A letter to all shareholders of Pathfinder Minerals plc from General Jacinto Soares Veloso and Diogo Henriques Cavaco
26 March 2012
Pathfinder Minerals plc (“Pathfinder” or the “Company”)
We are writing to you in response to the document issued by the Board of Pathfinder dated 2 March 2012 convening a General Meeting of the Company at our request.
We believe it is important that:
1. You are allowed to see for yourself the letter of requisition of a General Meeting that we sent to the Company, without the 11 pages of covering notes produced by the Board.
A copy of our letter of requisition is attached; and.
2. You understand the reasons why we requisitioned the General Meeting.
Preamble
We, the requisitioners of the General Meeting, are significant shareholders in Pathfinder representing 19.12% of the issued share capital. A large number of documents have now been submitted to the High Court of England and Wales which particularise the actions referred to in the body of this letter which we believe have been committed by the Board who were also the Promoters of the Company.
The sole purpose of this General Meeting is to appoint an independent investigator to review the conduct of the Company’s directors and the status of the Company itself.
Reasons for requisitioning the General Meeting
The reasons for requisitioning the General Meeting are simple. We believe that the Directors and former Directors of Pathfinder and IM Minerals Limited (“IM Minerals”) namely Nick Trew, Gordon Dickie, Tim Baldwin, John McKeon and James Normand (the “Promoters”) have acted in a manner (and continue to act in a manner) which we believe is contrary to the interests of the shareholders of Pathfinder and IM Minerals and a breach of their duties as directors.
We believe the shareholders of Pathfinder have a right to have the actions and behaviour of the Promoters and Board examined by an independent third party who has no connection either with us or with the Board. This will avoid the totally unnecessary costs currently being incurred by the Board on expensive lawyers in London and Mozambique, PR and political lobbyists (and Kroll Associates who, we have been told, have been hired by the Board to provide evidence to smear us and our supporters).
We have proposed Christopher Morris of Begbies Traynor to be appointed to represent the independent shareholders. Mr Morris has huge experience of complicated corporate fraud and acted as liquidator of BCCI. We have no connection with, nor have ever met Mr Morris despite the Board referring to him disparagingly as our “nominated accountant”.
We have one question to ask – what do the Promoters have to hide? If they have behaved properly they have nothing to fear; their reaction to our request for Mr Morris to carry out a full investigation suggests otherwise.
You will note that in our requisition notice we requested the Directors to abstain from voting; they immediately signed irrevocable undertakings to vote against the appointment of an independent investigator.
We strongly urge you to:
1. vote in favour of the proposed resolution to appoint Mr Morris; and
2. write to the London Stock Exchange and the Financial Services Authority (“FSA”) to ask for a full regulatory investigation into the affairs of the Company.
Some facts and our concerns
The Board, which does not include any Senior Independent Director(s), has made a number of inappropriate statements and innuendos in their circular to shareholders. The shareholders of Pathfinder have a legal right to have any request for a General Meeting put to them in a neutral and unedited manner. Your Board has chosen to remove reference to an examination of the solvency of the Company from our proposed Ordinary Resolution (we can only assume deliberately). We intend to raise this matter urgently with the Company’s NOMAD Daniel Stewart and the Financial Services Authority (“FSA”). You should be aware of the following:
1. In early 2006 International Mercantile Group Limited (“IMG”), owned by Gordon Dickie and Nick Trew signed an option agreement to acquire 80% of the shares of our company, Companhia Mineira de Naburi (“CMdN”) which owned the licence at Naburi, for US$10m.
Only US $20,000 of this money has ever been paid by Dickie and Trew - $10,000 each – yet today between them they own over 17% of the shares of Pathfinder. The purchase price of US$9.9m is still owed to us under this agreement.
2. To encourage us to sign the option agreement Dickie and Trew said they were highly confident of raising US$100m within 9 months. Four years later they had raised nothing.
3. In 2009 they raised money from third party investors into a new company IM Minerals telling those investors they owned 70% of the shares of CMdN. We believe that the statements, warranties and representations made to the investors prior to raising this money amount to serious misrepresentation.
4. In 2010 Trew and Dickie attempted to shift their obligation of US$9.9m to pay for the shares of our company onto the shareholders of IM Minerals without ever disclosing this to those shareholders or asking them to vote on this highly irregular arrangement. Having taken legal advice from a leading London QC, we believe this arrangement was illegal and may constitute a conspiracy to defraud investors in IM Minerals and Pathfinder.
5. Despite Pathfinder claiming to own the shares of CMdN it should be noted that Pathfinder and IM Minerals have never actually exercised the option to acquire our shares in CMdN or ever paid the purchase price agreed for these shares.
