Events surrounding Aur, Louvem back to June ’87 subject of dispute

Officials from both companies will give evidence over the next 2-6 months as lawyers prepare to argue over who has the right to own and operate the Louvicourt Twp. zinc-copper discovery east of Val d’Or, Que.

Having earned a 50% stake in the project, Aur is operating a surface drill program which has outlined potential reserves of 36 million tons grading 3.11% copper, 1.34% zinc, 0.55 oz silver and 0.025 oz gold per ton.

In a lawsuit filed against Louvem, Aur is claiming that an alleged payment default by Louvem allows it to increase its stake at Louvicourt to 100% from 50% (subject to a 25% net profits interest to Louvem) and remain as operator after surface drilling is completed and underground exploration begins.

Under the original agreement, Louvem was scheduled to become operator once the two companies had agreed to go underground.

In its counter-suit against Aur, Louvem denies that it is in default while accusing Aur of withholding key information relating to the Louvicourt exploration program. Had it known earlier about the property’s potential, Louvem says, it would have been able to arrange the financing it needed to ease its financial problems.

While maintaining its right to at least 50% of the project, Louvem is also attempting to have the original 50/50 joint venture agreement deleted from the records so that it will have full ownership. The two companies could still settle their differences out of court. Both Louvem Chairman Pierr e Gauthier and Aur President Jim Gill say they would prefer to avoid a lengthy court battle that some say could rival the Corona Corp. (TSE) versus LAC Minerals (TSE) trial. They remain open to offers.

Years of expensive litigation may not be favored either by Teck Corp. (TSE) and Cominco Ltd. (TSE) which together hold 21% of Aur’s outstanding shares, or by Noranda Minerals, a unit of Noranda Inc. (TSE), which has a 14% stake in Louvem. St. Genevieve Resources (TSE) is also involved by virtue of having a 52.3% interest in Louvem.

However, if an out-of-court settlement isn’t reached, most of the evidence will likely rest on a sequence of events that occurred between the signing in 1987 of the original joint venture agreement and the announcement of a major discovery in June. Those events are listed as follows:

June 18, 1987 — Aur and Louvem sign an agreement giving Aur the right to earn a 50% interest in the 170-claim Louvicourt Twp. property. To earn its interest, Aur agrees to spend $500,000 on exploration after which expenses would be shared on an equal basis by both companies.

As operator of surface exploration, Aur is required to report to a management committee consisting of two Aur representatives and two from Louvem.

A clause in the agreement states that in the event that Aur has acquired its 50% undivided interest at Louvicourt and one of the partners is unable to finance its pro rata share of budgeted expenses, that company’s interest in the project would be diluted and eventually converted to a 25% net profits interest.

If the interest of one of the partners is diluted, that partner loses its right to act as operator, the agreement states.

June, 1988 — Aur completes a phase-one program consisting of geophysical surveys and reconnaissance diamond drilling designed to identify priority targets for further exploration.

July, 1988 — Aur begins a phase-two program consisting of 45,766 ft of diamond drilling in 31 holes.

Jan 27, 1989 — Trading of St. Genevieve and Louvem shares is suspended by the Montreal and Toronto exchanges pending verification of tests on Louvem’s Manitou gold tailings deposit near Val d’Or. Aur completes phase two of the drilling program.

Jan 30, 1989 — Aur says it has intersected economically significant copper-zinc-gold mineralization in two separate massive sulphide deposits at Louvicourt Twp. “The new mineralization lies below the Zone 4 and Zone 6 sulphide lenses of the former Louvem mine which produced over 2.1 million tons of copper-zinc ore between 1969 and 1979,” Aur says.

Feb 9, 1989 — Gill and Aur Vice-President Howard Stockford meet with Andre Lacroix, then Louvem president, at the property to discuss work in progress. They also note the fact that to complete the scope of work approved by the management committee, a cost overrun would be necessary. Given the success of the results at the time, it is agreed that the drill hole in progress should be completed.

Feb 13, 1989 — Aur says it sent a cash call, which Louvem says it never received, for Louvem’s $40,000 share of a cost overrun on the 1988 exploration program.

