German asset management giant Union Investment has emerged as one of two plaintiffs in a class-action lawsuit against Barrick Gold Corp. that will now go forward after a US federal judge agreed that Barrick made false statements about a gold mine it intended to open in Chile.
The mine in question is the untapped Pascua-Lama project, which lies in the Andes Mountains near the Chilean-Argentinian border. Barrick acquired the mine in 1994 and expected to open it in 2004. It has an estimated 15.4m ounces of gold and 674m ounces of silver.
But the project never got off the ground due to delayed approvals from local authorities, cost overruns and environmental concerns. Indeed, in early 2013 a court ordered a halt to construction on the Chilean side of the mine due to worries about pollution of the local water supply.
After complying with the court order, Barrick saw its stock price lose more than half of its value. It has not recovered since. Barrick’s total investment in the suspended project is said to be $5bn (€4.4bn).
Almost three years later, Union and LRI Invest, a Luxembourg-based asset manager, charge that Barrick made false statements about Pascua-Lama.
“These misstatements fall into three categories: statements regarding compliance with environmental regulations; statements regarding internal controls and accounting for capital costs; and statements concerningaccounting for the project,” writes US District Court Judge Shira Scheindlin in an opinion on whether Union and LRI have a class-action claim.
Union and LRI Invest also allege eight dates on which, following disclosures, Barrick’s share price fell. Union flatly declined to comment on the lawsuit, saying its policy is never to do so while a case is outstanding. The Frankfurt-based firm, which has €251bn under management, does retain a holding in Barrick via its conventional investment funds. Barrick has in the past been excluded by investors ranging from Sweden’s AP funds to the New Zealand Superannuation Fund.
Scheindlin concludes her opinion by ruling in favour of the plaintiffs who are represented by the US law firms Motley Rice and Labaton Sucharow.
She writes: “Plaintiffs offer a report and testimony from an expert whose opinion is based on an event study to analyse market efficiency… I have reviewed the materials carefully and find that plaintiffs have provided ample evidence to support their entitlement.” The US judge adds that as a result, all investors that purchased Barrick Gold stock between May 2009 and November 2013 can join Union and LRI Invest’s class action suit.
Barrick has not yet given up on the Pascua-Lama project. “Barrick remains committed to working with stakeholders and local communities in Chile to advance Pascua-Lama in an environmentally responsible manner, respecting its legal and regulatory requirements,” the Canadian mining firm says on its website.