VANCOUVER, BRITISH COLUMBIA--(Marketwire - Sept. 21, 2012) - The concerned shareholders (the "Concerned Shareholders") of Mosquito Consolidated Gold Mines Limited ("Mosquito"), consisting of Hongxue Fu, the former Chairman of the board of directors of Mosquito; Shaun Dykes, a geological engineer and former Exploration Manager and director of Mosquito; and International Energy & Mineral Resources Investment (Hong Kong) Company Limited, Mosquito's largest shareholder ("HK CO."), announced today that they have filed an information circular (the "Concerned Shareholders' Proxy Circular") with Canadian securities regulators and have initiated a proxy solicitation process with the objective of having a new board of directors elected at Mosquito's shareholder meeting to be held on October 16, 2012. Copies of the Concerned Shareholders' Proxy Circular are being mailed to Mosquito shareholders and are available online at www.sedar.com and www.msqconcern.com.
Mosquito Shareholders are urged to carefully review the Concerned Shareholders' Proxy Circular and vote only their BLUE proxy by no later than October 11, 2012 at 2:00 pm (Pacific Time), in advance of the proxy voting deadline.
The following letter to shareholders, a full copy of which is available at www.sedar.com and www.msqconcern.com, outlines the concerns of the Concerned Shareholders as well as their plans for Mosquito:
Dear Fellow Shareholders of Mosquito Consolidated Gold Mines Limited:
On August 8, 2012, the Supreme Court of British Columbia (the "Court") declared the results of the annual general and special meeting of shareholders of Mosquito Consolidated Gold Mines Limited ("Mosquito" or the "Corporation") held on December 16, 2011 (the "2011 Meeting") to be null and void due to defects or irregularities in the voting process that had an oppressive and unfairly prejudicial effect on the rights of International Energy & Mineral Resources Investment (Hong Kong) Company Limited ("HK CO.") to a fair and transparent process in the context of the 2011 Meeting. The Court also noted that there were serious flaws in the voting procedures used by Mosquito in relation to the 2011 Meeting. As such, the Court ordered that the 2011 Meeting be reconvened on October 16, 2012 (the "Meeting").
Although this was a victory for HK CO., the largest shareholder of Mosquito, it was also a victory for all of Mosquito's shareholders who share the same serious concerns about how current management of Mosquito is managing the Corporation. Given its serious concerns about corporate governance and management, HK CO., to protect the interests of all Mosquito shareholders, initiated and was successful in the court proceeding against the Brian McClay-led management.
Mosquito has previously forwarded to you a management proxy circular (the "Management Circular") dated as of September 13, 2012. In it, Mosquito's management continues to accuse the Concerned Shareholders of a breach of fiduciary duty, unethical conduct and acting in self-interest, when, in the opinion of the Concerned Shareholders, the opposite is true: the Concerned Shareholders have diligently worked in the best interests of all Mosquito shareholders to hold management accountable, and for their efforts, they have been ostracized, excluded and suffered personal attacks, all because they blew the whistle. The mass resignation of three independent board members last July validates the concerns of the Concerned Shareholders in respect of management.
The Concerned Shareholders' Proxy Circular and the accompanying form of blue proxy (the "BLUE PROXY") is being solicited by Hongxue Fu, Shaun Dykes and HK CO. (collectively, the "Concerned Shareholders") in connection with the Meeting for the purposes of electing a new board of directors of the Corporation (together, the "Concerned Shareholders' Nominees") comprised of Hongxue Fu, Shaun Dykes, Stanislaw Siewierski, Joseph Baird, John Moeller and Long Wang.
Why New Management Is Necessary
The Concerned Shareholders are acting as a result of significant corporate governance and financial-related concerns, which should be a serious concern to all Mosquito shareholders, including the following:
Directors Have Raised Serious Concerns in Respect of Management
Prior to the 2011 Meeting, Shaun Dykes, who had served as a director of Mosquito since May 14, 2003 and as the Exploration Manager of Mosquito since 1995, discovered and became very concerned about certain aspects of the spending practices of Mosquito's funds by Brian McClay, Mosquito's Chief Executive Officer, as well as about the management of Mosquito. Mr. Dykes retained independent legal counsel to advise him, and, as a result of such legal advice, he prepared and presented a formal report to the Board which set out his concerns. At around the same time, Hongxue Fu, then Chairman of the Board of Mosquito, had serious concerns about the lack of proper corporate governance of current management. Mr. Fu was strongly against how Brian McClay and his son, Kyle McClay, were managing Mosquito without being accountable to the Board; essentially like a privately-run family business and not as a public company. Management of Mosquito subsequently and deliberately excluded both Mr. Dykes and Mr. Fu from the slate of directors nominated by management to be elected at 2011 Meeting. The Concerned Shareholders are of the view that the concerns raised by Mr. Dykes and Mr. Fu were never properly investigated and resolved by a thorough and independent process.
