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 Some of Canada's best-known mining executives are sparring over the
early-stage but promising Odyssey gold discovery in Quebec, near
Canadian Malartic, the country's biggest gold mine.
The legal fight has its roots in the C$3.9 billion ($3.6 billion)
takeover of Osisko Mining Corp, the mine's builder, this year.
Yamana Gold Inc <YRI.TO> and Agnico Eagle Mines Ltd <AEM.TO> teamed
up to beat a hostile bid by Goldcorp <G.TO>, taking control of
Canadian Malartic.
At the heart of the dispute is who, if anyone, will profit from
Odyssey, one of Osisko's assets. If early drilling results at the
exploration site pan out, it could be a choice addition to the
Canadian Malartic mine, extending its life.
Abitibi Royalties Inc <RZZ.V>, listed on Venture, the Toronto Stock
Exchange's market for small, growth companies says it was Osisko's
minority partner, and the deal has triggered its right to take
control of part of Odyssey. Yamana and Agnico dispute that claim.
Tiny Abitibi was little known before it challenged the two mining
heavyweights, but it has a big backer in Rob McEwen, who ran
Goldcorp until 2005, and it has doubled down even as Yamana and
Agnico dismiss its challenge as opportunistic.
In June, McEwen's protege Ian Ball joined Abitibi's board, along
with Joe Groia, a lawyer and former head of enforcement at Canada's
top securities regulator. In July, McEwen invested C$2 million in
Abitibi. In August, Ball became president.
Canada's tightly-knit gold industry, home to three of the world's
top five gold producers, has been split by conflict in the wake of
major deals before. Barrick Gold Corp <ABX.TO> tussled with Goldcorp
for two years over the El Morro project in Chile until 2012.
"The point here is a point of principle," Yamana Chief Executive
Peter Marrone said, discussing Abitibi's challenge on a July 31
conference call. "You cannot make actions like this, certainly with
a company of the stature of Agnico and Yamana, without
consequences."
He did not say what the consequences would be, and Abitibi's Ball is
undeterred.
"You don't work for Rob McEwen for ten and a half years without
learning that sometimes good things come with a battle," Ball told
Reuters.
McEwen showed his combative side shortly after he left Goldcorp,
criticizing his successor's plan to buy a rival miner and later
trying to block the deal in court as a shareholder.
Abitibi, which is based in the Quebec town of Val-d'Or, French for
valley of gold, could become a top gold miner, said Ball, emulating
legendary growth stories such as Barrick predecessor American
Barrick and Goldcorp.
Shares of Abitibi have more than tripled since April 14. The shares
traded at C$3.40 on Thursday.
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LEGAL ODYSSEY
Abitibi says it has a 30-percent interest in the property that
contains the northern section of Odyssey, and that the interest is
"free carried," meaning it would not have to fund development to
enjoy its proceeds.
It took Osisko to court over that interest before the conclusion of
the takeover, which Abitibi says has triggered its right of first
refusal to acquire the 70 percent it does not own. Yamana and Agnico
reject that claim.
"It seemed to me that there was a large rush to buy Osisko and
sometimes, well, when you buy something, I've found there's always
something hiding in the closet that you didn't expect," McEwen said
in an interview at his Toronto office.
"Abitibi Royalties is on pretty solid ground. They had contracts,
and those were just swept aside when these larger companies came in
and said 'let's get this deal done'."
Agnico and Yamana declined to comment for this story.
Yamana and Agnico closed the Osisko deal in June, taking over
Canadian Malartic and several other properties and hiving off other
prospects into a new company.
The deal focused on Malartic, but on a call shortly after its
announcement Yamana noted that early drilling results indicated "a
significant underground deposit" at Odyssey.
Exploratory drilling at Odyssey was halted by Yamana and Agnico in
July, "pending determination of the project's financial viability
and the resolution of ongoing disputes."
Abitibi has appealed a Quebec court decision that would send it into
arbitration with Yamana and Agnico. It will have a chance to make
its case either way, and it is not yet clear how long it might take
to get a ruling.
($1 US = $1.09 Canadian)
(Additional reporting by Euan Rocha; Editing by Amran Abocar and
Tomasz Janowski)
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