Editor's note: This article was originally published March 4 on Real Money, the first of a three-part series. Click here for Part 2 and here for Part 3.
A BlackRock-led (BLK) proxy battle against G-Resources, a Hong Kong-based mining company, is heating up as the shareholders will vote on Monday. The point of contention is whether G-Resources should dispose of its Indonesian Martabe mine.
In November, G-Resources said it planned to sell the mine for $775 million to EMR and Farallon, two private equity firms. G-Resource directors said that while the mining business had produced positive financial results through June 2015, downward volatility in spot gold prices affected the profitability of its mining business. The directors believed it was an opportune time to exit the business and instead focus on building its financial services and real estate business, which would deliver more consistent shareholder returns.
BlackRock, which has an 8% stake in G-Resources, takes an opposite view. The Martabe mine is -- quite literally -- a gold mine. BlackRock invested in G-Resources in 2009 to gain exposure to the gold sector and was attracted to the company's low production costs, long mine life and exploration potential. Blackrock also questioned G-Resources' ability to be successful in its new business endeavors as BlackRock has not seen evidence of the G-Resources team having background or expertise in financial services and real estate. Meanwhile, the company's website highlights its focus and expertise in gold mining.
In a statement released last month, Pru Bennett, head of BlackRock's investment stewardship team for the Asia Pacific region, said she was "disappointed" in G-Resources' disclosures about its new course of business.
"There has been no satisfactory explanation of its change of strategy and we are perplexed by the company's complete lack of progress over the last 15 months in building out its new 'principal investment' business and 'financial services' business," Bennett said.
Other investors will have their say on Monday.