MOUNTAIN LAKE RESOURCES INC.:
A DIAMOND IN THE ROUGH?
Charles Mossman & Carter Bereszay
University of Manitoba
Case Objectives and Use
This case introduces the students to a small resource-based company, with ongoing cash flow and
investment issues. The speculative nature of many of its investments makes it difficult to value.
Students can also appreciate the difficulty of attracting investors when in a market where other
speculative investments have been losers. The case may be used primarily in advanced finance or
small business finance courses, although the information provided could also provoke discussion
in strategy or marketing/entrepreneurship courses.
Case Synopsis
Allen Sheito is the President of Mountain Lake Resources (MLR), a junior gold and diamond
mining firm listed on the Toronto Venture Exchange (MOA.CDNX). The firm explores and
develops diamond mines in alluvial deposits in South Africa through its subsidiary, Mountain Ash
(Pty) Limited. Three quarters of this subsidiary has been sold to MLR's mining partner, Etruscan
Resources Inc. in return for a commitment to inject US$2.0 million into development of a mine.
MLR is also exploring for gold and related minerals at several locations in Canada. Its largest
gold enterprise is at the Valentine Lake deposit in Newfoundland. A significant find at this
deposit will likely trigger a contract clause in which Noranda, a major gold and base metal mining
and smelting company, exercises an option to develop a gold mine. If this occurs, MLR will own
30% of the mine, but will not have to make any further financial contributions. If not, MLR can
continue as a 50% partner by contributing this share of investments with Noranda or another major
company. A third alternative is to take 100% ownership of the mine by making expenditures of
another $2.5 million over the next four years and paying royalties to Noranda.
Allen Sheito is concerned that despite considerable progress in finding new diamond and gold
deposits, investors have not taken notice of MLR and increased its stock price adequately. He is
wondering what he can do to improve MLR's share price.
The authors developed the case for class discussion rather than to illustrate either effective or ineffective handling
of the situation. The case, instructor’s manual, and synopsis were anonymously peer reviewed and accepted by the
North American Case Research Association (NACRA) for its annual meeting, October 27-29, 2005, North
Falmouth, MA. All rights are reserved to the authors and NACRA. © 2005 by Charles Mossman and Carter
Bereszay. Contact person: Charles Mossman, I.H. Asper School of Business, University of Manitoba, Winnipeg,
MB, Canada R3T 5V4, 204-474-9985, mossman@ms.umanitoba.ca