VenCan disputes River Gold’s Edwards loss

That Edwards is a very rich, albeit small, gold mine is a certainty.

Whether the mine, situated near Dubreuville, Ont., is making operator River Gold Mines (RIV-T) rich — River says it is not — has been called into question by the mine’s owner, VenCan Gold (VCG-M).

VenCan’s relationship with River began in March 1996, when the two companies worked out a lease agreement whereby River would pay VenCan $500,000 and a $3-per-ton royalty on all production greater than 100,000 tons for the right to develop and mine the Edwards deposit. The deal permitted River to recoup its construction costs using profits from the mine; thereafter River was required to split the profits equally with VenCan.

River provided unaudited financial data to VenCan earlier this year indicating that total costs at Edwards from March 15, 1996 to Dec. 31, 1997 exceeded the value of the gold and silver mined by $425,845, leaving no profit to share with VenCan. However, VenCan is of the opinion that the mine earned a minimum total profit of at least $1.4 million over that period, and has asked River to provide a revised accounting of its expenditures and a recalculation of its profits.

VenCan says it also has learned from information contained in River’s 1997 report that River has pledged its leasehold interest in the mine as part of a security arrangement for a line of credit provided by NM Rothschild & Sons.

According to a VenCan release, “The lease agreement clearly prohibits such an assignment of River’s leasehold interest in the Edwards project without the consent of VenCan. VenCan has not consented to the agreement and has asked River’s board of directors to confirm the accuracy of the information confirmed in their 1997 report and, if applicable, to remedy the situation.” For its part, River Gold is standing firm, describing VenCan’s allegations as “unfortunate and totally incorrect.”

In a press release issued the day after VenCan’s, River Gold states: “The basis for calculating costs and expenses in River Gold’s income statement is different from that provided for in the sub-lease that was entered into between River Gold and VenCan in March 1996. The sub-lease that governs the operations at the Edwards mine entitles River Gold to recover all capital, as well as all operating, expenditures prior to the calculation of a net profits royalty, whereas in the River Gold 1997 report, the audited financial statements were prepared in accordance with ly accepted accounting principles that, inter alia, allow for capital expenditures. None of the security arrangements River Gold has with its financiers has resulted in any contravention of the sub-lease.”

The dispute follows a judge’s dismissal of allegations that VenCan wrongfully dealt a 50% interest in production from the mine (T.N.M., May 4/98).

Extender Minerals, a private firm controlled by former VenCan director Robert Hill, had contended that its alleged right of first refusal on VenCan’s disposition of the Edwards property was ignored by VenCan when it agreed to permit River Gold to develop and operate the mine. But after a 9-day trial, Extender’s $75-million claim against VenCan was dismissed.

At the end of 1997, proven and probable reserves at Edwards totalled 156,000 tonnes grading 12.09 grams gold per tonne.