Shanta Gold PLC (LON:SHG) has rejected claims from Canadian peer Helio Resource (CVE:HRC) that a termination of their merger agreement was invalid.
The two companies have neighbouring properties in Tanzania and agreed a merger in June.
Since the deal was announced, though, there has been a new Finance Act introduced in the country that has raised taxes and royalties while other legal changes mean the government can now renegotiate mining contracts and insist upon more local ownership.
READ: Shanta Gold pleased with progress at New Luika but legal changes mean an end to the Helio acquisition
Shanta concluded this amounted to a material adverse effect and used it to terminate the deal.
"The position, and advice, remains that it had clear and compelling rights to terminate the arrangement agreement and that it was validly terminated," the AIM-listed miner said.
Helio disagrees and said as far as it is concerned the the arrangement agreement remains in effect and it will take all commercially reasonable actions required to complete the transaction.
Richard Williams, Helio's chief executive, said: "We strongly disagree with Shanta Gold's assertion that the recent changes to Tanzania's mining laws amount to a material adverse effect as defined in the arrangement agreement and reject their opportunistic attempt to walk away from their obligations.
“We believe that combining Shanta Gold and Helio continues to make sense for both companies and are disappointed that our partner in this transaction chose to take this drastic step without any prior discussions."
Under the original agreement, Shanta agreed to buy Helio in June through a share-based transaction worth US$5.6mln.
Since then it has changed its chief executive and yesterday unveiled a cost-cutting drive to offset the impact of the fiscal changes in Tanzania.