Court upholds Hemlo decision

Ownership of the biggest gold mine in Canada has moved another — and possibly the final — step towards International Corona with the loss of Lac Minerals’ appeal against the initial judgment. Lac may have one more move, however.

On Oct 2 the Ontario Court of Appeal handed down a unanimous decision supporting a Supreme Court of Ontario decision to turn over ownership of the Page-Williams mine at Hemlo, Ont., from Lac to Corona. But Lac has one final avenue of appeal — the Supreme Court of Canada.

When the markets opened on the next business day after the decision was announced, Corona’s stock soared from the previous close of $47.50 to $85. Lac’s stock fell from $18 to $14. Shares of Royex Gold Mining, Corona’s parent company, rose from $5.50 to $8.75 while the B shares of Teck Corp., the company that splits everything in the Hemlo area with Corona on a 50-50 basis, rose from $34.78 to $45.

Lac has until Dec 31 to convince the Supreme Court of Canada that it should be allowed to appeal the appeal court’s decision. Lac says it has instructed its lawyers to do just that. Appeal to the Supreme Court of Canada — the final arbiter in civil suits — is not automatic, however. Even if Lac does try to appeal, the highest court in the land may refuse to hear the case.

In fact, the Supreme Court judge took just one month to reach his clear-cut decision in favor of Corona after a 5-month trial in 1985-86 and an equally decisive 4-0 decision from the court of appeal.

Lac spent $204 million developing the mine before the trial judge handed down his decision March 7, 1986, awarding the mine to Corona. Corona was ordered to pay Lac $154 million, an amount that has increased by some $20 million due to interest.

What Corona gets is a jewel of a mine. In the first six months of 1987 it produced 101,495 oz of gold (not including 16,136 oz from a small piece of ground which will be mined out in 1987, the rights to which Lac still retains) from 511,000 tons of ore. Mining expenses came to $13.2 million, indicating an operating cost of about $130 per oz — one of the lowest cost producers in the country.

What’s even more impressive is that this mine isn’t even running at full capacity. By 1991 it is expected to be producing 500,000 oz annually. Lac not crippled

Lac is far from crippled by the loss of the mine, however. It expects to be producing 500,000 oz of gold annually by 1991 even without the Page-Williams mine, and that is without considering a recent discovery on its 50%-owned Doyon property in northwestern Quebec that looks significant and without factoring in Lac’s one-third interest in North America’s only primary platinum-palladium mine in Montana. As Vice-president Belle Mulligan says, “we have lots of good people and lots of good properties.”

Lac is also in a very solid financial position having recently completed two financings to raise close to $100 million, enough to cover its considerable development plans and exploration costs. Even without the Page-Williams mine, Lac made a profit of $11.2 million or 39 cents per share in the first half of 1987.

Royex, on the other hand, is now firmly ensconced as one of the world’s major gold producers through its 49% ownership of Corona and a number of other gold producing properties. “We want to see Royex become one of the most important mining companies in the world,” said a happy Chairman Peter Steen after the decision was handed down. He estimated total legal costs for the entire legal proceedings at about $5 million.

In the original trial, Corona argued that it and Lac had entered into negotiations for a joint venture, negotiations which created a fiduciary realtionship between the two — that is a duty on both sides not to act to the detriment of the other. The trial judge found that Lac had breached that duty and had used confidential information to do so and ordered that the only effective remedy was to return the property, lock, stock and barrel, to Corona.

In the appeal Lac said the trial judge made wrong inferences from the facts and that evidence had been overlooked or misconstrued.

The appeal court judges, however, said: “We have not been persuaded that the learned trial judge overlooked or misconstrued any important or relevant evidence.”

The appeal court, in its 126-page decision, goes on to say: “The trial judge was correct in finding a breach of fiduciary duty by Lac. * * * Lac had sought out Corona, Corona had divulged confidential information to Lac, there was a practice in the mining industy which imposed an obligation on the parties not to act to the detriment of each other while they were seriously negotiating, and from April to July, 1981, they worked with a mutual understanding towards a common objective. * * * (The trial judge) merely recognizes, on the basis of the evidence before the court, a usage in the mining industry which is consistent with business morality and with encouraging and enabling joint development of the natural resources of the country.”