6. The Promoters then issued a Prospectus as part of the reverse takeover of Pathfinder Properties plc (now renamed Pathfinder Minerals plc) by IM Minerals claiming among other things to own the shares of CMdN. We have been advised this Prospectus presented a wholly misleading impression to the market and may have been fraudulent.
7. In this Prospectus the Promoters stated that payment of the purchase price for the shares of CMdN was “so uncertain and unpredictable” that it was not provided for in the accounts of the Company. How then did Pathfinder claim to own the shares of our company, CMdN?
8. In their recent evidence presented to the Commercial Court in London, the Promoters say the reason for this wording was because it was “not certain whether exploitation of either licence was economically viable”. In that case, why was this company being taken to the public markets and raising money from third party investors and why was this material statement not disclosed in the Prospectus?
9. Despite this, a few months later the Promoters received a report from Scott Wilson valuing the license owned by our company, CMdN, at US$529m. How was this possible if the mine was not economically viable?
10. The Promoters then used this report to raise money from institutional investors at a valuation of $62m or 5p a share, representing a discount of 88% to this valuation and a heavy dilution of over 21% for all shareholders. As part of their presentation to investors the Promoters stated that Pathfinder had funded the business with US$20m. This was another entirely misleading statement.
11. Almost immediately after this, the Promoters (including Tim Baldwin who was not even a Director) then issued options over 98,000,000 shares to themselves with the result that the Promoters suffered no dilution at all while all other shareholders were diluted yet again.
12. Despite having recently become a member of the Board , General Veloso was not informed of this share option scheme. He discovered this when his son, a trader in New York, informed him. At this point General Veloso tried to have the Board of Pathfinder changed on the grounds that the Board had breached its fiduciary duties to all shareholders and lacked the operational competence to develop the mine.
13. Despite agreeing to vote against the Board at the AGM of Pathfinder held on 16 September 2011, certain institutional investors and Tim Baldwin changed their votes at the last minute so that John McKeon survived by 0.2% of votes cast, although Gordon Dickie was voted off as a sop to General Veloso.
14. After considering this situation, General Veloso decided to resign from the Board of the Company.
15. When Nick Trew was informed of this he flew to Mozambique, offered to pay us the US$10m that is owed to us for our shares and said that the Promoters would transfer shares to us to restore us to our previously agreed ownership of 25%. He also said it was a condition of the offer that we keep this arrangement secret. Naturally this was declined. We believe that this offer amounts to a bribe under the Bribery Act of 2010 and we have made a complaint which is being investigated by the Serious Fraud Office.
16. The Board states that we “have not particularized a single allegation”. On the contrary, we have written a detailed letter of complaint to the AIM Regulation Team of the London Stock Exchange demanding an investigation into the behaviour of the Promoters including in respect of:
a. Conspiracy to Defraud;
b. Potential breaches of the Bribery Act 2010;
c. Negligent misstatement;
d. Misrepresentation
So far AIM, to our knowledge, has done nothing about this despite the very specific and serious allegations we have made against the Promoters. This is highly regrettable in the circumstances, and an abdication of its responsibilities towards shareholders.
17. On 19 December 2011 (just before Christmas) the Promoters obtained an ex-parte injunction (i.e. without our knowledge) from the UK High Court. To achieve this they had to pay £1m of your money into Court. Again the Promoters have misrepresented to shareholders the status of that Injunction - following a hearing last week that Injunction was discharged, Pathfinder expressly accepted our rights to assert our ownership of CMdN in the Mozambique Courts and costs were reserved for both sides.
18. The court in Mozambique has already issued an injunction to prevent attempts by IM Minerals to exercise control over CMdN by means of purported resolutions.
19. The Board and the Promoters have told you that a third party investigation into the Company’s affairs “is a waste of management time, an unnecessary financial cost and counterproductive”. We estimate these same directors have so far spent or incurred expenses of several million pounds pursuing their legal and PR campaign.
20. The Promoters, far from trying to protect your interests, are wasting your money at an alarming rate pursuing litigation to protect themselves from the consequences of the actions we believe they have taken to defraud investors in Pathfinder and IM Minerals.
It is for these reasons that we have asked shareholders to appoint an independent third party professional of unimpeachable integrity and credentials to investigate how this situation has arisen. We have copied this letter to the Financial Services Authority, the London Stock Exchange, Daniel Stewart, the Company’s NOMAD, the Serious Fraud Office and Henry Bellingham MP at the Foreign & Commonwealth Office.
We strongly urge shareholders to VOTE IN FAVOUR of the resolution to appoint Chris Morris, an independent forensic accountant and investigator, to oversee an investigation into the Company’ s affairs.
Yours sincerely
General Jacinto Soares Veloso
Diogo Henriques Cavaco
Please address any queries or return correspondence to our lawyers:
Attention Nick Foster
Smithfield Partners
Windsor House
39 King Street
London EC2V 8DQ
UK.