Feb 16, 1989 — Louvem receives a summary report of the phase-two program. Designed to provide exploration results of exploration and offer recommendations for future work, the report includes results of drill holes 30, 35, and 39 and refers to a 700-ft copper stringer zone. According to the report, hole 30 intersected 43 ft of grade 2.036% copper at a depth of 2,528-2 ,571 ft and 10 ft of 4.2% copper at 2,548- 2,558 ft,

“The area could host a very large deposit, perhaps larger than any of the previously known zones,” the report says.

March 3, 1989 — Following an approach by Lacroix, Aur offers to purchase the 8.4 million Louvem control block of shares held by St. Genevieve Resources for 75 cents per share. Together with an additional 2.7 million Louvem treasury shares and warrants to purchase another 1.3 million, the agreement would have given Aur a 65% stake in Louvem.

Under the proposed agreement, Aur was scheduled to make an interim loan of $2 million to Louvem.

The agreement was subject to Louvem transferring by way of a dividend to shareholders, certain assets including its Manitou mill and tailings project. Even if the Aur, St. Genevieve and Louvem boards voted in favor of the deal, the approval of the Montreal and Toronto exchanges was needed.

Lacroix, now president of Gestion Belroche in Rouyn-Noranda, Que., says Aur was one of a number of companies approached by Louvem which was attempting to solve its financial problems and find a joint venture partner to finance work at Louvem’s Chimo mine, east of Val d’Or. Louvem reported a net loss of $14.5 million in 1988.

March 6, 1989 — The Montreal Exchange tells Aur and Louvem that the dividend could not be declared and paid as the companies planned.

March 9, 1989 — Aur says it received a request from Louvem to waive certain conditions of the proposed agreement so that the $2-million loan could be advanced ahead of schedule. Aur says it agreed to advance the loan on condition that it not be used to repay debts owed by Louvem to St. Genevieve and that Aur be given the right to operate the entire project.

Aur also stipulates that it will not provide the loan unless SOQUEM (the Quebec Crown mining corporation) waives certain rights with respect to shares of Louvem held by St. Genevieve.

March 20, 1989 — Louvem agrees to sell to Cambior Inc. (TSE), a 50% stake in the Chimo gold mine for $4 million.

March 23, 1989 — Aur tells Louvem that the 1988 exploration budget of $1 million set up for the phase-two program at Louvicourt Twp. has been exceeded by $116,115.36.

March 30, 1989 — the Louvicourt joint venture committee meets in Val d’Or to approve a $1-million exploration budget for 1989. On the same day, Aur offers to allow Louvem to delay paying its share of exploration costs for April on condition that Louvem transfer its right to be underground operator to Aur.

April 4, 1989 — Stockford informs Louvem that it is in default of a $75,000 payment covering the April, 1989, exploration budget. Ronald Gagel, Aur’s director of corporate finance, writes to Louvem to say that an accounting error relating to the 1988 exploration budget has been discovered. Gagel tells Louvem that the original estimate of $116,115 was incorrect and that Louvem is liable for its 50% share of $81,291.

April 7, 1989 — St. Genevieve
Chairman Pierre Gauthier replaces Andre Lacroix as president of Louvem.

April 14, 1989 — Louvem sends Aur a cheque for $75,000. On the same day, Aur says it is suing Louvem, St. Genevieve and Cambior for breach of contract in relation to its unsuccessful bid for control of Louvem.

April 17, 1989 — Louvem asks Aur for a written explanation of the cost overrun while Aur writes to Louvem to inform the company that it is in default for not having paid the budget overrun on demand.

On the same day, Louvem receives a second report on phase two which refers to a new South or Louvem horizon. Louvem says the report contains the first reference to the Louvem horizon while Aur claims indications of the new system were provided in previous reports.

May 9, 1989 — Shares of Louvem and St. Genevieve start trading again on the Montreal and Toronto exchanges.

May 24, 1989 — Aur refuses to accept the $75,000 cheque sent by Louvem, explaining that Louvem’s interest in the project would be gradually diluted to 25% and that Louvem has lost its right to act as operator of underground work at Louvicourt.

June 12, 1989 — Aur announces that it has discovered a major new copper-zinc-silver-gold massive sulphide deposit on its 58% owned Louvem property. Aur says the deposit lies along a newly recognized and previously unexplored mineralized horizon 800 ft south and 2,000 ft east of the past- producing Louvem mine horizon.

The accompanying news release says Louvem holds a 42% interest in the property which is being diluted to a 25% net profits interest as further expenditures are incurred.

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