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Rob McEwen calls competing claim to Los Azules copper project ‘blackmail'

Minera Andes drops plans to spin-out Los Azules in part because of a court case questioning its full ownership of the project.

Posted: Saturday , 21 May 2011

HALIFAX -

Reverberations of a significantly expanded legal claim to a much larger portion of Minera Andes' massive Los Azules copper deposit in Argentina - which Minera Andes's president and CEO Rob McEwen quickly and vociferously rejected - is having an immediate impact on Minera Andes' plans to spin out the deposit into a separate company. On Friday Minera Andes announced it was shelving those plans, made public last February, given financial and legal considerations.

The postponement followed news TNR Gold, which has for a number of years sought through the Supreme Court of British Columbia to regain partial property rights to Los Azules, had been given a green light by the court to advance an additional claim that, if successful, would see it get a substantially bigger chunk of Los Azules than previously sought.

TNR Gold has for years contested Minera Andes' 100-percent ownership of Los Azules. The thrust of TNR Gold's argument until recently had been that it should have been allowed to exercise a 25-percent back-in right on concessions that cover the northern portion of the Los Azules deposit, which in total holds indicated resources of some 2.2 billion pounds of copper.

That back-in right flowed from TNR Gold's original ownership of a significant, northern portion of Los Azules that in the early 2000s it farmed out to Xstrata, which then optioned the concessions to Minera Andes.

A court hearing to consider TNR Gold's claims to the northern area of Los Azules through its back-in right had previously been set for this June, the same month Minera Andes had intended to spin out Los Azules into a separate company. McEwen toldMineweb in an interview Friday he had hoped those legal proceedings would have been underway before Minera Andes shipped off Los Azules.

But in mid-May TNR Gold threw a wrench into those plans. It gave notice that the BC Supreme Court would allow it to add a new claim to the case alleging Xstrata and Minera Andes did not meet required exploration expenditures to exercise the option agreement governing the property in 2007. The implication: TNR Gold believes it still owns the entire northern portion of Los Azules, and not just a 25-percent back in right.

Rob McEwen said of TNR Gold's claims over part of Minera Andes' Los Azules project "To me it's a form of blackmail."

That is a charge TNR Gold President and CEO Gary Schellenberg was not available to respond to, as Chief Operating Officer Michael Sieb, deferring comment, noted Schellenberg would be out of the office until May 25, 2011. In lieu of comment, however, Sieb pointed to the arguments set out in TNR Gold's court application to advance its new claim of unmet exploration expenditures, which it provided to Mineweb.

Back in early September, 2007, TNR Gold had originally signed off on the option agreement, stating in a press release, "All cash payments due by May 15, 2008 have now been received. All exploration expenditures have also been incurred."

But, according to court documents, TNR Gold now alleges Minera Andes and Xstrata failed to meet those expenditures as they rushed to hit the $1 million mark so they could as quickly as possible "take-out" TNR Gold's 25-percent back-in right on the property.

TNR Gold has long maintained it was more or less duped into signing off on a back-in right with an expiration date. The final draft of an option agreement stipulated TNR Gold could acquire a 25 percent stake over a 120-day period if Xstrata (or as it would turn out, Minera Andes) completed a feasibility study within 36 months of exercising the TNR Gold-Los Azules option.

However, in a case of what boils down to not reading the fine print, TNR Gold said it never discussed the time-limit clause with Xstrata and that initial drafts of the option did not contemplate one. TNR Gold wrote in court documents that the 36-month stipulation was added after initial discussions on the option agreement and "in lengthy blacklined text along with various non-substantial changes." It, TNR Gold said, went unnoticed for some years.

Moreover, TNR Gold charged, Xstrata never intended to produce a feasibility study. To that alleged end, in its application to advance its new claim TNR Gold quoted an email apparently sent between two Xstrata employees at the time. According to TNR Gold it read, "Yes, taking Solitario (TNR Gold subsidiary) out of the game is a good idea. All we have to do now is not complete a feasibility study within the next three years!"

Though a feasibility study was not completed within the 36 months period, in early 2010 TNR Gold signalled to Minera Andes that it wanted to exercise its back-in right anyway by waiving the feasibility requirement. Minera Andes disagreed with TNR Gold's standpoint on the matter.

"It is Minera Andes' view that TNR's back in right is dependent upon the production of a feasibility study which has never been produced," Minera Andes responded to the back-in request in an April 1, 2010 press release. "Further, Minera Andes disputes the legal ability to waive this condition."

On that score Minera Andes wants the court to rule in its favour. "Minera Andes is seeking a declaration that any back-in notice delivered by TNR prior to or on April 23, 2010 will be null, void and of no force and effect on account that a feasibility study must be completed on the Project prior to TNR being entitled to exercise its back-in right," Minera Andes wrote in late April, 2010.

Now, with the new claim, TNR Gold has considerably upped the ante by challenging Xstrata and Minera Andes on exploration expenditures, claiming these were inflated. TNR Gold contended in court documents that 250 metres of 1,574.15 metres of drilling it said were claimed as part of satisfying $1 million in exploration expenditures came from holes that did not lie on its claims. The point, TNR Gold alleged: Xstrata "had not met the conditions for exercising the option" and was therefore in breach of their agreement.

As a result TNR Gold, in its new court claim, said it wants the northern - and highly valuable - Los Azules properties back, or damages.

For its part Minera Andes categorically rejected the new claim it had made insufficient exploration expenditures at Los Azules in a press release responding to the new allegation. And on Friday Minera Andes' McEwen called all of TNR Gold's court arguments "creative" and referred to the most recent concerning exploration spending as strange.

"They must think there's something there," McEwen said. "Or they're just looking for a delay."

McEwen summed up TNR Gold's claims as follows: First TNR Gold said it had been fooled in signing the option agreement. Then, McEwen said, came the assertion it could waive the feasibility clause. "Now it's, ‘You didn't spend the (exploration) money'," McEwen said. "But they signed off on it."

In the interim, between now and the new court hearing, McEwen ruled out settlement, saying the court proceedings would "take its course."

Based on what others have told him, McEwen suggested the new court hearing could be as much as eight to 12 months away. While McEwen denied the merit of TNR Gold's claims to Los Azules, he reasoned the postponent of the spin out was in part necessary as the court case, now set to take longer, raised "questions investors don't like to hear."

McEwen also explained Minera Andes delayed the spin out as it might jeopardize a listing on AMEX. Companies wanting to join AMEX need to hold onto prices above a $2 basement, McEwen said. But with the spin out of Los Azules, whether Minera Andes could stay on the plus side of $2 was no guarantee.