It has certainly been a rough four months for Baja Mining Corp. (TSX: BAJ) as the Vancouver-based mine development company has experienced considerable swings in their share price dating back to their April announcement in which they informed investors that the cost to build the copper-cobalt-zinc project, Boleo, located near Santa Rosalia in Baja California Sur, would be $246 million more than their estimate of $1.143 billion.
That announcement sent shares tumbling from a high of 0.83 on April 23, 2012 down to a low of 0.34 the following day; eventually sinking BAJ shares all the way down to 0.04 on July 30, 2012 as a result of lawsuits tied to the company’s alleged misrepresentation related to the developments at the Boleo project.
Since that low point shares of BAJ have actually been climbing and on Thursday they hit a high of 0.20, the highest they’ve been since early July, and trading volume has already surpassed the 3.9 million mark before the noon hour.
The climb began back on August 28, 2012 when the company announced that the Korean Consortium had contributed $90 million to its 70%-owned subsidiary Minera y Metalúrgica del Boleo S.A. de C.V. (“MMB”), completing Stage I of the financing they had announced by Baja on July 26, 2012.
As a result of the completion of that financing the Consortium now owns a 51% majority interest in MMB but according to the press release regarding this new the formalities required to transfer the shares and transfer control have not yet been completed. That being said, the funding will provide MMB the opportunity to address outstanding vendor liabilities and keep their activities at the Boleo project moving, activities that were severely hampered after BAJ revealed they had essentially run out of money to fund further development activities.
With the Consortium stepping in it is believed that the activities at Boleo, which has a measured and indicated resource of 265 million tonnes, will get back on track. While that is positive news for shareholders the question is whether or not the issues that led to the considerable cost increase at Boleo have been resolved. BAJ pointed to a number of factors that led to that $246 million increase, among them a change of scope, design improvements, increased mining costs, higher sulfur costs, higher diesel volumes and costs, and higher labor expenses. If those issues haven’t been taken care of then it’s difficult to see how an infusion of financing will rectify the real problem.
The reality is BAJ has more problems than just getting their Boleo project moving, they have some legal issues that could seriously hinder the company’s growth. Back in June the company’s largest shareholders, Louis Dreyfus Commodities Metals Suisse demanded an independent investigation into cost overruns at its Boleo project, launching a petition in the British Columbia Supreme Court on June 15, 2012 alleging oppression by Baja’s management. The developments of that situation are continuing to unfold.
In addition to this legal matter BAJ was hit with another lawsuit in late July by shareholder Joseph Sue-Tang who filed a class-action lawsuit claiming the company and some of its current and former directors and employees made misrepresentations from November 2010 to April 2012. According to that filing that suit “seeks among other relief a declaration that the defendants made misrepresentations contrary to the Securities Act (Ontario) during a class period extending from November 1, 2010 to April 23, 2012, general and special damages in the amount of $250 million, punitive damages in the amount of $10 million, interest and costs.”
How these legal proceeding evolve could determine the future for BAJ as they can hardly afford to keep operations moving and dole out damages related to the allegations. While the $90 million coming from the Consortium may have bought BAJ some time, time in which they will almost certainly look to raise more money, it remains to be seen if they can navigate their way out of this mess and get back to their mining operations.