Gold Standard files claim over Mercur

Gold Standard has launched a second lawsuit in its bid to regain control of the Mercur mine in Utah from American Barrick Resources.

While Gold Standard already holds a 15% net profits interest in the Mercur mine which produced over 108,000 oz gold last year, the Salt Lake City company is attempting to win back the mine plus all of the gold extracted from it.

The junior exploration company recently filed a complaint in a Utah district court against an English merchant banking company called Samuel Montagu and Co., Montagu Mining Finance Ltd. and John Van Der Westhuizen. Samuel Montagu is a wholly-owned subsidiary of the Midland Bank.

The complaint alleges that back in 1984, the banking outfit profited from information provided by Gold Standard by helping Barrick to acquire the Mercur mine from Texaco Inc. in 1985.

Filed on May 6, the complaint comes about 18 months after it filed a statement of claim against American Barrick.

The entire dispute, currently in the deposition stage, centres on a number of developments which occurred about 15 years ago.

Gold Standard President Scott Smith staked the original claims on the Mercur property back in the early 1970s. In 1973, he entered a joint venture agreement with Getty Oil allowing Gold Standard to retain a 25% interest while Getty undertook to finance exploration for a mineable orebody to earn 75%. Royalty interest

By 1980, Getty had brought the project to the feasibility stage but since Gold Standard was unable to put up its share of the financing, the latter company agreed to convert its 25% ownership to a 15% royalty interest.

As reported (N.M., Nov 16/87), Smith has alleged all along that he was unable to fulfill his responsibilities outlined in the agreement because Getty didn’t provide a proper feasibility study.

Smith has also alleged that the Getty agreement gave him first refusal on the Mercur property when it was put up for sale by Texaco along with Getty’s other non energy assets in 1984.

In a bid to arrange the financing for acquisition of Getty’s interest in Mercur, Gold Standard’s financial advisor Richard Boulay says he provided Montagu Mining Finance’s managing director John van der Westhuizen with confidential information on the mine including detailed computer simulations.

According to Gold Standard, the computer simulations contained the technical and financial projections for the mine, run under different sets of assumptions. They projected the net value of the mine at between $30 and $40 million. Samuel Montagu

In its statement of claim, Gold Standard said the information was provided in confidence and on the understanding that Samuel Montagu would provide financing or enter into a joint venture with Gold Standard to acquire Getty’s interest.

By helping Barrick to acquire the mine, Montagu intentionally solicited and misappropriated the information provided by Gold Standard for their own benefit, Gold Standard alleges. “Our position is that they had a distinct fiduciary duty and they were obligated to keep that information confidential,” said Boulay.

After van der Westhuizen met with Barrick Chairman Peter Munk in late 1984, the claim said Samuel Montagu was appointed as Barrick’s “merchant bank advisors” to direct the company’s North American gold acquisition campaign. “Samuel Montagu stopped calling us after that,” Boulay said.

While Montagu Executive director David Hinde is on Barrick’s board of directors the claim is without merit according to Barrick sources.

“They (Montagu) may have helped us in a limited way but I don’t understand how Gold Standard could call the information confidential when it was all available to the public in Getty’s data room,” said Jerry Garbutt, Barricks chief financial officer.

“First Boston Corp. was hired to the sell the mine on Getty’s behalf and Barrick eventually financed the acquistion through Bank of America,” said Garbutt.

In March, 1985, Barrick bought Mercur for what was considered a fire-sale price of $31 million (plus a $9 million royalty interest).