Detour Gold tables settlement offer rejected by Paulson

Detour Gold Corp. [DGC-TSX] on Friday October 12 released details of an offer that aims to settle a dispute with dissident shareholder Paulson & Co., which has been pressing for wholesale changes to the Detour board as well as the outright sale of the company.

In a press release, Detour said it has chosen to release details of the settlement offer even though it has been rejected by Marcelo Kim of Paulson.

Detour Gold is an intermediate gold producer in Canada. It operates the large-scale Detour Lake Mine in northern Ontario about 300 km northeast of Timmins. The mine is expected to produce between 595,000 and 635,000 ounces this year, down from the previous estimate of between 600,000 to 650,000 ounces.

Friday’s announcement is the latest move in an ongoing saga that began in July, 2018 when Paulson (a 5% shareholder) said it would urge Detour Gold to call a special shareholder meeting to replace a majority of Detour’s board with independent members committed to exploring a potential sale of the company.

Increased calls by Paulson and others for a strategic review have already resulted in significant changes at the board level following the resignation of former Detour CEO Paul Martin.

In an investment report, Scotiabank said the board changes were necessary due to the lack of technical experience on the board, especially following the change in mine plan outlook in April that seemed to indicate the board was caught unawares by the escalating cost forecasts.

Detour said the latest settlement offer reflects the board of director’s continuing openness to change and willingness to reach a reasonable compromise that reflects the desires and interests of the company’s shareholders.

Detour said it understands from its significant shareholders that while some further change may be welcomed, it is not nearly to the extent pursued by Mr. Kim.

“Without wholesale board change, Mr. Kim continues to demand his presence on the board,” the company said. “These demands are completely out of line with feedback received from shareholders,” it said.

“As fiduciaries of the company and representatives of both shareholders and corporate interests, the board cannot possibly accept such a proposal.”

Detour said a new slate of board nominees does not include Mr. Kim because Detour Gold does not believe his candidacy has the support of the company’s shareholders.

Principal terms of the settlement offer released on Friday include the following:

Michael Kenyon will step down as interim CEO by no later than the annual general meeting and the new Paulson nominee can begin work immediately with the corporate governance and nominating committee on an open global search for a new CEO.

Regarding the sale of Detour Gold, the Paulson nominee would immediately work with Detour Gold’s advisers and special committee to understand the work that has been done in this area and the current stage of play in this challenged mining merger and acquisition market.

Detour Gold Chairman said he is disappointed that this “latest very reasonable offer” has been rejected by Mr. Kim. “Demanding a wholesale change of the board as a condition of negotiating a settlement is neither practical nor responsible,” he said.

“Given the critical stage we are at in executing the life-of-mine plan, now is not the time to throw the company into chaos and start from scratch, especially following the significant changes the board has already made,” he added.

“Such changes would limit the oversight the board could provide and put our operations at risk.”

Morrison went on to say that the board has decided to keep the settlement offer open to Paulson. “We ask our shareholders and other key stakeholders to assist us in achieving a satisfactory conclusion for all parties,” he said.

On Friday, Detour Gold shares eased 2.41% or $0.27 to $10.94. The 52-week range is $9.11 and $15.40.