One of Vancouver miner Baja Mining Corp.'s largest shareholders is suing the company (TSX:BAJ) and demanding an independent investigation into cost overruns at its Boleo project, Baja announced June 18.
Louis Dreyfus Commodities Metals Suisse is also seeking to remove executives and directors who did not disclose those overruns early enough.
Baja announced in April that costs for its Boleo project would be US$246 million more than an earlier estimate of about US$1.143 billion.
In May, it announced that it would lay off 40% of its Vancouver staff, although it would not provide exact numbers.
Baja plans to vigorously defend itself, CEO Tom Ogryzlo told Business in Vancouver, because the cost overruns were revealed as soon as the company knew about them.
"I think the contractor was very late in funnelling information on cost performance through to the project site," he said. "That's part of the reason they weren't known earlier."
Baja owns a 70% stake in Boleo and Louis Dreyfus holds an estimated 10% stake in the Baja, although Ogryzlo said that he believes Louis Dreyfus has been reducing its holding.
Years ago, Louis Dreyfus provided Baja with a $35 million letter of credit as part of an agreement that enabled Louis Dreyfus to buy 70% of the Boleo mine's future copper production, Ogryzlo said.
That letter of credit was intended to cover any overruns or mine expenditures that had to be made.
"I believe that Louis Dreyfus long ago realized or thought that there was perhaps a mechanism for us to draw down on that $35 million and spend it," Ogryzlo said. "That's what started this defensive action and process that they're taking."
The lawsuit follows a request by Louis Dreyfus for arbitration with the London Court of International Arbitration over a financing deal.
