Editorial Avoiding litigation

Chances are you have if you’ve been following any mining stocks. It seems as though there is a new legal action every day, frequently over joint ventures that have gone sour. Lawsuits are becoming almost a badge of credibility — the bigger the lawsuit, the more important the property.

But not everyone in the business enjoys getting bogged down in trips to the lawyers’ offices. In fact most would just like to get on with the business of exploration and development.

That’s why a recent settlement between parties over two properties in Saskatchewan caught our eye this week. It’s a resolution that rivals Solomon’s for its simplicity and efficacy. It’s also the kind of innovation that might well have broader implications for the industry.

Essentially the situation was this. Three partners were involved in one property and four were involved in another property that share a common boundary. As so often seems to happen in this business, the deposit straddles the boundary.

Because of various relationships between the parties, the dispute was ultimately between two sides, each of which had interests in both sides of the boundary — Goldsil Resources, Golden Rule Resources and International Mahogany were on one side; Cameco and Shore Gold Fund on the other.

There are major differences between the corporate objectives of both sides. Goldsil and its partners are essentially entrepreneurial, junior exploration companies. Cameco, which has the right to vote Shore Gold’s interest, is a very large corporation owned by the provincial and federal governments. Goldsil was operator on one side of the boundary, while one step away, on the other side, Cameco was the operator.

Despite their differences, the two sides were able to come up with a process to set a price whereby one would be a willing buyer and one a w illing seller — a true win-win solution.

Each side independently determined what it felt the two properties together were worth. They were free to allow for the future price of gold and for any other considerations — the exploration potential of the large properties and, particularly in Cameco’s case, political implications.

Each side then entered their bid. The highest bid won the obligation to buy out the lower bidder, but the purchase price was established as the lower of the two bids. If one side’s bid was not high enough to win, its own bid became its compensation for losing.

Certainly it is not a process for settling all disputes. It will not replace the courts. However, it worked in this particular case with these particular partners, and spokesmen for both sides said they would not hesitate to use the process again.

It is an innovation that has smoothed the way toward getting another mine into production and, as such, it is commendable. Other joint venture partners who face litigation to resolve their differences might do well to study this alternative.

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