Baja Mining Corp. (TSX:BAJ)(OTCQX:BAJFF) today announced that it
has filed a complaint with the British Columbia Securities
Commission regarding certain disclosure practices of Mount Kellett
Master Fund II A LP and Mount Kellett Capital Management LP
(together, "Mount Kellett").
The complaint involves Mount Kellett's failure to file early
warning and insider trading reports last year after it acquired
more than 10% of Baja's shares. Baja believes Mount Kellett chose a
less transparent form of disclosure as part of a stealth strategy
to acquire control of Baja without paying a premium to all
shareholders.
"The BC Securities Commission should take appropriate action in
the event that it determines Mount Kellett contravened applicable
securities laws by failing to comply with Canada's Early Warning
System," said Giles Baynham, Chairman. "We are gravely concerned
that Baja shareholders were disadvantaged by Mount Kellett's lack
of full transparency while it was accumulating shares last
year."
Mount Kellett, after reaching 10%, was obligated under Canada's
Early Warning System to file all of its trades and the prices paid
for Baja shares. Mount Kellett was also obligated to distribute a
news release after it reached 10% and should have issued follow-on
news releases with each additional 2% acquired.
As previously disclosed, Mount Kellett has requisitioned a
meeting of shareholders to change Baja's Board. Baja believes Mount
Kellett's initiative is part of a creeping takeover plan. For a
more complete explanation Baja urges shareholders to carefully read
Baja's Management Information Circular and related materials, which
were mailed to shareholders and posted to Baja's website and
SEDAR.
Baja urges shareholders to vote AGAINST Mount Kellett's director
removal resolution, and AGAINST Mount Kellett's Board expansion
resolution. Baja urges shareholders to vote WITHHOLD for the two
Mount Kellett nominees to the Board, Stephen Lehner (an employee of
Mount Kellett) and Lorie Waisberg. Shareholders should vote only
their GOLD proxy well in advance of the proxy voting deadline of
March 30, 2012 at 10:00 a.m. (Vancouver Time).
The complete letter of complaint to the BC Securities Commission
follows (except for copies of Mount Kellett's actual SEDAR filings,
which are available at www.sedar.com under the Baja company
profile).
British Columbia Securities Commission
701 West Georgia Street
P.O. Box 10142, Pacific Centre
Vancouver, B.C. V7Y 1L2
Attention: Lang Evans, Director, Enforcement Division
Dear Mr. Evans
We, Baja Mining Corp. ("Baja"), are writing to express our grave
concern regarding apparent contraventions of British Columbia early
warning and insider reporting requirements by Mount Kellett Master
Fund II A LP and Mount Kellett Capital Management LP (together,
"Mount Kellett")(1).
We believe Mount Kellett committed the contraventions last year
while acquiring an aggregate of 19.9% of Baja's issued and
outstanding common shares (the "Trades"). It is Baja's belief that
there are sellers of its shares who might have acted differently
had they known that Mount Kellett was accumulating shares and
intended to seek control.
After acquiring a 10% ownership position in Baja, Mount Kellett
did not file insider reports via the System for Electronic
Disclosure by Insiders ("SEDI"), and did not provide other public
disclosure of its acquisitions required under applicable Canadian
securities laws(2), including:
- the distribution of a news release and filing on SEDAR of an
early warning report on reaching the 10% ownership threshold;
and
- the distribution of additional news releases and reports each
time a further 2% of Baja's outstanding shares was acquired
(together, the "Early Warning System").
The protections afforded to other investors by insider reporting
requirements and the Early Warning System are crucial in ensuring
that all shareholders are on a level playing field, and in
particular in ensuring that smaller shareholders have the
information they need to make informed decisions about their
investments.
(1) According to public filings, Mount Kellett Capital
Management possesses the sole power to vote and the sole power to
direct the disposition of securities of Baja held by Mount Kellett
Master Fund II A LP.
(2) NI 62-103 The Early Warning System and Related Take-Over Bid
and Insider Reporting Issues ("NI 62-103").
To ensure that this situation is not repeated, we ask that the
BC Securities Commission investigate this matter and make such
orders or provide such guidance as it feels appropriate, up to and
including the imposition of sanctions against Mount Kellett.
