BUSINESS

A GLITTERING BONANZA

A SEVEN-YEAROLD COURT BATTLE FOR A RICH GOLD MINE IS RAGING IN THE COURTS

RIC DOLPHIN October 24 1988
BUSINESS

A GLITTERING BONANZA

A SEVEN-YEAROLD COURT BATTLE FOR A RICH GOLD MINE IS RAGING IN THE COURTS

RIC DOLPHIN October 24 1988

A GLITTERING BONANZA

A SEVEN-YEAROLD COURT BATTLE FOR A RICH GOLD MINE IS RAGING IN THE COURTS

BUSINESS

The legal actions have extended over seven years, through four courts and at a cost of at least $10 million to the litigants. Veteran

prospector John Larche, 60, who nine years ago helped stake one of Canada’s richest gold deposits at Hemlo in northwestern Ontario, says that he is not surprised by the wrangling over his mother lode. Larche, along with Hemlo prospecting partner Donald McKinnon, 59, is now a multimillionaire. He says knowingly, “When there’s a big buck out there, there are a lot of people who want a piece of it.” By far the biggest—and most contentious—piece of Hemlo is the Page-Williams underground mine. It contains an estimated nine million ounces of gold worth at least $1.5 billion. And locked in combat for possession are two Toronto-based companies, International Corona Resources Ltd. and LAC Minerals Ltd. Last week, Corona won a major victory when an Ontario judge rejected LAC’s application for a new trial.

LAC acquired rights to the Page-Williams property in 1981, built a mine on the site, 250 km east of Thunder Bay, and has been operating it ever since. But in a landmark 1986 decision, the Ontario Surpreme Court awarded the mine to Corona on the grounds that LAC had ignored an oral agreement in 1981 between the two companies to develop the property jointly. In the fall of 1987, the Ontario Court of Appeal rejected LAC’s application to have the initial court decision overturned. At that point, LAC announced it would appeal to the Supreme Court of Canada, and apply to the Ontario Supreme Court for a retrial. Last week, Ontario’s high court rejected LAC’s bid for a retrial on the grounds that the company did not have any new evidence. But hours later LAC’S lawyers presented their case to the Supreme Court of Canada in Ottawa.

The three weeks of proceedings before the Supreme Court of Ontario, which concluded on Oct. 13, were often colorful and controversial. LAC admitted to spending $8 million on private investigators who gathered information on Corona’s key witnesses—particularly prospector McKinnon—in a bid to undermine their previous testimony. The investigators even probed the backgrounds of original trial

judge Richard Holland and his daughter Anne, according to testimony given at the hearing.

Shortly after staking their claims in the Hemlo district, prospectors Lärche and McKinnon approached flamboyant Vancouver promoter Murray (The Pez) Pezim about fi-

nancing a drilling program. Pezim raised $1.2 million through Corona, which was then a small, dormant company listed on the Vancouver Stock Exchange but controlled by the promoter. Drilling on the Hemlo site in 1981 uncovered huge amounts of high-grade gold ore.

Reports of the discovery electrified the Canadian mining community, and LAC quickly sent Dennis Sheehan, its vice-president for exploration, to meet Corona geologist David Bell, who had supervised Corona’s drilling program. Sheehan and Bell discussed the possibility of a joint venture in the Hemlo field. As a result, Bell showed Sheehan a map of an adjacent property belonging to Lola Williams, the widow of a doctor from Mary-

land who had been a parttime prospector and owned the claims on the land. According to testimony, Sheehan and Bell were convinced that the property—which later became the Page-Williams mine—probably contained high-grade gold deposits and both agreed that Corona should begin negotiating with its owner.

LAC’s subsequent actions became the focus of the Corona lawsuit. While McKinnon was negotiating with Williams on behalf of Corona, LAC was also dealing with Williams, but did not tell Corona. In 1981, Sheehan secured an agreement with Williams on her 400 acres and flew to Vancouver

to negotiate a joint venture with Corona. Pezim immediately launched a legal action.

During the four-month trial, which began in October, 1985, Corona’s lawyers argued that LAC had breached a fiduciary trust by acting independently upon information supplied by Corona, after the two companies had

verbally agreed to a joint venture. Corona lawyers also argued that verbal agreements between prospectors and geologists—the proverbial handshake in the bush—are commonplace, a position supported by LAC president Peter Allen in his testimony.

Corona’s case convinced Supreme Court of Ontario Justice Richard Holland, who ordered

LAC to turn over the already producing Page-Williams mine to Corona. Corona, in turn, was to pay LAC the $154 million to cover its development costs. Overnight,

LAC’s stock plummeted to $23.75 a share from $41.62 while Corona’s doubled to $25.

LAC then turned to the Ontario Court of Appeal and hired new lawyers as well as the private investigators.

When the appeal court upheld Holland’s decision last October, LAC announced that it would appeal to the Supreme Court of Canada in its bid to have Mr. Justice Holland’s original decision overturned. At the same

time, LAC also applied to the Supreme Court of Ontario for a retrial.

During the three-week application before the Ontario high court, LAC lawyer William Sasso used information provided by Calgary private investigator Bruce Dunne to attack the credibility of McKinnon’s testimony in the original trial. Dunne obtained documents

showing that McKinnon had disguised his holdings by registering some of his original 12 claims in the name of Timmins prospector and friend Edward O’Neill. Although those claims are not part of any existing mine, Sasso argued that McKinnon’s methods threw his reliability as a witness into question. McKinnon testified that he frequently

used other prospectors’ names to stake claims in order to confuse his competitors. Corona lawyer Alan Lenczner argued that LAC knew of McKinnon’s practice well before the original trial.

Having exhausted all avenues of appeal before the courts in Ontario, LAC’s only chance of retaining the Page-Williams mine rests with the Supreme Court of Canada. Lawyers for both LAC and Corona expect that the Supreme Court could take up to 18 months before reaching a decision. In the meantime, Julian Baldry, a mining ana-

lyst with Toronto-based

Nesbitt Thomson Deacon Inc., said that he is advising investors to hedge their bets by purchasing three Corona stocks for every one of LAC’s. Whatever the outcome, PageWilliams promises to be a gold mine for the lawyers.

RIC DOLPHIN