The board of Australian minerals explorer Aura Energy (AIM:AURA) has made the extraordinary decision to accuse its shareholders of not understanding the consequences of blocking funding from New York lender Lind Partners.
In a strongly-worded regulatory news update just days ahead of its scheduled Friday 31 January AGM, the company questioned the motivations of 14 activist shareholders in turning down a resolution to accept a deal with the Manhattan-based alternative investment group.
To me, this looks like a full-scale shareholder revolt. Lind Partners has been at the centre of a number of controversial funding deals with junior mining companies over the years.
Aura says if the funding deal is voted down “the company will be in default of its obligations…and Lind would be able to utilise a number of measures available in the agreement to protect its interests. This would be negative for the company and shareholders.”
It continues: “[A] majority of the board of directors are concerned that these shareholders do not understand the ramifications of voting against the resolutions relating to the Lind Security Facility Agreement.
With 1.53 billion shares outstanding, Aura is currently rated with a £4.59 million market cap. Its return on capital employed stands at minus 14.59%. In the last 12 months, its share price has plunged 71% from 1.05p to 0.3p.
“The failure of the Company to have the prior issues of shares ratified by shareholders will virtually put the Company at a standstill in its capacity to advance its projects and fund day-to-day activities as it will need to call general meetings of shareholders each time it wishes to raise new equity,” added the organisation.
“A majority of the board of directors request all shareholders that have not voted to do so with urgency and TO VOTE IN FAVOUR of all resolutions.” [Capitals are theirs]
Dirty laundry goes public
The practice of lenders asking for particular convertible securities in exchange for emergency or short-term capital is referred to as ‘toxic’ or ‘death spiral’ funding. This is because large investors who hold these convertible securities can be tempted to short sell the stock in order to gain more shares when the time comes to convert.
On 15 January, Aura said it had raised around £252,600 for working capital from a 104 million share issue. Two months earlier the company said it was going into cost-cutting mode, slashing staff hours at its head office, suspending all its consultants, and stopping payments to directors.
Legal wrangling and highly public disputes with its largest shareholders have hurt the Aura share price and put the company in a difficult position going forward.
In October 2019, Aura received notice from 5.9% shareholder Pre-Emptive Trading Pty Ltd (PET) it would call for an extraordinary general meeting to propose two major changes.
Firstly, the immediate removal of executive chair Peter Reeve and the cancellation of his 17.5m shares, and secondly moving PET owner John Bennett onto the Aura board as non-executive director.
The vote to appoint Bennett was passed by 33.4 million shares, or 2% of issued capital, Aura said.
Damages
After the 6 January 2020 EGM Aura put out a statement that it was “extremely concerned” about Bennett’s successful election, saying it was bringing a $456,000 damages action against PET for its belief the company breached a contract to buy shares from a February 2019 placement.
Given the “unprecedented situation of having ongoing litigation against a subsequently elected director,” Aura then said it was taking legal advice on “the degree to which Bennett can be included in the company’s activities and the degree to which information can be released to him.”
To any investor, the degree to which Aura appears willing to attack its major shareholders in public will be a major concern.
The addition of today’s news urging investors to vote to pass funding lest the company’s mining activities “come to a standstill” would, to me, be the final straw.