Pegasus, Pioneer face off in legal battle

Court dates have been set for several ongoing disputes involving Pioneer Metals (TSE) and Pegasus Gold (TSE). The two companies’ falling-out can be traced back to November, 1988, when Pegasus loaned Pioneer $12 million by way of a convertible debenture secured by Pioneer’s Stibnite and Bonito gold properties in the U.S.

In November, 1989, Pegasus served Pioneer with a notice of non- monetary defaults under the terms of the convertible debenture and demanded immediate repayment of the debt.

At this point “the gloves were off,” with Pioneer responding to the default by commencing action in the Supreme Court of British Columbia. Pegasus in turn began foreclosure action against the Stibnite in Idaho and filed a defence and counterclaim against Pioneer in British Columbia.

The hearing proceeded on April 6, with Pegasus putting its arguments before the court. Pioneer will present its position on June 15. The decision will then rest with the court, which will either grant one company’s order or refer the matter to a full trial currently scheduled for May, 1991.

Pegasus’s litigation in Idaho to seek a foreclosure of the company’s mortgage on the Stibnite mine will be settled in a jury trail set for Oct. 1 in Cascade, Idaho.

Pioneer has made a counterclaim against Pegasus.

As a result of these actions, Pioneer has asked the court to order that the mortgage indebtedness of $12 million be cancelled, that the court award $20 million in damages against Pegasus, and that Pioneer also be awarded punitive damages against Pegasus.

Pioneer notes that it has raised more than 20 defences to Pegasus’ foreclosure action.

Pioneer alleges that following a management change at Pegasus in January, 1989, the company was attempting to influence and control Pioneer and that Pegasus was attempting to find a way to acquire Pioneer U.S.’s interest in the Stibnite gold mine in Idaho as early as August, 1989.

Pegasus’ primary argument relates to the non-monetary defaults. When the original lending agreement was put in place, Pegasus required that there be certain covenants under the loan arrangement, some of which required Pioneer to keep all of its financial obligations current. Essentially, this means the company must continue to operate as a going concern with sufficient cash flow to pay off its indebtedness.

Pegasus specifically cites Pioneer’s inability to meet cash calls made by Westmin Resources (TSE) for the Premier project north of Stewart, B.C. Arrears owed by Pioneer are estimated at more than $11 million.