Pioneer fighting threat of mine foreclosure

Stephen Sorensen, who replaced Robert Willis as president and chief executive officer in a recent corporate shakeup, said Pioneer “has no alternative but to retain counsel to protect its U.S. holdings.”

Faced with non-monetary default notices and foreclosure on its 50% interest in the Stibnite gold mine in Idaho, Pioneer intends to take legal action against Pegasus for improperly issuing default notices. The company als o said its legal advisers would be investigating “the potential use of inside information” acquired by Pegasus for purposes not involving market manipulation.

“Obviously we don’t think we issued the default notices improperly or made improper use of inside information,” said Pegasus spokesman Michael Arneth.

The corporate relationship between the two companies began in 1988 when Pegasus subscribed for a $12 million convertible debenture issued by Pioneer. (The conversion into stock is at $3.50 per share. Pioneer is trading at about 50 cents in a 52-week range of $3.95 and 40 cents .)

This indebtedness was secured by a guarantee of Pioneer U.S. and by mortgages against the interest in Stibnite, a seasonal heap leach gold mine, and the Bonito gold project in New Mexico.

Through a subsequent rights offering and open market purchases, Pegasus acquired about 1.8 million shares of Pioneer. By this time the gold producer had two representatives on Pioneer’s board of directors.

In June of this year, Pegasus lent Pioneer 7,000 oz of gold to assist with short-term working capital requirements for its Canadian projects. At the time Pioneer was facing operating problems at its 100% owned Puffy Lake gold mine in Manitoba. Mining operations have since been suspended.

The company’s limited financial resources were further strained by capital cost overruns and the slow start-up of the Premier gold mine near Stewart, B.C., where Pioneer has a 40% interest.

Pegasus removed its two board members in October after a change in senior management. In November, it served Pioneer with a notice of non-monetary defaults under the convertible debenture agreement. A notice of non-monetary default was also served on Pioneer U.S. under its guarantee and collateral mortgages.

The alleged defaults, being disputed by Pioneer, involve undisclosed technical breaches of the convertible debenture agreement. Pioneer stressed that interest payments to Pegasus are current and the first principal payment on the convertible debenture is not due until at least June of 1993.

In an effort to negotiate a settlement, Pioneer planned to accept an offer by Pegasus whereby it could acquire all Pegasus’ debt and equity interest (in Pioneer) for $9 million(US) on or before April 30, 1990.

In return, Pioneer would allow Pegasus to assume possession of the Stibnite mine until the debt and interest were recouped from production, or until reserves were depleted. At last report, Stibnite had oxide reserves of three million tons averaging 0.04 oz gold per ton, plus a larger, higher-grade sulphide reserve that remains to be fully evaluated.

During the course of negotiations, Pioneer tried to have the settlement agreement redrafted, arguing it would have allowed Pegasus to take Stibnite without eliminating Pegasus’ ability to sue for any deficiencies. Negotiations have since broken off as a result of this and other issues, although Arneth said Pegasus’ offer is still on the table.

“We had an understanding as to what was agreed upon but apparently their understanding was different,” he said.

In the meantime, Pioneer is talking to a number of major companies for possible joint ventures of its projects or equity participation in the company.

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