May 28, 2014
Scorpio Issues Letter to Shareholders, Reminds Shareholders to Vote Using Scorpio's WHITE Proxy
Toronto, May 28, 2014 - Scorpio Mining Corporation (TSX: SPM) ("Scorpio" or the "Company") today issued a letter to shareholders. With the June 10, 2014 proxy deadline fast approaching, shareholders are urged to vote the Company's WHITE proxy today.
The letter to shareholders follows:
May 28, 2014
Dear Fellow Shareholders,
Our 2014 annual meeting of shareholders is scheduled for Thursday, June 12, 2014. This year your vote is of even more importance as a U.S. investment firm, Tocqueville Asset Management, L.P. (together with The Tocqueville Gold Fund), is seeking to take control of a majority of the board of directors and disrupt the recent progress we have made at our mining operations. Your vote is crucial to show your support for the management director nominees and the positive momentum that is building at the Company. Protect your investment by voting the WHITE proxy FOR the election of the management nominees prior to the deadline on June 10, 2014.
On May 12, 2014, Tocqueville delivered to the Company a notice of its intention to nominate three new individuals for election to the Company's Board in addition to its current nominee, Thomas Weng, who is already on the Company's Board, to give Tocqueville four nominees on Scorpio's seven-member Board. We believe that Tocqueville's notice does not comply with the advance notice provisions of the Company's by-laws respecting the nomination of directors and is therefore invalid. These advance notice provisions were approved at last year's annual meeting by a resolution supported by approximately 99% of the shareholders who voted. The Company is now taking steps to obtain a declaration from the Ontario Superior Court of Justice to confirm our belief that Tocqueville's notice is invalid. Despite our belief that Tocqueville's director nominations are invalid, the Company and its shareholders cannot ignore Tocqueville's efforts to take over the Board. It is tantamount to taking over the Company through stealth and the Company will not allow Tocqeuville to use such tactics to gain control. If control is what Tocqueville seeks, it should make a proper offer to all of Scorpio's shareholders. Your vote is of paramount importance to show your support for the Company and your opposition to Tocqueville's self-interested actions.
Scorpio has overcome significant operational challenges, implemented cost saving programs and capital preservation initiatives to de-risk its business in the face of recent industry-wide uncertainties, and charted a course to continue to grow its Mexican production pipeline. At the same time, we have remained focused on developing the El Cajón and San Rafael Projects and continuing to operate the nearby Nuestra Señora Mine and processing plant. In April 2013, we appointed Pierre Lacombe as our Chief Executive Officer. Mr. Lacombe's appointment was met with approval from Tocqueville, which did not indicate to the Board at any time during the past year that Tocqueville was dissatisfied with the Company's strategic direction or progress on any operational front. Mr. Lacombe has over 28 years of experience in mining and mineral processing including working in Latin America. The Company continues to enhance its talent base and we have extensive in-house operational expertise to achieve our goals.
We have a strong management team that is executing on our Board approved plan and is delivering results. In our most recent quarter ended March 31, 2014, we recorded our highest quarterly throughput at our Nuestra Señora processing plant since its start-up in 2008. In addition, our most recent quarterly payable silver ounces was 272,110 ounces -- our highest level since Q2 2011, when a higher silver head grade was processed. We have been developing the El Cajon mine with internal funds and have a strong balance sheet. At the end of our most recent quarter, the Company had over $17 million in its treasury, over $35 million in working capital and no debt.
We have also recently updated our reserve estimate for Nuestra Señora and have obtained a Preliminary Economic Assessment involving Nuestra Señora and our El Cajón and San Rafael deposits; received environmental permits for construction of our El Cajón underground mine; filed for a combined permit for exploration over San Rafael and El Cajón; and started ramp sinking for access to the El Cajón deposit.
At a time when the entire sector is suffering from depressed commodity prices, we are making significant progress while many of our peer group's assets are on a care and maintenance program or, in some cases, the companies themselves are on the brink of insolvency. The Company's momentum is substantial and we are concerned with the disruption and distraction that Tocqueville now seeks to create.
Our Company has a strong track record of governance and responding to shareholder concerns. Most recently, Peter Hawley, a director and our former Chief Executive Officer, resigned as a director of Castle Peak Mining Ltd. and as a member of our Compensation Committee in order to allay certain concerns about his available time commitments and independence. We have had active board renewal and are proposing an additional director, Bradley Kipp, who we are confident will further strengthen our Board.
We are open to engaging with our shareholders in respect of all aspects of our operations and governance. Unfortunately, Tocqueville's recent actions to take control of your Board without putting forward any specific plan or rationale for doing so poses a serious risk to the Company and the value of your investment.
Tocqueville's history as a significant shareholder in the Company dates back to 2010. Since that time, we have actively engaged with Tocqueville and responded to requests for representation on our Board. In January 2011, one of Tocqueville's nominees, Jonathan Berg, was added to the Board. In June 2013, a second Tocqueville nominee, Thomas Weng, was added to the Board. Then, in April of 2014, Tocqueville asked us to consider adding two additional nominees to the Board, which at that time consisted of only six directors, and replacing Mr. Berg as well as myself as Chairman. And now, Tocqueville is seeking to add three new nominees (in addition to Mr. Weng) to the Company's Board, which, if successful, would give Tocqueville control over the Board.
