The Northern Miner, 6/18/2008

Genco president threatens to quit over board vote

Both the president and vice president of finance for Genco Resources (GGC-T) say they will resign if dissident shareholder James Anderson and two others are elected to the board of directors in a proxy vote on June 26.

Anderson, who together with his wife is the company's largest shareholder with 12.2% of shares, resigned from the board in May with a string of concerns about the company, which operates the La Guitarra silver mine in Mexico. Concerns included excessive compensation, poor mine management and lack of corporate governance policies.

Last week Anderson announced that he was initiating a proxy vote to replace three board members – chairman Robert Gardner and directors Gordon Blankstein and Brian Smith – with himself, Charles Schroeder and Lyle Weismantel.

In a June 12 interview Anderson told The Northern Miner that he supported Liller in his role, blaming the company's 50% decline in stock price over the last year primarily on the three named board members. Genco shares were up 12% or 18¢ today to $1.71 apiece on a trading volume of 140,000 shares.

But Liller says Anderson tried have him dismissed at a past board meeting, whichhe says demonstrates his unwillingness to work with him. Liller also says Anderson has not listened to the company's operational strategy.

"Mr. Anderson has consistently ignored the mine plans presented to him and all attempts by the technical team to explain basic mining concepts to him," Liller said in the statement.

The La Guitarra silver mine is a 340-tonne-per-day operation that currently operates at about 250 tonnes per day, according to Blankstein, though up until recently was only running at 180 tonnes per day. The company plans to release a feasibility study in the third quarter outlining its plan to increase to 3,000 tonnes per day to produce 6 million oz. gold per year in 2010.

A press release war has arisen between the two parties as they respond and criticize one another's take on the issues at hand. In less than 24 hours Genco has issued four press releases; Anderson three releases.

Amidst the battle of the board, Genco released a new resource estimate for La Guitarra – overall silver equivalent resources are up 21% to 186.5 million oz. while proven and probable reserves more than doubled to 11.5 million silver equivalent oz. from 5 million oz.

In a report issued today by Salman Partners, the company lowered its target share price for Gencor to $3.60 per share from $5.25, assigning a 'speculative buy' rating. Salman's investment opinion has not changed in light of the upcoming proxy vote; its current assessment is based on the current board and management's goal of developing a larger-scale operation and its ability to do so.

On June 12, Haywood Securities revised its target price for Genco to $4.20 per share from $5.90. The report says some of Anderson's claims have merit, noting the excessive compensation, but still questioned the abilities of the proposed board members.