Granges/Abermin marriage on the rocks over Tartan

What began as a marital spat between two Vancouver-based mining companies could turn into a full-fledged divorce. .T The object of the dispute is the Tartan Lake gold mine near Flin Flon, Man., currently the subject of a joint venture agreement between Granges Exploration (TSE) and Abermin Corp. (TSE).

Abermin recently fired the first volley when it started legal proceedings against Granges over production difficulties at the Tartan Lake mine. The two companies haven’t been getting along for months and apparently have only been talking through their lawyers.

In a law suit filed with the Supreme Court of British Columbia, Abermin is seeking rescission of its joint venture agreement with Granges at Tartan and the recovery of over $17 million it put into the project and/or damages.

Abermin president, Roger Taylor, says the company has “determined that reserves at Tartan Lake are lower than projected; gold production from the mine has been significantly lower than expected, and the operating experience has resulted in capital and production costs greatly in excess of those forecast.” The company is also claiming damages against Kilborn Engineering (B.C.) which prepared the feasibility study and certain other parties.

Abermin is exceedingly vulnerable because its participation in the venture was financed through a $15 million debenture, $4 million with CSA Management of Toronto and the rest with Goldcorp Investments which is managed by CSA.

“Discussions among Abermin, Granges, and the debenture holders with a view to resolving continuing difficulties arising from the unsatisfactory performance at the mine, which could in certain events give rise to a claim of default under the debenture, have to date been unsuccessful,” Taylor noted.

Abermin has a number of conditions to meet to avoid default. Robert McEwen, the president of CSA Management, told The Northern Miner there are two times in the year at which CSA determines whether Abermin is in default of its debenture. “One is the end of February and the other is the end of August.”

Any default by Abermin would relate to production shortfalls at Tartan, a reduction in contained gold reserves (which according to a recent study he said are sharply lower than expected), failure to make an interest payment of about 2% on $15 million, and Abermin’s failure to maintain its 50% interest in Tartan which could result if a counter suit by Granges is successful.

McEwen said that a report prepared by Strathcona Mineral Services on Tartan Lake has been made available to CSA. And he claimed the Strathcona report sees problems with grade and also with the assumed size of the orebody. “Strathcona came away saying the reserves were significantly less, perhaps by a factor of three or one third of what was originally projected. The mill design may not have been appropriate,” he added.

“I would expect that if we weren’t satisfied there would be law suits in every direction,” he predicted. The debenture is convertible into shares of Abermin but McEwen said it “wouldn’t be much of an advantage at this point.” He noted that Goldcorp’s share of the debenture is carried “at its converted value” which represents a very large reduction and “it’s the same with CSA.” Granges is now demanding payment of outstanding joint venture costs which are said to be around $2 million. According to Granges, failure to pay these costs could lead to a 10% dilution (to 40%) of Abermin’s interest in the project.

Granges President Mike Muzylowski said he saw Strathcona’s preliminary assessment in April but not the final report. “I don’t know if they (CSA) are privileged or what’s happening.”

Regarding the drop in reserves alleged by CSA, Muzylowski said it’s “a function of cutoff.”

“What they (Strathcona) are saying is that the costs are going to be much higher than what we are attaining. Our actual costs will support a 4 g (0.12) cut off,” he insisted.