Minco Goes To Court Over Sunshine Mine

SNS Silver (SNS-V, SNSFF-O) and Minco Silver (MSV-T, MISVF-O) are both claiming rights to the recently abandoned Sunshine mine near Kellogg, Idaho.

The mine’s former operator, Sterling Mining (SRLMQ-O), recently filed for bankruptcy protection.

In a statement on Feb. 23, Sterling said its board voted to vacate the mine lease during a meeting on Feb. 19. The company, which voluntarily delisted from the TSX in October, said it would have lost power at any time because it wasn’t able to pay its bills. Sterling officially returned control to the mine’s owner, Sunshine Precious Metals, on Feb. 24.

In the same release, Sterling announced that it had accepted the resignation of director David Greenway. Greenway is also the president and CEO of SNS Silver, which owns the Crescent silver mine property adjacent to the Sunshine mine.

SNS Silver has taken over care and maintenance duties at the mine site and is in the midst of working out a deal with Sunshine Precious Metals to become the operator of the mine.

As part of the deal, SNS has made a non-refundable payment of US$250,000 to Sunshine Precious Metals.

However, on Feb. 18, Minco was granted a temporary restraining order that prevented Sterling from removing, selling, destroying, disposing of, or concealing collateral in which Minco has a secured interest. Minco says Sterling has not begun to repay a US$5-million loan issued in July 2008 that it says was secured by all of Sterling’s assets, including the company’s personal and real property.

When Sterling announced it was vacating the lease, Minco filed an action with the local Shoshone Cty. District Court to foreclose on the company.

Minco says it offered to take over as operator of the Sunshine mine, maintaining the lease in good standing.

Neither Sterling nor SNS Silver have mentioned Minco in their announcements. SNS says it is only dealing with Sunshine Precious Metals, the owner of the property.

The Sunshine mine was in operation for more than 100 years and produced more than 350 million oz. of silver.

Sterling stopped mining in September, after a series of startup troubles. The company leased the mine in 2003, and restarted operations in late 2007.

Sterling is also negotiating a settlement for violating the Clean Water Act. The company violated its permit 185 times between April 2007 and November 2008, by exceeding its discharge limits. In most cases there was too much manganese in the water, a problem related to pumping at the mine.

That problem was fixed recently, but that wasn’t the end of Sterling’s problems. On Oct. 9, 2008, the company’s tailings line broke, resulting in a significant spill into Big Creek, near Kellogg.

Going back further in the Sunshine mine’s problematic history, a fire in 1972 killed 91 people (under a different operator).