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TD Newcrest analyst Daniel Earle was one of the first big believers in Ventana Gold Corp. and its La Bodega gold discovery in Colombia. He was ahead of all the other analysts in raising his target price as the discovery got more and more exciting. But given the legal dispute that now hangs over the company, he has cut his target on the stock by 20%.

Everything was going great for Ventana until last November, when Socieded Minera La Bodega Limitada, the company that owns mineral rights to La Bodega, requested arbitration in an attempt to invalidate the option agreement that hands the project over to Ventana.

Mr. Earle wrote that this action appears to be an attempt to extract more money from Ventana after its exploration success at La Bodega.

"[Sociedad Minera's ] argument that the option agreement is illegal under Colombian law would seem to require that Ventana's respected counsel was grossly inadequate," he wrote in a note.

Mr. Earle thinks it is "highly unlikely" that the arbitration panel finds the agreement illegal. And even if it does, he noted that the panel may conclude that Sociedad Minera tacitly accepted the terms of the agreement, since it is has already accepted four of the five required payments from Ventana. In such a case, the intent of the agreement would likely have to be honoured.

"We there fore think the risk of Ventana being stripped of its right to acquire the mineral rights to the La Bodega property is very low. However, without resolution, we expect the dispute to cast a lasting pall over the potential value of the company," he wrote.

As a result, he cut his target price on the stock to $12.00 a share, down from $15.00 a share. The new target comes after he reduced his target multiple to 0.8 times net asset value (NAV) from 1.0 times NAV (using a 5% discount rate). Right now, he calculated that it is trading at just 0.5 times NAV. Other development-stage gold companies in his coverage universe trade at a much healthier multiple of 1.1 times.

Mr. Earle noted that the arbitration process could be completed in a relatively quick three to six months, as the issue before the panel is very straightforward and rulings cannot be appealed.

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VENTANA GOLD CORP.

VEN/TSX,$ 7.36, up 27¢