Who will own the Hemlo mine? Market flutters as appeal nears

In the labyrinthine basement of Osgoode Hall, the seat of Ontario’s Court of Appeal, one entire room is set aside for documents relating to the case of Lac Minerals and International Corona Resources.

Documentation for the appeal of a March 7 decision awarding ownership of the richest of three gold mines in Ontario’s Hemlo camp is the most voluminous of any appeal heard by the court with one exception, an historic case concerning public funding for Roman Catholic schools in the province.

In fact, four 4-inch thick binders contain just the index for the boxes of documents piled up in the court’s cellar relating to the Hemlo appeal. The “highly unusual” appeal book containing the “meat” of the appeal is 15 volumes says a court clerk.

The mine has been operating since late 1985 pouring its first gold bar Dec 6. In the first nine months of 1986 it produced about 165,000 oz of gold to generate earnings of about $12.4 million on revenue of $89.1 million.

Lac is appealing the decision of Ontario Supreme Court Justice R. E. Holland awarding the Page- Williams mine to Corona. He found that Lac had violated a fiduciary trust — a legal duty to respect a position of trust — in obtaining the right to mine the 11 patented claims and said Corona should gain those rights upon paying Lac $154 million for the capital costs Lac had already incurred.

The appeal is scheduled to be heard beginning Nov 17.

Lac says that decision should be reversed or at the very least a new trial ordered: Corona, in a cross appeal, says the decision should not only stand, but that Corona shouldn’t be required to pay Lac anything. Furthermore, Corona says if the appeal court lets the original decision stand but changes the award from transfer of the property to a cash settlement, the value should be bumped up to $1.5 billion from 700 million.

Lac says the trial judge’s decision went well beyond reasonable limits and will have “a significant chilling effect on commercial enterprises, especially in the mining exploration industry.”

It says it does not question any findings of fact made by the trial judge but questions the inferences he made from them and “evidence he failed to mention” in his judgment.

At the request of both companies, the trial judge set a value on the property in case a cash settlement was subsequently made. He set the value at $700 million. Corona says that value is too low because the judge reduced the value due to the risk involved in mining. Corona, however, says there was virtually no risk with this particular mine because the ore reserves were well determined, the mill and other buildings and services were of the highest calibre, the property was close to the TransCanada Highway, and labor and other services were readily available.

Corona says it shouldn’t have to pay Lac anything because Lac spent the money after Corona had filed its suit in October, 1981, and knew it could lose the property.

Both companies go into considerable detail in their written statements. In fact, the court will not allow a factum to exceed 30 pages unless a dispensation is given by one of the Supreme Court judges but, in this case, Lac’s is 124 pages and Corona’s is 576 pages.

The stock market is already perking up in anticipation of the appeal. Trading of the two companies’ shares was heavy just prior to the March 7 decision. When the decision to turn the mine over to Corona was handed down earlier this year Lac’s stock value was more than cut in half falling from $42 to $17.25 while Corona’s nearly doubled from $13.75 to $25.88.

Rumors have been flying recently regarding a possible out- of-court settlement. One suggests Corona will retain a two-thirds interest in the mine and Lac one- third, while another rumor has them sharing the mine 50-50.

Both companies denied the rumors while speaking with The Northern Miner, yet on Nov 4, Lac shot up $5 per share to $29.25 before slipping back to $27.12 while Corona dipped 25 cents the same day to close at $26.37.

While a spokesman for Lac told The Northern Miner there’s no basis for rumors of an out-of-court settlement, she says Lac has “always maintained from Day One the possibility of an out of court settlement.” She says there have been no discussions between the two companies.

Barring such a settlement, five judges from the Court of Appeal — it is normal for just three judges to hear an appeal — will sit down in one of Osgoode Hall’s six small but airy courtrooms Nov 17 and begin listening to the arguments put forward by both sides.

