The TSX Venture Exchange singled out Emerita Resources Corp. as its best performing overall stock in a 2021 ranking. Today, the mining exploration company finds itself embroiled in litigation and beset by disputes with one of its co-founders, several former top executives, investors and even regulators. At the centre of the troubles is a prospective lithium property in Brazil that Emerita called the Falcon Project. In July, Emerita sued its co-founder and former chief executive David Gower, former chair Lawrence Guy and others, alleging they misappropriated the Falcon Project and formed a new company, Lithium Ionic Corp. , to advance the same project. “It was incumbent on the (defendants) to first disclose their intentions and allow Emerita to consider whether it wished to pursue the opportunity it had paid for,” Emerita’s lawsuit alleges. “If the (defendants) had performed their duties, they would have reached the conclusion that the Falcon Project remained a corporate opportunity belonging to Emerita.” The company’s lawsuit against its founders followed similar allegations by the Ontario Securities Commission (OSC) brought in April and by an investor in June. Gower and Guy in April resigned from their respective roles at both Emerita and Lithium Ionic, but contest the accusations. Another defendant, Damian Lopez, former corporate secretary at Emerita and Lithium Ionic, also resigned. Greg Duras, former chief financial officer at Emerita and Lithium Ionic, resigned from both companies as well. “These are allegations and not findings and we will vigorously defend against them and look forward to being exonerated when all of the facts are considered,” Gower said via email. Guy, Lopez, Duras and Helio Diniz, a former Lithium Ionic director, who helped broker the sale of the Falcon Project to Emerita in 2018, either did not respond to requests for comment, could not be reached or declined to comment. Mineral exploration companies, which represent 59 per cent of the companies listed on the TSX Venture Exchange, often have no revenue because they are still exploring properties that could one day become mines. Nonetheless, their share prices can quickly rise if the companies report on exploration successes or if the price of the metal or mineral that they’re focused on finding increases. The TSX Venture Exchange, as part of an annual showcase of 50 of its top performing companies across five different sectors, chose Emerita as “ the top-ranked company ” overall in 2021, as its share price surged to around $4 from 20 cents, pushing its market capitalization to $579 million. That year, it released exploration results on a copper, zinc, lead and gold property it had under development in Spain and was also pursuing the right to develop a former zinc-copper-lead mine in that country. But the company’s share price by 2022 had fallen back below $1 against a backdrop of falling commodity prices, rising interest rates and global recession fears. Meanwhile, lithium prices had been rising in 2021 and hit a record in 2022. Emerita in 2018 had told shareholders it had acquired the Falcon Project, located in the Aracuai district of Minas Gerais, Brazil, also known as Lithium Valley. The prospective property is about 500 metres from what was Brazil’s only operating lithium mine, and is also near what would become the largest hard rock lithium mine in the Americas. “This is an exceptional opportunity to add value at a low cost,” Gower said in 2018. But the company in 2021 told shareholders that it had “relinquished” the Falcon Project, though it offered no details as to why. Emerita’s lawsuit against its former executives now offers one view of what allegedly happened inside the company. According to the company’s lawsuit, Emerita had paid 1.5 million shares between 2016 and 2018 to acquire the Falcon Project. Former CEO Gower and others allegedly told the board that Emerita lacked the money to keep the project’s permits in good standing with Brazilian authorities and defaulted on its deal to acquire title to the property, the lawsuit states. The board accepted their explanation, according to the lawsuit. But the company’s lawsuit claims the explanation “came into serious question” after the OSC this April accused the executives of fraudulently diverting the project to Lithium Ionic, where they held shares and served in management and on the board. Emerita then launched an investigation and concluded it had not defaulted on the purchase agreement and that “there was no convincing evidence it had ‘relinquished’ the Falcon Project,” according to its lawsuit. “In early 2021, Emerita’s rights to the Falcon Project were still intact,” the company’s lawsuit alleges. “At that time, Emerita clearly had the financial resources to pay the limited amounts (less than $10,000) required to keep the Falcon Project in good standing.” Instead, Lithium Ionic has spent the past few years advancing the Falcon Project, which has become part of what it calls its Bandeira project. The company has raised more than $83 million through equity financings since 2022. Now, the lawsuits, one filed in Ontario Superior Court in Toronto by Emerita and an application for an enforcement action filed by the OSC at the Capital Markets Tribunal, raise questions about who will ultimately control the prospective lithium property in Brazil. PM Super Fund, an Australia-based investor that owns around 3.9 per cent of Emerita, has also filed a motion to intervene in Emerita’s lawsuit. Wayne Peters, the director for the trustee for PM Super Fund, said that would give it a type of oversight role to ensure the lawsuit against the former executives and Lithium Ionic is not settled in a way that benefits some shareholders over others. Canada's 'excessive' tax breaks for mining sector risk distorting the economy, warn economistsSteel plants are crying for steel even though Stelco has just laid off hundreds of workers He said his main concern is that the Falcon Project, or a large portion of it, should be returned to Emerita. Some institutional investors hold shares of both Emerita and Lithium Ionic and may have diverging interests, Peter said. “If the Falcon Project comes back to Emerita, it comes out of Lithium Ionic,” he said. “For a holder of both (companies), a modest cash settlement is not a poor outcome; it may well be the preferred one.” But Peters said a small cash settlement would represent the “worst outcome” available for a shareholder who had only invested in Emerita and wants to see as close to the full value of the Falcon Project recovered. The cases are still moving through the court system, but both Emerita and Lithium Ionic trade below $1, each with a market cap of about $100 million. • Email: gfriedman@postmedia.com