Mount Kellett intended to control Baja but hid this from other
shareholders
We believe that Mount Kellett, a self-described opportunistic
investor and manager of US$6 billion, made improper use of the
alternate monthly reporting exemption available to eligible
institutional investors under NI 62-103 - an exemption to which
Mount Kellett is not entitled. When it made the Trades, Mount
Kellett had designs on Baja which differ from those of the eligible
institutional investors making the kind of passive investments
contemplated by Part 4 of NI 62-103.
In Baja's view, Mount Kellett's designs were to become a
"control person" (as the term is defined under Canadian law) in
order to advance a creeping takeover of Baja without offering a
premium to all shareholders. In support of Baja's position with
regard to the creeping takeover, Baja has provided a summary
timeline of events as an Appendix to this letter.
Mount Kellett concealed its intention to seek control from the
public, but revealed it privately to Baja in May 2011, when it
twice asked (May 9, 2011 and May 25, 2011) for a special exemption
from Baja's shareholder rights plan so that it could acquire up to
$125 million of Baja's shares. Based on the trading price of Baja's
shares at the time, this would have been equivalent to more than
30% of Baja's issued capital. If Mount Kellett was not already a
control person of Baja, this would have caused it to become
one.
Baja's Board rejected both attempts by Mount Kellett to seek the
exemption from the shareholder rights plan. Even so, having
demonstrated its intent to take control, Mount Kellett should have
been precluded from using the alternative monthly report system,
which it used to avoid transparency regarding its accumulation.
Mount Kellett should have begun filing insider reports and Early
Warning System reports and news releases no later than May 9, 2011,
having disclosed its intention to Baja on that date.
In fact, Baja now believes that Mount Kellett may have formed
its intention to become a control person as early as the fall of
2010. At that time, Mount Kellett unsuccessfully attempted to
negotiate a US$50 million private placement equity financing with
Baja. The "strings-attached" financing would have included special
rights for Mount Kellett, including pre-emptive rights to
participate in any future equity financings to maintain its
percentage shareholding and a right of first refusal to provide
future equity financing.
In the context of Mount Kellett's subsequent demands for special
treatment, the offer of a "strings-attached" financing with
features not available to other shareholders was in fact the
initial expression of Mount Kellett's intention to control Baja.
Mount Kellett should have begun filing insider reports and Early
Warning System news releases as soon as it achieved 10%
ownership.
How Mount Kellett's disclosure avoided full transparency
In Canada, Mount Kellett disclosed its acquisitions of Baja
shares in four SEDAR filings using the alternative monthly report
system. This method of disclosure was deliberately chosen by Mount
Kellett because it is significantly less transparent than
disclosure of the acquisitions under the Early Warning System and
by the filing of insider reports on SEDI.
Using the alternative monthly report system under NI 62-103,
Mount Kellett made the following four SEDAR filings respecting the
acquisitions by Mount Kellett:
--------------------------------------------------------------------
# Shares held % of Baja's total shares Filing Date
--------------------------------------------------------------------
1 55,111,600 16.4% May 6, 2011
--------------------------------------------------------------------
2 66,977,117 19.9% June 10, 2011
--------------------------------------------------------------------
3 67,461,117 19.9% December 9, 2011
--------------------------------------------------------------------
4 67,461,117 19.9% February 10, 2012
--------------------------------------------------------------------
Copies of these reports are enclosed with this letter.
Mount Kellett's less transparent disclosure had the effect of
denying important and timely information to other Baja
shareholders. For example, Mount Kellett's failure to file insider
reports deprived other shareholders of knowledge of each trade,
including the price Mount Kellett paid to acquire shares of Baja.
And by failing to distribute news releases and file early warning
reports, Mount Kellett minimized the ability of other Baja
shareholders to note the accumulation or foresee that Mount Kellett
could be positioning itself for an attempt to take a control
position.
If Baja's selling shareholders had been properly informed within
five days of each trade, they might have acted differently.
Instead, Mount Kellett suppressed disclosure of its purchases until
long after the Trades had been effected and any investor had an
opportunity to react. And when it did disclose its position, the
disclosure was incomplete because Mount Kellett failed to report
each individual Trade and prices of such Trades.
Although Mount Kellett has never disclosed when it crossed the
10% threshold, it did disclose in a filing it made on April 8, 2011
that it had acquired 11.9% of Baja's shares. This disclosure is
instructive because Mount Kellett did not make it in British
Columbia, the primary jurisdiction for trading of Baja shares, or
elsewhere in Canada. Instead, Mount Kellett provided this
information by way of a filing only with the US Securities and
Exchange Commission.
