Editorial Exploration demands caution

The key word here is “potential,” not only because legal proceedings are only a possibility at this point, but the discovery itself is at the very early stage. Three drill holes have indicated that the find could prove to be very significant (see story on page A1), but we have always advised caution when it comes to evaluating properties based on such limited information. Maintaining an objective view is often difficult, but all the more necessary when rumors are flying, stocks are trading and excitement just seems to keep snowballing.

However, the way this particular story has been unfolding is fascinating, in the mold of the classic high-risk, high-reward mining stock tradition. The discovery drill results came out of the blue. Aur Resources stock had been relatively active the previous week trading more than 200,000 shares over a 5-day period and it had moved up somewhat. Once partial results of the first seven holes were announced on Monday, however, the effect was remarkable. On Tuesday alone Aur traded 1.3 million shares valued at over $6 million and the stock price had increased in value by almost 60% after just two days of trading. Louvem fared even better, tripling in price over three days as it, too, ranked among both the volume and the value leaders on The Toronto Stock Exchange.

But it took Louvem only one day after the announcement to dispute Aur’s claims to the property and to declare that it was willing to take the matter to court if necessary. Aur says Louvem’s interest is less than 50% and will be further diluted, but Louvem says it is entitled to a full 50% interest in the property.

Aur says Louvem missed property payments as described in their contract that were required to keep its full interest in the property. Louvem hasn’t explained its position in any detail.

The fact is, without discussing the relative merits of either side in this particular argument, that lawsuits are becoming a much more prevalent part of this business. As a story by David Robertson on page B1 of this issue points out, more properties seem to be entangled in legal disputes than ever before.

Of course it’s proper that both sides in any dispute be protected by the legal system, both the plaintiff and the defendant. But it is a terrible pity that so many discoveries — some of which have developed into significant orebodies — are diminished by legal wrangling.

And the lesson for the companies involved, be they large or small, plaintiff or defendant, is that they cannot be too careful when it comes to the legal aspect of their business, the contracts and agreements that are such a vital part of the exploration game.

That’s easy to say after discovery is made. It’s another thing when one is dealing with several properties and a find is just a dream one is working toward. But you can almost bet that the property down the list, the one that’s second or third or lower on a company’s list of priorities, is where the excitement is going to come from. And when it does, a company had better be certain that all the i’s are dotted and t’s are crossed in any legal documents.

Those who fail to look after that end of their business do so at their own — and their sharejolders’ — peril.

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