Hochschild Mining sues Minera Andes over $65mn San Jose silver mine loan

A long-running dispute between Hochschild Mining and Minera Andes $65 million loan to the San Jose silver-gold project, which previously generated an unsuccessful takeover bid, is now before a New York court.

RENO, NV - 

The short-lived détente between joint venture partners Hochschild Mining and Minera Andes concerning a $65 million San José mine project loan came to an abrupt end as the Lima, Peru-based silver and gold miner sued Toronto-based junior Minera Andes involving repayment of that loan.

Über mining investor Rob McEwen became CEO of Minera Andes after he rode to Minera's rescue in February 2009, the last time Hochschild tried to call in US$11.3 million cash call made to Minera.

McEwen was Minera's white knight in February 2009 when Hochschild made a bid to acquire its JV partner's 49% ownership in the San José project in Argentina for up to US$70 million in cash, and offering to extend the deadline for Minera's deadline to repay the cash call to Hochschild.

The San Jose mine yielded nearly 5 million ounces of silver and 77,070 ounces of gold last year.

At the time a Special Committee of Minera Andes' Board of Directors found the junior miner was "serious financial difficulty as a result of the cash call of the San Jose Project and the outstanding indebtedness..."

McEwen made a private placement of Cdn$40 million in Minera, which provided the junior miner with the US$11.3 million needed to cover the Hochschild cash call. Eventually McEwen would control 53.7% of Minera.

The uneasy partnership between the now McEwen-controlled Minera Andes and Hochschild did not publicly erupt again into conflict until Wednesday when Hochschild sued Minera in a New York state court seeking project financing repayment.

In a news release, Hochschild asserted the following:

--In spite of a $65 million loan disbursement by Hochschild, "Minera Andes, Inc. and Minera Andes SA have refused to execute formal loan agreement documents for three years"

--Hochschild provided a project finance loan to the co-venture Minera Santa Cruz for construction of the San Jose mine in Argentina

--"Minera Andes has caused an undue delay in documentation and repayment of this loan by refusing to execute formal loan documents"

--"Legal action has no impact on the running of the San Jose mine, which is operated by Hochschild"

Hochschild claims, "Under the terms of letter agreements between the parties executed in October 2006, Hochschild alone provided the full amount of the project financing totaling $65 million in installments between October 2006 and July 2007."

In its complaint, Hochschild seeks a decree by the court requiring Minera Andes to execute formal loan agreement documents, and asks that Minera Andes "be enjoined from further interference in the repayment of the project loan." The Peruvian miner is asking the court to order payment to Hochschild "of benefits derived" by Minera Andes and its subsidiary as a result of the loan, and requests an order "declaring that other shareholder loans are subordinate to the project finance loan."

In a news release issued on St. Patrick's Day, Minera Andes said it "welcomes" the lawsuit.

"Despite claims by Hochschild, Minera Andes has and continues to be willing to executive definite loan documentation with Hochschild that reflects the commercial agreements of the parties as set out in a letter agreement dated October 10, 2006."

McEwen said, "We look forward to reaching a resolution in respect of these project finance loan documents."

"Regrettably, despite significant effort on the part of Minera Andes, it appears that the Courts of the State of New York may provide our shareholders with the best venue for ensuring fair treatment by our joint venture partner so that both parties can begin receiving the profits generated by the San Jose mine," he added.

The company said it is reviewing the Hochschild lawsuit, adding, "We believe the details of this case will speak for itself."

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