An Ontario court has certified an $80-million class action lawsuit launched against Gammon Gold (GAM-T, GRS-N) and three financial institutions but has ruled out certain parties from the class action.
The lawsuit was filed in March 2008 by a Gammon Gold shareholder who accused the gold miner of stock option manipulation and making unrealized production forecasts for its Mexican gold mines in the months leading up to $200-million financing in April 2007. BMO Nesbit Burns, Scotia Capital and TD Securities, the underwriters, were named in the suit as defendants as well as Gammon Gold’s directors and management.
The Ontario Superior Court of Justice has ruled that the class action will include investors who bought shares through Canadian brokers under Gammon’s April 2007 prospectus. Shareholders who bought shares on the secondary market and or outside of Canada will not be included as the case moves forward.
Although having the class action certified is a loss for Gammon Gold, company president Rene Marion says that the court’s decision to not include certain parties “significantly reduces the scale of any potential claim.”
Gammon’s stock began to plummet shortly after the $20-per-share financing when its first quarter results revealed the Ocampo and El Cubo gold-silver mines in Mexico were nowhere near reaching the projected production of 400,000 gold-equivalent oz. per year.
The original statement of claim also alleges that grant dates of stock options were either immediately followed by a sharp increase in Gammon’s stock price and/or coincided with a date on which Gammon’s stock price was at or near a monthly low.
Since then Gammon has changed its management and lowered its production forecasts. The company produced 231,000 gold equivalent oz. in 2009 and 259,000 gold equivalent oz. in 2009.
Gammon shares were down 17¢ in Toronto today to $9.10 per share on at trading volume of 680,000 shares.
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