Mr. Fan Zhong Kong

November 08, 2013 12:41 ET

Concerned Shareholder of Majestic Gold Corp. Mails Proxy Circular Seeking Votes to Replace Majestic's Board

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Nov. 8, 2013) - Mr. Fan Zhong Kong, a concerned shareholder ("Concerned Shareholder") of Majestic Gold Corp. ("Majestic" or the "Company"), announced today that he has filed an information circular (the "Concerned Shareholder's Proxy Circular") with the Canadian securities regulators and has initiated a proxy solicitation with the objective of having a new board of directors elected at Majestic's annual general meeting of shareholders to be held on November 21, 2013 (the "Meeting"). At the Meeting, the Concerned Shareholder proposes to nominate for election as directors of Majestic the following seven highly qualified individuals: John Campbell, Shaohui Chen, Shou Wu (Grant) Chen, Lorne Hunter, Stephen Kenwood, Genshu Miao and Paul Reynolds (the "Concerned Shareholder's Nominees").

REASONS TO ELECT A NEW BOARD OF DIRECTORS

The Concerned Shareholder has significant concerns regarding the strategic direction, corporate governance and spending practices of the Company, which should be of concern to all shareholders. As a result of the current board's lack of receptivity to these concerns, the Concerned Shareholder has lost confidence in the ability of the current board of directors and Mr. Husband, the President and Chief Executive Officer, to preserve and enhance the value of shareholders' investments in the Company, and has decided to initiate this proxy solicitation.

The principal purpose of this solicitation is to effect a positive change at Majestic by electing the Concerned Shareholder's Nominees to the board of directors of the Company at the Meeting. The Concerned Shareholder's Nominees are successful businessmen with significant experience in geological exploration and mine development, and strong skills in business management. They have demonstrated commitment to good corporate governance and to acting in the best interests of shareholders. The Concerned Shareholder believes that the Concerned Shareholder's Nominees have the financial, technical and operational experience necessary to provide the Company with the leadership and oversight required to enhance shareholder value and allow the Company to realize on its potential.

The Need for Strategic Focus

The Company's single principal asset is its interest in the Songjiagou gold mine located in Shandong Province, People's Republic of China (the "Songjiagou Mine"). The Company, through its subsidiary, Majestic Yantai Gold Ltd., has thus far not been able to produce more than 20,000 ounces of gold per year from the Songjiagou Mine, despite forecasts from the Company that it expects the Songjiagou Mine to produce, on average, in excess of 100,000 ounces per year. The current board of directors of the Company has consistently shown an inability to unlock the potential value of Majestic's principal asset, the Songjiagou Mine.

Instead of focusing on unlocking the full potential of the Company's principal asset, the Company has spent significant amounts of money and management time in investigating and pursuing potential acquisitions and stock exchange listings. The Concerned Shareholder is of the view that, given the challenges that the Company faces with respect to increasing production and improving grade at the Songjiagou Mine, the Company cannot afford to continue to commit significant management time and funds to pursuing potential acquisitions and stock exchange listings. The Concerned Shareholder believes that if the Company continues to pursue this agenda, rather than focusing on maximizing the value of its investment in the Songjiagou Mine, this will result in significant financial risk to the Company.

The Need for Financial Discipline

General and administrative expenses of the Company ("G&A Expenses") increased from $5,117,242 for the financial year ended September 30, 2011 to $8,497,960 (all dollar amounts in this news release are expressed in United States dollars) for the same period in the following year, representing an increase of 66.1%. This significant increase is partially accounted for by increases in consulting fees (from $2,531,241 to $4,500,376) and office and general expenses (from $706,932 to $1,477,962).

According to the condensed consolidated interim financial statements of the Company for the nine-month period ended June 30, 2013, this trend continued throughout the first nine months of the Company's last completed financial year. Total G&A Expenses increased to $5,554,231 for the nine month period ended June 30, 2013 from $4,674,092 in the same period in the previous year, while consulting fees included in the G&A Expenses were $1,794,364 compared to $1,692,495 for the same period in the previous year. Similarly, office and general expenses were $967,916 for the nine month period ended June 30, 2013 compared to $820,241 for the same period in the previous year. The Company also reported a sharp increase in professional fees over these periods. For the nine month period ended June 30, 2013, professional fees increased by 86.4% to $373,476 compared to $200,369 for the same period in the previous year.

The Company also experienced a significant increase in travel-related costs between the financial years ended September 30, 2010 and September 30, 2011. Travel costs increased from $231,980 to $1,119,659 over these periods, representing an increase of 383.7%. The following year (ended September 30, 2012), travel costs increased to $1,226,404. Travel costs for the nine month period ended June 30, 2013 were $1,377,673 compared to $1,028,826 for the same period in the previous year, representing an increase of 25.3%.

