MINING MARKETS AND INVESTMENT NEWS — Query — Little or no hope for Galactic

I’m a shareholder of Galactic Resources, which in 1990 was Robert Friedland’s flagship company. At the time, it owned and operated the Summitville mine in Colorado and had total assets of $120.7 million and 35.1 million common shares.

In 1992, the company was charged by the American government with polluting the Colorado River and filed for bankruptcy to protect itself and its shareholders. Since then, Galactic has moved its business to the Ganzhou district in China’s Jiangxi province.

Will Galactic ever again be a company that does business in Canada or the U.S.? Is there a time limit for a company that files for bankruptcy whereby that company can be forgiven its debt and return to normal business in these two countries?

Robert Gray

Bathurst, N.B.

The odds of Galactic Resources being revived as a viable commercial entity in North America are so slim as to be virtually nil. It is highly unlikely that the U.S. government would ever “forgive” Galactic for the problems at Summitville, or welcome its taking on new mining projects in the country, even though other parties clearly contributed to the environmental fiasco.

Mining at Summitville dates back to the turn of the century. Various companies operated the mine before Galactic, at a time when environmental standards were far less stringent than they are today.

Even so, Galactic’s attempt to build and operate a heap-leach mine at Summitville was an unmitigated financial and environmental disaster — one that was compounded by a myriad of mistakes and oversights on the part of engineering contractors and state regulators.

Galactic claims it spent “vast sums” of money attempting to remedy problems caused by engineering miscalculations and to comply with state permits and licences. The weight of these expeditures contributed to Galactic’s bankruptcy, and the site was taken over by the Environmental Protection Agency, which, despite spending huge sums of money itself, has not fared well in its own cleanup.

In the spring and summer of 1996, in order to recover mounting cleanup costs, the U.S. government and the EPA obtained a Canadian court order freezing US$152 million worth of Robert Friedland’s personal assets.

The application was made with Friedland’s knowledge, and was later reversed when a judge found that the U.S. government lawyers had abused their roles and the courts by making “false allegations” and by “withholding material information.” This 1998 court decision paves the way for Friedland to pursue his counterclaim for damages totalling $150 million for the government’s “wrongful conduct,” which we gather he intends to do. But it is a personal matter, not directly related to Galactic.

Galactic had other assets, including an interest in the Ridgeway gold mine in South Carolina, but this was sold to help pay for the cleanup. A gold-copper joint venture in the Philippines and other assets also were sold, leaving the company as little more than a debt-burdened shell.

Galactic no longer trades and is in receivership, which means your shares have no value. U.S. government lawyers have long memories, and it’s a safe bet that Galactic will not attempt to resurrect itself in the forseeable future.