But the boogie-man hidden in the closet is the two strikes rule.
If at least 25% of shares are voted against the rem report a first strike will be recorded against the company’s board. A second one in 2024 would expose Whitehaven to a board spill. Not the end of the world, and they rarely come to pass.
But it would mean months of shareholder engagement to smooth things over at a time when Whitehaven will be feverishly trying to tie up the loose ends and complete its transaction with BHP and co-owner Mitsubishi, though the acquisition itself does not require the approval of shareholders.
The orders Whitehaven is after would be extremely beneficial if they can take what it claims is over 10% of the voting pool out of the equation tomorrow.
“Whitehaven seeks interim orders that (in summary) Bell Rock discloses the derivative interests it holds in Whitehaven shares and that unless such disclosure is made, the votes cast on the Whitehaven shares in which Bell Rock has a relevant interest be disregarded at Whitehaven’s upcoming annual general meeting,” its application to the Takeovers Panel said.
WHC says it will still be able to use cash flow to pay out franked dividends at 20-50% of NPAT, and thinks it has the opportunity to step up returns once deferred payments on the deal have been made.
Quick update for those still reading this. The panel declined to make interim orders. Bring on the vote.
The big ticket item in reporting season today was no doubt Mineral Resources (ASX:MIN), which reported a cocktail of falling prices but expanding output from its WA lithium operations.
Also on the bill was Westgold Resources (ASX:WGX), which fell ~4% more or less in line with other gold miners after reporting output of 63,104oz gold from its Mid West gold mines at all in sustaining costs of $1935/oz.
The big news for investors is that its hedges are done, meaning the company is exposed now to record high Aussie gold prices.
It sold its bullion at an average prices of $2888/oz, putting $25m into its treasury and updating its dividend policy to include a minimum payout of 1c per share up to a maximum of 30% free cash flow, as its bank balance ballooned beyond $200 million in cash, gold and liquid investments to $217m.
“Our treasury is strong and we are fully funded to deliver our corporate objectives through operational cash flows in FY24,” MD Wayne Bramwell said after the miner delivered three consecutive quarters of cash build for the first time in its history.
“Drilling continues in earnest across our assets and Westgold continues to invest in its high value internal growth projects, with the development of Great Fingall commencing in October.
“With our cost-out programme continuing, being debt free and fully leverage to the gold price, Westgold is well poised to deliver its FY24 guidance.”
Over in the world of copper, battered and bruised Queensland and WA base metals miner 29Metals (ASX:29M) was up slightly as its copper production rose from 4200t to 5500t at C1 costs of US$3.26/lb, down from US$4.46/lb.
Its zinc output at the Golden Grove mine was down from 13,400t to 8600t, while mining restarted at the flooded Capricorn copper operations in Queensland.
Capricorn produced 7700t in September last year and 5300t in December before a major flooding event which shut the mine in the January quarter, not producing at all while rehab took place in June.
Meanwhile, boss Peter Albert thinks the announcement of the closure in 2025 of Glencore’s Mt Isa Mines operation could be a net positive for 29Metals, which sells its concentrate into the smelter.
That infrastructure will be kept running until at least 2030, with the Queensland government also pledging to invest heavily in projects in north Queensland where the workforce around Mt Isa will be impacted.
“It was a very sad turn of events for Mt Isa and the workforce up there,” he said.
“From our perspective, of course, that clearly from a strategic Northwest Queensland business perspective puts a lot of focus on Capricorn Copper and there’s a very significant government understanding of the importance of Capricorn Copper in the scheme of what’s happening at Mt Isa.”
Albert said 29Metals could ship concentrate into Asia but it was not its preferred solution, but said his understanding was Glencore had no plans to shut it down.
Meanwhile, it was a rare off quarter for Alkane Resources (ASX:ALK), which produced 15,855oz at AISC of $2156/oz in the three months to September 30, selling 16,090oz at a price of $2897/oz for revenue of $46.6m.
While costs came in ahead of full year guidance, Alkane retained its full year FY24 forecast for the New South Wales gold mine, projecting production of 60-65,000oz at AISC of $1750-2100/oz.