As reported in previous Stockwatch articles, Mr. Dhonau is a rather significant presence in a web of relationships involving CMKM.
Among other things, Mr. Dhonau's privately held Nevada Minerals has been involved in joint ventures with CMKM and closely associated U.S. Canadian Minerals. According to hearing testimony, he introduced Mr. Casavant to Mr. Williams.
Mr. Dhonau is the largest shareholder of U.S. Canadian Minerals and at one time he controlled at least 75 billion shares of CMKM.
Mr. Stoecklein asked Mr. Dhonau to explain the relationship between his Nevada Minerals and CMKM.
"Well, it has a couple different facets," Mr. Dhonau began. "My first involvement was through Canada.
"I met Mr. Casavant in November of '03 and he actually is the gentleman responsible for my involvement in acquiring claims up in the Saskatchewan Fort a la Corne area in the diamond claims.
"And currently I'm the operator of another entity that CMKM Diamonds owns in Ecuador called the American shaft."
"The diamond mines that CMKM owns in Canada, have you ever been an owner of any of those diamond mines?" Mr. Stoecklein asked.
"Of the diamond claims?" Mr. Dhonau asked in return, perhaps suggesting a correction.
"Yes," said Mr. Stoecklein. "The claims. Excuse me."
"Yes," Mr. Dhonau said. "On my first early flush of the diamond claims, I claimed approximately 500,000 acres during the early months of 2004."
"Is it fair to say you have a fair degree of knowledge in the mining claim area pertaining to these diamonds up in Canada?" asked CMKM's lawyer.
"I've spent some time studying it and talking to the government agencies up there, yes," Mr. Dhonau replied.
Mr. Dhonau went on to testify that apart from its interest in 500,000 acres held by Nevada Minerals, CMKM had claimed approximately a million acres in Saskatchewan.
"Are you familiar at all with valuations of mining claims?" Mr. Stoecklein asked.
"Well, just through my own experience as being in a private company, we do a cost basis," said Mr. Dhonau. "I do know, you know, some companies go out and they get independent evaluations done by the core samples or findings that they actually get in their own soil samples."
"Is there any way for you to tell the Court today in terms of the value, because one of the issues we have here today is valuation," Mr. Stoecklein began. "Can you -- "
That drew an objection from Ms. Hakala.
"Mr. Dhonau is not an expert in accounting for mining claims or anything else," the SEC lawyer said.
"One of the issues we have here today is valuation?" Judge Murray queried.
"Yeah, yes, it is," Mr. Stoecklein said.
"I thought the issue was filing reports required by the SEC and whether or not they have been filed," Judge Murray said. "And if they hadn't been filed, what to do about it."
Mr. Stoecklein suggested that he should be given "a little leeway."
"I don't see why we can't get a little testimony in as to the viability of this company and in terms of its reporting capabilities," Mr. Stoecklein argued. "I mean, is it viable? I would think Your Honor would want to know that information."
"We just had the president, the chief executive officer of the company on the stand," Judge Murray said. "He refused to answer a question. The best source of information refused to answer a question."
CMKM's lawyer suggested that Mr. Dhonau was a more capable witness, "irrespective of the Fifth."
"No," Judge Murray decided. "I've tried to give you a lot of leeway. You're asking one gentleman to value the assets of another company and that's pushing it. I'll sustain the objection."
Mr. Stoecklein moved on to another line of questioning, drawing some rather lengthy answers from Mr. Dhonau that perhaps shed a bit of light on the extent of his mining knowledge.
"Mr. Dhonau, could you explain to the Court the relationship between Nevada Minerals and CMKM Diamonds and U.S. Minerals as it relates to the properties in Ecuador?" Mr. Stoecklein asked.
"Where there's similar relationships would be -- the only relationship that CMKM Diamonds has in Ecuador is the American shaft," Mr. Dhonau began. "Your Honor, it's a mine that has thirteen levels. It's the -- what they call the main corridor, the ore of province down there.
