Suit drains Metalore coffers but court rules in its favor

The Ontario Court of Appeal has ruled that Metalore Resources (TSE) has regained the right to earn a 100% interest in the Brookbank gold property from Ontex Resources (ASE). The 18-claim property is near Beardmore, Ont.

In addition, another 478 claims adjacent to the property, held in constructive trust for Ontex, have been returned to Metalore. The court also found that an award of $80,000 in punitive damages against Metalore President George Chilian was inappropriate.

“This litigation has drained us financially,” Chilian said following the ruling. “But now that we’ve got the judgment, we expect to be able to raise some financing.”

During the appeal, Metalore climbed steadily from $5 to $10, jumping another $4.25 to $14.50 on the day following the ruling. Ontex lost 50 cents to close at 75 cents, after trading as high as $3.35 when Justice Robert Montgomery awarded it full ownership of Brookbank in 1990.

The decision is another turning point, but not necessarily the final chapter, in a 7-year legal battle between the two companies. Having spent more than $4 million on the case, Ontex is now considering an appeal to the Supreme Court of Canada.

“A board meeting has been called to discuss our intentions with regard to Brookbank,” said a “surprised” Ross McGroarty, vice-president of Ontex. As part of the judgment, the Court of Appeal reinstated a 1981 agreement on the property. But the original trial judge’s rescission of a 1983 agreement was upheld because, according to the Court of Appeal, Metalore was “manifestly improper” in withholding a key geological report on the claims. The revived 1981 agreement calls for Metalore to produce a detailed production proposal for Brookbank within 10 years. Reserves stand at 1.4 million tons grading 0.26 oz. per ton.

According to the original agreement, if Metalore spends less than $5 million on the property, Ontex will retain a 30% net profits interest. If Metalore spends more than $5 million, Ontex has the option of retaining a 40% joint-venture interest.

About $6 million has been spent on the property to date, but more than 35% of that was spent by Placer Dome and Hudson Bay Mining and Smelting as part of previous agreements.

In its judgment, the panel of three appeal judges dismissed the trial judge’s assumption that Metalore had a fiduciary duty with Ontex.

Chilian says his first priority now is to get two Ontario gas wells into production. He will then turn his attention to the Beardmore area and try optioning the 18-claim property to a major company.