Emgold and Dunn Capital drop deal and put up dukes

Vancouver – An investment deal gone sour has Emgold Mining (EMR-V) and Dunn Capital pinning the blame on each other with accusatory statements.

Emgold is working to permit and re-develop the historic Idaho-Maryland mine in Grass Valley, California, which produced 2.4 million oz. gold between 1862 and 1956 from high-grade veins. The company’s exploration efforts have delineated 1.5 million measured and indicated tonnes grading 7.5 grams gold per tonne and 2.3 million inferred tonnes averaging 9.3 grams gold, for over 1 million contained oz.

To finance its efforts Emgold entered into an investment deal with Dunn Capital, a private equity firm based in Ottawa. The deal would have seen the firm purchase $6-million worth of new Emgold shares in an equity financing and then spend up to $2.9 million more buying previously-issued shares from other shareholders. Those other shareholders had agreed to advance proceeds from the share sale to Emgold in the form of convertible loans.

But on Oct. 21 Dunn announced it was withdrawing from the deal, a decision based on “a review of Emgold’s proposed IMM project’s impact to an urban location, citizen petitions, the risk of water loss to local wells, the Surface Mining and Reclamation Act, and hydrologist reports. In combination [with] inadequate support documents to prove the adherence to California’s Environmental Quality Act, Dunn Capital had no choice but to end talks with Emgold on the IMM project.”

Dunn added it has always strived to be involved in projects that are socially responsible, with respect to both the environment and the local community, and its review of Emgold’s project returned findings that were “disappointing to say the least.”

But the twist comes in the fact that Emgold had already terminated the deal. Two weeks prior, on Oct. 7, Emgold issued a news release stating that the company had “elected to not proceed with the interim and equity line financing previously announced…and has terminated negotiations with Dunn Capital in this regard.”

So when Dunn issued its withdrawal announcement Emgold fired right back with its own news release, which started as follows.

“Emgold states categorically that the allegations relating to Emgold and attributed to Dunn are completely unfounded. Emgold is at a loss to understand the motivation behind this concoction of falsehoods and can only assume it represents a malicious attempt to cause financial damage to Emgold and its shareholders.”

Emgold continued, pointing out that in fact it had terminated the agreement two weeks before Dunn purportedly did so. The junior explained that it did so because it had become clear that “Dunn was not able or prepared to proceed with the financing…In addition, Emgold learned of legal proceedings instituted against Dunn by a third party that Dunn allegedly failed to finance after having entered into an agreement essentially the same as that initially proposed for Emgold.” After further investigating this third-party lawsuit, Emgold said it determined “it would be dangerously imprudent to have any further dealings with Dunn.”

Emgold also retaliated against Dunn’s allegations that the company’s plans at Idaho-Maryland are socially or environmentally inadequate, calling the assertion “absurd and unfounded.” The company emphasized that it has always been sensitive to the environmental concerns associated with its project and is committed to proceeding in compliance with laws and regulations. Emgold also asserted that, prior to signing the investment deal, Dunn and Emgold discussed all of the project’s environmental and social parameters and that Dunn completed, and was satisfied with, its own due diligence.

Finally, Emgold argued that it project “is in fact well supported in the local community.” The company allowed that, as with almost all mining projects, there is an organized opposition group but said that a 2006 survey conducted by the City of Grass Valley found 72% of residents favoured reopening the mine, as long as appropriate environmental safeguards were in place.

The dispute has had little effect on Emgold’s struggling share price, which closed recently at 5¢. The company has a 52-week trading range of 2¢ to 20¢ and has 163 million shares outstanding.