Barrick Gold Could Lose a Quarter of its Net Worth Thanks to One Colossally Botched Mine

Protesters outside the Barrick Annual Investors Meeting 2014. Photo courtesy Micheal Toledano.

The testimonies, if true, are damning.

Former employees of the world's largest gold producer, Toronto's Barrick Gold, have dished the dirt on the company's behind the scenes knowledge of environmental violations and cost overruns at its proposed flagship Pascua-Lama mine—mothballed in November, 2013—that was to be built on the border of Chile and Argentina. And, they allege, that for years the company's upper executives knew about it, but kept it secret from regulators and investors.

The allegations are part of a class action lawsuit filed in August 2013 in the US Superior Court in New York State on behalf of shareholders who had invested in Barrick Gold from May 2009 to May 2013, alleging they violated the US Securities Act for failing to disclose information to shareholders.

And the testimony is not only damning: it could cost Barrick Gold a quarter of their market worth. Since the end of April, 2014, four class action lawsuits—three in Ontario and one in Quebec—have been filed on behalf of shareholders, alleging that the gold miner broke similar disclosure laws in those two provinces. A finding on behalf of the shareholders could total a $6 billion payday for investors—and an equal loss for Barrick, according to Garth Myers of Koskie Minsky LLP, a Toronto-firm that, along with Sutts, Strosberg LLP, filed one of the suits.

All four lawsuits—which still need to be certified by the courts in order to go ahead—allege the company knowingly withheld information from investors while the Pascua-Lama mine was being developed, misleading them on the riskiness of their investments. When the extent of the problems with the project came to light in late 2013, and after the Chilean government ordered operations halted because of environmental regulation violations, Barrick announced the mine was being put on hold. Since the height of developments on the mine in 2011, the company's stock has dropped from over $50 per share on the TSE to just over $18 today.

Beyond the financial costs, this is part of a complex debate around whether Canadian mining companies are being held to account for alleged environmental destruction and human rights abuses abroad, and how to make their operations more transparent.

Barrick is the largest gold miner in the world, and it's also part of the largest mining sector in the world. Some three-quarters of the global mining industry is based out of Canada. And while many companies have operations in the country, a large proportion operate abroad, from Chile and Mexico to Tanzania and Papua New Guinea. Part of this abundance is because Canada, as a resource-based economy, has a certain expertise when it comes to developing mining techniques. But it's also because Canadian laws and regulations are more lax than in other jurisdictions. For example, the NYSE, the benchmark US stock listing, has stricter reporting regulations than the TSE. There is also no legislation in Canada that allows a Canadian-based company to be taken to court over crimes committed abroad. All this adds up to an attractive environment for mining companies to flourish in.

But while the companies have grown, so have their critics. Mining, while it provides jobs and the raw materials for the mainstays of our daily lives, is a dirty business. Ecosystems need to be disrupted, mountaintops removed, rivers and lakes diverted, villages and towns displaced.

Pascua-Lama is a case in point. Announced in 2006, it has met opposition because of the fragile ecosystem it could impact. The mine is located on Chile-Argentina border, in the mountains above the fertile Huasco valley. There are fears that the mine would destroy portions of the glaciers that feed water to the valley, and that chemicals such as cyanide and mercury (from the gold mining process) could seep into waterways.

The Chilean government imposed 400 environmental restrictions on the project. According to Sakura Saunders of Protest Barrick, which has made a mission of shining a light on the company's activities, Barrick has said that this shows that Pascua-Lama would be an environmentally sustainable project. But for Saunders, it shows how environmentally sensitive it is and nearly impossible to build without impact. From 2009 to 2013, company said they were meeting obligations. But costs continued to rise—from an initial $1.5 billion to now an $8.5 billion price tag. And the Chilean government ordered a halt to operations in 2013 when it became clear that Barrick was unable to meet its environmental obligations. That's when Barrick mothballed the project. But the testimony transcripts allege that Barrick's upper executives knew about the environmental concerns all along—which, according to testimony, resulted from trying to cut costs.

According to one source, “[Pascua-Lama] managers were attempting to rush project construction, which led to water… often being contaminated.” Another noted that “many of the Company's environmental problems arose from unapproved changes to the original, approved plans relating to water channels—changes Barrick had made in an attempt to reduce project costs. [The ex-employee] stated that these changes were in place by the end of the first quarter of 2011, and that they were implemented without any notice to Chilean regulators.”

