Gold claims contested amid Pogo sale

  • The Pogo gold mine southeast of Fairbanks is seen in this file photo. Sumitomo Metal Mining America Inc. announced a sale of the operation in August 2018, but a lawsuit is now unfolding over who owns nearby and highly prospective gold claims that were included in the transaction. (Photo/Courtesy/Judy Patrick)

A lawsuit over who has rights to thousands of acres of promising Interior Alaska gold claims has ensnared the new and former owners of the Pogo gold mine.

Nevada-based Great American Minerals Exploration Inc. sued former Pogo owner Sumitomo Metal Mining America Inc., RCI Capital Group Inc., a Canadian finance firm and the new Pogo owners, on Nov. 6 in Alaska Superior Court claiming Sumitomo and RCI Capital conspired to sell gold claims near Pogo out from under Great American Minerals as part of a $260 million sale of the mine in 2018.

Sumitomo announced in late August 2018 that it had agreed to sell the underground Pogo mine to Australian-based Northern Star Resources Ltd. in a deal that, unbeknownst to Great American Minerals at the time, included the roughly 36,000 acres of state mining claims known as the Monte Cristo property.

According to the complaint, Great American Minerals Exploration, or GAME, signed an option agreement with Sumitomo and its subsidiaries in late August 2016 that gave GAME exclusive rights to eventually purchase the Monte Cristo claims provided it made good on a series of work and payment requirements before the end of 2019.

On Dec. 30, a day before the option agreement between GAME and Sumitomo was set to expire, Judge Jennifer Henderson issued a preliminary injunction in the suit that essentially freezes the agreement until Henderson lifts the injunction or the case is resolved.

GAME paid Sumitomo $700,000 in installments over two years and additionally made good on commitments to perform at least $8.5 million of exploration work at Monte Cristo from 2017 to 2019, according to the complaint.

Sumitomo, in its response, denied the vast majority of GAME’s allegations, but acknowledged that the exploration company fulfilled its work commitments in 2017 and 2018 and also made its final option fee payment of $250,000 on Aug. 29, 2018, a day before the sale of Pogo was announced.

Matt Singer, an attorney for GAME, said in an interview that the company also conducted more than the $5 million of work in 2019 at Monte Cristo that it was required to under the option agreement. The company believes the property is a very promising prospect as it sits between the Pogo and Fort Knox gold mines near Fairbanks and holds similar geology, Singer added.

“(GAME) had one of the largest drill programs in the state in the last year,” he said. “Those are real jobs and it’s real activity.”

According to Singer, the company simply wants to clarify its right to Monte Cristo and move ahead with acquiring and further exploring the property.

Under the option agreement, GAME was to pay Sumitomo $15 million, or $10 million plus a 1.5 percent royalty on future gold production, no later than 45 days after the end of the option agreement to fully purchase Monte Cristo. As an alternative, GAME could extend the option by a year with a $2 million payment, according to the option agreement.

Information published in 2018 by Northern Star and Sumitomo on their websites regarding the Pogo sale references exploration opportunities as part of the transaction but the Monte Cristo property is not specifically named.

A statement following the injunction order by Holland and Knight, the law firm representing GAME, estimated the value of the Monte Cristo property at approximately $40 million.

The complaint alleges Sumitomo did not believe GAME would fulfill its requirements under the option agreement and therefore began searching for another potential buyer for Monte Cristo. It additionally asserts that Sumitomo, Northern Star and RCI Capital disparaged GAME to potential investors to prevent the explorer from raising the funds needed to meet its end of the deal.

“Investors don’t want to get involved in a mining claim if there’s any question about ownership and clear title,” Singer said. “The conduct of Sumitomo and RCI put hair on this deal and scared the investment community off,” Singer said.

Attorneys for Sumitomo, Northern Star and RCI Capital either could did not respond to requests for comment or declined to comment on the lawsuit.

Northern Star, in its answer to GAME, also denied nearly all of the allegations in the complaint. According to Northern Star, it did not purchase the assets of Stone Boy Inc., the former subsidiary of Sumitomo that holds Monte Cristo, partly because Stone Boy is just a holding company that has not day-to-day operations, according to Northern Star. Rather, Northern Star purchased 100 percent of Stone Boy’s stock in an equity sale.

Singer said when GAME didn’t default as Sumitomo and RCI Capital expected, “Sumitomo was less-than-candid with my client — essentially concealed the transaction for a period of time.”

Northern Star wanted to tell GAME about the Pogo deal possibly including the Monte Cristo claims and wanted the company’s consent for the transaction, but “Sumitomo was scrambling, trying to figure out what to do and kept the deal quiet,” Singer said.

Northern Star’s 2019 annual report dated Aug. 27, states in a footnote that GAME holds an option to purchase Monte Cristo. The report also lists Northern Star as a “joint holder” of the claims.

“No sale of the Monte Cristo property occurred because at that time (of the Pogo sale) the plaintiff had not been asked for, nor had it given its consent for the assignment of the option agreement,” Northern Star attorneys wrote in response to GAME.

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Elwood Brehmer can be reached at [email protected].

Updated: 
01/08/2020 - 9:44am