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8/24/15

Minera IRL (IRL.to) (MIRL.L) Redux (from IKN328)

This is part of IKN328, out this weekend. I mentioned in the Weekly that it would make the open blog and here it is.


Minera IRL (IRL.to) (MIRL.L) Redux

Between the acting of a dreadful thing
and the first motion, all the interim is
Like a phantasma, or a hideous dream.
The genius and the mortal instruments
Are then in council, and the state of a man,
Like to a little kingdom, suffers then
the nature of an insurrection.
Julius Caesar, Act 2, Sc1, LL65-71

I've had a whole stack of feedback, comments and reaction from the coverage of Minera IRL (MIRL.L) (IRL.to) in last week's edition of The IKN Weekly and on the open IKN blog. What this note today does is collate that feedback and pass on the important stuff. This isn't going to be the carefully constructed narrative like last week, more a coming together of notes. Some things are connected, others are outliers, but it's all about the situation at Minera IRL with an emphasis on the situation of its executive chair, Daryl Hodges.

I've now heard way more than enough evidence, anecdotal or otherwise, to underscore just how poisonous the presence of Daryl Hodges in any company is, let alone in IRL. It's not an understatement to say he's despised by those who have worked with him in other places and those with the misfortune of working with him now. The somehow insular nature of junior mining and its related capital markets means that in normal circumstances it's not easy for me to get people to blow the whistle on others working at any given company, with the typical scenario at IKN being someone, a single person or perhaps two, coming forward with information about one of mining's negative characters. Not so with Daryl Hodges, I've had a host of people coming to me with unsolicited mails and it's all of the same ilk. Many are simple "congrats/thanks on shining the light on him" and are greatly appreciated, several others have come forward with new information about Hodges and his modus operandi. All those sources are off-record for today's piece, but I will say that the information that's made it to these pages either comes from reliable places or it's come from people whose information has checked out.

I've chopped the notes into three rough categories for what follows, which are:

·     Hodges today at Minera IRL
·     Hodges previously at Jennings Capital
·     The upcoming AGM

Hodges today at Minera IRL: Here are a few pearls to give you an idea of what Hodges has been up to while running IRL.

Via the contract he drew up for himself when taking over as Exec Chair at IRL he claimed a $100,000 bonus for closing the COFIDE financing deal when in fact he had virtually nothing to do with the deal which was already in place before he took over. All the work had already been done by Courtney Chamberlain (QEPD) and Diego Benavides, but Hodges walked in on the last minute, signed the papers at the bottom and made off with $100,000 in cash of the money from COFIDE.

Internally, several IRL technical staff have raised serious doubts in the way the tender for the upcoming (now postponed) drilling program at Ollachea was conducted. Over the complaints of its technical team, Hodges selected a drill company that was offering far inferior service for a lot higher billing than others who applied for the contract.

He's recently spent U$33,000 of IRL money on a feature in a UK based business magazine, which turned out to be no more or less than a personal puff-piece. Thirty-three thousand (!!)…and here's me giving him space on IKN for free :-).

There was a fascinating little episode in the IRL offices a couple of weeks ago, one that demonstrates once again the total lack of understanding that Hodges has about working in a mining company in Peru. What happens is the Ministry of the Interior will come around to companies in Lima with foreign nationals working in them and "ask nicely" for a "small donation" to this-or-that charity, or perhaps a donation that helps fund their Christmas party, or perhaps they give the office a chance to purchase one of their newly printed 2016 calendars. Look people, life is like this in Peru, it's not bribery by any shape or measure but it is the type of "social lubricant" that makes things work smoothly and without frets. However, when one such moment came up the other day while Hodges was present, he refused to buy or donate and sent the Interior Ministry people on their way, claiming it wasn't ethical for the company to do such things. We can debate that point if you like, but the consequence of Hodges' decision is far more interesting. Just a couple of days later, the Lima head office got a visit from Interpol who asked to see the work visas of the foreign nationals at the company, people such as the new COO Eric Olson who was there that day. But of course, all the new foreigners there had got into the country on the free and easy 90 day vacationers stamp and not bothered to pay money and spend time doing their entry visas correctly. The result: the new COO and a couple of other individuals were obliged to leave the country that same day and can't get back into Peru. Or in other words, because of Hodges' utter tone-deafness on how to do business in Peru (not to mention that he speaks no Spanish at all), not only is the head of company not allowed to visit its flagship project but the company COO can't even get into the country now!