General Merrill McPeak, Paul Kessler and David Voyticky, three independent directors of Mosquito, resigned en masse on July 24, 2012 after losing confidence in Mosquito's management. General McPeak advised that after he had become more knowledgeable about Mosquito, he developed serious concerns about how Mosquito was being run on a day-to-day basis and with its strategy and future direction, particularly with respect to Brian McClay's plans for the CuMo Project. He proposed alternatives to present management and in respect of Mosquito's future direction and when his proposals were rejected by the Board, he resigned. Mr. Kessler also shared the same concerns as General McPeak. He advised that he had lost confidence in Brian McClay and that he did not believe Mr. McClay and the rest of the current Mosquito management team "had what it takes" for Mosquito to be successful. Mr. Kessler also advised that he thought very highly of the prospects for the CuMo Project with the proper management team in place.
Diversion of Funds from the CuMo Project, Concerns Regarding Expenses and Financial Controls
Over the past year, Mosquito's flagship asset, the CuMo Project, has suffered greatly due to the lack of allocation of funds to the project. Large sums of money raised through private placements, instead of being allocated to the CuMo Project, have been used to support Kirkness Diamond Drilling Co. ("Kirkness"), a US subsidiary of Mosquito which was previously managed by the President's son, Kyle McClay, who has a high school education and limited management and drilling expertise. As a drilling company, Kirkness should have been earning profits for Mosquito, but its operations unfortunately required significant financial support from Mosquito, and a large amount of the funds raised for the CuMo Project were advanced to Kirkness. The Concerned Shareholders believe that Kirkness used these funds for drilling properties of other companies, some of which the McClay family had interests in or relationships with. The Concerned Shareholders estimate that the allocation of the funds to Kirkness rather than to the CuMo Project has delayed the entire project by at least one year.
Mosquito has, in the opinion of the Concerned Shareholders, unnecessarily purchased an aircraft and used up funds that could have been spent to advance the CuMo Project instead. There is evidence that the aircraft has been used by Brian McClay, the President and Chief Executive Officer of the Corporation, in ventures not related to Mosquito or the CuMo Project.
The Concerned Shareholders have determined that this type of fund allocation has continued since the 2011 Meeting. For example, the Concerned Shareholders are aware that Brian McClay has inquired about Mosquito purchasing a Gulfstream jet on eBay in June, 2012. In addition, the Concerned Shareholders are aware that Mosquito's funds have been spent on projects in Mexico and that Mosquito has paid lawyers in Chile when it does not hold nor was it looking to acquire any property interests in Chile. It is the opinion of the Concerned Shareholders that there are little if any financial controls in place.
In addition, personal payments of Brian McClay have been made through the accounts of Mosquito including alimony payments and car insurance payments for personal vehicles driven by the McClay family. While it appears that Brian McClay is eventually responsible for such payments, there are no checks and balances to ensure that Mosquito is fully reimbursed by Mr. McClay. The Concerned Shareholders feel that it is inappropriate for Mr. McClay to run his personal expenditures through the Corporation.
In the management proxy circular dated as of September 13, 2012 that Mosquito's management has sent to you, Mosquito attempts to lay blame upon the Concerned Shareholders for Mosquito's costs with respect to proxy solicitation, consultants and legal fees. The Concerned Shareholders believe that Mosquito's management could have avoided these costs had they not deliberately excluded both Mr. Fu and Mr. Dykes from the slate of directors nominated by management to be elected at the 2011 Meeting, all for raising serious corporate governance and financial-related concerns with management and thereby holding management accountable to shareholders. In addition, in May, 2012, HK CO. offered to settle its court proceeding with Mosquito if Mosquito agreed to hold another shareholder meeting. Mosquito's management rejected this offer and decided to continue to fight the Concerned Shareholders in court and incur legal fees. In the end, the Supreme Court of British Columbia ruled in favour of HK CO., and under the Rules of Court in British Columbia, management's decision to fight also left it with the obligation to pay a portion of HK CO.'s legal costs.
Brian McClay's Record of Securities Law Violations
Brian McClay's prior securities law violations have not been disclosed. Mr. McClay has admitted to failing to file insider reports for a total of 247 transactions during a 44 month period during which he served as a director and officer of Mosquito. He consented to an order dated March 16, 2000 (the "Order") that, among other things, he resign from any position he held as a director or officer of any reporting issuer, and that he be prohibited from becoming or acting as a director or officer of any reporting issuer for a period of 3 years. As a result of this Order, Mr. McClay resigned from the Board of Mosquito and from his position of Chief Executive Officer of Mosquito in January, 2000.
