Dominion Diamond Corp, a Canadian miner targeted by activist investors unhappy with its management, should use its cash to buy back stock, two shareholders with significant stakes said on Wednesday.
The shareholders, who asked not to be named but together own nearly 3 per cent of Dominion, said the Yellowknife, Northwest Territories-headquartered company could use some of its nearly US$300 million in net cash for a buyback. The stock has fallen by nearly 60 per cent since May.
The cash pile is equal to about 35 per cent of Dominion’s market value. The miner also has nearly US$250 million worth of diamond inventory and is virtually debt-free.
“The allocation of capital has been non-existent,” said one of the shareholders.
Dominion was not immediately available to comment on the shareholder concerns.
A group of investors led by Toronto-based K2 & Associates said in a regulatory filing on Dec. 21 that they had requested a meeting with Dominion’s independent directors as the company’s “share price has suffered excessively and unnecessarily as a result of misguided policies and missed opportunities.”
One of the shareholders who urged Dominion on Wednesday to buy back stock is part of that group while the other is not.
A source familiar with the matter last week said the K2 group plans to ask for several seats on Dominion’s board and will try to put forward its own slate of directors if it cannot oust the miner’s chairman and its chief executive.
The group is due to meet with members of Dominion’s board on Tuesday, according to one of the two investors, who declined to be identified by name.
The K2 group, which includes well-known mining investors like John Tognetti, chairman of Canadian brokerage Haywood Securities, has declined to speak publicly and the filing is thin on specifics about their concerns.
The two investors said they felt the gem producer overpays its executives, including Chairman Robert Gannicott. Gannicott’s total compensation for fiscal 2015 was US$5 million, according to Dominion’s latest proxy circular. His overall package has risen by almost 28 per cent since fiscal 2013.
Other concerns noted by the two shareholders include the quality of investor relations and communication with investors, as well as the complexity of its financial reports.
This is not the first time investors have called for a buyback. U.S.-based hedge fund Caerus Global Investors in September 2013 wrote to Dominion’s board urging it to buy back stock instead of shoring up cash for future investment in its Ekati mine. Caerus released the letter publicly.
© Thomson Reuters 2015