The Company considered Toqueville's views and postponed our annual meeting from May 13, 2014 to June 12, 2014 to allow for further dialogue. However, once it became clear that Tocqueville was seeking control over the Board, the Board formed a Special Committee to supervise our response to Tocqueville's actions. The Special Committee is comprised of myself (as Chairman), Peter J. Hawley, Jonathan A. Berg and Thomas McGrail.
After careful consideration, the Special Committee concluded that it was not in the best interests of the Company or its stakeholders to allow Tocqueville to take control of the Board. In particular, the Special Committee has become exceedingly concerned with Tocqueville's motives and intentions for the Company. Tocqueville has not indicated any specific plans or proposals for the Company going forward, nor has Tocqueville indicated any specific concerns or issues that it has with the Company's operations or its strategic direction.
The Special Committee is concerned that Tocqueville and its hand-picked nominees have an undisclosed agenda for the Company, including a possible significant merger, business combination or other transaction involving one or more other companies in which Tocqueville has an interest and that would serve Tocqueville's interests over those of the Company and all its stakeholders. Tocqueville is attempting to take advantage of the down cycle for junior resource companies to gain control of the Company in furtherance of their undisclosed agenda.
In addition to the lack of disclosure of Tocqueville's plans, the Special Committee has also become concerned with Tocqueville's compliance with applicable Canadian securities requirements relating to insider reporting and early warning filings. We made these concerns known to Tocqueville in a letter dated May 25, 2014 in which we asked Tocqueville to make the filings it is required by law to make to allow the Company and our shareholders to more fully assess Tocqueville's actions and intentions. As of the time of this letter, no such filings have been made by Tocqueville.
The Special Committee believes Tocqueville's hand-picked nominees are an instrumentality for Tocqueville to achieve its undisclosed agenda. Tocqueville's proposed director nominees bring no added value to the Company's Board. We also believe that Tocqueville's nominees would be a downgrade to the qualifications of the Company's current slate of director nominees. Mark Tashkovich has no mining experience and no public company board experience -- something he admitted earlier this year when our Nomination and Corporate Governance Committee interviewed Mr. Tashkovich at the behest of Tocqueville. What he does have is a close working relationship with Tocqueville's current Board nominee, Thomas Weng, as both individuals hold senior positions with the same New York investment banking firm. Another Tocqueville nominee, John Ellis, serves together with Mr. Weng on the Board of International Tower Hill Mines Ltd., another company in which Tocqueville has a significant investment. Mr. Ellis has also been a director of public companies where he has overseen significant destruction of shareholder value and which have been the subject of cease trade orders for failing to file audited financial statements in the required time. Joseph Keane has also overseen substantial shareholder value destruction, including share price declines of over 90% during his tenure as a director of Rochester Resource Ltd. and Mercator Minerals Ltd.
We can only conclude that Tocqueville's hand-picked nominees were selected in furtherance of Tocqueville's undisclosed agenda. With no stated plan and no added value, the simple answer is no thank-you.
Regardless of the outcome of the court proceeding to confirm that Tocqueville's nomination of its director nominees is invalid, your vote is important in order to send a message to Tocqueville that you support the current Board and the positive momentum at the Company. Defend your investment, support your current Board and allow for continued progress at the Company by VOTING the Company's WHITE proxy before the June 10, 2014 deadline.
The Company has retained Kingsdale Shareholder Services to assist with the solicitation of proxies. If you have any questions or require assistance in voting your WHITE proxy, please contact Kingsdale Shareholder Services at 1-855-682-9644 (toll-free in North America) 1 416 867-2272 (collect outside of North America) or by email at [email protected] Agents are standing by to assist you with voting your proxy.
We thank you for your continued support.
Ewan D. Mason
Scorpio Mining Corporation
For further information contact:
Victoria Vargas, Vice President Investor Relations and Corporate Communications +1 416-585-2200
Kingsdale Shareholder Services; 1-855-682-9644 (toll-free in North America); 1 416 867-2272 (collect outside of North America); email:
This news release includes certain statements that may be deemed "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Forward-looking statements include, but are not limited to, statements with respect to the Company's operations, exploration and development plans, expansion plans, estimates, expectations, forecasts, objectives, predictions and projections of the future. Generally, these forward-looking statements can be identified by the forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "projects", "intends", "anticipates", or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "can", "could", "would", "might", or "will" "be taken", "occur" or "be achieved". Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Scorpio Mining Corporation to be materially different from those expressed or implied by such forward-looking statements, including but not limited to: risks related to the exploration and development and operation of the Company's projects in Mexico, risks related to international operations, construction delays and cost overruns, the actual results of current exploration, development and construction activities, conclusions of economic evaluations, changes in project parameters as plans continue to be refined, future prices of silver, zinc, copper, lead and gold, risks relating to completing acquisition transactions as well as those factors discussed in the sections relating to risk factors of our business filed in Scorpio Mining Corporation's required securities filings on SEDAR, including its Annual Information Form dated March 13, 2014. Although Scorpio Mining Corporation has attempted to identify important factors that could cause results to differ materially from those contained in forward-looking statements, there may be other factors that cause results to be materially different from those anticipated, described, estimated, assessed or intended.
There can be no assurance that any forward-looking statements will prove accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Scorpio Mining Corporation does not undertake to update any forward-looking statements that are incorporated by reference herein, except in accordance with applicable securities laws.