Viceroy-MK Gold mine dispute escalates

The dispute between Viceroy Resources (TSE) and MK Gold (NASDAQ) is escalating to the courts.

Viceroy plans to press forward with court action against MK Gold, “seeking substantial damages.”

The dispute stems from a disagreement over mining plans at the Castle Mountain open-pit, heap-leach gold mine in California.

MK Gold owns a 25% interest in the mine, and is also the mining contractor at Castle Mountain. MK Gold believes its mining contract covers the “life-of-mine.”

Viceroy, which owns a 75% interest in the mine, disagrees with this, contending that the contract does not extend beyond the tonnage specified in the original contract agreement dated March 7, 1991.

Viceroy reports that mining costs under MK’s contract are substantially above what an arm’s-length party’s costs would be.

Viceroy expects the original contract to be completed during August, 1996, and it wants to put the mining contract out to tender in order to get a competitive price.

MK Gold tried to obtain a determination on the disagreement by invoking a dispute resolution procedure before a professional engineer who refused to rule on the company’s “life-of-mine” contention.

MK Gold then tried to force arbitration, but that motion was denied by the Nevada district court judge.

As of Mar. 31, 1995, proven reserves were estimated at 29 million tons grading 0.035 oz. gold per ton, sufficient for a further eight years of mine life.

This estimate is based on lower mining costs using a third-party contractor. Viceroy reports that if mining were to continue under MK Gold’s current contract, economic reserves would be significantly reduced.