From the March 19, 1999 issue:
"INTERESTing DEVELOPMENT
On March 15, a WSP news release stated that it is "Winspear's position that the partner is deemed to have elected not to contribute to the 1999 Program and Budget." On the same day, Aber announced that it disputes the WSP's position and is preparing to commence litigation to protect its ownership interest. Before discussing this briefly, let me say that the details of the 'latest' version of the agreement has never been made public and both parties are correctly hesitant to air their dirty laundry in public. Other than a few individuals at the companies themselves, no one knows the full facts. The discussion below is based on information from the public domain only.
Many have asked me if this dispute was necessary. Why didn't Winspear just pick up the phone and tell Aber that, according to the agreement signed by both parties, Aber is in default? Winspear, in my opinion, had no choice in the matter. The responsibility of Winspear lies with its shareholders. It is the legal responsibility of Winspear, on behalf of its shareholders, to carry out the terms of the agreement and to protect/enhance shareholders value. According to the public understanding of the agreement, and as admitted by Aber in its news release, ABZ is in default. WSP shareholders value in Snap lake can potentially be increased by 16%, to 84% total, and at
below current market valuations. If this matter was quietly swept under the table and resolved, than WSP management would have left itself open to future discovery and litigation by its shareholders. In my opinion, whether this matter should be brought forward to the public and to the attention of the shareholders is not a choice for management but an obligation of management.
Regardless of how this dispute is resolved, as speculators in WSP interested in controlling our risk, it is reasonable to conclude that it involves little downside for WSP. With the information currently available, I can envision only three potential outcomes and they are summarized below.
* If Aber wins, WSP's interest in Snap lake will remain at approximately 68%. Winspear's management would deem to have correctly carried out its responsibilities to the shareholders.
* If Winspear wins, WSP's interest will increase to 84%. The additional 16% is currently valued at approximately $27 million by the market. Winspear will take control of the 16% for approximately $3.8 million (Aber's portion of the 1999 program). As a WSP shareholder, I am willing to spend an extra one or two million on a lawyer in the quest for the extra interest. This scenario will also leave Aber open to litigation by its shareholders for gross miss-management. A lawsuit of this nature, against Aber, may take on the future value of the 16% interest, which may potentially be worth a healthy multiple of its current value. Aber may have kept its eyes wide open during the development of the Agreement, but half shut during its implementation. Who is going to want to own AberEx with the threat of a potential litigation?
* The two companies may also resolve the issue with Aber compensating Winspear in some manner. This could include a certain percentage of their interest. Again, WSP's interest may increase.
This is not a win/win situation for Winspear, but it certainly is, as far as the Snap lake ownership interest is concerned, a no loose situation. Litigation of any kind has negative implications for the market. However, in this case, any negative implications will be at the expense of Aber..."
....
"...It also appears, from information provided in news releases, that the joint management committee usually met in mid December to outline the following year's program. With this in mind, Aber has had approximately 90 days to accept the program as approved by the committee. The only potential defence available to Aber may be that they have never had the opportunity to accepted the program as they have never seen a document with the approved program, such as the minutes of the management committee.
Aber's management went through a changing of the guard over the last few years. Kenneth G. Hanna, a securities lawyer, is currently President and CEO. One can also assume that Ken would not risk Aber's interest in Snap lake without having something in his legal pocket. From what I know, the Law and Equity Act has never been used in BC for a mining property. How does one consistently apply this law on an asset whose value can change significantly over short periods of time? In exploration properties, time is of the essence and Winspear appears to have given Aber 90 days to participate. Aber is asking the court to ignore the letter of the agreement and make a decision based on the spirit of the agreement. This can set a dangerous precedence for the mining industry.
The decision will eventually be based on the past procedure followed by both firms in accepting an exploration program and paying for it. If a pattern has been established that Aber did not break during the 1999 program, than Aber may win back its 16%. However, with WSP management being the only constants in the Camsell lake joint venture, I doubt that WSP did things differently this year compared to other years.
No one knows the outcome of this dispute, but as a Winspear stockholder, we do not need to know the outcome. As an Aber shareholder, you need to monitor the dispute, if it goes to court, very closely. Our decisions will continue to be based on owning 68% of a diamondiferous body whose tonnage and grade are well understood. The fact that Aber is fighting to keep its 16% shows that Aber also feels that its investment value will increase..."
Sincerely,
Sudhir Khanna, P.Eng.
Editor, The RESOURCE INDICATOR
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