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Star Diamond and Rio Tinto to face off in court

The Star-Orion South diamond project in Saskatchewan. (Image courtesy of Star Diamond.)

A Canadian court has ruled that Star Diamond (TSX: DIAM) has grounds to take its legal fight with Rio Tinto (ASX, LON, NYSE: RIO) to court over their joint Star-Orion South project in north-central Saskatchewan, but said the junior faces an “uphill battle.”

Judge Grant Currie said the Saskatoon-based company may struggle to prove that Rio Tinto Exploration Canada (RTEC) improperly exercised its options to obtain a majority ownership stake in the proposed diamond mine.

The legal row involves a 2017 agreement under which Rio Tinto’s subsidiary would spend $75 million in phases to acquire 60% of the Star-Orion South diamond project.

Star Diamond says that in November, RTEC informed them that it was exercising all options at once and well ahead of schedule. The junior claims that by doing that, RTEC breached the conditions of the deal and misrepresented the costs involved in the exploration work.

It also says the global miner used its “significant financial resources” and “engaged in bad faith predatory practices” with the intention of diluting Star Diamond’s interest in the asset.

Saskatchewan’s first operational diamond mine

The ruling crushes Rio’s petition to dismiss the lawsuit, which it has called “baseless” in a statement of defence filed earlier this year.

It does favour RTEC in not forcing it to provide Star Diamond with the results of five additional holes on top the results from the 10 holes drilled in 2019. This allows Rio to call a joint management committee meeting to set an annual exploration budget.

According to court documents, the cost of the proposed 2020 program was $106 million, 40% of which is to be covered by the Canadian miner.

Located east of Prince Albert, Saskatchewan’s third largest city, Star-Orion is a large, low-grade project that contains high-value diamonds (both large diamonds and rare Type IIa stones).

Based on to the most recent economic study on the project, Star-Orion has the potential to produce 66 million carats over a 34-year mine life. It would be the province’s first operational diamond mine.

A trial date has not been set.