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Costa Rica
On October 25, 2011, the Administrative Law Chamber of the Supreme Court of Costa Rica, ("SALA I") posted a news release indicating they had accepted the fundamental aspects of the request for annulment ("Casación") filed on January 18, 2011 by the Company's wholly owned subsidiary in Costa Rica, Industrias Infinito S.A. ("IISA"). The Casación was filed against the sentence imposed by the Tribunal Contencioso Administrativo ("Tribunal") on November 24, 2010, (the "Ruling").
Furthermore, the SALA I accepted the Casación of certain government agencies involved in the Crucitas project approval process and certain, but not all, of the individuals and organizations directly impacted by the Ruling (collectively the "Parties").
In conjunction with accepting the Casación filed by each of the Company and the Parties the SALA I originally indicated that it intended to render a decision on the Casación within five weeks, which included a period of fifteen days where the Parties had the opportunity to provide new material for consideration. However, on November 22, 2011 the SALA I announced in the local media that it may delay rendering a decision beyond its original deadline of 25 working days.
There is significant doubt regarding the Company's ability to operate as a going concern. Construction of the Company's Crucitas gold mining project has been halted since October of 2008 and remains suspended even after the Constitutional Chamber of the Supreme Court of Costa Rica ("SALA IV") provided a summary ruling in of April of 2010 that, in general, the legal challenges against the project were without merit. The complete ruling was received in August of 2010 which showed that the court had reviewed the constitutional, technical, environmental and legal aspects of the case in extensive detail but an injunction put in place by the TCA prevented construction from re-commencing at the site and there has been no significant construction activity on site for over three years.
As a result of these continued delays the Company has initiated a strategic review of all the options available to maximize stakeholder value including but not limited to a divestiture of some or all of its assets in Costa Rica and any other remedies available. The Company has also initiated further cost reductions across its operations including Costa Rica in order to reduce the ongoing cash requirements during this period of evaluation.
On November 30, 2011 the SALA I rendered its decision and rejected the Casación with respect to the Ruling imposed by the TCA on November 24, 2010, in respect of the Company's gold mining permits and the Costa Rican permitting procedures for the Crucitas gold project.
The TCA Ruling annulled the Exploitation Concession of the Company's Crucitas gold project and invalidated, among other things, the original approval of the environmental impact study received in December of 2005 during the Abel Pacheco presidency, the amended environmental impact study received in February of 2008 and the Presidential Decree declaring the project to be in the national interest received in October of 2008.
The decision by the SALA I appears to conflict with the decision reached by the Constitutional Chamber of the Supreme Court of Costa Rica ("SALA IV") in April of 2010 that confirmed the validity of IISA's Exploitation Concession and approvals.
The Company is reviewing the impact of the SALA I ruling with respect to the ruling of the SALA IV, its debt facilities and their related covenants and the impact this may have on the future presentation of its financial statements.
LAS CRISTINAS - VENEZUELA
In July, 2001 Infinito Gold purchased Placer Dome de Venezuela, giving the Company a 95% interest in the Las Cristinas concession. Placer had done extensive work on the concession, confirming a reserve of at least 12 million ounces of gold.
In November, 2001, the Venezuela National Guard physically confiscated the Las Cristinas concession without compensation.
The Company has been in arbitration with the government of Venezuela regarding the Las Cristinas project since calendar 2001. During the six months ended September 30, 2011 the company conducted final preparations for the arbitration hearings which took place during the first week of October 2011. The Company anticipates that a ruling could take anywhere from five to nine months to render, however, this timeframe is not based upon any formal commitment made by the arbitration panel and as such any decision rendered may take longer. The Company advises that there is no certainty regarding the nature and timing of the ruling of the arbitral tribunal on the Las Cristinas case and, if successful, that there is no certainty on the amount of a monetary award, if any.
There is also uncertainty as to whether Venezuela would actually pay all, or part, of an award and the timing of any such payment. Furthermore, any award and subsequent payment will be shared with Barrick Gold Corp. in accordance with the contractual obligations assumed by the Company when the Las Cristinas property was acquired in 2001 prior to the alleged expropriation.
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