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Exploration

Junior miner sues province for $110 million

February 13, 2014
by Norm Tollinsky
In: Exploration

Northern Superior forced to abandon three properties

Northern Superior Resources spent $15 million exploring three remote properties in northwestern Ontario before being forced to abandon them.

One First Nation’s opposition to mineral exploration has already cost the Government of Ontario $8.5 million and could end up costing it much more as a result of legal action by Sudburybased junior miner Northern Superior Resources.

In December 2009, the Government of Ontario paid Platinex Inc. $5 million to abandon its claims in the traditional territory of the Kitchenuhmaykoosib Inninuwug (KI) First Nation 600 kilometres north of Thunder Bay.

Then, in March 2012, it withdrew 23,000 square kilometres around KI from mineral exploration and paid $3.5 million to God’s Lake Resources to walk away from its claims.

Northern Superior’s three properties – Thorne Lake, Meston Lake and Rapson Bay – lie just outside the boundary of the 23,000 kilometre zone in what was until recently assumed to be the traditional territory of Sachigo Lake First Nation.

Northern Superior spent $15 million exploring the three properties, had excellent relations with Sachigo Lake – up to September 2011 – and was left alone by KI.

“We had a meeting with KI in 2007,” recalled Northern Superior president and CEO Tom Morris. “Because of the great relationship we had with Sachigo Lake and the (imprecise border) between the two communities, they just left us to do our work, but as soon as the government drew a line on the map, KI said ‘that’s not our traditional territory. We think our traditional territory is much farther to the west and we don’t want you here.’”

After eight months of trying to negotiate a settlement with the government, Northern Superior filed a statement of claim in Superior Court of Ontario October 24th seeking $110 million in compensation for money spent and the lost value of the three properties.

The government created the exclusion zone without consulting anyone, complains Morris.

“It’s an unprecedented move. The government takes ground out of circulation for a variety of reasons, but you’re talking a few hectares at a time. To take out 23,000 square kilometres – an area equivalent to four Prince Edward Islands – has never been done before, and we were really burned by it.

“We were in discussions with three companies about doing option agreements on two of the properties, and when this line was put on, everything stopped. We took a risk financially to go into this area and start our exploration programs. We did it on the understanding that we had certain rights under the Mining Act.

Legacy

“We’ve left a legacy there,” said Morris. “The First Nations and the Ontario government are going to benefit down the road from somebody being up here. My shareholders won’t benefit and we’re pretty upset about that.”

At Rapson Bay, Northern Superior discovered a porphyry gold system and a shear zone, where drilling yielded gold values comparable to and in some cases better than assays obtained by Mega Precious Metals Inc. at its Monument Bay project on the other side of the Manitoba border. It drilled Thorne Lake and Rapson Bay, conducted airborne geophysics over the whole area, and performed overburden sampling and prospecting.

Northern Superior had successfully negotiated a series of agreements with Sachigo Lake First Nation, said Morris.

“About 25 per cent of our exploration budget went to the community either directly or indirectly through training First Nation people, hiring them, and using their facilities, so we really reached out.” According to Morris, the relationship started to unravel over an unpaid $100,000 bill for fuel and a collection call from the chief in September 2011.

Two Northern Superior employees were held hostage pending receipt of payment later that day and a plane that was on the way to pick up a drill and a drill crew was turned away, costing the company $40,000.

Northern Superior owed the $100,000, but didn’t have an invoice for it.

The unraveling of the relationship was all about invoicing, “believe it or not,” said Morris. “I sent three different people up there on several occasions to show the individual involved how to invoice properly because the invoices we were getting were improperly filled out and wouldn’t have passed our auditors.

“We worked very hard between then and the PDAC in 2012 to rectify the issue and thought we had things cleaned up. I had been up to the community on a couple occasions to talk to the chief and council. They agreed we should go back in and clean up some of the things we didn’t get done the previous year and we talked about how we could move the project forward because we were looking at a $10 million drill program for Rapson Bay.

“The next thing I know, the agreement shows up and there’s a little line in there asking for a 24 per cent administration fee. We were told in writing that if we don’t pay, we’re not welcome.

“We had a great relationship with these people and something changed,” said Morris. “I suspect they were getting some bad advice in the background.”

Someone from the Ministry of Northern Development and Mines went up to try to resolve the situation and invited Morris to return to the table, but by that time, the opportunity was lost, and further complicated by the exclusion zone and KI’s change of heart.

Momentum

“When we were making all these discoveries, we had momentum in the market. We were trading as high as $1.14 at one time. Now, we’re trading at three and a half cents,” said Morris. “Because of everything that’s happened, I can’t find an option or joint venture partner. Three of them have already walked away, so it’s going to be almost impossible to get a decent deal for my shareholders.”

According to Morris, the Ontario government failed in its constitutional duty to consult with the two First Nations.

“Government and First Nations have to understand that companies like Northern Superior are taking a lot of risk, and if we don’t have certainty of law and certainty of procedure and process, you’re not going to see a lot of investment dollars.

“Northern Ontario is a treasure trove just waiting to be opened, but it needs the right political environment for people to take the risk and I don’t think the Ontario government has done the consultation it needs to with industry and First Nations to make it happen.”

Ironically, Northern Superior qualified for Progressive Aboriginal Relations Committed status by the Canadian Council for Aboriginal Business in September and has a good relationship with Neskantaga First Nation at its TPK property in Ontario and the Oujé-Bougoumou community at its Croteau Est property in Quebec.

Morris resigned from a committee charged with advising the Ontario government on the recently amended Mining Act, which came into full effect in April. The Act spells out the responsibilities of exploration and mining companies with regard to First Nation consultation and institutes a regime of plans and permits, as well as a dispute resolution process.

The problem, though, is that dispute resolution can take time and there’s no guarantee of a successful outcome.

Even if government overrides a First Nation objection and approves an exploration permit, it’s highly unlikely that any company will want to conduct exploration where it’s not wanted, claims Morris.

The province’s statement of defence dismissing Northern Superior’s claims was released too close to the deadline for this issue, but is available under the Claims tab on the company’s website.

www.nsuperior.com

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