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By John Helmer, Moscow

A Canadian Supreme Court judge has ruled that Alexei Mordashov rode roughshod over the rights of minority shareholders in Crew Gold, when Mordashov’s gold group completed its takeover of Crew Gold, and paid $4.65 per share to buy up minority shareholders.

Justice Ronald Veale, the senior judge of the Supreme Court of Yukon, the Canadian province where Nord Gold, the Canadian vehicle used to absorb Crew Gold is registered, issued a judgement on October 14. He ruled that a group of Norwegian minority shareholders, led by Jostein Matre, had been unfairly and improperly deprived of their rights to dissent from the buy-out offer.

“I find here,” Veale wrote, “that Crew Gold was the source of much of the shareholders confusion….Crew Gold has an obligation to inform shareholders in a manner that is not misleading. I do not consider that Crew Gold was misleading, so much as evasive…”

This is the first judgement in a Canadian court against Mordashov and his gold company advisors, despite years of complaints by minority shareholders of another Canadian registered miner, High River Gold, that he has manipulated the Canadian exchange rules and companies statute, and pressured local minorities into accepting buyout prices for their shares well below what they have calculated to be fair value.

Earlier this year, Mordashov came up with the idea of moving Nord Gold’s corporate registration, and then its annual general shareholders meeting (AGM) to Whitehorse, in the Yukon territory, as far as possible from the Toronto and Vancouver locations where most of his Canadian shareholders live and work. They were then given only a few days’ notice of the meeting venue, and denied the request for relay of proceedings by live video or telephone link. The meeting in Whitehorse lasted just 15 minutes.

The reaction of Justice Veale, also in Whitehorse, was an unexpected reversal for Nord Gold by the Canadian authorities.

In the Crew Gold takeover, Mordashov was advised by his lawyers that no independent valuation or fairness opinion was required for the price offer to the Crew Gold minorities because the size of his shareholding in Crew Gold, 93%, was so large, and the concomitant size of the minority bloc, 7%, so small, and because Mordashov had already fixed the buyout price in a transaction with Crew Gold’s largest minority stakeholder, the rules exempted the usual valuation rule. Here’s the full story.

Reflecting Crew Gold’s history since 1999 as a Norwegian owned and managed goldminer, listed originally on the Oslo Stock Exchange, as well as in Toronto, a group of 19 Norwegian shareholders resisted Mordashov’s offer, and registered their dissent in writing, and by telephone calls and notices to lawyers acting for Crew Gold and Mordashov. The latter either replied with vague assurances and references to ambiguously worded notices, or didn’t respond at all.

Matre and his group believed their right to dissent and to renegotiate Mordashov’s price for their shares was founded in this provision of the Yukon Business Corporations Act:

The catch is in the second line. That’s because Mordashov and his lawyers didn’t tell the Norwegians until the last minute that, although they were registered shareholders and entitled to receive payment for their shares in the buyout, they weren’t legally registered shareholders in Canada for purposes of opposing the buyout price. Matre had flown from his farm in Norway to Whitehorse for a December 2010 meeting of shareholders on the buyout, and was then told he wasn’t registered to dissent, under the applicable Canadian rules. When that happened, Matre filed his lawsuit.

According to the court papers, the 19 Norwegian petitioners had held 265,811 shares, with the largest of the stakes at 175,000 shares, and the smallest 250 shares. In all, the petitioners held about 2.5% of the Crew Gold shares taken over by Nord Gold. Their claim that they are being cheated of fair value depends, according to their argument in court, on the fact that since Mordashov had bought out the last major shareholder in Crew Gold at $4.65, the price of gold had risen, along with reserves and gold production at Crew Gold’s mine in Guinea. The Norwegian claim was that a fair price for their shares was between C$7.24 when Mordashov started his takeover of Crew Gold in January 2010, and C$6.74 last December, when the takeover was completed. Allowing for conversion between Norwegian krone and US and Canadian dollars, the difference between that price range and what the minorities were compelled to take adds up to about $687,000.

According to Justice Veale, the lawyers acting for Mordashov and Crew Gold, McCarthy Tetrault, had intentionally misled the minorities by failing to tell Matre he was not registered, in the sense they intended to apply the term; and that ahead of the final shareholders meeting on the buyout, the Norwegian minorities “were given no indication that there was any deficiency in their notices.”

Accordingly, the judgement reads, “Crew Gold itself was the source of much of the shareholder confusion.” More than that, Justice Veale has ruled that “there was an obligation on Crew Gold…to take steps to address the obvious concerns held by a number of their minority shareholders…”

In a blow for shareholder rights against manipulation of the rulebook, the Yukon court judgement declares: “the complexity of the share trading system which is designed to benefit corporations who wish to market their shares should not be used to disentitle shareholders from their dissent rights.”

This is a big step in the opposite direction from that taken last month by the Superior Court of Ontario. There Justice Brown overruled and dismissed minority shareholders who complained that their rights had been denied, and an unfair share price imposed on them by a Russian takeover scheme of Maxim Finsky.

Sergei Loktionov, Mordashov’s and Nord Gold’s spokesman in Moscow, responds: “At present we are examining the court ruling. We still think the rights of all the shareholders have been respected.”

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