Noranda sues Agnico-Eagle, claims information on Dumagami withheld

A legal fight has broken out over the sale last year by Noranda Inc. of about 1.5 million shares of Dumagami Mines to Agnico-Eagle Mines.

At the centre of the dispute is a gold property consisting of 26 claims located in Bousquet and Cadillac twps. in northwestern Quebec, between Rouyn-Noranda and Val d’Or, which Dumagami hopes to have in production by June or July, 1988. The property is situated next door to Lac Minerals’ Bousquet project.

Noranda has launched a lawsuit in the Supreme Court of Ontario against Dumagami, Agnico-Eagle and Mentor Exploration and Development, in which it is seeking redress through a number of alternatives, including rescission of sale, accounting of profits on the shares and damages, totalling $40 million, for breach of fiduciary duty, breach of contract, negligence and breach of custom and practice.

Agnico-Eagle is the major shareholder in Mentor, with a 47.1% interest. Currently, Agnico-Eagle has a 22% interest in Dumagami and Mentor a 9% interest; the balance of the Dumagami shares are publicly held. The three companies are preparing a statement of defence.

In its statement of claim, Noranda says that at the time it sold its equity stake in Dumagami to Agnico-Eagle in February, 1986, its 1,455,163 shares represented 21% of Dumagami’s common shares; Agnico-Eagle then owned about 10% of Dumagami and Mentor about 18%. Agnico-Eagle carried out the day-to-day management of Dumagami. Noranda says it sold its Dumagami shares for $2 each, for a total purchase price of about $2.9 million, with Agnico-Eagle assuming the company’s advances to Dumagami of about $1.3 million.

Critical to the lawsuit is exploration of the western side of the property, where a new zone of gold mineralization, bridging the boundary between the Dumagami and Lac properties, was discovered. The western exploration program was not carried out “with reasonable or sensible geological practice,” Noranda says.

“Specifically, Agnico-Eagle and Dumagami did not disclose to Noranda before the execution of the sale agreement the facts and circumstances of the surface and underground drilling program as planned and being executed for the western program and particularly the proposed drilling plan, holes drilled, assay results and meaning thereof designed to and, in fact at that date outlining the dimensions and continuity of a new zone of mineralization in the western section of the property, a zone that has now become a major orebody.”

Noranda says had it known of the above information, it would not have sold its shares to Agnico- Eagle.

A 2,000-ton mill is being constructed by Dumagami on the property. Total reserves currently stand at 5,478,040 tons ore grading 0.13 oz gold per ton; reserves from the western zone stand at 3.16 million tons averaging 0.16 oz and from the eastern exploration zone, 2.3 million tons grading 0.09 oz.