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(Alliance News) - Strategic Minerals PLC on Monday said it has commenced arbitration proceedings against a major client of its Cobre magnetite stockpile in New Mexico after a "breakdown in negotiations".
The producing mineral company's wholly owned Southern Minerals Group LLC subsidiary lodged a notice for arbitration on Friday last week. The contract requires that "a claim through arbitration must first be made" and that the client's name is not disclosed unless it is legally required - which has not been deemed to be the case.
The claim is for more than USD2.3 million over payments outstanding to date, plus in excess of USD19.0 million for lost profits on the balance of the contract. The claim also includes "punitive damages as permitted by law".
Given the "protracted nature of making such a claim and the uncertainty of the final outcome", Strategic Minerals has opted for "a low-cost approach" when it comes to the claim. As such, regarding future plans, Strategic Minerals has "excluded any potential payment from the client and incorporated expected legal fees".
Managing Director John Peters said: "The claim against the major Cobre client has been meticulously reviewed prior its issuance and comes after the breakdown in negotiations with the client.
"While the [Strategic Minerals] group will actively seek suitable compensation from the client, the board and management believe that its operations should not rely on any future payments due under this contract until received. Accordingly, the board is continuing to review its projects and examining the preferred methods of funding such development.
"The company remains in the fortunate position wherein the profits from the Cobre operation continue to fund overheads and contribute, albeit at a lower level, to project development. Further, as 100% owners, the company can dictate the pace of progress on each project, as holding costs on each are relatively minor."
Shares in Strategic Minerals were 13% lower at 0.82 pence each in London on Monday afternoon.
By Anna Farley; annafarley@alliancenews.com
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