Shareholders launch proceedings against Quartz Mountain

In addition to a number of allegations concerning the company’s relationship and business dealings with Galactic Resources (TSE), the petition alleges that proxy material for Quartz Mountain’s annual general meeting, scheduled Dec 15, was not sent to shareholders in a timely manner. (The meeting was adjourned by shareholders to Jan 31.) While Quartz Mountain says its delivery of proxy materials to “certain shareholders in the United States” may not have complied with all requirements, it says that none of the other allegations are true.

The petition alleges: that disclosure of Quartz Mountain’s relationships with Galactic is inadequate; that a new draft venture agreement has been concluded with Galactic; that Galactic in fact controls Quartz Mountain’s board and that the affairs of the company are being conducted in a manner oppressive and prejudicial to its shareholders.

In June 1987, Quartz Mountain granted Galactic an option to acquire a 50% operating interest in the Quartz Mountain property in southern Oregon which has proven and probable reserves of 66.4 million tons grading 0.03 oz gold per ton (at a 0.015 cutoff). The agreement called for Galactic to issue 250,000 shares to Quartz Mountain, complete a feasibility study, and provide financing for the development and construction of the resulting mine. (Quartz Mountain originally acquired a 62% interest in the property through the 1986 acquisition of Diamond Head Mines then owned by Galactic President Robert Friedland, and picked up the remainder from other owners several months later.) Among Quartz Mountain’s directors are Robert Friedland’s brother, Eric Friedland, and Robert Cook, who is also a director of Galactic.

“It’s fair to say there is a significant influence from Galactic in the affairs of Quartz Mountain,” said Allan Marter, vice-president finance of Quartz Mountain. He also told The Northern Miner there have been a number of “fairly substantial modifications” to the original letter of agreement between the companies in a subsequent series of letters concerning the joint ventured gold project. “Unfortunately we have not been able to reach an agreement with Galactic on the form of a definitive agreement and negotiations have broken down.”

In addition to various orders concerning the company’s annual meeting, the dissenting shareholders have applied for an order restraining Quartz Mountain from entering into amendments to its existing joint venture agreement with Galactic, an order restraining the company from using proxies solicited for the December meeting, and an order requiring the company to include certain nominations for directors in its new proxy material to shareholders.

Meanwhile, a feasibility study funded by Galactic is under way to fully delineate the open pittable oxide reserves and determine the economic viability of a heap leach operation. The study is also expected to include further test work to resolve what Quartz Mountain last year called “current ambiguities in metallurgical results.”

Exploration drilling on the property, however, is being funded solely by Quartz Mountain. Last week the company released further results from its 1988 deep drilling program which appears to have delineated two high grade zones beneath the Quartz Butte disseminated gold deposit on the property. With results such as 15 ft of 2.468 oz gold, 20 ft of 0.443 oz gold includin g 5 ft of 1.480 oz, 10 ft of 0.837 oz and 10 ft of 1.832 oz gold, Quartz Mountain is of the opinion that these zones have the makings of an economic underground prospect separate and distinct from the oxide heap leachable reserves.

The company is now preparing a preliminary exploration plan and operations budget for 1989 in order to continue work on the two tabular steeply-dipping zones, both of which are reported to be open in all directions.

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