El Nino options DRC copper play after arbitration win

VANCOUVER — It was a long battle for junior El Nino Ventures (TSXV: ELN, US-OTC: ELNOF), but after half a decade of legal wrangling the company has finally secured its 70% ownership rights in the Kasala copper discovery, 70 km northwest of Lubumbashi in the Democratic Republic of the Congo (DRC).

Back in 2007 El Nino optioned 352 sq. km of the Central African Copperbelt from GCP Group — a private company headquartered in the Virgin Islands — for initial considerations of US$550,000 and 80,000 shares. El Nino was on the hook for another US$100,000 and 13,333 shares, but in December 2009 the company announced it was withholding payment after a disagreement with GCP that would effectively freeze exploration work at Kasala for nearly seven years.

After the property acquisition El Nino raised US$15 million, which resulted in drill success at Kasala in late 2008. Chairman and CEO Harry Barr retook the reins at the company in late 2009, and jumped right into what he calls a “mini court case” with El Nino’s country manager George Kavvadias, who was also a principal at GCP.

Barr says during an interview that the debate concerned US$120,000 in back wages.

El Nino thought it had resolved the dispute following a US$54,000 settlement, and it raised US$2.4 million to drill at Kasala in the first half  of 2010.

But the company says it suspected Kavvadias was employing dozens of people that weren’t on its payroll, and alleged a misuse of  funds.

“In 2010 we realized that George had really gone bad on us,” Barr comments. “He wouldn’t show up for meetings, and he served us with a court case in the DRC. We figured it was a done deal, but he started more than twenty cases on us. We won almost everything, though he was trying to transfer the Kasala rights through the entire process. I give a lot of credit to our partner in the DRC, Hassan Sabra, who worked with us all along.”

El Nino moved the court proceedings out of the DRC and into the Supreme Court of B.C., and finally received a positive arbitration ruling in early 2014. The company won the first part of its appeal in January and announced its final reward in April.

GCP owes the company $431,500 and must return all mining permits, vehicles, equipment, drill core and data. El Nino solidified its 70% interest in Kasala, while Sabra has a 20% interest and GCP holds the final 10%.

After the arbitration win Barr recounts how he promoted Kasala at the annual Mining Indaba conference in Cape Town, South Africa, and he says that’s when things really started to roll. Barr met with nine interested parties, and optioned the project to Melbourne-based miner MMG.

MMG operates its US$1.4-billion Kinsevere copper mine only 30 km southeast of the Kasala site, at a nameplate capacity of 60,000 tonnes of copper cathode annually.

Under the agreement MMG can acquire El Nino’s 70% interest in Kasala for US$6 million in cash, a 1.5% net smelter return royalty (NSR), and US$15 million in exploration expenditures over the next three years. MMG gave El Nino US$350,000 upfront, and will pay the company three annual payments of US$917,000. The final US$3-million cash payment is due at the end of the agreement if MMG completes the acquisition.

MMG also operates the Sepon copper–gold mine in Laos, and the Century, Golden Grove and Rosebery base-metal mines in Australia.

“Kinsevere is a hungry mine, and we’re within 30 km on a hauling road. That’s why I negotiated the NSR, and they’re going to take over the legal issues in the DRC and give us a pretty damn good deal on top of that,” Barr says.

“MMG is putting a lot of money into the ground. They’re really going for it. Those are the three key things in the deal: There is the cash we receive to recapitalize without dilution; we have a big company operating the project with 2,000 employees closeby; and we have a royalty we didn’t have previously,” Barr adds.

Excitement over Kasala dates to a discovery El Nino made in early 2009. The company completed a 50-hole drill program over 6,000 metres at Kasala’s Block A, with highlights including 31 metres grading 2.19% copper from 79 metres depth in hole 8; 29 metres of 2.82% copper from 17 metres depth in hole 23; and 10 metres of 6.07% copper from 113 metres depth in hole 11B.

Based on further geophysical and geological interpretations, two major parallel zones were identified east of Block A — labelled “blocks B and C” — which have a combined strike length of over 3 km.

“All the drilling was done on Block A, but we did a geochemical sampling program in blocks B and C, and both those programs returned better surface values than Block A,” Barr says. “We had the budget and money to get a compliant resource in late 2010, but we went into litigation and put the property on force majeure. I would point out that almost everything we drilled was in the oxide.”

El Nino shares have traded within a 52-week range of 2¢ to 9¢, and closed at 6¢ on 12,300 shares traded at press time.

The company has 31 million shares outstanding for a $1.8-million market capitalization.

Barr says El Nino will be in the market for base-metal assets following the deal. And despite the drawn-out legal dispute, he remains bullish on the copper potential of the DRC.

“Hassan Sabra has worked in the DRC since he was a kid. He’s a copper miner and he has a business that acquires high-grade ore throughout the country and ships it out. We said since the day we started: ‘When we get a chance and go exploring like we intend, we’re really going to have some fun,’” Barr says. “So we’re going to continue in the country because we do have a good partner who has proven himself over the past six years.”