Groups Scrap Over Sunshine Assets In Idaho

The owner of the Sunshine mine, Robert Mori, says he will give the mine’s surface rights to Greenpeace if a bankruptcy court in Idaho doesn’t rule in his favour.

Mori has signed a 20-year lease agreement with SNS Silver (SNS-V, SNSFF-O) for the Sunshine mine, located near Kellogg, Idaho. However, in May a judge ruled the mine’s previous operator, Sterling Mining (SRLMQ-O), which had abandoned the mine in February before filing for bankruptcy protection in March, has title to cure the lease. The court also ruled that one of Sterling’s loan-holders, Minco Silver (MSV-T, MISVF-O), could help Sterling out financially for up to $1 million. Mori is appealing the ruling. The matter will be back in court June 22-24.

“If, for some reason, they gave it back to Sterling or this Minco group, then I’ll give the surface rights to Greenpeace and they can fight it out amongst themselves for the next twenty years,” Mori says, noting that the surface rights are not a part of the Sterling lease.

Mori’s company, Sunshine Precious Metals Inc. (SPMI), leased the mine to Sterling Mining in 2003 for US$10,000 per month so that the mine could be put back into production.

Sterling ramped up operations in December 2007 but by September 2008, the mine was put on care and maintenance due to financial problems. The mine was still costing the company US$250,000 per month.

In February 2009, Sterling announced that it didn’t have enough money to pay its electricity bills or its workforce. Management and personnel left the property and told shareholders it was vacating the lease.

Almost immediately, SPMI made an agreement with SNS Silver, owner of the neighbouring Crescent silver mine, to take over the lease. Since then, SNS has been funding and overseeing care and maintenance to preserve the mine infrastructure. Ventilation and electrical systems would be damaged if water isn’t continually pumped from the mine.

“They were the natural people to put in there for the integrity of the mine and keep it in the condition it is,” Mori says.

But as SPMI was leasing the mine to SNS, Minco Silver announced it was foreclosing on Sterling. A restraining order was placed on Sterling so it couldn’t sell any of its assets.

Minco claims that US$5 million it loaned to Sterling last summer was secured by the Sunshine mine lease. The two companies were in the midst of a merger that was never completed. Mori says there’s no way Sterling could have secured the loan with the mine — he says that would be in violation of the lease.

Whatever the case, the bankruptcy court has ruled that Sterling did not officially vacate the lease according to Idaho law before filing for bankruptcy and has thus given the former operator the chance to reorganize itself.

Minco isn’t the only company to which Sterling owes money. A lawsuit naming 39 plaintiffs was filed in January 2009 claiming damages of US$1.4 million plus interest. They also claim that their contracts with Sterling used the Sunshine mine lease as security and are demanding the lease be turned over to them.

Minco has remained tightlipped on the matter; president Ken Cai said he couldn’t say anything because he’s not part of the investor relations department. Phone calls to investor relations requesting an interview were not returned.

Sterling’s environmental manager, Robert Higdam, was the only person available from Sterling’s bare bones staff, which includes the president, sole director Roger Van Hoorhees, and a person doing accounts payable. Everyone else has been let go and the other directors resigned from the board when the mine was vacated.

“We’re taking the side of silence,” Higdam says. “At this time, we are a bankrupt company. We have debts and liabilities we need to cure as per the direction of the bankruptcy courts.”

Although SNS was still maintaining the mine at presstime, Higdam had access to the property to maintain the tailings permits.

“I would love to sit down and set the record straight because there have been an awful lot of barbs being thrown back and forth,” Higdam says. “But there’s litigation going on so if we start spouting off, we’re opening up ourselves to a huge legal problem more so than we are already in.”

Mori has further complaints about the actions of Sterling and Minco for allegedly attempting to settle the bankruptcy issue privately without the courts.

Things get more complicated when the revolving door of management and directors of the companies involved are examined.

Over the past year or so, four people have held the position of president and CEO. They include Raymond De Motte who was let go in May 2008. He was replaced by a director, Ken Berscht, on an interim basis. In January, John Ryan a director of another Idaho company, U. S. Silver (USA-V, CYLPF-O), became Sterling’s next president. Ryan resigned and was replaced by director Roger Van Hoorhees, just before Sterling filed for bankruptcy in March.

SNS Silver’s president, David Greenway, sat on the Sterling board for about three weeks from late January until the evening before the company announced it was vacating the lease. Soon after, SNS signed a deal with SPMI on the Sunshine mine lease.

Greenway says he was asked to join the Sterling board but left when he learned it owed a total of US$12 million. “The company was so confusing that I stepped off,” he says.

On top of that, Sterling is still negotiating a settlement for violating the Clean Water Act 185 times between April 2007 and November 2008, due mostly to high manganese levels in the water pumped from the mine. A tailings line also broke in October, spilling tailings into Big Creek, near Kellogg.

Sterling’s Higdam says the Environmental Protection Agency will make its ruling soon, at which point he’ll be free to talk about how things went so wrong.

He’s not surprised to still be working despite the legal and financial mess of the company. “You know, when I took the position they told me the environmental manager is usually the last one to lock the door and turn off the lights when all is said and done and there’s a little truth in that.”

At the next court date, Mori hopes the judge will see that there is no way for Sterling to reorganize itself, even with the help of Minco. He says he’d rather duke it out in the courts for years than lease the property to Minco.

“I wouldn’t lease Minco my garbage can,” he says.