Inmet Mining (IMN-T) is initiating legal proceedings in British Columbia against Homestake Canada and Prime Resources Group (PRU-T) after the two companies backed out of their proposed US$110-million acquisition of Inmet’s Troilus gold mine, situated 175 km north of Chibougamau, Que.
The original deal, signed in late October, had Homestake Canada acquiring a 51% stake (and operatorship) in Troilus for US$56 million, with Prime Resources buying the remaining interest for US$54 million.
Homestake Canada, which owns 50.6% of Prime, is a wholly owned subsidiary of San Francisco-based Homestake Mining (HM-N).
The deal was subject to a due-diligence review, following which Homestake and Prime decided, in December, not to proceed with the acquisition.
Inmet says that the two companies terminated the agreement based on Inmet’s alleged failure to disclose certain historic assaying and operating information regarding the mine — an allegation Inmet denies.
As part of the due diligence, Homestake assayed core splits from four exploration holes and advised Inmet that the assays, on average, were lower than the results used for Inmet’s reserve estimates, which were based on about 54,000 assays from 429 holes.
In response, Inmet hired consultant Strathcona Minerals Services to investigate the apparent inconsistency.
“We’re contending that we’ve done checks on their due diligence review, and after we did the checks, we decided to go ahead and sue them,” says Inmet President William James. He noted that although Inmet has not yet set a dollar figure on the claim, the US$110-million reduction in cash has made it more difficult to finance its share of the Antamina copper project in Peru, where the company shares ownership with Rio Algom (ROM-T).
Troilus, an open-pit, 11,000-tonne-per-day operation opened more than a year ago, was originally scheduled to produce 130,000 oz. gold and 9.7 million lbs. copper annually over its remaining 12-year mine life. However, higher-than-expected dilution of gold grades has caused Inmet to factor a 10% drop in head grade into the future mining plan.
Inmet took a $149-million writedown on Troilus in the fourth quarter of 1997, stating that the mine’s future is in doubt if there is no significant recovery in gold prices.
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