Lawsuit scuppers Poderosa sale (November 22, 2004)

Cambior (CBJ-T) has abandoned plans to acquire a 55.3% stake in Peruvian-based miner Compania Minera Poderosa (CMPSA).

The move comes after a group of private shareholders said they were unable to extend the term for the closing of the deal as they were unsure how long it would take to settle a judgment against CMPSA over title to the Pataz claims. Those claims comprise a significant portion of the Poderosa mine’s reserves.

“We are surprised and disappointed with the position of the selling group, which has decided not to work with us to resolve the outstanding legal issues and ensure certainty of title of the Pataz claims,” says Cambior CEO Louis Gignac.

In September, Cambior inked a deal to buy the group’s stake in CMPSA (and US$8 million worth of advances by the sellers to CMPSA) for US$25 million in cash accompanied by 2.2 million shares. The deal also included a possible payment of US$6 million subject to resolution of outstanding tax legislation.

CMPSA owns the Poderosa mine in northern Peru, where proven and probable reserves total 563,000 tonnes grading 18.8 grams gold per tonne, based on a gold price of US$350 per oz. A review by Cambior identified some 3.3 million tonnes of inferred material grading 12.8 grams gold.

The Poderosa mine has produced 1.25 million oz. gold since 1982 and currently churns out around 100,000 oz. per year at a projected cash cost of US$175 per oz.

In a subsequent deal with another group of shareholders, Canadian Shield Resources (CSP-V) agreed to take the remaining 44.7% of CMPSA in return for 60% of Canadian Shield shares (on a fully diluted basis) at the time of the deal’s closing. Canadian Shield is also required to raise at least US$20 million by mid-November; the funds will go toward acquiring US$5.9 million worth of loans from the selling group to CMPSA.

Canadian Shield CEO Eduardo Baer initially said Cambior’s exit did not deter him from proceeding with his company’s plans at Poderosa, and moreover opened the door for his company to consider increasing its stake.

Subsequently, the company’s letter of intent was terminated by mutual agreement after the two sides concluded an extension was impracticable until title to the Pataz claims could be sorted out.

“Canadian Shield determined that this litigation has a significant impact on the completion and valuation to be assigned to the transaction,” said Baer in a prepared statement. “Under these circumstances, the parties felt it is not in either of our interests to extend the term of the letter of intent. “However, we remain open to reconsidering the proposed transaction once the Pataz lawsuit is resolved.”