Some 70,000 farmers in the Huasco Valley rely on the watershed from the mountain for their livelihood. But in an effort to cut costs, the testimony implies, the company was willing to put this at risk. A Barrick spokesperson points out that no studies have yet shown any water contamination around the project. But the company admits there were problems, and that they are doing their best to resolve them and to eventually be able to re-start their operations.

It's situations like these that have led to proposed legislation that would better regulate the mining industry, like the private members Bill C-300. Introduced in 2010, it would have brought in tougher oversight laws that many feel would have forced mining companies to clean up their act, including an independent watchdog with the power to enforce regulations. The bill was narrowly defeated though. Some in the industry, like the Mining Association of Canada and the Prospectors and Developers Association of Canada, have supported reforms, but that willingness fell short of backing Bill C-300.

So for now, it is still just threats to the bottom line that can affect mining companies. And that's exactly what the lawyers who are representing Barrick’s scorned investors hope will be accomplished with this lawsuit. Beyond, of course, getting those investors their money back.

“A lot of people lost a lot of money and there are a lot of questions for Barrick Gold to answer,” said Myers. “Class-actions serve a number of goals. One is of course financial compensation for class members, but there's also behaviour modification goals, and in cases like this, it's that companies like Barrick, but not just Barrick, have clear and plain and accurate disclosure to their shareholders. And we hope that will be accomplished through this case.”

In response to questions about the class action, a company spokesperson sent the following statement: “The Company is aware that a notice of action has been filed in the Ontario Superior Court of Justice. Barrick disputes the allegations, and will defend itself against any lawsuit vigorously.” The spokesperson also stressed that, beyond the court case, Barrick feels that it has responded quickly and clearly to any concerns that are raised about their mining operations, in Chile or in other countries.

Barrick, as one of the biggest mining companies, is also one of the most contentious. Its founder and just-retired chair, Peter Munk, has been known for his outspokenness and bluntness when it came to addressing critics. And the company's Barrick Gold Africa subsidiary is currently facing a lawsuit in the British High Court over whether the security forces at its Tanzanian mine used undue force when they shot and killed locals—many former small scale miners put out of work by the mine—when attempting to steal small amounts of ore.

So in the wake of lawsuit, could this change their way and have ripple effects in the mining industry?

“Honestly, there is nothing that will truly change a company like Barrick’s behaviour in a timely way like a threat to its bottom line,” wrote Catherine Coumans in an email. Coumans works with MiningWatch Canada, which has led the charge to bring greater accountability to Canada's mining companies. She believes that such lawsuits can have an impact, but that it isn't every case of environmental or human rights abuses that will actually impact a company's bottom-line.

Sakura Saunders, an organizer with Protest Barrick which has targeted the company over allegations of human rights is more blunt in her assessment: The lawsuit will help in two ways; it will highlight fraud at the company towards their environmental commitments, and it will have a significant impact on the company's bottom-line. Ultimately, she hopes, hindering their work or even putting them out of business. “The best Barrick is no Barrick,” she said. “If this company were to go under, that would be a positive thing. Or if they didn't go under, that they just have less cash flow; that means that they would be mothballing projects, and that would be great.”

While both Coumans and Saunders believe such lawsuits can force companies into greater disclosure, there are still limits on what it will mean for long-term, structural changes in the industry. It's the communities themselves who have been impacted by the operations of companies like Barrick that should be able to sue, says Saunders.

Coumans for her part points to Open for Justice, a initiative being led by the Canadian Network for Corporate Accountability. The campaign is picking up where Bill C-300 left off, calling on the federal government to adopt legislation that would allow both Canadians and non-Canadians to sue Canadian companies in domestic courts for crimes committed abroad, and for the establishment of an independent ombudsperson who would receive complaints about Canadian mining companies, have the power to investigate and be able to produce public reports.

“It's a slight injustice that shareholders can recoup their money for the destruction in the Huasco Valley,” said Saunders. “What we need is to see the communities themselves be empowered in the face of the mining companies and environmental destruction… They are the ones who should be getting this money.”

@timmcsorley