by Will Purcell
The diamond and specialty minerals stocks box score on Wednesday was a solid 77-67-158 as the TSX Venture Exchange rose four points to 581 while polished diamond prices edged higher. Bruce Duncan's Canada Carbon Inc. (CCB) was a busy trader, adding one-half cent to 17.5 cents on 1.83 million shares despite a lack of news since early January.
Ken MacNeill and George Read's Star Diamond Corp. (DIAM) slid to 31 cents in intraday trading, ending the day down just 2.5 cents to 40.5 cents on 2.03 million shares. The slump followed word that trouble is brewing between Star and Rio Tinto Exploration Canada (RTEC), its partner on the FalCon diamond project in central Saskatchewan. RTEC, which agreed to a four-stage, seven-year option to acquire a 60-per-cent interest in the project in mid-2017, surprised Star Diamond and the market in mid-November when it delivered concurrent notices of exercise covering all four options. (To do so, RTEC needed to spend over $70-million on eligible expenses.)
At the time, Star Diamond said that it was "reviewing the notice and report of expenditures" delivered by RTEC, adding that more information would follow that review. There was much to review, apparently, as the next information did not come until early this month, when Star said that it had formed a special committee of non-executive board members -- everyone but Mr. MacNeill, Star's president and chief executive officer, in other words -- to "review and consider the exercise notice, including whether the options have been validly exercised by RTEC, to oversee the corporation's dealings with RTEC, including in relation to the exercise notice, and to consider the corporation's alternatives in the context of the exercise notice."
Those words, laden with lawyerese, suggested that RTEC and Star were not seeing eye-to-eye. Star Diamond confirmed the presumed disagreement today, telling RTEC that its purported exercise did not comply with the terms of the agreement and, according to Star, RTEC's operations and claimed expenditures also were not compliant with the agreement. Further, Mr. MacNeill and his crew are grousing that Star "has not to date been provided with any meaningful data" from RTEC's drilling at the project.
The quarrelling augurs ill for Star Diamond's FalCon promotion, which to this point has centred on the tried -- but not necessarily true -- look-who-we-have-as-a-partner principle. Accordingly, Star's grumping then does a near-180-degree turn: The company points out that while it believes RTEC's spending was not in compliance, it also believes that Rio's expenditure of "significant funds" and its continuing actions and conduct are "consistent with a belief that the project warrants significant continued investment." Therefore, Star Diamond expects RTEC to continue spending big at FalCon this year.
That may be optimistic, given that the status of the joint venture, which RTEC believes kicked in automatically with its option exercises last fall, is now subject to dispute. RTEC was to have a 60-per-cent participating interest in the joint venture, Star Diamond 40-per-cent, and each company was to contribute its share of the costs. Given the legalities of Star Diamond insisting there is no joint venture yet, there are opposing risks: If RTEC pays the bills this year, it would appear to bolster Star's position. If Star ignores RTEC's cash calls, it could be diluted should a court decision go against it.
Investors hoping for a quick resolution may be disappointed, as it took Star Diamond three months just to acknowledge there was a problem. Further, given the confidentiality restrictions in the option agreement -- not to mention that lawyers on both sides will offer the standard advice to stay mum -- Star says that it "does not intend to comment further on these matters" until the situation is resolved, either in court, or through a negotiated settlement. (Rio Tinto declined to comment on Star's news.)
Some of Star's loyal retail shareholders are pleased that Mr. MacNeill and Star are challenging RTEC; they hope RTEC will rush to give Star a sweet deal to settle the matter. Still, major partners who can rapidly deploy divisions of lawyers often favour litigation over negotiation. Indeed, the situation is reminiscent of a spat between Aber Resources Ltd. and Winspear Diamonds Ltd. 20 years ago. Winspear insisted that Aber missed a cash call for work at Snap Lake; Aber objected and filed suit, requesting not only damages, but millions of dollars in punitive damages. As expected, Aber won the day in court; thankfully for Winspear it was not heavily punished, other than through costs and a hit to its ego.
Martin Perez de Solay's Orocobre Ltd. (ORL), up four cents to $2.97 on 54,000 shares, is offering 0.142 share for each share of Advantage Lithium Corp. (AAL), which works out to 42.2 cents per Advantage share. (Advantage added one-half cent to 38.5 cents on 1.13 million shares today.) The deal will give Advantage's shareholders just over 5 per cent of Orocobre's stock and it gives Orocobre a full interest in the Cauchari project in northern Argentina.
Advantage currently holds a 75-per-cent interest in Cauchari, which hosts a brine volume of 1.9 cubic kilometres measured and indicated averaging 476 milligrams per litre of lithium, with another 0.6 cubic kilometres inferred at 473 mg/l. In all, that works out to 6.3 million tonnes of lithium carbonate equivalent. Orocobre intends to integrate Cauchari with its nearby Olaroz operation, which is currently in production and going through an expansion.
Tracy Moore's Canada Rare Earth Corp. (LL), unchanged at five cents on 25,000 shares, has narrowed the site of its proposed South American rare earth refinery to six sites. (It is unclear just how wide the list had been previously.) The company has now commissioned a study to pick the best location, based on permitting, logistics and government support. That support -- grants, tax deferrals and loans -- will be critical as refineries are expensive and Canada Rare had less than $200,000 in working capital at the end of September.
Paul Matysek's Victory Metals Inc. (VMX), unchanged at 38 cents on 107,000 shares, has received assays of up to 0.47 per cent vanadium oxide over 52.4 metres from the New zone at its Iron Point project in Nevada. The assays are from the first 14 of 53 holes being drilled to fill gaps in previous drilling. The assays also included a 37.4-metre hit averaging 0.4 per cent vanadium oxide in the Upper zone. A few intervals topped 100 metres, including a 150.3-metre zone that averaged 0.21 per cent vanadium oxide and a 156.5-metre zone that averaged 0.27 per cent.
Mr. Matysek, executive chairman, says that the first batch of assays clearly demonstrate the continuity and grade identified in the earlier drill program. He also pointed to the thicker intervals being encountered now, thanks to the deeper holes in this second phase of testing.