April 11, 2011 / 7:43 PM / 7 years ago

UPDATE 2-Canada Lithium sued over resource estimate

* Faces class action suit over incorrect resource size

* Shares fall 19.5 pct following announcement of lawsuit (Adds details on suit, background, updates share price)

By Euan Rocha

TORONTO, April 11 (Reuters) - Canada Lithium Corp CLQ.TO said on Monday it is facing a class action lawsuit demanding C$50 million ($52 million) in damages over a resource estimate at its Quebec lithium project that may not be as high as earlier projected.

The company said in February that it was appointing an independent third party to review the resource estimate for the project, after an internal review indicated a material reduction in the measured, indicated and inferred mineral resource.

The company’s shares tumbled nearly 20 percent on Monday after the lawsuit was announced. The shares, which had already fallen more than 35 percent since the review announcement in February, are now down 65 percent year-to-date at 70 Canadian cents.

“We believe that this case is without merit and that it will ultimately be dismissed,” Canada Lithium Chief Executive Peter Secker said in a statement.

“The company took immediate action when we learned that there was a potential issue with the previously announced mineral resource estimate and we are working to resolve this matter as quickly as possible,” he added.

Lithium carbonate, which is used in high-tech electronics such as electric and hybrid vehicles, computer batteries and smartphones, is in high demand, with analysts predicting even bigger gains in years to come. [ID:nN24181251]

Canada Lithium said the lawsuit, which was filed in the Ontario Superior Court of Justice, alleges the company, its directors and others made misrepresentations on the resource estimate that are in violation of securities and regulatory laws.

The lawsuit seeks to represent persons who acquired the shares of Canada Lithium between Oct. 28, and Feb. 28.

Last month, the independent reviewer Roscoe, Postle & Associates confirmed there were significant issues with the geological modeling used to produce the resource estimate announced by the company last year.

Canada Lithium has asked AMC Mining Consultants Ltd to independently conduct a resource estimate on the project and prepare a new report that complies with regulatory requirements. The company expects to receive that updated estimate by May 13.

The company said it believes there will be a material reduction in the size of the previously announced resource, but said it is unable to determine the size of the reduction at this time.

In October, the company reported measured and indicated mineral resources of 46 million tonnes grading 1.19 percent lithium, plus an inferred mineral resource of 57 million tonnes grading 1.18 percent lithium.

The resource was used to develop a mine plan with the ability to process one million tonnes of ore a year over an initial mine life of more than 14 years. The plan will now likely be altered following the review.

The suit seeking class action status was filed by Siskinds LLP in London, Ontario, on April 8. The file number on the case is CP3853-11. Canada Lithium has retained McCarthy Tetrault LLP as its legal counsel.

$1=$0.96 Canadian Reporting by Euan Rocha; editing by Rob Wilson

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