Mining marriage now on the rocks

TUCSON, ALASKA FIRMS TRADE SUITS IN FAILED COPPER AND GOLD DEAL

It seemed like the start of a beautiful friendship last summer, when a Tucson-based mining company and an Alaska native company signed an agreement for exploratory drilling at a huge copper and gold site.

The Alaska firm was also signed to build a mining camp and obtain permits for Tucson's Liberty Star Uranium & Metals Corp. to take advantage of its massive mining claims in Alaska's southwest corner.

In a news release announcing the agreement, Liberty Star said it would be "the first step in Liberty Star's long-term objective of engaging and working with the Alaskan native people in a true business relationship."

But now the relationship between Liberty Star of Tucson and MBGS LLC of Anchorage has devolved into litigation. Each company has filed suit in the past few weeks in Alaska State Superior Court, accusing the other of breach of contract.

Lien placed on claims

The Alaskan company is accusing Liberty Star of not paying it about $320,000 it was owed for its work, out of about $650,000 in bills. It has placed a lien on Liberty Star's mining claims in that area in hopes of preventing the Tucson company from transferring some of the claims to a bigger company as a way of settling a $5 million debt.

In turn, Liberty Star, through its Alaskan affiliate Big Chunk Corp., has accused MBGS of:

• Providing services without authorization, ineffectively performing the services it was authorized to do and ineffectively managing its selection of third-party contractors and their performance;

• Sending the Tucson company invoices for its work and its subcontractors' work that were "inflated, duplicative, false or otherwise invalid";

• And causing Liberty Star financial harm by placing the lien on the mining claims.

Each company has disputed the other's charges and attacked each other in public statements. Liberty Star officials declined to be interviewed due to the pending litigation, said Tracy Myers, a company spokeswoman who works in investor relations.

MBGS President Jim Stevens, who describes his company as family-owned, has sought publicity and given interviews.

"We need to get paid so we can pay all the other small businesses that we owe money to - air taxis, freight companies and the like," said Stevens, an Athabascan native. "It's hurting us a lot. We generally support responsible development of Alaska. (Liberty Star) is not being responsible. We're stakeholders with the land. We're native people. We're going to be here forever, unlike mining companies that come and go."

If the case comes to trial, Stevens said he would also charge Liberty Star with contracting with MBGS for goods and services when the Arizona firm knew it lacked funds to pay. Liberty Star reported $198,639 in assets, including $95,071 cash on hand, and more than $5 million in liabilities, most of which have since been wiped out by the mining claim transfer, as of Oct. 31, its most recent financial report showed.

In a Jan. 2 statement to Liberty Star shareholders, company CEO James Briscoe blamed a recent drop in the company's stock price - it's now at a penny a share, matching its 52-week low and down from a 52-week high of five cents a share - on this dispute.

"I won't go into the details of our differences, but it is clear to me that the situation is being addressed aggressively, and we do not expect that resolution will require a lengthy process in the courts," Briscoe wrote. "The Company asserts that it engaged in no wrongdoing and the fault lies with our former contractor. We are optimistic all matters will be resolved in our favor."

Rosemont cited

The dispute centers on what's known as the Big Chunk deposit, consisting of 612 state mining claims, in two separate blocks covering approximately 177 square miles in the Bristol Bay region of southwestern Alaska, about 265 miles southwest of Anchorage.

Big Chunk lies a few miles from the nationally known - and highly controversial - Pebble mining project, a deposit of copper and gold that is one of the world's largest. Owned by Vancouver, B.C.-based Northern Dynasty Minerals, Ltd., the Pebble project is in the pre-permitting stage.

Under last year's Liberty Star-MBGS agreement, MBGS would construct and operate a mining camp, obtain drilling permits and conduct diamond core drilling in the middle of the deposit's southern block on a 40-acre, Alaskan Native-owned allotment.

The work was expected to confirm past geotechnical and other studies that the area contained commercially viable deposits of copper, gold and molybdenum, Briscoe wrote in the agreement's news release. The camp would provide fuel and aircraft landing facilities and Internet service. MGBS would be expected to drill at least 10 holes at depths of 500 to 2,000 feet.

In that news release, Briscoe praised Stevens as "an Alaskan native, a very experienced contractor and entrepreneur, a lifelong resident of, was born and grew up in the area."

Stevens, for his part, said Liberty Star officials had sold him on their company in part by flying him to Tucson in April 2011 and taking him on a tour of the proposed Rosemont Mine site in the Santa Rita Mountains. The Liberty Star officials portrayed the mining company, Rosemont Copper, as environmentally sensitive and responsive to locals' concerns, Stevens said.

The Rosemont proposal, while controversial, has pledged to go farther than many other mining companies with reclamation, tailings management, water conservation and light pollution control.

Transfer of claims

Back in Alaska, a diamond core drill was flown in, permits were obtained, and drilling began in August, Liberty Star's news releases show. After one hole was drilled nearly 1,700 feet, the operation shut down in September for the winter.

Then, in mid-November, Stevens saw a Liberty Star news release announcing that the company would transfer 199 Big Chunk mining claims to Northern Dynasty, the developers of the Pebble deposit. In return, Liberty Star would not have to pay Northern Dynasty $5 million owed from past loans.

"We retain a major land position in the Big Chunk south claim block including eight drill targets," Briscoe said in the news release. "Also, as we approach potential (joint venture) partners we do it as a debt free company."

On Nov. 15, Stevens put a lien on the claims to try to insure that he collected his debt before the claims were transferred. Liberty Star filed suit on Dec. 28. MBGS filed a countersuit last week.

Northern Dynasty dipped into this controversy briefly, by sending Briscoe an Oct. 24 email, raising concern that among other things, it had heard Liberty Star hadn't paid some of its local contractors.

"We believe it's very important in earning and maintaining our social license to operate that local businesses be dealt with fairly and invoices paid in full on a timely basis, particularly when we're dealing with small local companies with limited assets and cash flow," Northern Dynasty CEO Ron Thiessen's email said. "I'd appreciate it if you could update me on this matter …"

Northern Dynasty's vice president for communications, Sean Magee, said he isn't aware of any reply from Liberty Star on this matter, that his company isn't going to discuss the legal dispute any further, and that it expects to ultimately get the mining claims "without encumbrance."

Contact reporter Tony Davis at tdavis@azstarnet.com or 806-7746.