Canyon was provided the funds in order to seek compensation for its McDonald gold project in Montana, which was derailed after voters in that state banned the use of cyanide in new mining projects.
Under the agreement, Franco provided Canyon US$3 million in cash, plus another US$500,000 for a reclamation bond, in exchange for a 4% net smelter royalty on any future production or one-third of the proceeds of any damages awarded in a lawsuit against the state.
Canyon filed its suit against Montana in April, hoping either to overturn the ballot initiative, I-137, or obtain a damage award for the value of the McDonald property, which the company believes could exceed US$500 million.
To date, Canyon has spent US$1.2 million of Franco’s money, which is held in a trust account and cannot be spent on anything but the McDonald project. Canyon’s strategy has been to demonstrate, through extensive expert testimony and metallurgical testing, that open-pit mining combined with heap leaching is the only economical way to develop the deposit.
Franco-Nevada’s suit is reported to include allegations of improper disclosure on the part of Canyon. The company is seeking the return of its funds, plus additional unspecified damages.
Canyon President Richard De Voto says he is disappointed with Franco-Nevada’s action and believes the lawsuit is without merit. He says the financing agreement states that Canyon has no obligation to refund or return any funds, including the reclamation bond, to Franco unless Canyon is successful in overturning I-137 and can proceed with development, or unless it receives compensation for not being allowed to develop the property.
Canyon plans to continue the Montana lawsuit. However, with only US$2.5 million in cash remaining (including the trust account), the company’s progress could be delayed.
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