NEW YORK (ResourceInvestor.com) -- In little more than three months two exploration companies will face off in court in Vancouver to fight over ownership of nearly $4 billion worth of silver and lead awaiting extraction in Argentina.
Industry financiers are concerned about the inability of Toronto venture listings and Argentina operators IMA Exploration [IMR] and Aquiline Resources [AQI] to reach a settlement in their dispute over the Navidad project. There is considerable risk to the entire sector if it is left to the Supreme Court of British Columbia to wash the dirty laundry, of which there is a tonne.
Investor disgust
The industry simply cannot afford more investor disgust with further squabbling affecting trapdoor junior mining stocks operating from Vancouver; another Bay Street versus Howe Street spectacle.
The stakes are high because Navidad is arguably the best virgin discovery so far this cycle. Perhaps only Virginia Gold’s [TSX:VIA] Eleonor project is emerging as a challenger on raw value, but most certainly it has been more rewarding to shareholders. As a consequence the embarrassment factor is proportionately large and could reach to the highest rungs of the industry if the dispute is left to go all the way.
A positive out-of-court arrangement is also important because of Argentina’s hesitant hospitality to exploration and mining.
Meridian Gold’s [MDG] Esquel project in Chubut province was killed by regulatory fiat and environmental opposition. Now the province of Rio Negro, where Aquiline is developing its Calcatreu project, is contemplating an Esquel-like ban on the use of cyanide to recover mined metal.
That’s the last thing juniors operating in Argentina need especially after Federal officials from the country went to such lengths at this year’s Toronto PDAC to reassure the market that Esquel was a unique non-replicable situation.
Who’s funding whom?
Here’s the bottom line: IMA is creating terrific value which is not being translated for stockholders. It seems more pronounced lately and the approaching court appointment is hardly going to help. On the other hand Aquiline stock has appreciated three fifths since this time a year earlier. The dilemma for IMA investors is weighing up the risk that their funds are working hardest for Aquiline’s stockholders.
IMA spokesman, Sean Hurd, said it was a matter of patience. “How much are you prepared to give up for instant gratification?,” he said in reference to pressure to reach a settlement with Aquiline. He confirmed to Resource Investor that IMA is confident it will prevail in court and sees little point pursuing a settlement with so little time left before judgement. “The worst is behind us.”
Navidad, wholly owned by IMA, boasts code compliant resources of 339 million ounces of silver and 2.9 billion pounds of lead. At current metal prices that’s an in situ value of $3.7bn.
Using the Baring Rule of Thumb (BRoT) for early stage mineral projects, that should translate to a market capitalisation of $372m for IMA, or C$9.16 per fully diluted share. Instead the company trades at just $130m, or C$3.20ps.
That’s a gigantic discount. IMA investors can see through to barely a third of Navidad’s value. It is made more untenable by the fact that IMA’s stock price is effectively reverse geared to the project’s progress.
Silver resources have increased two fifths in the past year; lead resources by one-seventh. But the real story is the in situ value of the project which has risen dramatically thanks to much higher prices for silver and lead. Navidad’s silver value is up more than four fifths in a year and lead value is up more than two fifths with the overall project two thirds more valuable than it was at the same point in 2004. Yet the stock price has idled at much the same level though it had a good run late last year.
Background to the dispute
For those unfamiliar with the IMA-Aquiline dispute, here’s a refresher.
IMA contends that one of its geologists happened upon Navidad after walking up a fence-line and noticing ore-bearing rock propping up a fence post on ranch land. The company has also said it can show years of regional exploration data that includes Navidad.
According to Aquiline perspicacity had little to do with finding Navidad. Both companies were among several that signed a confidentiality agreement to review Newmont’s [NEM] nearby Calcatreu property which had been put up for sale. Aquiline has charged that IMA improperly used Bulk Leach Extractable Gold (BLEG) data revealed to it – apparently unusually – in the course of its Calcatreu due diligence to swerve off a purchase of the project and simply went on to stake Navidad.
In its court filings, IMA has admitted using the Newmont data, but says it was not covered by the confidentiality agreement and was, anyway, far from the agreed 2 kilometre “zone of influence”. Newmont was aware of IMA’s regional activity and apparently saw little value in the greater Calcatreu district.
Marc Henderson, Aquiline chief executive, has maintained that he would be satisfied simply to see assay results for samples taken in the area which could prove IMA’s claimed discovery process. He has said that IMA would be hard pressed to show that its data rather than Newmont’s led to finding Navidad.
As it became apparent that Navidad was a spectacular hit, Aquiline filed suit against IMA and is seeking a constructive trust that echoes the 1980s battle between Lac Minerals and International Corona Resources over the Williams Property in Hemlo, Northern Ontario.
Gift from Newmont
What has set tongues wagging more vigorously lately are comments by IMA chairman Joe Grosso. In remarks to Globe & Mail columnist Eric Reguly two weeks ago, Grosso said the data was a “gift” from Newmont. Grosso repeated the gift line in comments at last week’s IMA Annual General Meeting in Vancouver.
Newmont spokesman Randy Engel says the company cannot comment on pending litigation.
IMA’s Sean Hurd says “gift” is a terminology and translation issue for the native Italian rather than a statement of fact.
Still, critics from the Aquiline camp think that Grosso has inadvertently lost the case because Newmont can hardly be expected to testify in court that it favoured one particular company in the Calcatreu due diligence process. That would be an invitation to a lawsuit from disgruntled shareholders already steamed about losing Navidad. Conversely, IMA cannot now settle given the risk of being sued for changing its tune and giving away market value.
IMA supporters say investors should simply take note of which Toronto brokerage has been ringing up most of the purchases in Aquiline stock recently to understand how the camps are dividing over Navidad. Indeed, IMA does still seem to be the odds on favourite to prevail, but it’s labouring under a sadistic discount in the process.
