Mountainstar Gold Inc (fka MSX)

[Braelorne]

Here’s a little read for anybody who might be interested in some old news:

Street Wire: Mountainstar, Johnson lose appeal of ban, fine.
by Mike Caswell

Mountainstar Gold Inc. and its president, Brent Johnson, have lost their appeal of a $150,000 fine and a permanent ban that the B.C. Securities Commission imposed in 2019 for false and misleading disclosure. Three judges have ruled that the BCSC did nothing unfair or improper in imposing the sanctions. Among other things, the BCSC heard from an expert on Chilean mining law who cast considerable doubt on the company's claims to hold mining concessions in that country.

The ruling, released by the BCSC on Monday, Dec. 12, comes as part of a case in which the BCSC permanently banned Mr. Johnson. The case stemmed from Mountainstar's repeated claims that it was obtaining a portion of Barrick Gold Corp.'s Pascua Lama project in Chile, where Barrick intended to build a multibillion-dollar mine. Mountainstar said that some of the underlying titles properly belonged to a man named Jorge Lopehandia, and that Mr. Lopehandia had granted Mountainstar an option on those claims.

The BCSC held a hearing into the matter over several days in 2018 and 2019, and found that Mr. Lopehandia's title to the claims was in considerable doubt. The regulator ruled that Mountainstar had failed to properly disclose those doubts. At the time, Mr. Lopehandia was undertaking legal action in Chile to obtain the ground and was seeking to have Barrick's claims cancelled. That legal action failed at multiple levels, a fact that Mountainstar did not disclose, the BCSC found.

As with most appeals, Monday's ruling stems from alleged errors of law. One of the main issues in the case was the evidence of an expert who testified before the BCSC on Chilean mining law. The expert examined Mr. Lopehandia's efforts at obtaining Barrick's claims and found that there was little reason for Mountainstar to be optimistic. According to the expert, Mr. Lopehandia had filed a court case in Chile seeking the cancellation of some Barrick claims in July, 2012. At every level, the Chilean courts dismissed the case. The matter went all the way to the Supreme Court of Chile, which rejected Mr. Lopehandia on Jan. 30, 2015.

Mountainstar had argued that the expert lacked expertise on the subject and first-hand knowledge, and should not have been permitted to testify. The appeal judges, however, have found that his testimony was proper. He reviewed and described the Chilean court decisions relevant to the case. The expert also described the process for obtaining a mining concession in Chile, and testified that Mr. Lopehandia had never been issued the mining concessions central to the case.

In addition, the expert was "eminently qualified" to provide his opinion, the appeal judges found. The expert has law degrees from a university in Chile and from Oxford, has lectured at law schools, has extensive litigation experience in Chile, and is a senior partner at a Chilean law firm. On top of that, there was nothing to indicate that he had a conflict of interest.

Another issue on appeal was the BCSC's rejection of Mr. Lopehandia's evidence. He had testified in support of Mountainstar and its claims to hold the project, but the BCSC did not consider his evidence to be reliable. Among other things, the BCSC found that Mr. Lopehandia had a personal interest in the outcome, having accepted a $4.6-million payment from Mountainstar for the rights to the project.

Mountainstar said that the BCSC should have given at least some consideration to Mr. Lopehandia's evidence, but the appeal judges have found that the BCSC's rejection was acceptable. Among other things, the appeal judges found that Mr. Lopehandia's "various assertions about the state of affairs were not supported by objective evidence." For example, he could not provide any documentation showing that he held mining rights to the claims at issue. He was also unable to provide a Chilean court decision that he said was in his favour.

Other complaints by Mr. Johnson and Mountainstar stemmed from procedural matters. For example, they said that the BCSC should have adjourned its hearing at one point, when they sought to hire a lawyer. Mr. Johnson had argued the case on behalf of himself and the company. When it came time to determine penalties, he asked that the BCSC allow him to hire a lawyer, but the regulator refused.

In the appeal ruling, the judges have found that the BCSC's reasons for rejecting Mr. Johnson were sound. The regulator had previously delayed the matter by one month, at Mr. Johnson's request, so that he could hire a lawyer. Moreover, Mr. Johnson could not provide any reasonable assurance that he would be able to raise money for a lawyer.

For Mountainstar shareholders, Monday's ruling has little practical effect. The company is under a cease trade order, and has not traded in some time, the Canadian Securities Exchange having delisted it on Sept. 22, 2016.

As for Pascua Lama, its fate was ultimately unrelated to Mountainstar. The Chilean government did not approve Barrick's mine application after considerable political opposition, mostly from environmental groups. Chile's environmental court later ordered Barrick to definitely close the site. Barrick suspended work and recorded a $5.1-billion (U.S.) impairment charge.

On the appeal, Toronto lawyer Rod Galati represented Mountainstar. The BCSC was represented by Stephen Zolnay. The appeal court heard the matter in a one-day hearing on Sept. 29, 2022.