Unknown to the world and as yet undisclosed even to the other members of the board, Daryl Hodges has nominated a new director to the company. His name is Jaime Pinto, he's been chosen as he's an ally of Hodges (i.e. in cahoots), he won't have to go through the tedious affair of being ratified at the upcoming AGM (according to Hodges at least), he's coming from the Peru-based disaster stock Lupaka Gold, and his plan is that as soon as the AGM is done he'll be added as another lapdog member of the board in order to rubber-stamp any decision Hodges makes. We also note Hodges has already hired Carlos Yrigoyen, ex-Lupaka Gold, to be his country manager. Something else he has yet to disclose to stakeholders or the market.

The press release from the community of Ollachea that deemed Hodges "persona non grata" at the town and the project, the one that made official that the project was paralyzed by the community, was by any measure a new material event for the company. However, Hodges has not passed on the information to the market by way of a material change filing. On this subject, it's worth making 100% clear that the community of Ollachea is not against the Ollachea mining project. As made clear in its correspondence (21) the community is supportive of the mine. Its objection is to Daryl Hodges, no more nor less and once he's removed, things can get back to normal.

Hodges previously at Jennings Capital: On the blog last week (22) I ran some of the background of Hodges's time at Jennings Capital, when he was made CEO and proceeded to run the shop into the ground and get fired. Since that post I've received plenty more. As you'll see, it's very safe to say that Hodges' made himself a whole stack of enemies while there.

One source joined the company from another brokerage just after the time Hodges was made CEO and headed the Toronto shop. He joined as a high-ranking senior member of the new Jennings team and soon realized the new people coming in were of higher quality than those in Jennings at that time. The problem is that Hodges reacted badly to the new levels of quality, as he wanted people that weren't as smart as him, not better. He felt threatened by the new arrivals and quickly went about sabotaging their work. He fired an excellent (according to my source) new head of sales and when he fired the head of equities it resulted in a wrongful dismissal suit that, to the knowledge of my source, is still outstanding today (Mackie having taken over the defunct Jennings when it went under after Hodges's treatment of it).

The trickle of leavers from Jennings became a steady stream, as those with talent didn't want to work under Hodges. When employees who had also bought shares in the privately controlled Jennings left, Hodges bullied them into accepting less than face or market value for their shares, often using Jennings treasury to hire the lawyers at Fasken to help with the bullying bargain-down tactics. And again even today there is one ex-member of Jennings who was a shareholder and has held out for full payment of his shares, the case outstanding under new owners Mackie and dating from Hodges's time. To give an idea of how bad it was, one source flabbergasted me when he said that for a short period there were more shares of Jennings held by people outside the company than in it.

The final straw for my source came when Hodges, who watched all around as the Jennings team made money in the bull market days for the miners, decided to get his cut of their action by imposing a 5% management fee on any deal income into Jennings, all of which went to him. It was at that point the trickle of talent leaving became a river and my source was one of several to leave for better pastures.

In sum and according to a reliable source that's checked out well, Daryl Hodges decimated the Jennings Capital Toronto office, all the best talent left and anyone who opposed him or who was considered a threat to his position was fired. The end came when the Calgary office came in with the Jennings directors and fired him, but by then too much damage had been done to the integrity of the firm and a little while later, what was left was sold for residual value. My source ended his part of the exchange by issuing a warning; that if you are a Minera IRL shareholder and Hodges is left in power at the company, the only way the share price will go is down. In his parting words to me, "Watch out".

The upcoming AGM: Last week I wrote that even if Hodges survives the AGM vote, he'll eventually get shown the door anyway and I still think that's true. The problem is that after collecting an extra week's worth of information on the person it's more than a little worrying to consider what state he'd leave the company if he gets a pass vote at the AGM on Thursday and then has time to wreak the type of havoc he managed to do while at Jennings. So I again ask all shareholders of IRL to get their votes in and make sure they vote wisely on each item on the agenda, as the AGM vote is clearly more important to the well-being of this company than I'd supposed this time last weekend.


The bottom line: We should pay attention to what happens at the AGM this Thursday coming. It has the makings of a critical juncture in the history and future of Minera IRL.