"The ore is brought up through -- to the surface through this equipment, this shaft, and from that it's taken over to U.S. Canadian to their Yellow River plant to be processed to be turned into gold for, you know, selling it to the open market down there."
"How do you handle the accounting of the gold that's processed through the ore through the American shaft?" Mr. Stoecklein asked.
"Minera Nevada is a subsidiary of my corporation," Mr. Dhonau said. "We had to have an operating presence by law in Ecuadorian business license and have accounting processes also in place. We have a bookkeeper and several assistants down there.
"Part of the process that they do is they get the ore loads out by the plant manager, the gentleman who is our geologist, at the American shaft.
"Once that ore is sent over to the Yellow River plant, it's also assayed and measured for weight and there's a report that's compiled.
"And once it goes through the grinding process -- it goes through a -- various steps of collecting the gold.
"Once it goes through the grinding process, it collects the free gold. That's also weighed and measured.
"And then the sand is created and the sands is put into a cyanide-sealed tank to be separated from the dirt process into gold.
"And all those are put in the reports that are surrendered to all three entities, Minera Nevada being the main gatekeeper of that paperwork.
"And once it's been turned into gold, then the contract that is between the two companies, the two public companies here, Minera Nevada and U.S. Canadian, they do a 50-50 gross revenue split, all for the goal each one taking care of their own expenses for their side of the process."
On further questioning, Mr. Dhonau testified that Minera Nevada handled the accounting functions for the Ecuador operation.
Mr. Stoecklein went on to ask whether there were any complexities involved and whether Mr. Dhonau had hired a specialist to handle the accounting.
"Oh, well, in Minera Nevada we actually have a gentleman that's our senior accountant," Mr. Dhonau said. "Here in the states, we call him a CPA. And he has, like I say, three assistants in helping him make sure we get these reports done.
"As far as complexity, the only complexity we've had, Yellow River has been going through a growth stage since the October purchase of the American shaft. It was unable to process the sands, and the sands have now collected on three different pieces of property owned by U.S. Canadian."
Judge Murray broke in, telling Mr. Dhonau that he had lost her with his last answer.
"Yellow River is the name of the Ecuadorian operation?" the judge asked.
"It's the processing plant owned by U.S. Canadian Minerals," Mr. Dhonau replied.
"And that fellow just said he just bought it in the beginning of 2004, I think," said Judge Murray, a reference to previous testimony from Mr. Williams.
"He bought the raw property," Mr. Dhonau said.
"He bought the raw property," Judge Murray remarked. "Well, with the raw property goes the processing plant; right?"
"Well, the plant got under construction in September," Mr. Dhonau replied.
"Oh, so there was no plant there?" Judge Murray asked.
"They had a Chilean mill, it's just a grinding process, to collect what they call free gold," Mr. Dhonau said. "And you can only get like 40 per cent of the actual gold out of the ore. You lose a lot of it through the process.
"So because of the American shaft and the ore opportunities in that region, U.S. Canadian started developing a more complex, sophisticated processing plant."
Mr. Dhonau went on to say that "the final phase of that turns on in the next week or so down there in Ecuador, the cyanide processing site."
Mr. Stoecklein returned to his direct examination, eliciting testimony from Mr. Dhonau that CMKM had invested approximately $1.2-million in the Ecuador operation.
Mr. Dhonau also explained that his company received "20 per cent of the revenue collected by CMKM Diamonds to supply the management team that runs the operation."
"Does CMKM have an outstanding or a defaulted liability with you today?" Mr. Stoecklein asked.
"We have served them with a default letter, yes, of which this past week Mr. Casavant and I have came to an agreement of which I'm going to take possession of the sands," Mr. Dhonau said. "I don't know the correct Ecuadorian term yet. Here we'd call it a UCC1, but we are going to take possession of the sands down there to collect the shortage that CMKM has failed to pay down in Ecuador."
"And that has cured, then, any default they had?" Mr. Stoecklein asked.
"There's roughly -- yes, we believe the value of the sands is far more than their debt as of this date," Mr. Dhonau said.
Upon being questioned by Judge Murray, Mr. Dhonau said that CMKM owed him approximately $180,000.
