Zenmac Zinc suing Minnova over Winston Lake venture

The Winston Lake zinc-copper-silver-gold deposit, near Schreiber in northwestern Ontario, has become the focus of a lawsuit.

Toronto-based Zenmac Zinc launched a legal action in November with the Supreme Court of Ontario alleging Minnova Inc. has not acted in good faith with regards to the development of the property as it has affected Zenmac. The Winston Lake project is gearing for full production by the end of the first quarter of 1988, with the mill expected to begin operations this month.

Minnova, formerly Corp. Falconbridge Copper (its name changed in April of this year) and incorporated in Quebec, is controlled (49.3%) by Kerr Addison Mines of Toronto. At the time the two companies began negotiations to develop the Winston Lake property, Minnova’s controlling shareholder was Falconbridge Ltd.

In its statement of claim, Zenmac says Minnova “owes fiduciary duties or obligations of good faith and fair dealing to Zenmac” and asks the court to rule on a number of alternative actions, including a declaration Zenmac is entitled to a 20% joint-venture interest in the property and an undivided 20% proprietary interest, an interpretation of the term “pre-production and capital expenditures” as it applies to the agreement and the extent of Zenmac’s obligations, rescission of the agreement between the two firms and transfer of the property to Zenmac, and damages of $100 million for each of breach of fiduciary duty and breach of contract.

Zenmac says an agreement dated May 1, 1980, gave Minnova the right to earn an interest in the property under dispute. According to Zenmac, a joint-venture arrangement was contemplated. Through cash payments and exploration expenditures, Minnova was to become the sole registered owner of the property.

Once Minnova had acquired its 100% interest and made a production decision, Zenmac then had the option of either entering into a joint-venture agreement obligating it to contribute 20% of the pre- production and capital expenditures in consideration for a 20% interest in the venture, or to receive a royalty of 10% of the net proceeds of production. Zenmac had 180 days to respond from the date of written notification of a production decision by Minnova.

Zenmac says a letter dated Sept 24, 1985, informed Zenmac of a production decision; Zenmac opted to receive a 20% working interest in the property. In November of that same year, Zenmac says Minnova decided to suspend its production plans.

Less than a year later, in July, 1986, Zenmac says it was informed Minnova was again ready to proceed with production plans. About that same time, control of Minnova passed to Kerr Addison. Zenmac says correspondence in December of that year from the new management of Minnova produced a schedule of actual and projected pre-production expenditures which “represented a significant and substantial increase over previously provided estimates,” as well as a new draft of a joint-venture agreement. The two sides have been negotiating since.

In its statement of claim, Zenmac says in April of this year it asked Minnova, but received no reply, about the latter’s possible participation in an international zinc cartel. Participation by Minnova in such a group, Zenmac says, “would have important implications on its ability to operate the (Winston Lake) property fairly and in good faith as an independent enterprise.”