According to the Company's Management Discussion & Analysis for the year ended September 30, 2012 and for the nine-month period ended June 30, 2013, the increases in consulting fees and professional fees over these periods were primarily attributable to the fees paid to others to assist the Company in identifying potential international mining and exploration opportunities and in seeking potential merger and acquisition opportunities. To the best of the Concerned Shareholder's knowledge, the Company's shareholders have not experienced any increase in shareholder value as a result of these activities.

According to the Company's consolidated financial statements for the years ended September 30, 2011 and September 30, 2012, the Company also experienced a significant increase in consulting fees charged by companies controlled by directors of the Company over these periods. These fees increased from $591,732 for the financial year ended September 30, 2011 to $1,168,384 for the following year, representing an increase of 97.5%. Consulting fees to related parties increased again to $2,234,845 for the financial year ended September 30, 2012, representing an additional increase of 91.3%.

The Need for Proper Corporate Governance

The Concerned Shareholder has serious concerns with Majestic's corporate governance practices. Until last month, the board of directors of the Company and, by extension, the committees of the board (including the audit and compensation committees), had no directors who could be considered "independent" within the rules established by the Canadian securities administrators.

The Concerned Shareholder understands that the audited financial statements which Management intends to present to shareholders at the Meeting are for the financial year ended September 30, 2012, notwithstanding that the British Columbia Business Corporations Act requires each company that is a reporting issuer to present to its shareholders at each annual general meeting financial statements for the company's most recently completed financial year (i.e. September 30, 2013 for Majestic).

On October 22, 2013, the board met and appointed two additional directors, Messrs. Dusan Berka and Martin Wood, who were nominated by Mr. Husband after providing other members of the board with less than three business days notice of his intention to appoint such directors. In the circumstances, given the short notice and the time of the board meeting (midnight, Beijing time), two of the Company's directors, Messrs. Miao and Shaohui Chen, who reside in the People's Republic of China, were unable to attend the meeting. In addition, the directors were given no real opportunity to conduct any due diligence with respect to Mr. Husband's nominees prior to their appointment to the board.

On October 28, 2013, the board met again at midnight, Beijing time, and removed Mr. Miao as Chairman of the Company, replacing him with Mr. Husband's nominee, Mr. Berka. At this meeting, the board also adopted a new advance notice policy (the "Advance Notice Policy"), which required that information relating to all directors proposed to be nominated by shareholders at the Meeting be provided to the Company by November 4, 2013. The Advance Notice Policy was not publicly disclosed by the Company until October 29, 2013, effectively providing shareholders with three business days or less to provide the Company with information relating to their nominees for election to the board.

The Concerned Shareholder understands that, with the exception of the two directors meetings referred above, Majestic has failed to hold board of directors meetings, regular or otherwise. In the view of the Concerned Shareholder, the lack of board meetings, together with the other matters referred to above, raises significant concerns regarding the corporate governance practices of Majestic.

PROPOSED PLANS FOR MAJESTIC

The Concerned Shareholder has had discussions with the Concerned Shareholder's Nominees about Majestic's current situation and their willingness to act as nominees. In the course of these discussions, the Concerned Shareholder asked the Concerned Shareholder's Nominees, if elected, to undertake a review of the management, operations, prospects and financial condition of the Company and then to develop a plan to address the challenges that are currently faced by Majestic and immediately begin to take action with respect to the highest priority items.

The Concerned Shareholder expects that, if elected, the Concerned Shareholder's Nominees, will focus on preserving and enhancing shareholder value through proper and effective oversight and financial accountability in executing the strategic plan for Majestic, including the implementation of the changes necessary to improve production and grade at the Songjiagou Mine, the implementation of proper corporate governance practices and the reduction of G&A Expenses and related party consulting fees.

The Concerned Shareholder also expects that, if elected, the Concerned Shareholder's Nominees will meet with existing key management personnel of the Company to ensure a smooth transition and continuity of operations. It is anticipated that most of the key management will be retained, with the exception of Mr. Husband, who will resign or be removed as President and Chief Executive Officer, and that Paul Reynolds, former Chief Operating Officer of the Company, will be appointed to replace Mr. Husband as President and Chief Executive Officer.

It is also expected that, if the Concerned Shareholder's Nominees are elected, during the three months following the Meeting the Company will hire additional technical management personnel to bolster the mine management team, and within a period of nine months will undertake a review of mine operations and develop a new mine plan and schedule for the Songjiagou Mine. In the opinion of the Concerned Shareholder, a more principled approach to the Songjiagou Mine, including a new mine plan, would result in improved gold grades and increased gold production.

VOTE THE YELLOW PROXY FOR AN EXPERIENCED BOARD WHO WILL CREATE POSITIVE CHANGE FOR ALL SHAREHOLDERS OF MAJESTIC

The Concerned Shareholder's Nominees include individuals with significant experience in geological exploration and mine development, strong skills in business management, and substantial experience in managing mining projects in China. In addition, they have demonstrated a commitment to good corporate governance and acting in the best interests of shareholders. A majority of these nominees qualify as being "independent" of Majestic under the applicable rules of Canadian securities administrators.

