Contingent Liability Lawsuit is Frivolous Contingent Liability
Array of Facts
On November 15, 2019, ThreeD Capital Inc. (“ThreeD”) and 1313366 Ontario Inc. (“131” and together with ThreeD, the “Plaintiffs”) each entered into share purchase agreements (the “Share Purchase Agreements”) with the Company under which the Company agreed to purchase the 13,500,000 Common Shares of New Found owned by ThreeD and the 4,000,000 Common Shares of New Found owned by 131 for $0.08 per Common Share.
The transactions closed on November 20, 2019.
On March 10, 2020, ThreeD Capital Inc. and 131 filed a statement of claim in the Ontario Superior Court of Justice against Collin Kettell, New Found and the Company (the “ThreeD Claim”). Mr. Kettell is a Chairman and Chief Executive Officer of both the Company and New Found.
Pursuant to the ThreeD Claim, the Plaintiffs claimed the Company had insider knowledge of early drilling results of Keats which were completed between October 28 and November 17 2019 and were seeking a recisson of the 17.5 m shares .
There has been no Progress towards the resolution of this dispute up to late 2023 and the Court case has been slated to begin in 2026.
NFG’s 2019 Drill Campaign
The 2019 diamond drilling program at the AFZ comprised 586 metres of HQ diameter core in four holes completed between October 28, 2019 and November 17, 2019.
Holes NFGC-19-01 and NFGC19-02 were drilled to target the Keats Zone where historical drilling and trenching suggested gold mineralization was to occur.
Historically, a substantial amount of drilling and exploration activity had taken place at Queensway, which showed excellent prospectivity
In 1994 Gander River Minerals optioned the Knob property including the Knob prospect from Noranda Exploration Co Ltd. Drilling by Gander River Minerals allowed for production of a historical resource estimate of 236,391 tonnes grading 10.26 g/t Au.
In fact , The 2019 drill program NFGC19-01 discovery was planned to target 50 m vertically below historic drill hole LG08-48 at the Keats Zone which showed excellent grades .
So, the significant gold mineralized zone intercepted in November 2019 in Hole 19-01 from 96 to 115 m grading 92.86g/t Au over 19.0 m including 285.2 g/t Au over 6.0 m containing considerable visible gold should not have been unexpected by the informed investor.
Assays from the 2019 10 holes were received by NFG in December 2019
My Commentary
The offer to acquire the shares was made on Nov 15 2019 and closed just 5 days later on Nov 20 2019.
This did overlap the completion of the Keats drilling program but obviously no assays were then available .
Visible gold was present in the discovery hole and PALI May or May not have been aware of this but that, imo , being a single hole and not unexpected as historic drill hole LG08-48 hit a high grade intercept 50 m above Hole 19-01, this could not have been convincing evidence that a major discovery had been made.
Further, despite the evidence of excellent prospectivity of historic exploration and even gold production from one of the Queensway early discoveries , the Plaintiffs still decided to sell their shares at $0.08 just as the 2019 drilling program was completed but assays not yet available .
It would appear that the Plaintiffs had not informed themselves of the prospective value of their shares despite such evidence being readily available .
Prematurely selling their shares just weeks before they knew assays would be released provides additional evidence that the Plaintiffs considered those results to be immaterial to their shares value.
Not knowing the value of one's assets at the time of their sale is not a reason for a lawsuit that the buyers did know the value of those assets ....assuming that visible gold in one core is that evidence .
That the case is now deferred to go to trial as late as 2026 seems to suggest to me that it will not proceed.
Further, recent substantial buying of PALI shares by insiders provides meritable evidence of their conviction that the lawsuit will never go to Trial .
In summary, the Contingent Liability Lawsuit which is the overhang on the current depressed share price, lacks jurisprudence grit, is therefore frivolous, and will not go to trial .
AIMHO