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A proxy advisory firm is telling shareholders to stick with Detour Gold Corp.'s proposed slate of directors – a setback for Paulson & Co.'s efforts to overhaul the gold miner’s board.

In a report published late Friday, independent firm Institutional Shareholder Services Inc. (ISS) advised investors to go with Detour’s board recommendations, despite Paulson’s agitating for wholesale change at Toronto-based Detour. Paulson, a New York hedge fund, has been pushing for an alternative board slate and the immediate removal of interim chief executive officer Michael Kenyon.

Paulson’s proxy push came in the summer, a few months after shares in Detour lost 30 per cent in a single session when it announced the expansion of its Detour Lake gold mine in Northern Ontario would cost a lot more than than expected.

Paulson urged Detour to sell itself after years of underperformance. The hedge fund also accused Detour of having an entrenched board that was intent on looking out for its own interests, and not those of shareholders.

ISS wrote that while Paulson had highlighted “legitimate concerns” around management turnover, operational performance and shareholder returns at Detour, the hedge fund had “failed to make a compelling case for board control” and “failed to articulate a detailed go-forward plan."

Proxy advisory firms are influential in these votes since many institutional shareholders rely on their recommendations.

Detour has said it is focusing on improving operations at its struggling Detour Lake mine. It also agreed to make a number of board changes, some of which were recommended by Paulson.

Benôit Gervais, portfolio manager with MacKenzie Financial, which holds a 3.5-per-cent stake in Detour, says the firm will be voting for a mix of board candidates, some recommended by Detour, and others by Paulson.

He was critical that Detour took so long to make changes to its board, and only after after it was forced to take action by Paulson.

He applauded Paulson for pushing for change at Detour after years of concerns from long-term shareholders over matters such as excessive pay packages. Mackenzie for example has repeatedly voted against the nomination of director Lisa Colnett, chair of the firm’s compensation committee.

Yet Mr. Gervais stopped short of backing Paulson entirely, saying the hedge fund’s thesis that “nothing was right” at Detour wasn’t entirely accurate either.

“The truth is somewhere in between,” he said.

One major Detour shareholder, Tocqueville Asset Management, has agreed to vote for Detour’s slate, according to a source familiar with the matter. Tocqueville, based in New York, holds a 4.4-per-cent stake in Detour, making it the third biggest shareholder after Van Eck Associates Corp. and Paulson, which hold 12.5 and 5.7 per cent, respectively.

Tocqueville did not respond to a request for comment on Monday.

Other Detour Gold investors, including Coast Capital Management and Livermore Partners, have also called for a Detour board overhaul.

A special meeting of Detour’s shareholders is scheduled for Dec. 11 when results of the proxy contest will be made public.

Glass Lewis, the other major independent proxy firm that will weigh in on the Detour fight, hasn’t yet released its recommendation for board nominees.

Editor’s note: A previous version of this story incorrectly said Coast Capital and LIvermore Partners sided with Detour.

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