The Concerned Shareholder believes that these nominees have the experience and qualifications necessary to provide the Company with the leadership and oversight required to address the foregoing concerns, to preserve and enhance shareholder value and to allow Majestic to realize on its potential. The Concerned Shareholder, who holds approximately 15.88% of the issued and outstanding common shares of Majestic, urges all shareholders to support his nominees at the Meeting.

This solicitation is made by the Concerned Shareholder and not by the Management of Majestic. More detailed information concerning the need to replace Majestic's board and concerning the Concerned Shareholder's Nominees is set out in the Concerned Shareholder's Proxy Circular. Copies of the Concerned Shareholder's Proxy Circular are being mailed to Majestic shareholders and are available online at the Concerned Shareholder's website at http://www.laurelhill.com/ir/majestic/majesticgold.aspx or www.sedar.com or by contacting Laurel Hill Advisory Group. Majestic shareholders are urged to carefully review the Concerned Shareholder's Proxy Circular and vote only their YELLOW proxy by no later than November 18, 2013, at 10:00 p.m. Pacific Standard Time.

HOW TO VOTE

If, after reading the Concerned Shareholder's Proxy Circular, you agree that the proposed changes to the board of directors of Majestic are desirable, please sign, date, and return the YELLOW proxy to Laurel Hill Advisory Group by fax to 416-646-2415 or by email to assistance@laurelhill.com no later than 10:00 p.m. Pacific Standard Time on November 18, 2013.

VOTE THE YELLOW PROXY no later than November 18, 2013 at 10:00 pm (Pacific Time), in advance of the proxy voting deadline. Your vote is very important to the future of your investment in Majestic no matter how many or how few shares you may own. Even if you have already voted using the management proxy, you have every right to change your vote simply by executing the YELLOW proxy or voting instruction form. It is the later-dated proxy that will be counted.

If you hold your shares through a bank, broker or other intermediary, please follow the directions found on your YELLOW voting instruction form. In most cases you may conveniently vote by telephone or via the internet.

SHAREHOLDER QUESTIONS

If you require assistance with voting, please direct your questions to Laurel Hill Advisory Group at toll free 1-877-452-7184 (1-416-304-0211 collect) or by email at assistance@laurelhill.com.

To keep current with important developments please visit the Concerned Shareholder's website at http://www.laurelhill.com/ir/majestic/majesticgold.aspx.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this news release constitute forward-looking statements. All statements, other than statements of historical fact, contained in this news release are forward looking statements, including, without limitation, statements regarding activities, events or developments that the Concerned Shareholder expects or anticipates may occur in the future. These forward looking statements can be identified by the use of forward looking words such as "will", "expect", "intend", "plan", "estimate", "anticipate", "believe" or "continue" or similar words or the negative thereof. There can be no assurance that the plans, intentions or expectations upon which these forward looking statements are based will occur or, even if they do occur, will result in the performance, events or results expected. We caution readers of this news release not to place undue reliance on forward looking statements contained in this news release, which are not a guarantee of performance and are subject to a number of uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward looking statements. These factors include the Concerned Shareholder's assessment of the effect of the proposed changes on Majestic and on the shareholders of Majestic, the timing and prospects for the implementation thereof, general economic and market conditions, changes in law, the ability to implement business strategies and pursue business opportunities, lack of cooperation from the current board and management of Majestic regarding the conduct of the Meeting and any potential actions that may be taken by the current board and management of Majestic which could thwart any efforts to bring change to the board.. Readers are cautioned that all forward looking statements involve risks and uncertainties, including those risks and uncertainties detailed in Majestic's filings with applicable Canadian securities commissions, copies of which are available at www.sedar.com. We urge you to carefully consider those factors. The Concerned Shareholder does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by or on his behalf, except as required under applicable law.

Certain information concerning the Company contained in this news release has been taken from or is based upon publicly available documents or records on file with Canadian securities regulatory authorities and other public sources. Although the Concerned Shareholder has no knowledge that would indicate that any statements contained in this news release that are taken from or based upon those documents and records or other public sources are untrue or incomplete, the Concerned Shareholder does not assume and expressly disclaims any responsibility for the accuracy or completeness of the information taken from or based upon those documents, records and other public sources, or for any failure by the Company to disclose publicly events or facts that may have occurred or that may affect the significance or accuracy of any such information, but that are unknown to the Concerned Shareholder.

Contact Information

  • Mr. Fan Zhong Kong
    Qiansongjiao Village, Wanggezhuang Township
    Mouping District
    Yantai, Shandong, People's Republic of China
    chinaytkfz@163.com
    Cell: 133 6131 1798