Russia blocks litigation claim against ARMZ – Khan

7th February 2011 By: Liezel Hill

TORONTO ( – Russian authorities have blocked a litigation claim by Canadian junior Khan Resources against Russian State-owned uranium-miner Atomredmetzoloto (ARMZ), the TSX-listed company said on Monday.

Khan filed a statement of claim against ARMZ and its subsidiary JSC Priargunsky with the Ontario Superior Court of Justice, alleging that ARMZ interfered with its uranium interests in Mongolia, and is seeking damages of C$300-million.

Because ARMZ is a government-owned company, the service of claim must go through the Russian Ministry of Justice. The statement of claim was translated into Russian and presented to the Ministry on October 28, Khan said.

“The Russian Ministry of Justice has notified Khan that it refuses to effect service on ARMZ, citing Article 13 of the Hague Convention,” the firm reported on Monday.

The article states that “the State addressed may refuse to comply therewith only if it deems that compliance would infringe its sovereignty or security.”

Khan plans to “vigorously” defend its rights and interests, the firm said.

“We are disappointed that such extraordinary measures have been resorted to in order to shield ARMZ from commercial litigation,” CEO Grant Edey said.

“We are not deterred by this temporary road block and we are considering alternate methods of rendering service to ARMZ.”

Shares in Khan Resources closed flat on Monday, at C$0,56 apiece.

Khan's main asset is a 58% stake in the Central Asian Uranium Company (CAUC), which in turn holds rights to the Dornod uranium project, in Mongolia.

ARMZ owns 21% of CAUC though JSC Priargunsky and the Mongolian government holds the balance.

In 2009, ARMZ launched a hostile offer for Khan, which the Canadian junior rejected as opportunistic.

ARMZ backed off the offer last year, after Khan agreed to be acquired by China National Nuclear Corporation (CNNC), although that deal was later broken off.

Khan alleged that ARMZ sought to set up its own joint venture with Mongolia to develop Dornod, and also interfered in the CNNC deal.

It also suggested that the Russian firm was involved with the licence problems the company has had in Mongolia.