The Concerned Shareholders Offer Change For The Better
New Experienced Slate of Directors
The Concerned Shareholders offer an exciting opportunity for change, with a new slate of directors that have extensive mining, permitting, environmental, financing and top flight technical expertise that is capable of bringing the CuMo Project to the next stage. They also have strong connections with significant financial and mining groups around the world. The Concerned Shareholders are focused on the success of the CuMo Project and as shareholders, our interests are exactly the same as yours - to address serious concerns regarding existing management and to protect shareholders' interests.
The Concerned Shareholders' Nominees represent a well-qualified Board that will be active in diligently supervising management of the Corporation (which will mainly operate in Idaho, USA) and committed to the adoption of and adherence to corporate governance practices suitable for Mosquito's size and stage of development, as well as the installation of appropriate internal financial controls. Given the concerns about the inappropriate spending practices of Brian McClay and Mosquito management, the Concerned Shareholders' Nominees would initiate a thorough investigation of past financial transactions conducted by current Mosquito management, especially with respect to transactions of Kirkness.
Concerned Shareholders' Strategic Plan: Advance CuMo Project
The Concerned Shareholders are of the view that the key to success for Mosquito is to advance the CuMo Project with the next phase focusing upon moving towards a full bankable feasibility study, concentrating on environmental and permitting matters and proceeding concurrently with drilling, engineering work and community relations, as well as arranging for full project financing. These activities form critical components of the Concerned Shareholders' strategic plan.
The environmental baseline work is a critical component of the feasibility study and is the most expensive and time consuming part which dictates the project's schedule. Therefore, this work should be the main focus during the near term, not just drilling. The Concerned Shareholders have put forth as nominees to the Board two prominent Idaho experts in environmental law and permitting matters. Such board members would not only be able to advise and assist Mosquito during the environmental permitting process, but also in communicating with state and federal officials, policy makers, potential opponents and other stakeholders who are interested in the CuMo Project.
The Concerned Shareholders believe that the CuMo Project should be managed by a team based in Idaho, USA and that Mosquito should look to international sources of capital to finance the project. On the financing front, the Concerned Shareholders' Nominees also includes a billionaire and the former Chair of the Board of Mosquito who has high level connections with major Chinese and Hong Kong financial institutions, which have the capacity and motivation to provide financing for large scale projects like the CuMo Project. The Concerned Shareholders also have excellent lines of communication with other parties in North America and Europe that are able to provide financing for the CuMo Project, including some parties whom Mosquito management was previously in contact with but who did not enter into a transaction with Mosquito due to concerns with current Mosquito management and its spending habits.
The Concerned Shareholders' Nominees include a geological engineer who first discovered and defined the CuMo Project as a world-class deposit and has worked closely on the CuMo Project for more than 7 years. His experience and detailed knowledge about the CuMo Project make him an integral and irreplaceable team member for Mosquito as it advances the project towards feasibility.
The Concerned Shareholders' Nominees also include a reputable high-end mining and financing expert in Europe who would bring to Mosquito extensive mining corporate management expertise, top European mining financing connections and an open door to the largest mining company in Europe which could be invited to participate in the CuMo Project.
This solicitation is being made by the Concerned Shareholders and not by the management of Mosquito. The Concerned Shareholders hold or control approximately 17.40% of the outstanding common shares of Mosquito.
More detailed information concerning the need for change and the Concerned Shareholders' Nominees are set out in the Concerned Shareholders' Proxy Circular.
Your vote is very important to the future of your investment in Mosquito no matter how many or how few shares you may own. If, after reading the Concerned Shareholders' Proxy Circular, you agree that the proposed changes to the board of directors of Mosquito are desirable or you wish to support the Concerned Shareholders, please sign, date and return the enclosed BLUE PROXY in accordance with the instructions in the BLUE PROXY. The required documents will be submitted to the officials conducting the Meeting on your behalf. The BLUE PROXY will automatically revoke any earlier proxy.
IMPORTANT INFORMATION
In some cases the procedures for voting your shares can be complicated and time consuming.
In order to be deposited with Mosquito's registrar and transfer agent in time to be used at the Meeting, your BLUE PROXY must be received by the Concerned Shareholders' proxy solicitation agent, Laurel Hill Advisory Group, prior to 2 p.m. (Pacific time) on October 11, 2012.
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.
Time is of the essence. We urge you to act today for the future of Mosquito.
Yours truly,
| (signed) Hongxue Fu | (signed) Shaun Dykes | (signed) Hongxue Fu |
| Hongxue Fu | Shaun Dykes | International Energy & Mineral |
| Resources Investment (Hong | ||
| Kong) Company Limited | ||
| Per Hongxue Fu, Chairman | ||
Contact Information:
Investment (Hong Kong) Company Limited
Hongxue Fu, Chairman
(861) 085628486
(861) 086533819 (FAX)