Investors in Canada, including those subject to the jurisdiction
of the BC Securities Commission, had to wait another month to learn
that Mount Kellett had become a substantial shareholder (except for
those investors who happened to be monitoring SEC filings).
Is Mount Kellett an "Eligible Institutional Investor"?
Mount Kellett claims to be exempt from the early warning
requirements (as such term is defined in NI 62-103) and entitled to
file reports of acquisitions under the alternative monthly
reporting system because it is an "eligible institutional
investor".
We believe Mount Kellett relies on sub-paragraph (d) of the
definition of "eligible institutional investor" in NI 62-103, which
reads:
"an investment manager in relation to securities over which it
exercises discretion to vote, acquire or dispose without the
express consent of the beneficial owner, subject to applicable
legal requirements, general investment policies, guidelines,
objectives or restrictions."
Properly construed, this definition does not include investors
such as Mount Kellett - to the contrary, as we will discuss further
below, investors such as Mount Kellett act in precisely the manner
that motivates and necessitates the early warning system in the
first place.
If sub-paragraph (d) of the definition were to apply to Mount
Kellett, it would apply to any institutional investor. The features
of the definition which are intended to distinguish "eligible"
institutional investors from all institutional investors would be
ignored.
Those features are described in sub-paragraph (d) by the
requirement that the investment manager's discretion be subject to
"applicable legal requirements, general investment policies,
guidelines, objectives or restrictions". In our view, this is a
clear indication that the definition is meant to describe
investment managers making passive investments on behalf of third
party beneficial owners to exceed the 10% ownership threshold
without triggering the early warning and insider filing
requirements normally applicable in respect of such acquisitions.
For acquirors meeting the requirements of the exemption, a less
onerous form of alternative monthly report is permitted.
The other classes of eligible institutional investors identified
in the other sub-paragraphs of the definition include financial
institutions, pension funds and mutual funds - indicative of the
type of passive investor for which the alternative monthly
reporting system is available.
Mount Kellett is not such an investor. It is an aggressive
self-described opportunist possessing non-public information about
Baja and engaged in an ongoing campaign to secure a control
position in Baja.
Summary
The facts outlined in this letter represent exactly the type of
scenario for which the early warning requirements and insider
reporting requirements were designed. When it made the Trades,
Mount Kellett had designs on Baja which differ from those of an
investment manager making passive investments and which should
preclude Mount Kellett from using the alternative monthly reporting
to avoid transparency regarding its trades. Canadian investors in
Baja should have been advised by Mount Kellett about Mount
Kellett's intentions and its Trades.
Instead, Mount Kellett hid behind a reporting exemption which
should not be available to it to make acquisitions of Baja shares
without public scrutiny, and the investing public was deprived of
the ability to make decisions based on the information which the
early warning reporting system and insider reporting system are
intended to provide.
Baja is deeply concerned that Mount Kellett's conduct in
acquiring Baja shares has deprived Baja shareholders of information
and protection to which they were entitled. Baja believes the BC
Securities Commission should provide such orders or such guidance
as it feels appropriate, including the imposition of sanctions
against Mount Kellett. Such action will send a message to any
investors who might consider abusing the alternative monthly
reporting system.
Thank you in advance for your consideration in this matter of
utmost urgency. We would be happy to provide any additional
information that you may require and discuss these issues
further.
Yours Truly,
Baja Mining Corp.
"Giles Baynham"
Giles Baynham, Chairman
Appendix: Timeline of Events
--------------------------------------------------------------------------
Dates Event Implication
--------------------------------------------------------------------------
September- Mount Kellett conducts The "strings" indicate
November 2010 extensive due diligence and Mount Kellett was seeking
offers a 'strings-attached" control and wanted Baja to
private placement equity put Mount Kellett's
financing interest ahead of those of
other Baja shareholders.
--------------------------------------------------------------------------
Unknown date Mount Kellett acquires 10% Based on Mount Kellett's
prior to of Baja's shares intention to seek control,
April 8, 2011 it should have issued a
news release and filed both
an initial report on SEDI
and an Early Warning System
report on SEDAR. It did
none of these things.
