Hemlo dispute ends Court upholds decision awarding Williams gold

The court upheld a decision rendered in 1986, which awarded the Williams mine in the Hemlo area of northern Ontario developed by LAC Minerals (TSE), to Corona upon payment of $154 million plus interest. (That payment is now worth about $210 million.)

The conclusion of the legal battle which began almost eight years ago marks the transformation of a junior mining company known as International Corona Resources into a major North American gold producer.

It also focuses attention on what the future may hold for LAC, which remains, despite the loss of the mine, a relatively large, financially stable gold producer. Speculation has arisen about whether LAC will become the target of a takeover bid.

Corona President Peter Steen expressed relief the legal battle has ended. “Now that the court case is finally behind us, we can look forward to operating and developing the tremendous resource of the Williams mine,” he said.

The mine (LAC called it Page-Williams; Corona prefers Williams) produced about 379,000 oz gold in 1988 and will turn out a projected 490,000 oz this year. Corona and Teck Corp. (TSE), under a prior agreement, will become 50/50 partners in the mine’s operation.

Corona and Teck are also equal partners in the David Bell gold mine at Hemlo, which in 1988 produced almost 218,400 oz.

The stock market reacted relatively quietly to the court decision, which was delivered after the markets closed on a Friday afternoon. By the end of the first TSE trading session following the announcement, LAC had closed down $1.38 to $11.88 on 3.1 million shares, Corona A shares gained 25 cents to $9 on a volume of 3.3 million, and Teck B shares gained 38 cents to $23 on a volume of almost 716,000.

While the court battle goes back to 1981, the story begins in earnest a year or so earlier, towards the end of 1980, when Corona, incorporated in 1979, hired a geologist to extensively explore its Hemlo property. Among the claims explored were those comprising the Williams property.

Corona, contending LAC used information gathered by the junior and shared with LAC to strike a deal for itself with the property owner, took LAC to court in October, 1981. Chairman of Corona at that time was colorful west-coast promoter Murray Pezim.

In October, 1985, the case came to trial. Among the witnesses giving evidence, and figuring prominently in the proceedings throughout, were two prospectors from northern Ontario, John Larche and Donald McKinnon.

In March, 1986, Justice Holland of the Supreme Court of Ontario awarded the mine to Corona. LAC appealed, but in an October, 1987, ruling, four judges of the Ontario Court of Appeal (the fifth judge who heard the appeal died in June, 1987, and did not take part in the decision) unanimously dismissed the appeal. Lac then sought leave, and was granted permission, to appeal to the federal court, which heard the case in October 1988.

Five justices of the Supreme Court of Canada ruled on the case, dismissing the appeal with costs, although two of the justices dissented in part.

According to Justice La Forest, LAC “misused confidential information confided to it by Corona” and “committed a breach of confidence.”

Justice Sopinka argued Corona should receive monetary damages only. He also differed over the issue of fiduciary (involving a confidence or trust) obligations.”In my opinion, both the trial judge and the Court of Appeal erred in coming to the conclusion that a fiduciary relationship existed between Corona and LAC,” he wrote.

According to Justice Sopinka, “the wrong committed by LAC was the acquisition of the Williams property for itself and to the exclusion of Corona. That was contrary to the understanding found to exist by the trial judge that the parties were working towards a joint venture or some other business arrangement.”

After the original court ruling, LAC continued to operate the mine under the direction of a 3-member management committee comprising one LAC representative (Roderick Pye), one Corona representative (Herb Cox), and a third independent member (Graham Farquharson) who acted as chairman.

Among the organizations pleased to see an end to the court case is the Prospectors and Developers Association of Canada. “We’re happy the whole matter has been resolved so business can go on,” said Anthony Andrews, managing director.

Andrews feels there has been too much emphasis on lawsuits in the media, which he said is contributing to a “negative image” of the mining industry.

In claiming ownership of the mine, Corona will gain control of a trust account from profits worth about $80 million.

Corona’s exploration department is expected to be busy. “The most significant result of the Supreme Court of Canada’s ruling is that we can explore the enormous potential of the B zone to the west and at depth, and also the C zone which currently has only been explored a few hundred metres below surface,” Steen said.

“If this orebody behaves like the other ore occurrences in the area, then it is likely it will improve in both grade and width as it goes deeper. In the event it does, one can imagine a substantial increase in production capacity of the mine, with an attendant reduction in the cost of producing an ounce of gold.”

Corona says all employees at the mine, where the mill was expanded last year to a capacity of 6,600 tons per day, will be offered a transfer to the new company operating the mine and that Corona and Teck intend to honor all existing terms of employment.

Including production from the Williams mine, Corona is forecasting total 1989 gold output of 625,000 oz from its interests in 10 operating mines, at an average production cost of about $220(US) per oz.

LAC, which produced about 320,000 oz gold in 1988 and is projecting output of 500,000 oz by 1992, ceased accounting for the mine in its financial statements as of fiscal 1986.

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