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Hedge fund inflicts a hit on Whitehaven Coal over pay

Whitehaven Coal suffered a strike against its executive pay regime when more than 40 per cent of shares were voted against the miner’s remuneration report at its annual meeting in Sydney on Thursday.

Published Financial Review, 26 Oct 2023. 

The vote means Mark Vaile, Whitehaven’s chairman, and the rest of the board face a spill motion next year if a second strike is dealt. A strike requires 25 per cent of votes to be cast against the executive pay scheme.

Activist investor Bell Rock Capital Management urged fellow shareholders to vote against the remuneration report out of concern that the structure adopted last year would encourage Whitehaven managing director Paul Flynn to deploy capital in buying new mines.

“Whitehaven has drastically underperformed on the ASX at the same time [Mr] Flynn receives three times the pay of his peers and this cannot continue,” Bell Rock chief investment officer Mike O’Mara said after the vote.

Mr Vaile, a former deputy prime minister, said the protest vote was disappointing, given shareholders had overwhelmingly embraced the remuneration structure at last year’s meeting. A separate resolution over incentive payments to Mr Flynn suffered a 38.5 per cent protest vote.

About half the company’s shares were voted, indicating that the London hedge fund was able to attract some institutional support to its campaign against the company. Representatives of Bell Rock, and their advisers, did not attend the meeting in Sydney but listened remotely, a spokesman said.

Calling in the umpire

The hedge fund was allowed to vote at Thursday’s meeting after the Takeovers Panel rejected an 11th-hour bid by Whitehaven to disqualify the fund manager from voting.

Whitehaven earlier told the panel that Bell Rock had privately boasted it controlled about 11 per cent of the miner’s shares – more than double the level Bell Rock conveyed in an October 12 letter to shareholders.

The panel is yet to say whether it will compel Bell Rock to clarify how many shares and derivative interests it controls in Whitehaven.

Bell Rock wants Whitehaven to abandon plans to spend billions buying two BHP coking coal mines and return $2.45 billion cash to shareholders.

The pressure did not change Whitehaven’s decision, and Mr Flynn agreed last week to pay up to $US4.1 billion ($6.4 billion) to acquire the Daunia and Blackwater mines in Queensland from BHP.

Glass Lewis and Ownership Matters, two influential proxy advisory firms, had recommended that Whitehaven shareholders vote in favour of the remuneration structure on Thursday. Institutional Shareholder Services told Whitehaven shareholders to reject the remuneration report.

Whitehaven growth plans are a bet on failure of world’s climate policies

Over 2½ hours, Mr Vaile and Mr Flynn stressed that the purchase of the two BHP mines would double the company’s size while reducing risk and improving access to finance. “Shareholders haven’t had to tip in money to double it,” Mr Flynn said. “That’s an extraordinary thing.”

Whitehaven shares surged by more than 11 per cent on the day the BHP deal was announced, and the stock is now 15 per cent higher than it was the day before the deal was sealed.

Shares in rival coal miners New Hope Coal and Yancoal have declined over the same period, suggesting the acquisition of Daunia and Blackwater has added more than $836 million to Whitehaven’s market capitalisation.

The debate over whether Whitehaven should continue to invest in further coal volume growth has been the subject of resolutions filed by environment group Market Forces at many recent shareholder meetings.

A similar resolution on Thursday – which challenged Whitehaven to outline a plan to “manage down” its coal production – was opposed by almost 82 per cent of validly cast proxies.

Market Forces spokesman Will van de Pol said the 17.8 per cent support for the motion was a “massive revolt” by shareholders.

A resolution to re-elect the largest individual shareholder, Ray Zage, as a director was opposed by 24.6 per cent of votes.

Mr Zage said the protest vote against his re-election was disappointing, adding that it was the doing of “one shareholder”.

Asked whether the remuneration report strike suggested that Whitehaven was out of touch with shareholders, Mr Zage said it reflected the opposition of a proxy advisory firm, ISS, to the arrangements. “It shows maybe they are out of touch with ISS, or vice versa,” he said after the meeting.

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