MINER DETAILS — Holloway deal avoids courts

It seems that any significant mineral discovery inevitably results in some sort of lawsuit. “If your project is so good, how come you haven’t been sued?” shareholders ask companies that avoid the courts.

The Holloway project near Matheson, Ont., is one project where the parties involved have been able to get through some tough negotiations without resorting to legal action. Here, three companies are involved in a gold deposit that straddles two properties. Hemlo Gold Mines and Freewest Resources participate in a joint venture on the north property on a 60-40 basis respectively while Teddy Bear Valley Mines, Hemlo and Freewest have a joint venture on the south property.

With 5.5 million tons grading 0.25 oz. gold per ton already delineated, the partners should have no reason to be on the defensive. The trick was to come up with equitable terms to develop that known deposit, taking into account how much of it is on each of the two properties and including an arrangement for developing and extracting ore that hasn’t been discovered. “Undiscovered ore” sounds like the typical optimism that springs eternal from the gold mining fraternity, but the ground surrounding the deposit holds excellent prospects for more ore, particularly at depth. The partners, however, want to develop the mine now even though they recognize that if more ore is found on one property or the other, it would alter their respective shares of production.

Sorting out the rights to future ore hung up negotiations for several months. The solution was simple, but a novel twist nonetheless, and all the more admirable for avoiding a protracted legal harangue.

The three companies involved in the two joint ventures established a third joint venture solely for developing and mining the deposit as it is known. This Holloway joint venture will pay all the capital cost to develop the known deposit and will keep a “permanent capital account.” If, in the future, more ore is found on one of the other two joint ventures’ properties, the Holloway joint venture will be reimbursed for the use of the shaft, workings and infrastructure to extract that ore.

This project will go ahead — the only gold mine now under development in Ontario. The partners are not giving up the potential for future discoveries on their properties and squabbles over production from future discoveries will likely be avoided because a mechanism is already in place to handle that “future ore.”

All in all, a small victory for co-operation over confrontation.