premier partner up to more games what next Centerra Gold Inc (C-CG) - Street Wire
Centerra sued over 34-year-old royalty agreement
2020-02-19 17:47 ET - Street Wire
Shares issued 293,690,456
CG Close 2020-02-19 C$ 10.32
by Mike Caswell
Centerra Gold Corp. is facing a lawsuit in the Supreme Court of British Columbia claiming that the company has underpaid a royalty on its Mount Milligan mine by $7.1-million. According to the suit, the company has been miscalculating a 2-per-cent net smelter return since 2016. The suit seeks the court-ordered payment of all present and future amounts.
The allegations are contained in a notice of claim filed at the Vancouver courthouse on Feb. 13, 2020. The case was brought by a private entity called HRS Resources Corp., which is owned by the original Mount Milligan property vendor, a prospector named Richard Haslinger. The sole defendant is Thompson Creek Metals Company Inc., a former Toronto Stock Exchange listing that Centerra acquired in 2016.
The case centres around an agreement that Mr. Haslinger entered on July 16, 1986, to sell claims that became the Mount Milligan mine. (Documents from the time suggest that he received $615,000 and 120,000 shares.) In 1986, Mount Milligan was an untested project in an isolated area. There was, of course, no indication that it would one day become a mine with 4.7 million ounces of proven and probable reserves. As with most property deals, Mr. Haslinger included a term that provided him with a royalty, payable in the event that somebody built a producing mine on the site.
(While the project did not go into production until 2013, in the interim it turned out to be a promotional boon for the original purchaser, Robert Hunter's Lincoln Resources Inc., helping to propel the stock to a $3.75 high in 1989. Low metal prices then shelved the project for a time, before Thompson Creek brought it into production 14 years later. Unfortunately for Thompson Creek shareholders, the cost of building the mine left the company with the better part of $1-billion (U.S.) in debt. The stock, which had traded well above $3 when the mine entered production, was at a lowly 64 cents when Centerra acquired Thompson Creek in an all-share deal on Oct. 20, 2016.)
The lawsuit claims that Centerra, through Thompson Creek, has been underpaying the royalty on Mount Milligan since the third quarter of 2016 (roughly when Centerra acquired Thompson Creek). Over a period of three years, Thompson Creek paid out $25.8-million, which is $7.1-million short of the actual amount owing, the suit states. The difference stems from the way that the royalty is calculated. According to the lawsuit, Thompson Creek has improperly deducted money through "transactions" that were not part of the original agreement.
Mr. Haslinger is seeking the court-ordered payment of the disputed amount. He is also seeking an order that would direct all future calculations be done in what he claims to be the appropriate manner. Vancouver lawyer Brent MacLean of DLA Piper (Canada) LLP filed the lawsuit on behalf of HRS.
Centerra, which mostly operated outside of Canada until the Thompson Creek deal, has not yet filed a response to the claim. The stock closed at $10.32 Wednesday, up nine cents.