Muddy Waters wins Mayfair board saga

Mayfair Gold shareholders voted Wednesday to throw out the company's board of directors in favour of a slate presented by 16% shareholder Muddy Waters Capital.

Over 91% of shareholders voted to appoint Carson Block, Darren McLean, Freddy Brick and Anthony Jew as directors at the annual general and special meeting in Vancouver, Canada.

Following the meeting, co-founder Sean Pi was also appointed a director, and McLean was named chair and interim chief executive.

Mayfair first gave notice of Muddy Waters's intentions to reconstitute the board in March. Mayfair had a four-person board consisting of Patrick Evans, Henry Pokrandt, Christopher Reynolds and Douglas Cater.

Pokrandt, Reynolds and Cater are all on the audit, compensation and corporate governance committees.

What triggered Muddy Waters' actions is unclear, although something changed in its relations with company management and board.  

Upon purchasing 1.7 million shares in a June 2023 private placement, chief investment officer Carson Block said, "CEO Patrick Evans and his team have done an excellent job developing the [Fenn-Gib resource in Ontario, Canada]."

A possible trigger could be the increase in management compensation. Former chief executive Patrick Evans received a C$300,000 salary and $300,000 bonus in 2023, up from $275,000 and $275,000 in 2022, with a base salary increase to $400,000 for 2024.

VP exploration Howard Bird has seen his salary increase from $220,000 in 2022 to $271,000 this year. CFO Justin Byrd has seen his salary increase from $144,000 in 2022 to $177,000 this year.

In February, company executives expressed concerns to Evans and the compensation committee about conversations management and McLean had had about the November 2023 stock option grants.

Presumably, to pressure shareholders to resist Muddy Waters, Evans and the senior management filed termination notices on May 1 under change of control provisions, demanding the payment of more than $4 million in payments, which would drain the company's treasury.

The company ended the March quarter with $10 million in cash, and a May presentation stated in had C$ million in cash. The termination payments total $4.3 million, including two years' base salary, two times the annual bonus for Evans and Byrd, two years' salary for Bird, and medical insurance and other payments.

Their employment agreements defined a change of control as the sale of all or substantially all of the assets of the company, any merger, consolidation or acquisition of the company by another entity, the acquisition by any person of sufficient voting rights to affect the control of the company and a change in the composition of the board that results in the current directors of the board constituting less than a majority of the board members.

Mayfair's executives said their termination notice was triggered by Muddy Waters nominating people with no experience managing mining or exploration companies.

They said the appointment of McLean "would not be compatible with good corporate governance or the board's duty to conduct the nomination process in an informed and deliberate manner."

Independent proxy advisory firm Glass Lewis recommended Mayfair shareholders vote for the management slate of directors and resolutions at AGM, following a similar recommendation from ISS: Pokrandt, Evans, Reynolds and Cater.

"We believe [Muddy Waters] has failed to provide not only adequate support to its allegations against the incumbent board's alleged mismanagement and inadequate performance but also any form of disclosure pertaining to a credible plan for the company's future," Glass Lewis.

To resist the resignation tactic of draining the company's treasury, Muddy Waters obtained an ex parte order in the Supreme Court of British Columbia in late May restricting the distribution of the $4 million of funds held in trust as termination payments.

The Supreme Court subsequently set this aside, dismissing Muddy Waters' application that the Court grant a new injunction.

Bird and Byrd, but not Evans, subsequently said they had rescinded their terminating notices, would continue their employment relationship with the company and would return their change of control payments of $2.47 million to the company.

Evans has left the company, but as yet, it is unclear whether Bird and Byrd will remain.

As the situation with Muddy Waters progressed, Evans and Bird exercised their share options and sold Mayfair stock. Bird has exercised 1 million options since April and sold about the same number of shares.

Evans has exercised 1.5 million options and sold about 350,000 shares. Meanwhile, since April, Muddy Waters has bought more than 500,000 shares.

Mayfair's Fenn-Gib gold project hosts an indicated resource of 113.69Mt grading 0.93gpt gold containing 3.38Moz and an inferred resource of 160,000oz.