Bre-X action names Barrick

Claiming that Barrick Gold (ABX-T) knew as early as October 1996 that Bre-X Minerals’ Busang gold deposit was a hoax, lawyers representing shareholders in a class-action suit have named the gold producer as a defendant.

An amended statement of claim, naming Barrick, was introduced in court in Texarkana, Tex., on March 26. It alleges that “Barrick was given access to 135 waste [sic] core samples from Busang which had not been used for any testing. Of the 135 samples tested, 130 contained no gold.”

Barrick subsequently made announcements to the effect that it was still negotiating with Bre-X for a joint venture on the Busang project. The plaintiffs contend that Barrick should not have made the statements when it had information that the project was a front for a fraud.

Bre-X had obliged all the major companies that negotiated with it to enter a confidentiality agreement preventing them from disclosing any results of investigations done on Busang. Barrick, which entered a confidentiality agreement on Nov. 24, 1996, would have left itself open to a lawsuit if it had disclosed the information.

The date of the agreement also suggests that Bre-X did not release any samples to Barrick until November, not October.

It is not clear that Barrick management had given up hope of finding gold at Busang when it got negative results from the 135 core samples. Having been given 10-cm “library” samples to test, Barrick may have concluded that the samples were not large enough to give reproducible results, or that Bre-X — whose vice-chairman John Felderhof was known to dislike Barrick — may have deliberately provided barren samples to discourage the major.

It is also known that in early February 1997 Barrick received positive assay results on crushed samples of Bre-X’s drill core, suggesting that even then the company was still not certain there was no gold in Busang.

When it was incorrectly reported in late April 1997 that Barrick and Placer Dome (PDG-T) had been released from their confidentiality agreements, Barrick made a series of public statements, offering to cooperate with any securities regulators that wanted information.

Barrick joins a long list of defendants, including Bre-X, its directors and affiliated companies, a number of brokerage houses and Kilborn SNC Lavalin, the parent firm of Bre-X’s consulting engineers, Kilborn Pakar Rekayasa. The plaintiffs allege that the investment firms should have known, based on information in their possession, that there was no gold at Busang. The consultants are alleged to have been negligent or incompetent in failing to recognize that Busang was a salting scam.

An Ontario court hearing motions connected to another class-action suit was told that defendant brokerage houses were liable because recommending the purchase of shares in Bre-X constituted “misleading advertising” under the Competition Act. Lawyers for the firms offered the defence that analysts’ recommendations do not constitute advertising.

Lawyers for former Bre-X chairman David Walsh told the same court that Walsh could not be held personally liable for acts performed in his capacity as a director of Bre-X. Lawyer Harvey Strosberg, representing the plaintiffs, argued that accepting Walsh’s defence would mean that a director “could say anything he wanted, provided it was put on company letterhead.”