Barrick Gold Faces More Legal Troubles

Barrick Gold has struggled to adjust after gold prices shifted.

Bullion.Directory precious metals analysis 2 April, 2015
By Christopher Lemieux
Senior Analyst at Bullion.Directory; Senior FX and Commodities Analyst at FX Analytics

Barrick Gold Corp. (ABX), the world’s largest gold producer, will be facing legal woes after it lost its bid to dismiss a US lawsuit accusing the producer of obscuring issues at the Pascua-Lama project. The lawsuit also claims that Barrick fraudulently inflated its market value by tens-of-billions.

The Pascua-Lama project is located on the Argentinian and Chilean border and has seen a fair share of setbacks from labor disputes and environmental issues. Barrick first purchased the mining site in 1994 which was supposed to be the company’s largest gold producer.

Although the project looked promising, Barrick had to scrap it in 2013 as the company tried to restructure costs and debt following gold price declines. Before the Pascua-Lama was ever tapped, Barrick had already spent $5 billion and had no gold to show for it.

The key factor is that Barrick is being alleged to have hid problems associated with the site from shareholders, who may pursue a class action suit. Investors who purchased common shares in Barrick sued for losses covering the period from May 7, 2009 to November 1, 20013, during which period, Barrick told investors construction on Pascua-Lama would begin.

The Judge overseeing the case said shareholders could claim Barrick misled them about its accounting for the project; however, the judge has already dismissed the claims alleging the gold producer intentionally misled about costs and production delays.

Investors said Barrick touted the South American site as being a “world-class project” that would contribute to “low-cost ounces at double-digit returns.”

Unfortunately, Barrick, as with the vast majority of producers, thought gold prices would never decline. Balance sheets were weighed down with debt, and overhead costs bled gold producers of cash. Barrick had to write-off tens-of-billions in gold forwards that went sour.

In 2014, Barrick’s stock fell by 33 percent and reported a net-loss of $2.9 billion due to writedowns. However, Barrick CEO John Thornton saw a $3.4 million boost in pay during the same period to $12.9 million.

Following gold’s decline, gold producers, miners and refiners have had to lean out and restructure debt in order to continue operations.

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