St. LOUIS () -- The approval of a shareholder rights plan for Southwestern Resources [TSX:SWG] disqualifies its Board of Directors from representing company stockholders. Every Director who assented to the plan should step down, and it is incumbent upon the Toronto Stock Exchange to reject it. If the TSX does not stamp out this nonsense, Canadian regulatory authorities should.
Stockholders should be outraged that Southwestern's Directors have resorted to cynical posturing a mere weekend since announcing that previously reported mineralization from the Boka Project should be disregarded. Having presided over the company's admitted failure to maintain required exploration program controls, the Director's have forfeited any right to set conditions for a takeover bid, or to make declarations about the fair value of Southwestern.
We can sympathize with Directors who have to rely on Managers to be honest in the execution of their duties. The role of a Director is not to umpire the core shack or double-blind every assay. But nor should they be credulous and self-serving in the wake of an exposure. This is doubly so given Southwestern's repeated quality control statements regarding the Boka project.
The Directors of Southwestern are obliged to throw themselves at the mercy of the market. If that results in a bidder picking up the stock at this point, so be it. How can it be any worse than what the Board has already dropped on shareholders? Overseeing a crack in the stock that has wiped out half its market value - or much more if you bought the high and panicked on the low - is hardly a recommendation.
In the post Bre-X era the junior mining industry cannot afford any dalliance with d'ej`a vu. One of the reasons junior gold stocks have failed to ignite as might have been expected with gold prices exceeding $600 an ounce is a persistent scandal discount. The damage has been done and will be lasting even if Boka returns new audited assays confirming 99.9% of the original values.
The Toronto Stock Exchange must, therefore, step in to save its reputation. The CSA needs to confirm the credibility of National Instrument 43-101, which was supposed to prevent exactly what has happened at Southwestern.
Whether it is fair or not, market disgrace is contagious. If a Board is unwilling or incapable of quarantining its infection, then someone else needs to bolt the door on it.
The statements of Board Chairman David Black have been disturbing. He has defended the rights plan as "prudent" in case someone "steals the company". Freud's slips thrive on such intemperate comments.
It is also inappropriate for Black to publicly invoke consultancy SRK and sell-side analysts as bolsters for his confidence in Boka's mineralization - even before his company has completed its internal investigation and as he reports to regulatory authorities. Mr Black may have relied on them, but stockholders rely on him, and that is where the Boka buck stops. Otherwise, what is the point of a Chairman of the Board of Directors?
