Rye Patch pounces on Coeur d’Alene’s lapsed claims

Rye Patch Gold (RPM-V) shares surged 84% to 71¢ on Dec. 5 on news the junior scooped up lapsed mining claims from Coeur d’Alene Mines (CDM-T, CDE-N) in Nevada’s Rochester mining district.

The 400 unpatented claims cover part of Coeur d’Alene’s Rochester silver project. Coeur d’Alene has filed a legal complaint arguing that its unpatented claims are valid and that it has a “valid possessory interest in such claims.”

Rye Patch has launched a lawsuit of its own, claiming “relief for quiet title, trespass, slander of title and injunctive relief,” and already has its geologists on the ground sampling, mapping and permitting drill targets on the new claims.

Coeur d’Alene estimates that the disputed claims “may involve up to twenty percent of the Rochester property’s mineral reserves and a substantial amount of the property’s mineralized material.”

“For reasons yet to be explained, Coeur d’Alene failed to pay the annual claim maintenance fee to the Bureau of Land Management by the August thirty-first deadline,” newsletter writer John Kaiser wrote in a note. “Not only did the claims sit open for a month without Nevada’s pack rats noticing, but when Rye Patch’s crew wandered around on the open Rochester ground staking claims, nobody seemed to take notice.”

“Presumably Coeur d’Alene will plead that it is unfair shareholders should be punished for the failure of its title division to make payments every other Nevada mineral rights owner loses sleep about making every year,” Kaiser continues. “Bottom fishers should hang on for what will be quite a ride.”

Chris Lichtenheldt, a mining analyst at UBS Investment Research, estimates that Rochester accounts for 9.2% of Coeur d’Alene’s net asset value. “Since we currently carry value only for Rochester’s reserves, we view the worst-case impact as roughly negative 1.8% to net asset value [20% times 9.2%] based on today’s information,” Lichtenheldt said in a note to clients on Dec. 6.

The analyst maintains his “buy” rating on Coeur d’Alene with an unchanged 12-month target price on the stock of US$35 per share.

William Howald, Rye Patch’s president and CEO, noted in a prepared statement that maintaining unpatented mining claims is “clear and unambiguous,” and the effect of the law’s forfeiture provisions is “well-established.”

“Coeur d’Alene Mines failed to pay the annual mining claim maintenance fee on time and the ground became open for mineral location,” he stated. “Rye Patch investors now have under their control mining claims located on additional gold and silver resources, and on a portion of the lands formerly part of an active mine.”

Kaiser offers several scenarios that could unfold in the coming weeks, including an offer from Coeur d’Alene to buy Rye Patch’s Oreana trend properties – such as Lincoln Hill, and the recently staked claims covering part of Rochester’s project – or trying to “hang the blame” on the Bureau of Land Management.

“But most likely Coeur d’Alene will try to fend off class-action lawsuits alleging gross negligence through legal channels first,” he reasons, “giving the market a better chance to appreciate that Rye Patch needs to trade a lot higher than the current seventy-cent price, and giving both sides time to work out a deal that fixes this problem.”

Since 1986, the Rochester mine in northern Nevada has produced more than 125 million oz. silver and 1.2 million oz. gold. In this year’s first nine months Rochester produced 1 million oz. silver and 4,283 oz. gold. The company notes on its website that building a new leach pad at Rochester will boost annual production to more than 2.4 million oz. silver and 35,000 oz. gold a year, for at least the next eight years.

At presstime Rye Patch traded at 68¢ within a 52-week trading range of 23¢-84¢. The junior has 125.6 million shares, fully diluted.