Pioneer’s future put in question

A recent decision by the British Columbia Supreme Court has placed Pioneer Metals (TSE) a step closer to bankruptcy. The ruling held that Pioneer was in breach of a covenant on its Nov. 10, 1988, loan agreement with Pegasus Gold Mines (TSE) and that the failure to cure the breach has put Pioneer into default.

The development allows Pegasus to accelerate Pioneer’s indebtedness and consequently the court has ordered a judgment against Pioneer in the amount of $12.36 million plus accrued interest.

The default also has the effect of triggering defaults under Pioneer’s gold loan agreement with Pegasus and with the Chase Manhattan Bank of Canada. The Chase gold loan was recently converted to a conventional loan although no terms have been released.

Noting that the company’s Canadian assets are fully encumbered to Chase and Westmin Resources (TSE), the company’s joint venture partner at the Premier gold project near Stewart, B.C., Pioneer expects Pegasus may not be successful with collection proceedings in Canada.

Pegasus’ primary target is not among Pioneer’s Canadian assets however. Late in 1989, the company began foreclosure proceedings against Pioneer’s 50% interest in the Stibnite gold mine in Idaho.

Pioneer, in turn, brought a counter claim against Pegasus seeking to have the $12 million mortgage against the Stibnite cancelled as well as claiming damages of $20 million.

A one-month jury trial, scheduled to begin in Cascade, Idaho this October, will decide the outcome.

Pioneer noted in a press release the long term success of the company will depend on the outcome of the Idaho actions.