That completed Mr. Stoecklein's direct examination.
Mr. Frizzell did not have any questions for Mr. Dhonau, so Judge Murray invited Ms. Hakala to cross-examine.
"Mr. Dhonau, have you ever seen any financial statements from CMKM Diamonds?" Ms. Hakala led off.
"No, ma'am, I have not," Mr. Dhonau replied.
"Do you know when CMKM Diamonds will be able to file periodic reports?" the SEC lawyer subsequently queried.
"No, ma'am," said Mr. Dhonau.
Ms. Hakala then turned to a couple of questions about what might well be characterized as Mr. Dhonau's first chance encounter with Mr. Casavant.
"You said you met Urban Casavant in November of 2003; is that correct?" asked Ms. Hakala.
"That is correct," Mr. Dhonau said.
"Did you meet him at the slot machines?" asked the SEC lawyer.
"Yes, ma'am," Mr. Dhonau replied. Ms. Hakala moved on to some questions regarding the revenue from the Ecuador operation, drawing from Mr. Dhonau that CMKM would only have received 80 per cent of the $45,000 or $60,000 representing its half of money reportedly generated in 2004.
"Did they get that?" Ms. Hakala asked.
"No, they did not," Mr. Dhonau said.
"Why not?" asked the lawyer.
"It was reallocated by Mr. Casavant's request to cover up -- they were short air compressors to fulfill the mining obligations to create a safe environment for the miners," Mr. Dhonau testified.
"You used to own 75 billion shares of CMKM Diamonds stock, didn't you?" Ms. Hakala asked further into her cross-examination.
"Yes, ma'am," Mr. Dhonau replied.
"What happened to that stock?" the lawyer asked.
"I surrendered them back to CMKM for a non-recourse note in December," Mr. Dhonau said, later adding that the note was for $2-million.
"Why did you do that?" Ms. Hakala queried.
"In light of the investigation and what I had discovered in November, I just felt it was best for my company and my own well-being to separate from the companies," Mr. Dhonau said.
"You no longer wanted to own shares of CMKM Diamonds?" asked the lawyer.
"That's correct," Mr. Dhonau said.
Judge Murray had some questions about the $2-million note.
"Did you cash it?" Judge Murray queried. "Did you cash it? You actually got $2.2-million?"
"A note," Mr. Dhonau explained.
"A note," said Judge Murray. "Have you foreclosed on the note?"
"No, ma'am," said Mr. Dhonau. "It's not due until December."
Ms. Hakala returned to her cross-examination.
"What did you discover in November that made you no longer want to own shares of CMKM Diamonds?" the SEC lawyer wanted to know.
"It was just the -- it was a personal emotional reaction off of what was happening to the investigations," Mr. Dhonau said.
"Can you elaborate on that?" Ms. Hakala asked.
"It was just nothing more than a -- a gut feel of myself and -- and after my deposition, I felt it was best for my company to stand alone as a private corporation," Mr. Dhonau said.
"And no longer wanted to own shares of CMKM Diamonds stock?" Ms. Hakala asked.
"Correct," said Mr. Dhonau.
Ms. Hakala passed the witness back to Mr. Stoecklein for a short redirect.
After eliciting testimony from Mr. Dhonau that Mr. Casavant had told him that he wanted to be a reporting company, CMKM's lawyer tried to get back to the subject of valuation by using a different approach.
"Have you put a value on your mining claims in Canada?" Mr. Stoecklein asked.
"I know where I wish they would be valued at one day," Mr. Dhonau ventured. "Oh my -- to give you the answer, I am on a cost basis only on that particular thing, but I have invested in Canada based on the information that I gathered as I testified earlier."
"I assume you haven't had an offer to sell those claims?" Mr. Stoecklein asked.
"No, I have not," said Mr. Dhonau.
Mr. Stoecklein had no further questions, so Mr. Dhonau was excused. ///////////////////////////////////////////////// ????? how did he earn shares in cmkm 2 years before the corp meeting in march 2004??????????
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