Barrick’s battle takes spotlight

It has been barely a month since the Ontario Court of Appeal decided in favor of turning over ownership of Canada’s biggest gold mine from Lac Minerals to International Corona. But, already, another fierce legal dispute over a gold mine is heating up.

American Barrick of Toronto has returned fire on Gold Standard, the small, Salt Lake City-based exploration company which filed suit late last year claiming ownership of the hot Mercur gold mine. (The mine, nestled in the Oqirh Mountain Range, southwest of Salt Lake City, is operated by Barrick. It produced roughly 111,000 oz in 1987, accounting for just under half of the company’s gold production. Gold Standard, on the other hand, has little in the way of assets other than its claim on the Mercur mine.)

In the counter-suit, Barrick alleges that Gold Standard President Scott Smith publicized his legal action in a “false and misleading” way, to the detriment of Barrick’s stock value. The suit, filed in New York State Supreme Court, asks for damages of $51 million(US) ($10 million in punitive damages and another $41 million in compensatory damages). John Melville, Barrick’s senior vice-president, corporate development, tells The Northern Miner that the compensatory figure reflects the loss of proceeds to the company during three recent stock issues.

“We at Barrick feel that the price at which we did those share offerings was damaged by Gold Standard and others publicizing this case in the press,” he says.

Gold Standard isn’t the only defendant named in the counter-suit. Barrick is also pointing the finger at Canarim Investment Corp., a Vancouver investment dealer, 321264 bc Ltd. of British Columbia, and Reyard Saadien, a Vancouver stockbroker. Canarim and Saadien are said to be part of an investment group that has bought shares or arranged a private placement in Gold Standard, believing the company has a good chance of winning the case.

In its suit, Barrick is alleging that Smith “induced” Barron’s, a leading U.S. business paper, to publish a series of articles containing false information about the lawsuit. It is also alleging that Smith launched a series of telephone calls to financial analysts and business publications that distorted the facts of the case.

Barron’s editor Alan Abelson has denied that his paper was induced to publish false information about the litigation, dismissing the allegations as “pure nonsense.” (The business publication itself is not being sued.)

Gold Standard’s official response is that the allegations are “ludicrous,” says Richard Boulay, an advisor to the company’s board of directors. “In fact a number of Barrick’s allegations simply do not make sense,” he tells The Northern Miner. “Some are factually incorrect. There is a thread of desperation running through the whole rambling, unfocused complaint.” Trial by media

Melville refuses to comment on the allegations concerning Barron’s, saying simply that “the litigation would be more appropriately tried in the courts as opposed to the press.” He adds that Barrick would like the dispute over the mine’s ownership heard as soon as possible because “the claims made by Gold Standard are without merit.”

That case is in the discovery stage and is expected to be heard by a judge and jury in the county courthouse of Tooele, the Utah county where the mine is located, sometime in 1988. Both companies are predicting that their side will win.

In the suit, filed last December, Gold Standard claimed ownership of the mine and asked for damages of close to $1 billion.

“Not only do we want back the mine; we want all the gold that has ever been taken from the mine — plus damages,” says Boulay. “In addition we want damages for unjust enrichment and punitive damages because they (the defendants) have destroyed our business.”

Defendants in the case are American Barrick, Texaco Inc. of White Plains, N.Y., and Getty Oil Co. They, together with Smith, are key players in the Mercur story. Enter Getty Oil

Smith, a prospector, staked the original claims on the Mercur property, through Gold Standard, in the early 1970s. In 1973 the junior company reached an exploration agreement with Getty Oil, a major energy outfit, whereby Gold Standard became a junior partner in the venture, with a 25% interest. Getty, which held the balance, bore the cost of finding a mineable orebody. Arguing that Gold Standard had few assets, Smith said his company needed a feasibility study to convince bankers to cover its 25% share of the possible mine’s cost. `Unbankable’

After exploring the property, Getty proved respectable reserves, with sufficient grades for a mine. In 1981 it presented to Gold Standard a feasibility study, prepared by Bechtel Civil & Minerals of San Francisco, as well as other documentation on the prospects of a mine.

Smith submitted the study to the U.S. Securities and Exchange Commission, which reportedly told him the work was “not comprehensive” and that it “(did) not support an ore reserve estimate.”

As a result, Smith says, Gold Standard was unable to provide its share of the financing. Meanwhile Getty was going ahead with the mine.

In March, 1982, Getty converted Gold Standard’s 25% ownership into only a 15% royalty interest in the net profits of the mine. Under the operating agreement, Getty had reserved the right to do this if the financing was not provided. Smith says he didn’t sue at this point because Getty agreed to let Gold Standard re-acquire its 25% interest if it could raise the necessary financing.

A few years later, Texaco bought Getty Oil and began selling the latter’s non-energy interests; among them, the Mercur mine. One of the potential buyers was American Barrick. Smith says Gary Last, then president of Barrick, had agreed to reinstate Gold Standard’s 25% interest if Barrick bought the mine.

Texaco sold the mine to American Barrick in 1985 for the remarkably low price of $31 million cash and an additional $9 million from production. Barrick then refused to reinstate Gold Standard’s 25% interest, according to Smith. American Barrick has denied that it ever had an agreement to reinstate Gold Standard’s interest. What’s more, Gary Last is said to have filed a sworn affidavit that he never agreed to reinstate it.

“The basis of (American Barrick’s) defence is that the requirements of the contract were performed by Getty and that Gold Standard was unable or unwilling to put up the money for its 25% working interest,” Melville says. “As a result, as per the contract, Gold Standard has received a 15% net profits interest.”

Gold Standard, on the other hand, maintains that the Bechtel study was inadequate. “There’s no question that the study doesn’t even come close to what a feasibility study should be,” Boulay stresses. “And there’s no doubt that (Gold Standard) will be able to prove it was inadequate. It’s very frustrating having to watch large companies trample over a small company’s shareholders. It was a tough fight over the past few years because we have had few funds. But we persevered. We are confident we will win back the mine for our shareholders.”

When asked how seriously American Barrick seems to be responding to the litigation, Boulay says: “Anytime one company sues another for $41 million plus $10 million punitive, it is serious.”

When the same question is put to Melville, he responds: “If the issue is whether Gold Standard is entitled to a 25% working interest or a 15% net profit interest, the impact (of the litigation) on Barrick is not oversignificant.”

While admitting that the Mercur mine is currently the company’s chief asset, he says “the magnitude of the operation within Barrick’s over-all production is reducing at a fairly rapid rate, mainly because of the Goldstrike property in northern Nevada, which will be producing 450,000 oz a year (by 1991).”

In 1986 the Mercur mine produced 111,000 oz of Barrick’s total gold production of 186,000 oz (the average operating cost was $199 per oz). In 1987 it is expected to have contributed 110,000-111,000 oz of Barrick’s total production of 240,000 oz. In 1988 about 1
15,000 oz is expected to come from the mine (out of a total production of 325,000 oz). And in 1989 total production is expected to be 425,000 oz while production from the Mercur mine will remain around 115,000 oz.

“The mine is not the key operation in terms of the company’s future,” Melville adds.