Think Miners Are Liars? Then Sue Em!

A page from an undated annual report, a document entered as evidence in the trial of Gallowai Metal Mining Corporation, shows Joe Kennedy, (left), Gallowai Mine superintendent; then-Minister of Mines Dan Miller, (2nd left) Ross Stanfield Jr., Gallowai Mine manager and Ross H. Stanfield, president and CEO of Gallowai.
Photograph by: Handout, Vancouver Sun files

“It seems to us that you think people are willing to wait years for factual information with the faith of a disciple, never asking for more than the master is willing to share. Things have changed, Ross, and they continue to change rapidly in a negative direction. The disciples are now angry.”

— Dec. 6, 2007 letter from dissident shareholders to Calgary mining

promoter Ross Stanfield.

Last in a series

Les Stahlke was getting impatient. In 1995, he had bought $106,000 worth of non-voting shares in Gallowai Metal Mining Corp., one of two B.C. companies that have spent an enormous amount of money developing a gold property near Cranbrook.

Calgary promoter Ross Stanfield, who owns all the voting shares of Gallowai and Bul River Mineral Corp., had repeatedly told Stahlke the mine was on the verge of production, but the promised production never materialized.

This alarmed Stahlke and many of the other 3,765 shareholders, mainly from Alberta, who over the past 33 years have invested more than $220 million in the project, 40 kilometres southeast of Cranbrook.

In April, he and 11 other unhappy investors filed a minority shareholders’ oppression petition in B.C. Supreme Court, seeking to oust Stanfield from his position of authority. The hearing starts Monday.

Stahlke, a former Lutheran pastor and a consultant who specializes in corporate governance matters, said in an affidavit supporting the petition that he convened a meeting of nine disgruntled investors in October 2007.

“There was a consensus, which I shared, that we had been denied access to regular and appropriate information regarding the Gallowai Bul River mine. ... The intention was to try to work with Ross Stanfield to improve the communications.”

The group sent its first letter to Stanfield on Nov. 12, 2007. It was extremely diplomatic in tone and substance, but it noted “the ongoing absence of true, substantial and timely information has led to a very active rumour mill.”

The group asked for a meeting to address these concerns.

“I never received a response,” Stahlke recalled in his affidavit.

That prompted a second, more strongly worded letter: “We are warning you of the danger caused by the inflammatory rumours that are creating explosive pressure,” they wrote on Dec. 6, 2007.

“We are hearing that Gallowai is another Bre-X [and] the shareholders have all been fleeced. ... We believe it is just a matter of time before some disgruntled individual or group of individuals will explode in anger.”

Stahlke said Stanfield did not respond, so the group sent three more letters, also to no avail.

In May 2008, Stanfield wrote a curious letter to shareholders, relating how, in the early 1970s, somebody told him there was a rich ore zone on the property. Suddenly, it had become an exploration imperative.

“I want to explain why it is so important now,” he said in a May 2008 letter to shareholders. “Yes, we intend to go into production at Gallowai Bul River, but give me two and a half months to run this zone down first. If it proves to be successful, we would have conditions very different to deal with.”

Not willing to wait, the dissidents began conducting “webinars” — Internet broadcasts that other investors could participate in — to rally moral and financial support.

Stanfield was not pleased. Days later, he filed a lawsuit against them in Court of Queen’s Bench in Calgary, accusing them of unlawfully attempting to usurp his authority and defaming his companies. He also alleged the dissidents had defaulted on their share subscription agreements by not purchasing additional shares. He claimed more than $200 million in damages.

In its statement of defence, the group alleged that Stanfield had filed the lawsuit “for personal motives of retaliation, and unfounded personal fears and prejudices.” They called for an inspector and a forensic accounting of the company’s financial affairs, and asked for leave to bring a shareholders’ derivative action against Stanfield and his companies.

Stanfield’s companies also filed a separate lawsuit against one of the petitioners, Brian Carpenter of Spruce Grove, Alta., alleging they had authorized him to take three tons of ore from the mine site to landscape his yard, but he actually took more. In his statement of defence, Carpenter described both lawsuits as frivolous and vexatious.

In October 2008, the companies’ auditor — Meyers Norris Penny — resigned. According to an affidavit filed by Patrick J. Campbell, a director of both Gallowai and Bul River, the accounting firm resigned due to the dissidents’ court action.

For reasons unknown, Stanfield’s companies did not start looking for a new auditor until June of this year, when they sent “request for proposal” letters to eight auditors. There is still no indication in the court file that they have hired a replacement auditor. The most recent audited statements for the two companies are now nearly two years old.

In late 2008, the dissidents held a series of meetings with investors in various towns in Alberta and Saskatchewan. The group now claims to have the support of more than 400 shareholders. Some claim Stanfield has tried to bully them into dropping their support.

Klaus Setzerman, a Kelowna retiree and Bul River shareholder, said in an affidavit that he received a call from somebody named “Donna” at Stanfield’s office, who told him she had a list of shareholders who had agreed to support the dissidents.

“She told me that all those shareholders will be held liable as part of the lawsuit against [the dissident group]” and that he should hire a lawyer and get his name withdrawn.

He said he refused: “I will not be intimidated by such inappropriate tactics,” he stated in his affidavit.

Stephen Roehrig, an Edmonton shareholder who acts as CEO of the dissident group, said other shareholders told him they had received similar calls and became concerned they would be “on the hook” for legal damages and costs, and asked to have their names removed.

In April this year, due to jurisdictional issues, the dissidents filed a petition to oust Stanfield in B.C., where Gallowai and Bul River are registered. The Alberta actions have been either stayed or discontinued.

It is not clear how the company is financing continuing mine development. Vancouver chartered accountant Frances Potgieter noted in a supporting affidavit that the two companies’ general and administrative expenses jumped from $1.86 million in 2002 to $6.1 million in 2007.

She said that, judging by the companies’ financial statements, there had been “no obvious change in the affairs or business functions of the corporations during the period in question.”

Some shareholders have filed affidavits claiming their shares are eligible for redemption. However, the companies are claiming they haven’t paid for additional shares they subscribed for, so are in default of their subscription agreements. The shareholders say they always understood the purchase of these shares was optional.

Despite years of delay and disappointment, the dissidents say they still believe there’s a “viable and valuable resource in the form of either gold or platinum group metals ... that is able to be mined successfully and commercially.”

Others paint a bleaker picture. Vancouver mining engineer Ian Smith, hired as an expert witness by the petitioners, says in an affidavit there is strong evidence the deposit “is not economic and will never go into production.”

Vancouver lawyer Ron Josephson, who is representing the petitioners, has a bleaker theory. In an earlier court proceeding, he charged that Stanfield set out 30 years ago to mine gold.

“He changed his business plan when he discovered there was no gold in the mine. Now he’s mining the pockets of investors. That’s his plan.”

Of course, this is an untested allegation. The real test starts Monday in B.C. Supreme Court.

dbaines@vancouversun.com

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