Ventana falls on legal challenge to La Bodega earn-in deal

Vancouver – With drills pulling long, gold-laden intercepts from the ground, like 84 metres carrying 13.66 grams gold per tonne, it is no surprise the group that vended the La Bodega property in Colombia to Ventana Gold (VEN-T) wishes it had charged more for the land. Whether a new lawsuit attempting to invalidate the option agreement and return the property to the vendor will have any success, however, is an entirely different question.

Ventana signed an option agreement on the La Bodega property with Sociedad Minera La Bodega (SMLB), a private Colombian company, in February 2006. The deal called for a series of cash-and-share payments, totalling US$7 million and 1 million shares, spread over four years with a payment due each February. Ventana has made each agreed payment, most recently handing over US$2.8 million and 250,000 shares last February. A final payment of US$3 million and other 250,000 shares in early 2010 should have given Ventana 100% ownership of the gold property.

Now SMLB is seeking arbitration over the deal, in an attempt to invalidate the option agreement and regained ownership of La Bodega. The Colombian vendor is arguing that the option agreement fails to comply with applicable Colombian laws, though it is not yet clear which laws are possibly contravened.

In a conference call, Ventana’s president and CEO Stephen Orr says his team was surprised by the challenge but are confident it will be dismissed.

“This claims appears to be based purely on an attempt to obtain more money for the mineral rights, based on the increased value that has been gotten through Ventana’s work,” Orr said. “However there is not a provision in the agreement for changes to be made on that basis…

“These claims have no merit and several of the allegations are completely false. We are confident that we will prevail in this arbitration.”

Orr pointed out that there have been no changes to Colombia’s mining laws since the agreement was formulated and there are no government agencies involved in the dispute. He also clarified that the arbitration process does not impeded Ventana’s ability to continue to work at La Bodega, where the company has nine drill rigs turning. The company expects to release an initial resource estimate in early 2010 and complete a scoping study a few months later.

Ventana’s legal counsel, who prepared the deal in the first place, as well as counsel from another major Colombian law firm asked to give a second opinion both believe the original agreement is legal and valid. Both sets of counsel have advised Ventana they expect the option agreement will be upheld as valid and enforceable by the arbitration panel.

The agreement included a stipulation allowing Ventana to exercise the option in full at any time prior to the date of the final payment. As such, Ventana says it tried to complete the final option agreement payment on Nov. 20th, several months ahead of schedule, but SMLB refused to accept the payment. As such, Ventana’s Colombian subsidiary has filed a claim with the Bucaramanga chamber of commerce for breach of the obligation by the vendor to accept payment.

Once the chamber has established an arbitration panel a settlement hearing will be held, during which the arbitration costs will be established. The parties then have ten days to deposit the assessed amount. If neither party pays, the arbitration is terminated and can be converted to a lawsuit in the courts; otherwise it proceeds to hearings. Once underway the arbitration, which could take up to a year, cannot be stopped unless both parties agree and the final decision is binding. It can only be appealed before a Colombian high court if there is evidence of a failure of procedure.

Ventana’s share price lost $1.47 or 13% in a day following news of the SLMB challenge, to close at $9.76. Even with the drop the company can still boast a 31-fold increase in share price over the year – in late 2008, just after the company debuted on the Toronto Stock Exchange, Ventana shares were trading at roughly 30¢. The company has 97 million shares outstanding.

The company’s most recent set of drill results give an indication of the quality of the growing La Bodgea discovery. Infill holes on the main La Mascota zone, which already extends along 800 metres strike, returned such hits at 38.6 metres grading 6.01 grams gold, 22.7 metres grading 12.29 grams gold, 9.4 metres of 22.8 grams gold, and 110 metres averaging 4.84 grams gold.

And two holes collared 300 metres southwest of the La Mascota zone returned cores characteristic of the zone: higher-grade breccia veins hosted within a silicified envelope. Hole 154 intercepted 13.8 metres grading 3.15 grams gold followed by 24.2 metres averaging 7.69 grams gold; hole 157 returned 11.7 metres averaging 4.57 grams gold.