Baja Mining has 45 days to come up with money for Boleo

Besieged Baja Mining  (TSX:BAJ) added another 14% on Wednesday following good gains the day before to trade at $0.205  after announcing it had negotiated a 45-day standstill agreement with lenders for its Boleo project.

The lenders to Baja's 70%-owned Mexico subsidiary, Minera y Metalurgica del Boleo, have agreed to refrain from exercising rights and remedies until August 1, 2012 over defaults. MMB recently got for $21 million cash from Baja and the Korean consortium that owns 30% as it tries to find funding to continue developing the  copper-cobalt-zinc mine in Mexico.

Baja said engineers SRK Consulting  is performing a  due diligence on Boleo  while BMO Capital Markets continues to "actively canvass potential strategic and financial interested parties".

On Monday Louis Dreyfus Commodities Metals Suisse commenced  arbitration proceeding with the London Court of International Arbitration concerning a $35 million cost overrun facility.

In terms of the agreement, Dreyfus will be issued common shares in Baja to the equivalent value of the amounts drawn under the facility, based on a share price of C$1.10.

Dreyfus now wants the deal cancelled and is also asking for damages. Baha has vowed to launch a vigourous defence.

Monday's complication is just the latest setback for Vancouver-based Baja which has now lost almost 70% of its value this year. It is now worth just $69.7 million on the Toronto big board.

The rot set in last year with an acrimonious boardroom battle that ended with a reconstituted board and the resignation of the CEO and founder last week.

But what really crushed the stock was an announcement little over a month ago that the company's Boleo copper-cobalt-zinc project in Mexico will now cost $1.143 billion to construct, a 21.5% increase.

Before the cost run-ups, first flagged at the end of March, Baja forecast $890 million would be needed to build the mine.

Baja has previously said that Boleo remains on track to enter production in the second half of 2013 and a special committee has now been set up to look at new ways of financing.

The bitter – and very public – boardroom dispute with 20%-shareholder Mount Kellet Capital Management has kept the tight-knit Vancouver mining community buzzing for months.

Mount Kellett, which has pumped $80 million into Baja, had not been pulling punches, accusing Baja CEO John Greenslade of “enriching family and friends” at the expense of shareholders.

For its part Baja called Mount Kellet a wolf in sheep's clothing wishing to do a takeover of the company by stealth.

At a special shareholder meeting on April 3, the Greenslade camp scored a narrow victory over Mount Kellet, although it turned out to be a Pyrrhic one.