Rye Patch settles claim dispute with Coeur Mining

VANCOUVER — It took nearly two years, but Vancouver-based junior Rye Patch Gold (RPM-V) has finally reached a legal settlement with U.S.-based silver producer Coeur Mining (CDM-T, CDE-N) over ownership of 400 unpatented mining claims that cover a portion of Coeur’s Rochester silver-gold operation in Pershing County, Nev.

The dispute ignited after Coeur missed a deadline in August 2011 to pay its annual claim maintenance fees to the Bureau of Land Management. A month later Rye Patch staked the open claims, and sent geologists to the site for ground sampling, mapping and permitting for drill targets. 

By December 2011, both companies had filed competing lawsuits over the disputed claims, with Coeur accusing Rye Patch of “claim jumping,” while the junior stated it had valid possessory interests.

“In a previous case, the U.S. Supreme Court upheld the effect of the federal law and confirmed that failure to comply with the annual maintenance requirements causes an unpatented mining claim to be forfeited and void,” Rye Patch concluded in its prepared statement.

Coeur estimated that the disputed claims covered one-fifth of its Rochester mine, and could involve up to 20% of Rochester’s mineral reserves, plus a lot of the project’s global “mineralized materials.”

Coeur’s most recent resource update at Rochester pegs proven and probable reserves at 73 million tonnes grading 16 grams silver per tonne and 0.11 gram gold per tonne for around 45 million contained oz. silver and 308,000 contained oz. gold. In addition, Rochester’s reported measured and indicated resources clock in at 240 million tonnes grading 13 grams silver and 0.85 gram gold.

On June 25 the companies announced an deal that will see Coeur pay Rye Patch a US$10-million cash settlement, as well as a 3.4% net smelter return royalty (NSR) covering 39.4 million equivalent oz. silver sales at Rochester. The NSR kicks in on Jan. 1, 2014, and is expected to be complete within four years.

“While we believe our legal position is strong, it is ultimately in [our] best interests not to continue with a potentially lengthy and protracted lawsuit at the expense of our core business operations,” says Rye Patch president and CEO William Howald.

As part of the settlement, Coeur included an option wherein Rye Patch can acquire its Blue Bird property, which lies around 3 km west of Rochester and is adjacent to Rye Patch’s exploration-stage Lincoln Hill gold-silver project along the Humboldt gold trend. Blue Bird is roughly 8 hectares, and Rye Patch will have 10 days from settlement closing to exercise its option.

BMO Capital Markets analyst Andrew Kaip notes that “although it is positive that [Coeur] settled the ongoing dispute, incorporating the NSR, the company will pay [approximately US$36 million, at spot metal prices] to regain title to the contested mining claims.”

The NSR is non-assignable except to an affiliate controlled by Rye Patch. But after Jan. 1, 2014, the NSR may be assigned under the following conditions: in a single-asset transaction; for cash consideration; upon at least 30 days’ advance notice to Coeur; and to a company whose principal business is the acquisition, holding or management of precious metals production royalties and streams. Coeur maintains a right of first refusal to acquire the NSR on the same terms as any proposed sale by Rye Patch.

During the first quarter Rochester accounted for around 648,000 oz. silver production and 8,740 oz. gold production for Coeur at cash costs of US$13.54 per oz. silver. According to production guidance, Rochester is expected to crank out between 4.5 million and 4.9 million oz. silver in 2013, as well as between 44,000 oz. and 46,000 oz. gold.

Rye Patch shares fell around 34%, or 10¢ after news of the settlement, before closing at a 52-week low at press time for 19¢ per share. The company reported working capital of $613,600 at the end of March, and maintains 146 million shares outstanding for a $28-million market capitalization. Rye Patch is sitting on 161 million measured and indicated tonnes grading 0.37 gram gold and 4.83 grams silver in Nevada across its Wilco, Lincoln Hill and Jessup projects.

Coeur’s shares were unaffected by the news, down around 4¢ before closing at $12.78 at press time. The company reports 101 million shares outstanding for a $1.3-billion press-time market capitalization.