Canadian Shield, Cambior exit Poderosa

A legal dispute over a key group of claims at the Poderosa mine in northern Peru has claimed another victim. Canadian Shield Resources (CSP-V) has terminated its letter of intent to acquire a 44.7% stake in the mine’s owner Compania Minera Poderosa (CMPSA).

The deal was nixed by mutual agreement, after the vendors said they were unable to extend the term for the closing of the deal as they are unsure how long it will take to settle a judgment against CMPSA over title to the Pataz claims. Those claims comprise a significant portion of the Poderosa mine’s reserves.

Earlier this year, Canadian Shield agreed to take up the stake in return for 60% of its shares (on a fully diluted basis) at the time of the deal’s closing. The deal also required the company to raise at least US$20 million by mid-November; the funds were earmarked for the acquisition of US$5.9 million worth of loans from the selling group to CMPSA.

Canadian Shield’s exit comes a week after that of Cambior (CBJ-T), which was in line to acquire a 55.3% stake in CMPSA (and US$8 million worth of advances to CMPSA) from another group of sellers. That deal would have seen Cambior fork over US$25 million in cash accompanied by 2.2 million shares. The deal also included a possible payment of US$6 million subject to resolution of outstanding tax legislation.

“We are surprised and disappointed with the position of the selling group, which has decided not to work with us to resolve the outstanding legal issues and ensure certainty of title of the Pataz claims,” says Cambior CEO Louis Gignac.

Canadian Shield CEO Eduardo Baer initially said that Cambior’s exit did not deter him from proceeding with his company’s plans at Poderosa, and in fact opened the door for his company to consider increasing its stake.

Subsequently, the company’s letter of intent was terminated by mutual agreement after the two sides concluded an extension was impracticable until title to the Pataz claims could be sorted out.

“Canadian Shield determined that this litigation has a significant impact on the completion and valuation to be assigned to the transaction,” said Baer in a prepared statement. “Under these circumstances, the parties felt it is not in either of our interests to extend the term of the letter of intent. “However, we remain open to reconsidering the proposed transaction once the Pataz lawsuit is resolved.”

Poderosa is home to proven and probable reserves totalling 563,000 tonnes grading 18.8 grams gold per tonne, based on a gold price of US$350 per oz. A review by Cambior identified some 3.3 million tonnes of inferred material grading 12.8 grams gold.

Since 1982, the mine has poured some 1.25 million oz. gold; the operation currently chugs along at around 100,000 oz. per year at a projected cash cost of US$175 per oz.