--------------------------------------------------------------------------
April 8, 2011 Mount Kellett discloses in This US filing was not
a filing with the US matched with a similar
Securities and Exchange filing in Canada. As a
Commission that it has result investors within the
acquired 11.9% of Baja's jurisdictions of Canadian
shares regulators had to wait
another month to know Mount
Kellett had become a
substantial shareholder
(unless they happened to be
monitoring SEC filings).
--------------------------------------------------------------------------
April 12, 2011 Mount Kellett declines Had Mount Kellett accepted
Baja's offer of a Board a Board seat, Mount Kellett
seat could no longer have
pretended that it did not
need to file insider
reports and disclose its
intentions in Canada. Given
subsequent demands for
Board representation, Baja
believes Mount Kellett's
April 2011 position was
intended to keep Baja's
Canadian shareholders in
the dark as long as
possible with regard to
Mount Kellett's creeping
takeover plan.
--------------------------------------------------------------------------
May 6, 2011 Mount Kellett discloses by By using a filing that is
way of an alternative less transparent than the
monthly report on SEDAR filings required by the
that it owns 16.4% of Early Warning System and
Baja's shares. insider reporting rules,
Mount Kellett pursued a
creeping takeover strategy
to accumulate shares and
seek control.
--------------------------------------------------------
Mount Kellett privately The pressure for a Board
begins to press for a Board seat, combined with other
seat. factors noted in this
letter, further confirms
Mount Kellett's intention
to seek control.
--------------------------------------------------------------------------
May 9, 2011 Mount Kellett's first Considering that 20%
private request for an ownership would have deemed
exemption from the Mount Kellett a control
Shareholder Rights Plan to person, the request clearly
buy more than 30% of Baja's shows Mount Kellett's
shares. intention to seek control
by way of a creeping
takeover without paying a
premium for control. If
--------------------------------------------- there was any doubt before,
May 25, 2011 Mount Kellett's second Mount Kellett's
private request for an ineligibility to use the
exemption from the alternative monthly
Shareholder Rights Plan to reporting system and to
buy more than 30% of Baja's avoid filing insider
shares. reports was now clear.
--------------------------------------------------------------------------
June 10, 2011 Mount Kellett discloses by By continuing to make less
way of an alternative transparent filings than
monthly report on SEDAR the filings it should have
that it owns 19.9% of been making under the Early
Baja's shares. Warning System and in
--------------------------------------------- compliance with insider
December 9, 2011 Mount Kellett discloses by reporting requirements,
way of an alternative Mount Kellett continued its
monthly report on SEDAR creeping takeover stealth
that it has increased its strategy to accumulate
ownership measured in total shares and seek control.
shares and still owns 19.9%
of Baja's shares
--------------------------------------------------------------------------
December 16, Mount Kellett discloses by Mount Kellett initiates a
2011 way of a news release that proxy contest to advance
it has requisitioned a its creeping takeover,
meeting of Baja having failed to persuade
shareholders with the the Board to permit Mount
objective of placing two Kellett to control Baja
representatives, including without offering a premium
a Mount Kellett employee, to all shareholders.
on Baja's Board.
--------------------------------------------------------------------------
About Baja
Baja Mining Corp. (TSX:BAJ)(OTCQX:BAJFF) is a mine development
company with a 70 percent interest in the Boleo
copper-cobalt-zinc-manganese Project located near Santa Rosalia,
Baja California Sur, Mexico. Baja is the project operator and a
Korean syndicate of industrial companies holds the remaining 30
percent. Boleo is funded, currently under construction and targeted
for copper commissioning in 2012, and copper production in early
2013. Boleo has 265 Mt of measured and indicated resources
(including 85 Mt of proven and probable reserves) and 165 Mt of
inferred resources. A March 2010 updated technical report to the
2007 definitive feasibility study, confirmed that Boleo could be
developed economically at an after-tax IRR of 25.6 percent (100
percent equity), with a minimum scheduled mine life of 23 years
(during which approximately 70 Mt of the noted proven and probable
reserves will be exploited), a NPV of US$1.3 billion (8 percent
discount rate), and an average life-of-mine cash cost of negative
US$0.29/lb for copper, net of by-product credits. Metal Prices were
based on SEC pricing guidelines (which at the time of the 2010
report were US$2.91/lb Cu, US$26.85/lb Co and US$1,175/tonne
ZnSO4H2O). For more information, please visit
www.bajamining.com.
