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Minera IRL takes stock after CEO goes and community relations at Ollachea deteriorate
The politics of mining isn’t always easy, as the team at Minera IRL (LON:MIRL, CVE:IRL) found out last week.
After nearly a decade of apparently near-perfect community relations at the company’s Ollachea gold development site in Peru, a sudden deterioration has left shareholders reeling and other stakeholders scratching their heads as to what happens next.
Now, amid allegations of impropriety, interim chief execuitve, Diego Benavides, has been sacked.
All of which raises a big question mark over the company’s ongoing efforts to get Ollachea financed.
These had been seeming to make good progress under the stewardship of the company’s recently appointed executive chairman Daryl Hodges.
“We had a New York bank that wanted to take a lead position in the financing syndicate, and we arranged for them to meet with COFIDE,” he reflects ruefully. COFIDE is the local Peruvian state-owned development bank.
That was before the company was obliged to make public a sudden flare up in tension at Ollachea, following a leak to the local Peruvian press.
It’s still not entirely clear what happened to anger the locals, as all of Minera’s existing community programs remain in place and there’s been no recent change to the company’s plans, except to beef up corporate governance, and financial reporting.
Indeed, Hodges was in Ollachea recently and was invited, at the last minute, to speak at a village hall meeting. Although there was an element of robust interaction, including questions of broken promises and past questionable dealings, there was little inkling of what was to come.
The clue however, was in the opening question from the President of the community, asking when Diego Benavides would be made chief executive, although the greater concerns were expressed as frustration about delays.
Fast forward a month, and on August 17, following an exchange of letters, the company was forced to announce that the local community will no longer officially support the development of a mine at Ollachea.
The letter was from Senor Juan Luis Valeriano Gutierrez, officially styled as the President of the Ollachea Community, and talked about concerns over changes in the management structure following the death of Minera’s founder, the much-loved Courtney Chamberlain, who died earlier this year.
Hodges himself stepped into the role of executive chairman before Chamberlain died, while local linchpin, Diego Benavides, was appointed as interim chief executive while the company reviewed its alternatives and looked to improve the management, and board, which was down to two persons after the death of Chamberlain.
The main concern of the board in this is a concentration of authority, given Benavides is President, sole director and signing officer of the two operating subsidiaries, including the operating company that holds Ollachea.
In addition, and unusually for a public company, his son-in-law is General Counsel, and works in purchasing and contracts, while he himself has retained significant control over accounting.
In light of all this, steps were initiated to organize the company to function less like a private company and more like a public corporation, starting with the hiring of a seasoned mining engineer as chief operating officer and a finance executive as cie president of Finance and Admin.
Whether Benavides retained that interim CEO role or not appeared to be the major concern of the Ollachea community.
Benavides isn’t at this time a member of Minera IRL’s board, and in the absence of Chamberlain and the relationships he had, there seems to be some feeling locally that Benavides should be promoted, but following the death of Chamberlain, the first focus was to assist in the final negotiations to secure the settling of a large debt to Macquarie Bank that had been hanging over the company for a number of years, and was due June 30.
That was duly delivered by the signing of a US$70mln bridge loan with COFIDE.
The loan was signed on commercial terms over a 24 month period and the plan was that it would be repaid as part of a senior debt project facility that was mandated with COFIDE.
At that point Hodges began to feel that all the pieces were falling into place, and preparations started to put a marketing plan into place and prepare the company for a fresh start.
Short-term financing was secure.
Long-term financing was in advanced discussion.
The chief operating officer was putting the final touches on the engineering and procurement contracts, and as a consequence of the bigger money now coming into the company he’d hired a consultant to help reinforce corporate governance.
“I’m trying to organize the company so it’s properly functioning with reporting lines and financial controls,” says Hodges straightforwardly enough.
But all this seems to have rubbed the community up the wrong way. Precisely how still isn’t clear.
As Hodges points out, over the years Minera has put more than US$25mln into the Ollachea community, and it has no plans to stop contributing now.
Indeed, if and when the mine gets built the contributions could become even more substantial, and certainly more regular.
Now though, with the departure of Benavides, there is a question mark over all of that. The company’s shares have taken a dive, and sentiment is bruised.
Still, let’s not get ahead of ourselves.
Hodges is keen to allow the dust to settle following Benavides’s departure and while he works out just exactly what it is that’s irking the villagers and what he can do about it.
At this stage it still looks like a case of Wall Street culture colliding with village culture.
The attitude of COFIDE will be crucial in resolving this, although at the moment it’s unclear precisely what the project’s major financial backer makes of it all.
Notwithstanding the drama surrounding Ollachea, what is happening with the rest of the company’s operations?
“Well, like all junior companies and gold producers, we are struggling to keep moving forward,” says Hodges.
“Corihuarmi has been a great little asset, but it is long in the tooth, and as always, that means capital expenditures are required, and operations are under close watch. In fact, our mining, engineering, and environmental teams are performing a detailed review of the operation as we speak.”
Story by ProactiveInvestors
Source: http://www.proactiveinvestors.com/companies/news/63143/minera-irl-takes-stock-after-ceo-goes-and-community-relations-at-ollachea-deteriorate-63143.html
