Glen Eagle to sue Kinbauri over failed financing

Vancouver – Glen Eagle Resources (GER-V, GERFF-O) says it intends to sue Kinbauri Gold (KNB-V, KINBF-O) for damages over what it calls a “breach” of the two juniors’ April agreement that would have seen Glen Eagle purchase a 45% stake in Kinbauri’s Spanish assets for $32 million.

Near Asturias, Spain, Kinbauri owns the El Valle and Carles past-producing mines where it has proposed to restart mining in a project with capital costs of €90 million (around $140 million) that would see production of about 100,000 oz. gold and 10 million lbs. copper per year over a 9.5-year mine life.

But in a tit-for-tat response to Glen Eagle’s charges, Kinbauri says it too will consider suing Glen Eagle for damages relating to their agreement.

Details of the looming litigation, however, are spotty at best with Glen Eagle president Jean Labrecque and Kinbauri president and CEO Vern Rampton deferring to their lawyers.

“To be quite frank at this stage everything is in the hands of the lawyers,” Labrecque says.

The $32 million agreement went sour at the beginning of June after Glen Eagle notified Kinbauri that its original source of funding had fallen through. Glen Eagle had said in April that a private partner, Peak Holdings, arranged $32 million through a consortium of European banks.

Though Glen Eagle said Peak was still looking for another source of cash in order to fulfill the April agreement – and that it would notify Kinbauri of developments by June 10 – it wasn’t enough for Kinbauri. Kinbauri announced June 5 that the $32 million arrangement was over.

Glen Eagle responded June 11 saying Kinbauri had terminated the agreement “unilaterally” and was in “breach thereof”. As a result it said it would seek damages in an arbitration hearing where it would also ask for the status of its “outstanding application” with Kinbauri – presumably meaning the $32 million funding arrangement – to be clarified.

The same day Kinbauri answered back saying “no damages are payable” and that likewise it would consider seeking damages from Glen Eagle. Kinbauri also said it would ask a court June 17 to declare it had lawfully ended the transaction with Glen Eagle.

The June 17 court date is set to resolve a related matter with Kinbauri shareholder Jaguar Financial which is demanding Kinbauri’s board of directors be replaced.

In May, Jaguar, which holds about 9% of Kinbauri’s shares, charged Kinbauri with unfairly rejecting a takeover bid by Orvana Minerals (ORV-T, ORVMF-O), operator of the Don Mario gold mine in Bolivia. Orvana offered 55¢ a share for all of Kinbauri’s outstanding shares a few weeks after the Glen Eagle agreement was announced.

A Kinbauri special committee was quick to reject the bid which valued the company at about $33 million and, at the time, Kinbauri president and CEO Vern Rampton told The Northern Miner that the offer was “ridiculously low.”

Kinbauri’s board of directors subsequently convened and formally rejected the bid, telling shareholders the offer undervalues the company’s assets at a time when the company is right on the cusp of going to production.

Meanwhile Orvana has responded to Kinbauri’s rejection by sowing seeds of doubt over the Glen Eagle transaction (which would soon thereafter fail) and Kinbauri’s ability to develop and run a mine. In turn it has sold itself as a capable miner offering fair value for Kinbauri, a company that is not yet in production.

How the dueling between Kinbauri and its antagonists, Jaguar and Glen Eagle, will unfold and how quickly it will be resolved is uncertain.

Neither Kinbauri’s Rampton nor Glen Eagle’s Labrecque could say whether a single court action would consider the issues together. Nor would either comment on the specifics of the case.

Labrecque preferred not to speak about whether Kinbauri might have had recourse to cancel their agreement given it was Glen Eagle that had failed to come through with the original $32 million financing.

“You would have to ask Kinbauri,” Labrecque says, adding: “Kinbauri came with their position and we stated our position.”

Rampton says the issues are more complicated than whether or not Kinbauri had recourse to terminate the agreement because Glen Eagle failed to source the $32 million through Peak as originally envisioned.

“It’s not that simple,” he says, though he would not elaborate.

The foundering agreement between Glen Eagle and Kinbauri, however, does not appear to have brewed bad blood between the two companies.

Neither Rampton nor Labrecque speak harshly about the other’s company.

“I don’t want to (harp) on Glen Eagle. They put a lot of effort into this,” Rampton says, referring to Glen Eagle’s attempt to arrange the $32 million.

As for Labrecque it appears that he still holds out hope that the Glen Eagle-Kinbauri agreement may proceed. It is something Glen Eagle, he says, “possibly still intends to do.”

In effect subscribing to the adage that no press is bad press, Rampton even sees an upside to the legal wrangling. “What happens through all this fooferah is that it has made people realize that we’re not (full of it),” he says.

The press has put Kinbauri on the radar of investors, he says, noting, for example, that the company now trades well above the 55¢ Orvana offered back in May. On the day interviewed Kinbauri closed at 68¢

For that reason he says Orvana’s offer has “no hope” of succeeding. In fact, “I would think Orvana would raise the offer,” he says.

But, still, Rampton wants the June 17 court proceedings to wrap up quickly. Though Kinbauri has about $3.7 million in cash, maintaining the El Valle and Carles facilities and staff is costing Kinbauri about $600,000 a month.

“I’d really like to get going as soon as possible,” he says.