Many thought the deal that Goldcorp (G-T, GG-N) and New Gold (NGD-T, NGD-X) made with Xstrata (XSRAF-O, XTA-L) earlier this month to buy the advanced-stage El Morro project in northern Chile was clever but Barrick Gold is calling it illegal.
Barrick has filed a lawsuit in the Ontario Superior Court of Justice against Goldcorp and New Gold in an effort to prevent the deal from going through. A successful court ruling would also mean that the prized project would legally be Barrick’s.
Barrick had made a deal with Xstrata, 70% owner of El Morro, to acquire the project for US$465 million back in October but its plans were ruined when New Gold, which holds the remaining 30%, announced a plan to exercise its right of first refusal with Goldcorp’s financial help.
Under the contested deal, Goldcorp will advance New Gold US$463 million so it can buy the 70% stake in El Morro from Xstrata. Goldcorp will then acquire the majority stake in the project from a New Gold subsidiary, paying New Gold US$50 million in cash and improve New Gold’s project-financing terms.
But Barrick alleges that New Gold has not exercised its right of first refusal lawfully, making the deal void.
“Under the shareholders agreement and within Chilean law, the right of first refusal is a personal right and cannot be transferred. What the lawsuit says is that New Gold essentially monetized that right for $50 million,” said Barrick’s vice president of communications, Vince Borg.
Both New Gold and Goldcorp say they are reviewing Barrick’s statement of claim with their legal counsel.
“New Gold is unaware of any fact or circumstance that would support any of the allegations being made by Barrick and believes that the claim is completely without merit,” said a New Gold statement.
Goldcorp says it’s confident it has acted lawfully and appropriately and “intends to vigorously defend itself against the claim.”
El Morro has measured and indicated resources of 8.3 million oz. gold and 6.3 billion lbs. copper. A feasibility study completed in 2008 put a US$2.5-billion price tag on development.
El Morro is located close to Barrick’s 100%-owned Pascua-Lama and 50%-owned Cerro Casale projects in Chile, and the company had hoped to take advantage of the synergies with all three.
Heather Douglas, a senior research analyst with Thomas Weisel Partners, says the deal was a new step for Goldcorp because of its remote location in the mountains, demonstrating that it is now officially a senior gold company.
“It was a step outside the box for Goldcorp,” Douglas says. “It’s a high-altitude copper porphyry, I would have thought Newmont (Mining) or Kinross (Gold) more likely — they had experience.”
Barrick is no stranger to lawsuits in order to get what it wants. It fought a long legal battle with partner NovaGold Resources (NG-T) over the Donlin Creek gold project in Alaska before agreeing to drop all litigation in 2007.
There are some close connections in this kerfuffle between Barrick, New Gold and Goldcorp. New Gold chairman Randall Oliphant was the president of Barrick Gold from 1999-2003 while Goldcorp chairman Ian Telfer is on the board of New Gold. Finally, Barrick and Goldcorp are also partners on the Pueblo Viejo gold project in the Dominican Republic.
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