Although North American mining companies, as a group, have prospered in recent years by venturing to remote parts of the world, several Canadian companies were devastated in 1998 as a result of overseas deals gone bad.
Some of those most burned were involved in that incredible black hole for North American mining capital known as Kazakstan.
Toronto-based junior
The lawsuit was filed in the International Court of Justice in response to the government’s alleged unlawful cancellation of the two companies’ Gold Pool joint-venture contract in the summer of 1997. The contract permitted the partners to manage state-owned Kazakhaltyn, which operated the Bestube, Aksu and Jolimbet gold mines in the country’s central region. The contract also provided the two companies with an option to purchase the mines — an option the partners had announced they would exercise five months before the contract was revoked.
Despite the problems with Gold Pool, Central Asia Goldfields (CAG) pushed on with plans in early 1998 to explore two unrelated gold prospects in Kazakstan. However, an increasingly acute lack of exploration funds on the part of both companies put the good standing of all their exploration licences in jeopardy.
In March, there seemed to be a ray of hope when the government approached Kazakstan Goldfields (KG) to begin talks aimed at resolving the dispute. By June, the government had appointed a group to conduct negotiations with the Gold Pool partners.
The government’s moves appear to have been a stalling tactic, as the partners have not heard from this working group since July, despite the involvement of Canadian embassy staff on the companies’ behalf.
In October, KG, now acting for both companies, restarted its lawsuit and boosted the claim to US$64.8 million to account for additional interest and penalty charges that had accrued since the initial filing. KG says its claim will increase by US$36 million annually until a settlement is reached.
The crisis has devastated the financial health of both companies. As of June 30, KG had a deficit of $35.9 million and a cash position of $2,257. KG shares were languishing at about 3 cents at presstime, down from 10 cents a year ago and $1.35 two years ago. For its part, CAG had a deficit of $13.6 million at June 30, and a cash position of $7,087. Its shares were trading at around 3 cents at presstime, down from 35 cents a year ago and more than $4.50 two years ago.
The controversy also chased out two presidents: in January, KG President Charles Pitcher resigned and in September, so did CAG President John Hansuld. Both were replaced on an interim basis by KG and CAG Chairman Thomas Griffis.
Another Canadian miner deeply wounded by its foray into Kazakstan was uranium junior
In August 1997, just a couple of years after being lured into Kazakstan to help resuscitate the country’s ailing uranium industry, World Wide was effectively squeezed out after having successfully completed a restructuring of uranium processing facilities in Stepnogorsk. Specifically, the company was refused a uranium export license that had been promised by the government and World Wide’s management contract for the uranium processing facilities was unilaterally canceled. In a separate deal, World Wide was also denied its option to forge a joint venture with state-owned KazAtomProm to develop three uranium deposits in southern Kazakstan.
In May 1998, World Wide filed a lawsuit in the Federal District Court in Washington, D.C., against the Kazakstani government, seeking damages of at least US$220 million related to the derailed uranium project.
World Wide had recorded loans, accrued interest and management fees totalling $22.3 million related to the uranium-processing project, plus another $7.9 million that had been spent assessing, financing and developing its projects in Kazakstan.
In early December, World Wide announced it had served notice upon various international companies that handle, process or purchase uranium concentrates from Kazakstan. In effect, World Wide is claiming either title to or a security interest in all uranium concentrates that have been received by such companies since Oct. 7, 1996, or which may in future be received. These companies include:
“Kazakstan should not underestimate our resolve to achieve full reimbursement of our loans as well as damages for our loss of profits,” says World Wide Chairman Paul Carroll. “If necessary, we will invoke the assistance of courts in countries in addition to the U.S. in our efforts to obtain redress, which will include any entity which has participated in this action by Kazakstan.”
World Wide’s luck also ran out this year in neighboring Mongolia. In August, the company decided to suspend mining at that country’s Dornod uranium project as a result of weak uranium prices.
After trading at a peak of about $2 two years ago, World Wide shares opened 1998 above 25 cents, gained some strength over the first few months and then settled into the 3 cents zone by mid-December.
The three suffering juniors no doubt look to
A continent away, in a situation similar to the Kazakstan debacles, Toronto-based explorer
In August, the Laurent Kabila-led government of the Democratic Republic of the Congo (DRC) took advantage of the confusion surrounding an armed rebellion in the eastern regions of the country to expropriate Banro’s large Sakima gold project in South Kivu and Maniema provinces.
According to a presidential decree, the government dissolved Banro’s 93%-owned Congolese subsidiary, Societe Aurifere du Kivu et Maniema (Sakima), and terminated a 25-year mining convention signed in February 1997 by the government, Banro and Sominki (Sakima’s predecessor).
In its decree, the government cited “certain irregularities in the liquidation of Sominki and the creation of Sakima,” though the nature of those alleged irregularities was not explained to the company’s satisfaction.
Banro had spent US$15 million on the Sakima project and was about to launch another major drilling campaign when the crisis erupted.
In response to the expropriation, Banro launched a $1-billion claim against the DRC government, filed through the International Center for the Settlement of Disputes (ICSD) in Washington, D.C. In its filing, Banro maintained that it had fulfilled its commitments to keep the mining convention in good standing and alleged that the seizure violates the DRC’s own laws.
In November, a team led by Banro President Bernard van Rooyen met with senior DRC officials in Kinshasa, whereupon Umba Kyamitala, the DRC’s minister for the development of strategic zones, provided Banro with a letter detailing the government’s position. Banro says its legal advisers reviewed the document and are of the opinion that the minister’s contentions have no substance under Congolese law.
Under the ICSD’s dispute-settlement rules, the nomination of arbitrators by both sides must be completed no later than January 26, 1999.
Banro shares, which peaked at US$15 in early 1996, spent the first half of 1998 at $5 before collapsing to
US$1 following the August expropriation. The shares have since slid into the US50 cents range.
Back in Asia, another Canadian junior stung in 1998 was Vancouver-based
In June, following a year of due diligence and $1 million worth of expenditures, Zen walked away from the large-tonnage Zijinshan gold-copper joint venture in southeastern China — a project that had, until then, been its centrepiece.
Zen said that its Chinese partner, the Fujian Bureau of Geology and Mineral Resources, did not fulfil its obligations — in particular, that it did not give Zen free access to the property. While Zen was allowed some access, the company’s local partners were allowed to mine the deposit and did not vacate the property as previously agreed.
Zen seems to have been caught in the middle of an ownership dispute between its partner (the regional geology department) and the government’s mining department. Traditionally in China, the geology departments have explored for minerals while the mining departments have mined the deposits found by those departments.
Zen’s decision to pull out of Zijinshan was also influenced by disappointing results from the company’s technical review. Contrary to initial expectations, the study could not improve upon the deposit’s marginal copper-gold grades.
Despite the setback at Zijinshan, Zen remains committed to mineral exploration in China, where it is involved in three less-advanced gold projects: Lingnan, Qianhe and Luoding. Also, Zen recently signed preliminary agreement relating to a gold project in Habehe Cty. in Xinjiang Habehe province.
Zen shares were trading in the 9 cents range at presstime, down from a value of $4 two years ago and 80 cents one year ago.
While not suffering the same degree of share-price collapse as the above companies, majors
Just a month ago, a top Turkish court rendered an unappealable decision banning the use of cyanide at the partners’ stalled Ovacik gold project, owned 33% by Inmet and 66% by Normandy.
Although mine construction was completed at a cost of US$49 million last December, Turkish regulators withheld approval to begin commercial production owing to local concerns over the health effects of cyanide use.
The partners are considering possible solutions to the stalemate, one option being to sell the project outright.
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