The gruelling court session will go for 10 days, from 10:30 a.m. to 4 p.m., (with an hour and and half off for lunch). Lac, as appellant, will take five days to present its case. Corona will then have four days to state its position. The final day is set aside for Lac to rebut Corona.

An appeal usually only hears arguments on matters of law. New evidence is only allowed in rare instances, so appeals are generally very dry proceedings.

Regardless of the outcome of this appeal, either side can try to appeal the decision to the Supreme Court of Canada, the highest court in the land. However, appeal is not automatic. The Supreme court of Canada must give permission for the appeal, and the magnitude of the case does not necesarily enter into that decision.

In the Ontario appeal, the court has also given leave to Lola Williams, the American widow of a medical doctor who staked the claims as a prospector hobbyist almost 40 years ago, to be represented during the appeal because her rights might have been affected by the decision.

Her son, John Williams, tells The Northern Miner that his mother just wants to make sure her and her family’s rights are protected. He says it is a reversal for her to seek participation in the appeal after having tried to stay out of the original trial.

Mrs Williams’ written submission to the court and Corona’s response to it (there was no response from Lac when The Northern Miner examined the documents at the court) make fascinating reading.

Among other points, Mrs Williams says she personally was the owner of the 11 claims, not the estate of her late husband, Jack Kerr Williams. Mrs Williams, as executrix of the estate, was named in the original statement of claim filed by Corona in October, 1981, but was dropped from the claim.

She says she was not called as a witness at the original trial, yet the trial judge ruled that she would have accepted the Corona offer if Lac hadn’t interfered.

“Although it is probable that the Corona offer would have been considered, there is no evidence that it would have been accepted,” says Mrs Williams’ statement.

Corona, however, says Mrs Williams was never the registered owner of the claims but only the registered owner as executrix for the estate of her husband. What’s more, it was Mrs Williams who asked to be left out of the original case, a request that was successful.

“She remained much involved in the case, however, and her solicitor, Mr Armstrong, assisted Lac in the pre-trial period,” says Corona. “Lac paid her solicitor’s fees. Mr Armstrong gave evidence at the trial. Mrs Williams transferred any property interest she had to Lac in the middle of the trial.”

And on the key point of whether or not Mrs Williams would have accepted the Corona offer if Lac hadn’t intervened, Corona refers to evidence given at the trial, in particular a letter from James Anthenelli, Mrs Williams’ Maryland solicitor, to Mr Armstrong that says: “It is Mrs Williams’ position wi th respect to the Hemglo proposal that she is extremely interested in entering into such a contract.” Hemglo was working in tandem with Corona to obtain the property from Mrs Williams.

What’s more, Mrs Williams says a Corona geologist “trespassed” on her property, obtained samples and never disclosed the information to her.

Corona, however, says going onto the property was “trivial” and says no results from assays of the grab sample taken were received until after Corona learned Mrs Williams had accepted the Lac offer.

Corona also says it is “incorrect, although ir
onic” to say Corona witheld information from Mrs Williams.

“Don McKinnon, when he spoke to Mrs Williams (on behalf of Hemglo) told her that Corona was working next door, that the results were encouraging, that she ought not to sell her property outright but should retain a carried interest. He also suggested to her she should think about the proposal carefully and she should discuss the matter with her stepson, John Williams, before making a deal.

“In contrast, Lac specifically did not tell Mrs Williams about any work going on in the area, about their own staking of 600 claims in the area and did tell her it was not a `hot’ area.”

Mrs Williams also says her right of first refusal should Lac decide to dispose of the property might be in jeopardy. However, Corona says it has agreed to honor all the details of the agreement she signed with Lac including the net smelter agreement and her right of first refusal.

Although there’s no guideline on how long it will take the court to reach its decision — Judge Holland’s decision came much earlier than expected — a ruling is not expected before the beginning of 1987.

With five judges on the panel, there could well be a dissenting opinion on some or all aspects of the case. In that case the dissenting judge or judges are obligated to indicate their dissension in writing.