EDITORIAL — Consider independent legal opinions — Legal minefields

Stock exchanges and securities regulators ask exploration companies to submit independent geological reports at certain junctures, which begs the question: should an independent legal opinion be required when a junior company launches an ownership challenge for a mineral property, particularly if that development dramatically boosts its share price?

The question is an intriguing one in light of several high-profile ownership disputes involving projects in Latin America. Shareholders of Summex Mines, for example, might have welcomed an independent analysis of the company’s lawsuit against Farallon Resources over the Campo Morado polymetallic project in Mexico.

Several mining analysts and newsletter writers tried to shed light on the ownership challenge, but those critical of Summex’s position were slapped with lawsuits for their faithlessness. It was high drama then, but Summex shareholders have little to cheer about today: the company has been delisted from the Vancouver Stock Exchange and is under investigation for alleged breaches of listing policies. The cash-strapped junior is now struggling to privately finance the ongoing dispute, which goes to trial in early May.

Regulators have been loath to wade into legal disputes, preferring to let the courts address such matters. This approach is fine when the suit is easily understood, but it may be inadequate in complex cases involving a number of parties and foreign jurisdictions. At the very least, the onus is on regulators and exchanges to ensure that the litigants meet the standards of full, plain and true disclosure.

It is not easy for investors to objectively assess cases involving companies in which they have a material, and possibly emotional, stake. All too often, the battle lines are drawn between believers and non-believers, with the Internet being today’s battle field of choice. On the Net, rumor and innuendo run amuck; no one is accountable for anything, so anything goes.

Human nature being what it is, we were not surprised that last week’s story about Crystallex International’s legal efforts to “enforce rights” to Las Cristinas 4 and 6 in Venezuela drew the ire of some of the company’s Internet boosters. Nor was it surprising to hear people suggest that we are engaged in a short-selling conspiracy with Manuel Asensio, or that we were “paid” to do the story by Placer Dome, which holds a 70% stake in the large gold deposit underlying these concessions. After all, we heard similar comments a year ago, when we reported that the gold said to come from Bre-X Minerals’ Busang deposit was actually of placer origin.

To set the record straight, we’ve never talked with Asensio (we know short-sellers are biased) and Placer Dome hasn’t even offered to buy us lunch. Furthermore, short-selling is prohibited at The Miner, and reporters are not allowed to write about stocks in which they hold a position.

We’ve visited Crystallex’s property in Venezuela, listened to its lawyers, and discussed the matter with Placer Dome. The ire of Crystallex’s fans doesn’t bother us. But what is disturbing is the growing trend among junior companies of deflecting questions and criticism, and even fair and reasonable comment, with insults and threats of lawsuits. The slurs heaped on the Venezuelan congressman for making statements deemed unfavorable to Crystallex are undignified and cowardly.

Mining companies can, and should, do better than threaten to sue or blame short-sellers for their problems. While an independent legal opinion might be too much to hope for in this case, the concept warrants future discussion. In the meantime, junior companies engaged in legal disputes (and their supporters) should fight back with facts rather than throwing mud at the wall in hopes that some will stick.