Lawsuit scuppers Poderosa sale (November 05, 2004)

Cambior (CBJ-T) has dropped its planned acquisition of a 55.3% stake in Peruvian-based miner Compaia Minera Poderosa (CMPSA).

The move comes after a group of private shareholders said they were unable to extend the term for the closing of the deal as it is unsure how long it will take to settle a judgment against CMPSA over title to the Pataz claims. Those claims comprise a significant portion of the Poderosa mine’s reserves.

“We are surprised and disappointed with the position of the selling group, which has decided not to work with us to resolve the outstanding legal issues and ensure certainty of title of the Pataz claims,” says Cambior chief executive Louis Gignac in a prepared statement.

In September, Cambior inked a deal to buy the group’s stake in CMPSA (and US$8 million worth of advances by the sellers to CMPSA) for US$25 million in cash accompanied by 2.2 million shares. The deal also included a possible payment of US$6 million subject to resolution of outstanding tax legislation.

CMPSA owns the Poderosa mine in northern Peru, where proven and probable reserves total 563,000 tonnes running 18.8 grams gold per tonne, based on a gold price of US$350 per oz. A review by Cambior identified some 3.3 million tonnes of inferred material grading 12.8 grams gold.

The Poderosa mine has produced 1.25 million oz. of gold since 1982, and currently churns out about 100,000 oz. per year at a projected cash cost of US$175 per oz.

In a subsequent deal with another group of shareholders, Canadian Shield Resources (CSP-V) agreed to take the remaining 44.7% of CMPSA in return for 60% of Canadian Shield shares (on a fully diluted basis) at the time of the deal’s closing. Canadian Shield is also required to raise at least US$20 million by mid-November; the funds will go toward acquiring US$5.9 million worth of loans from the selling group to CMPSA.

Canadian Shield chief executive Eduardo Baer says Cambior’s exit doesn’t deter him from proceeding with his company’s plans at Poderosa, and in fact views the development as an opportunity to perhaps increase his company’s stake.

Shares in Cambior were off 2 at $3.66 in early trading following the news on Nov. 5.; for their part, Canadian Shields’ shares were 5.5, or more than 21%, lower at 20.5 in Vancouver.