Flawed' gold sample spurs suit
Shares plunge 64% over two days after questions over China drill data stoke fears of another Bre-X
July 21, 2007 Madhavi Acharya-Tom YewBusiness Reporter
The mountain of trouble is growing steeper for Vancouver-based miner Southwestern Resources Corp.
Investors and observers in the mining industry were still struggling yesterday to make sense of the company's Thursday announcement that drill results for its Boka project in China may be unreliable.
Meanwhile, Southwestern's stock price continued its sharp decline, shedding nearly 23 per cent of its value, or 66 cents, yesterday to close at $2.24, bringing the two-day loss to 64 per cent.
Late yesterday came word that investors are suing the junior miner, alleging misrepresentation and seeking $220 million in damages.
Leading the charge is Windsor lawyer Harvey Strosberg, who won a $50 million class-action lawsuit on behalf of victims of tainted water in Walkerton, Ont. He was hired by Toronto student Andrew Stastney, who bought 4,000 shares of Southwestern.
The suit, which has yet to be certified as a class action, was brought on behalf of investors who acquired shares of Southwestern between Aug. 31, 2005 and July 18, 2007.
Company chairman David Black disputed parallels between his company and Bre-X Minerals Ltd., another Canadian gold miner that collapsed under charges of faked drill results in the mid-1990s.
"We're confident there's a resource. It's just a question of how much gold there is," Black told Canadian Press.
Southwestern said in a news release Thursday that it has uncovered "deficiencies in its control procedures for its Boka project" and that the "integrity of certain drill core samples was compromised."
British Columbia's stock market regulator was tight-lipped about its role.
"All we can say is that we are aware of the announcement, but it's too soon for us to be making any further comment," said Andrew Poon, spokesperson for the British Columbia Securities Commission.
Toronto investment firm Sprott Asset Management holds 3.25 million shares, about 7.2 per cent of the company's outstanding stock, in its Sprott Gold and Precious Minerals Fund.
The fund's manager, John Embry, who is also Sprott's chief investment strategist, did not return phone calls for comment. "At the moment, he can't comment. He doesn't have enough information," a company spokesperson said.
Observers say that Southwestern's management team is well-regarded in the mining industry.
"It is shocking to say the least. It is extremely surprising to think there is potentially some wrong-doing here," said Wendell Zerb, analyst at Canaccord Adams in Vancouver, who has put a hold recommendation on the shares.
"Needless to say, we are disappointed with this announcement and await further clarity from management," Bart Jaworski, analyst at Raymond James, wrote in a note to clients.
Southwestern has gold, silver and base metals mining properties in China and Peru. It also holds just under 50 per cent of recently-listed Zincore Metals Inc., which has issued its own assurances.
"Zincore has maintained strict quality control procedures" at its Accha-Yanque project in Peru, it said in a release, adding that the company is not aware of any "control deficiencies" there.
Southwestern formed a special committee of independent directors on July 4 following numerous delays at Boka and the abrupt departure of chief executive officer John Paterson. It has since fired John Zhang, the project's general manager in Yunnan.