On behalf of the Board of Directors of Baja Mining Corp.
John W. Greenslade, President & Chief Executive Officer
Forward-Looking Statements
This news release contains forward-looking statements.
Forward-looking statements are statements that relate to future
events or financial performance, including statements regarding
potential actions of the BC Securities Commission, anticipated
developments at the Company's projects and the projected
performance and economics of the Boleo Project. In addition,
estimates of mineral reserves and resources and NPV estimates may
be forward-looking statements because they represent estimates of
mineralization, costs, revenues and other factors that may be
encountered in the future. Forward-looking statements speak only as
of their date, are only predictions and are subject to known and
unknown risks, uncertainties and other factors, including without
limitation those described in Baja's most recent annual information
form filed under its profile at www.sedar.com and its most recent
annual report filed with the US Securities and Exchange Commission
("SEC") at www.sec.gov. All forward-looking statements in this news
release are qualified by these cautionary statements. These risks,
as well as risks that the Company cannot currently anticipate,
could cause the Company's or its industry's actual results, levels
of activity or performance to be materially different from any
future results, levels of activities or performance expressed or
implied by these forward-looking statements. Although the Company
believes that the expectations reflected in the forward-looking
statements included in this press release are reasonable, the
Company cannot guarantee future results, levels of activity or
performance. Except as required by applicable law, the Company does
not intend to update any of these forward-looking statements to
conform them to actual results.
Cautionary Note Regarding References to Resources and
Reserves
National Instrument 43 101 - Standards of Disclosure for Mineral
Projects ("NI 43-101") is a rule developed by the Canadian
Securities Administrators which establishes standards for all
public disclosure an issuer makes of scientific and technical
information concerning mineral projects. Unless otherwise
indicated, all reserve and resource estimates contained in this
press release have been prepared in accordance with NI 43-101 and
the guidelines set out in the Canadian Institute of Mining,
Metallurgy and Petroleum (the "CIM") Standards on Mineral Resource
and Mineral Reserves (the "CIM Standards").
United States shareholders are cautioned that the requirements
and terminology of NI 43-101 and the CIM Standards differ
significantly from the requirements and terminology of the SEC set
forth in the SEC's Industry Guide 7 ("SEC Industry Guide 7").
Accordingly, the Company's disclosures regarding mineralization may
not be comparable to similar information disclosed by companies
subject to SEC Industry Guide 7. Without limiting the foregoing,
while the terms "mineral resources", "inferred mineral resources",
"indicated mineral resources" and "measured mineral resources" are
recognized and required by NI 43-101 and the CIM Standards, they
are not recognized by the SEC and are not permitted to be used in
documents filed with the SEC by companies subject to SEC Industry
Guide 7. Mineral resources which are not mineral reserves do not
have demonstrated economic viability, and US investors are
cautioned not to assume that all or any part of a mineral resource
will ever be converted into reserves. Further, inferred resources
have a great amount of uncertainty as to their existence and as to
whether they can be mined legally or economically. It cannot be
assumed that all or any part of the inferred resources will ever be
upgraded to a higher resource category. Under Canadian rules,
estimates of inferred mineral resources may not form the basis of a
feasibility study or prefeasibility study, except in rare cases.
The SEC normally only permits issuers to report mineralization that
does not constitute SEC Industry Guide 7 compliant "reserves" as
in-place tonnage and grade without reference to unit amounts. In
addition, the NI 43-101 and CIM Standards definition of a "reserve"
differs from the definition in SEC Industry Guide 7. In SEC
Industry Guide 7, a mineral reserve is defined as a part of a
mineral deposit which could be economically and legally extracted
or produced at the time the mineral reserve determination is made,
and a "final" or "bankable" feasibility study is required to report
reserves, the three-year historical price is used in any reserve or
cash flow analysis of designated reserves and the primary
environmental analysis or report must be filed with the appropriate
governmental authority.
Contacts: Shareholders: Laurel Hill Advisory Group Toll-free
1-877-304-0211 Collect: 416-304-0211assistance@laurelhill.com
Media: Longview Communications Alan Bayless
604-694-6035abayless@longviewcomms.ca Joel Shaffer
416-649-8006jshaffer@longviewcomms.ca
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