Westray Boss Back in Business

Clifford Frame's memo dismisses Westray as "irrelevant"

Westray Boss Back in Business

Mine Developer Denies Charges of Insider Trading

by Paul McKay

This article appeared in
The Ottawa Citizen
Monday, September 8, 1997


Sixty-four months after an underground explosion killed 26 Nova Scotia miners and left his defunct company facing manslaughter and criminal negligence charges, Clifford Frame is trying to get back in the coal business.

The former Westray Mine developer is making a play for a West Virginia coal property. Since January, Mr. Frame has been chief executive officer of TSE-listed Mineral Resources Corporation. In July, MRC launched a takeover of Australian-owned Greenfields Coal Company, owner of the U.S. project.

But this time there won't be $100 million in government subsidies paving the way, as there was at Westray. Clifford Frame has a fight on his hands. Both the directors of Greenfields Coal and a major U.S. union have vowed to prevent Mr. Frame from taking over.

Greenfields has launched a court action in Australia, complaining that Mr. Frame's company, and several directors and associates, broke trade laws.

"We are alleging that they sold shares through insider trading," says Greenfields chairman Rhett Drew. "They knew our entire financial history. They knew exactly the position we were in. They had information that was not generally available to the market. Also, they failed to inform, over a period of six months, their substantial shareholdings. They sold millions of shares and didn't inform the market."

Mr. Frame flatly denied any personal involvement, or wrongdoing by his company.

"They're not going to win that," he told the Citizen.

"They're going to face up against one of the top lawyers in Melbourne. That will be gone over in infinite detail. But that's absolute nonsense. I never participated in that one iota. Nor did I know from day to day or month to month how many shares were being traded."

A court hearing on the insider trading complaint will take place in Melbourne on Thursday. A Greenfields shareholders vote on the takeover bid is scheduled for the same day.

In July, Mr. Frame appealed to Ontario's highest court to overturn legal rulings in Nova Scotia and Ontario that he must testify at the Westray inquiry. It was the latest legal skirmish in a concerted inquiry effort to force Mr. Frame and his top Westray managers to answer questions under oath in Nova Scotia.

Last year, the Nova Scotia government aided that effort by passing new legislation, the Reciprocal Subpoena Act. It gives Nova Scotia subpoenas the force of law across Canada.

Mr. Frame, who resides in Ontario, has publicly called the Westray Inquiry a "railroad job and a farce."

In an interview last week, he firmly denied any personal responsibility for the deaths.

The Westray mine operated for only six months before the fatal explosion. Mr. Frame was the CEO of Westray's parent company, Curragh Resources. Criminal negligence and manslaughter charges are still pending against Curragh and two of Mr. Frame's hand-picked managers, Gerald Phillips and Roger Parry. They have refused to testify at the inquiry, arguing it might compromise their criminal trials.

Mr. Frame, Curragh, Mr. Phillips and Mr. Parry also face a civil suit, seeking damages for negligence, launched by the widows and families of 23 of the dead miners. That suit is on hold, pending the results of the criminal trials and the Westray inquiry.

Expert testimony at the Westray Inquiry has pinpointed the likely cause of the fatal explosion: a spark from uncertified machinery caused an explosive flash of methane, which in turn ignited coal dust and sent a wall of flame roaring through tunnels to the mine portal.

The 1992 Westray explosion and Mr. Frame's ownership of Curragh were omitted from the curriculum vitae Mr. Frame submitted to Greenfields Coal. The Australian company learned of the link by accident.

The Citizen has obtained a series of memos exchanged between Mr. Frame and Greenfields, detailing the increasingly bitter power struggle. In a July 29 memo to Greenfields, Mr. Frame dismissed Westray as irrelevant:

"My relationship with the Steelworkers Union has been excellent. In any event, the miners in West Virginia could not care less what happened in Nova Scotia. They know I had no personal responsibility whatsoever for the Westray accident.

"As a substantial shareholder of GCC, we are vitally concerned with GCC's success. I can only hope that the shareholders and directors of GCC will focus on the very real business and technical issues and produce a project that will work. Unfortunately, if GCC persists in plans which put at risk the [West Virginia] project, and which will involve substantial and unnecessary loss for all shareholders, I can see no basis for a peace settlement, as much as I would like one."

The Steelworkers Union represents the surviving Westray miners, and fully endorses the efforts of the Westray inquiry to compel Mr. Frame to testify in Nova Scotia. Says Steelworkers' Halifax legal counsel David Roberts:

"He was the CEO of the company. Inquiry testimony showed he was directly involved in some critical issues that related to the explosion. All the Steelworkers were examined, and cross- examined, under oath and the glare of publicity. We see no reason why Mr. Frame should not be called to do the same."

The Greenfields chairman was shocked at Mr. Frame's link to Westray.

"I was appalled," says Mr. Drew. "It was just incongruous to me that he could possibly expect people to believe that he had no knowledge of the way the mine was being run."

He is also concerned that Mr. Frame's reputation could damage Greenfields future relations with organized labour.

"I believe the project wouldn't get up, because the unions wouldn't support it. And they are very strong in West Virginia. The share value would be harmed, because the institutional investors in the stock would go straight for the door."

Mr. Frame's gambit began at midnight July 3, when MRC sent a shotgun takeover notice to Greenfields directors. Mr. Frame gave Greenfields directors 2½ hours to surrender. With 18 per cent of the Greenfields shares, Mr. Frame sought to acquire all outstanding shares, become CEO, and appoint his own directors while offering Greenfields shareholders an 8-to-1 trade for MRC shares.

The proposal discounted Greenfields shares to half their market value. No cash would have traded hands. In fact, MRC had virtually no cash to offer. A September 1996 financial statement noted MRC had only $28,000 in cash, assets of $285,000, and liabilities of $4.2 million.

On Aug. 5, Mr. Frame issued a bulletin that revealed the Greenfields asset he coveted most: U.S. tax credits.

"The MRC plan would result in EBDIT (earnings before depreciation, interest and taxes) of $44 million in excess of Greenfields proposal, based on capital expenditures which are $15- to $30-million less than the Greenfields estimate, if adopted in the present form by Greenfields. It would also substantially increase the tax credits available to Greenfields from $79 million to a possible $213 million. That level of tax credits is certainly worth going after."

The current Greenfields directors have flatly rejected the takeover bid led by Mr. Frame.

"The Directors' current view is that the offer received from MRC should be vigorously defended," Mr. Drew told the Citizen. "The offer should be regarded as a hostile and opportunistic takeover bid at a significant discount to net present value of shares in Greenfields."

After being interviewed by the Citizen, Mr. Frame issued the following written statement:

"The statements and allegations that have been made by GCC and its officers and directors to its shareholders and the public in the course of our takeover bid for GCC concerning MRC and me personally are categorically false and defamatory. The matter has been referred to the Company's solicitors and to my solicitor who have been instructed to take all appropriate steps. Anyone who repeats or publishes these false and defamatory allegations will also be treated accordingly. We have conducted our bid for GCC in fairness and in compliance with applicable laws. We are astonished the GCC would resort to these unscrupulous tactics as opposed to allowing the shareholders of GCC to fairly consider our offer."

Westray Boss Back in Business
Mine Developer Denies Charges of Insider Trading

by Paul McKay
The Ottawa Citizen, Monday, September 8, 1997

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