Nice long summary of the litigation on Stockwatch. It does summarize the issues quite well.
Glimmer Resources Inc GMEShares issued 6,028,9622000-02-28 close $0.45Wednesday Mar 1 2000Also Exall Resources Limited (EXL) THE TIRESOME LITIGATION GRINDS ON by Will Purcell It is said that nobody wins a legal dispute but the lawyers, and that adage is usually true when the dispute involves two junior explorers squabbling over a small ore deposit. There can be exceptions to every rule, and one such case just might be the fight waged between Exall Resources and Glimmer Resources that is now heading into its fourth year of court wrangling with no quick end in sight. The dispute concerns their respective interests in the Glimmer gold property, now a producing mine. At stake is a probable 20-per-cent share in the mine, and one quick out-of-court solution would be to split the difference, with Exall holding a 55-per-cent interest, and Glimmer the remaining 45 per cent. On the surface, the protracted legal wrangling over a 10-per-cent interest in a small, money-losing gold mine appears to serve little purpose. The operation appears headed toward a $1-million loss in 1999, and about 160,000 ounces of gold have so far been recovered, with the remaining minable reserve estimated to be only about 220,000 ounces. That is only part of the story, and things are often not as they first appear. The Glimmer property is well situated in gold country, to the east of Timmins, Ont. The mine lies on the Porcupine-Destor fault, which has played host to a number of gold mines in the past. Most of these mines extended to a considerable depth, with the shallowest operation carrying on to the 800-metre level, while some extended as deep as 2,700 metres. To date, nearly all of the audited minable reserves at Glimmer are confined to within 150 metres of the surface, where the vast majority of the exploratory drilling has taken place. A more recent unaudited calculation increased the reserve by 70,000 ounces, but still with more than 80 per cent of the gold confined to the top 150 metres. This latest figure includes a token amount of gold between 200 and 350 metres, based on very limited work. Frequently, gold ore bodies increase in grade with depth, and Glimmer appears to follow that trend. The total resource above 200 metres has an average grade of 6.7 grams per tonne, while the resource below 200 metres grades 7.7 grams per tonne. All of this has made a believer out of Exall. The deposit is apparently still open along strike to the west, and is also open down dip to the south, extending off the property. Last summer, Exall acquired a 100-per-cent interest in the property probably containing the down-dip extension. Current estimates are that the extension would occur at the 450-metre level at the point it would cross the property boundary onto the recent Exall acquisition. Based more on history than actual exploration, Exall vice-president, Michael Gross, believes that the mine will "be a big mine, ultimately a multimillion ounce producer," perhaps revealing the reason both litigants have fought with such tenacity over the deposit. The current poor performance appears to be a temporary hiccup as well, caused by the severely depressed gold price, and a much lower grade of ore than had been forecast. The mine only produced 36,531 ounces of gold over the first nine months this year, down from 64,319 ounces during its first full year of production in 1998. The mine actually produced 40,000 ounces during development in 1997, prior to the formal commencement of commercial production. During 1997 and 1998, the average grade of the milled ore was 6.7 grams per tonne, compared to 5.5 grams per tonne for 1999. The significantly lower grade and the dramatically lower price of gold took its toll on the bottom line in 1999, but the situation was far rosier in 1998 as the operation realized a gross profit of $4.4-million. Operating costs rose from $240 (U.S.) per ounce in 1998 to $260 (U.S.) per ounce in 1999 due to the lower grade, but a recent decision to mill the ore at Kinross Gold's mill in Kirkland Lake should have a positive effect on the bottom line, as will the recent increase in the price of gold. Another possible reason for the drawn out legal battle over a seemingly minor interest could well be an issue of control. Exall is currently the operator, courtesy of its 65-per-cent stake, but if Glimmer should prevail, it would become majority owner with the right to become operator of the mine. That could prove to be a contentious matter, as it would appear to be in Exall's interest to keep mining down dip, toward its 100-per-cent owned ground, while Glimmer would obviously prefer to keep the operation on joint venture ground as long as possible. Meanwhile, the case continues to progress slowly through the courts. There has been no word since last spring, but the matter is due to go before an Ontario court referee later this year. The referee will review documents and hear testimony from both companies and make a recommendation back to the court as to what the respective levels of ownership will be. If Exall's ownership were indeed reduced by a court ruling, it would then ask for relief from forfeiture from the court. The process appears likely to drag on for more than another year, and perhaps significantly longer if there are appeals along the way. The battle began early in 1997 when Exall challenged Richard McCloskey's right to buy out former Glimmer head, George Kent, and claimed right of first refusal. Glimmer countered, challenging Exall's practice of accounting for the joint venture. The court quickly dismissed Exall's claim, and followed with a ruling that supported Glimmer's contention that Exall should have contributed cash to the joint venture, as required under the terms of their agreement. Exall appealed but lost on all counts, save one, in which the appeal court ruled that Exall would be entitled to argue its case for relief from forfeiture. Such an argument would show that while Exall did not actually contribute cash, it did incur liabilities, and its predecessors, Hemlo Gold and Noranda, had operated in this fashion. The appeal decision was announced nearly a year ago. Much of the delay in meeting with the court referee has been caused by behind the scenes battles over their respective positions, and needless to say, each side has a different spin. Mr. Gross said they had been back to court late last year to clarify some of Glimmer's concerns before heading to the referee. Meanwhile Mr. McCloskey accused Exall of dragging its feet, coming up with one delay after another. He acknowledged that Glimmer asked the court to clarify some points in Exall's claim, which he termed "outrageous". One of the thorniest issues for the referee to resolve is the problem of management fees. Exall apparently began with a claim of $300,000 per month, but that amount was reduced to about $50,000 per month when the cost of supervision was required to be supported by actual expenses. Mr. McCloskey strongly disputes even that reduced amount, and suggested a figure of $10,000 per month was more realistic. He said, "We don't mind paying cost of supervision, but [charges for] flowers and bottle openers just don't cut the grade." The parties also disagree on the importance of a potential relief from forfeiture hearing. Mr. Gross said that Exall had simply been operating as Hemlo and Noranda had been proceeding in the past, although it was not in strict accordance with the joint venture agreement. The original court decision chose to ignore that argument, relying on the written agreement only, however the appeal court ruled that Exall would be entitled to present that evidence at any relief hearing. "At the end of the day, I am firmly convinced that the court is going to grant relief from forfeiture," said Mr. Gross. Mr. McCloskey didn't think so, suggesting that an Exall argument for relief would not be very strong. One thing both sides agree on is the advantage of settling the matter quickly, but both blame the other for the failure to resolve the issues. Mr. McCloskey said, "We've tried to settle the thing on numerous occasions." He said that Glimmer had suggested a number of options and they had come close to settling a few times, but failed due to Exall's intransigence. Of course, Mr. Gross had an entirely different perspective. "We think it's time to put this fight behind us and get on with life, but Glimmer doesn't seem to want to get this settled." Meanwhile, the battle has taken its toll on shareholders of the litigants, with both stocks now trading for mere fractions of their earlier value. Glimmer closed Monday down 15 cents, to 45 cents, while Exall dropped 1.5 cents yesterday, closing at 18.5 cents. (c) Copyright 2000 Canjex Publishing Ltd. canada-stockwatch.com |
