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In re Barrick Gold Securities Litigation

United States District Court, S.D. New York

April 1, 2015


Christopher F. Moriarty, Esq., David P. Abel, Esq., James M. Hughes, Esq., Motley Rice LLC, Mt. Pleasant, SC, William H. Narwold, Esq., Motley Rice LLC, Hartford, CT, Jonathan M. Plasse, Esq., Serena Pia Hallowell, Esq., Christopher J. Keller, Esq., Joel H. Bernstein, Esq., Jonathan Gardner, Esq., Labaton Sucharow, New York, NY, Brian P. Murray, Esq., Glancy Binkow & Goldberg LLP, New York, NY, Gregory B. Linkh, Esq., Glancy Binkow & Goldberg LLP, New York, NY, Lionel Z. Glancy, Esq., Michael Goldber, Esq., Robert V. Prongay, Esq., Glancy Binkow & Goldberg LLP, Los Angeles, CA, Ira M. Press, Esq., Kirby McInerney LLP, New York, NY, Jeffrey A. Barrack, Esq. Barrack, Rodos & Bacine, Philadelphia, PA, for Plaintiffs.

Ada Fernandez Johnson, Esq., Jonathan Rosser Tuttle, Esq., Debevoise & Plimpon LLP, Washington, DC, Bruce E. Yannett, Esq., Elliot Greenfield, Esq., Debevoise & Plimpton LLP, New York, NY, for Defendants.


SHIRA A. SCHEINDLIN, District Judge.


Lead plaintiffs Union Asset Management Holding AB and LRI Invest S.A. bring this action on behalf of themselves and others similarly situated against Barrick Gold Corporation ("Barrick" or the "Company"); Aaron Regent, Jamie Sokalsky, Ammar Al-Joundi, Peter Kinver, Igor Gonzales, and George Potter (the "Individual Defendants"); and Sybil Veenman. The putative class consists of all persons and entities who purchased or acquired Barrick common stock during the period May 7, 2009 through and including November 1, 2013 (the "Class Period") and who were allegedly damaged thereby. Plaintiffs assert three causes of action for: violations of Section 1O(b) of the Exchange Act and Rule 1Ob-5 promulgated thereunder against Barrick; violations of Section 1O(b) of the Exchange Act and Rule I Ob-5 promulgated thereunder against the Individual Defendants; and violations of Section 20(a) of the Exchange Act against the Individual Defendants and Veenman. Pursuant to Federal Rule of Civil Procedure 12(b)(6), defendants now move to dismiss all claims. For the following reasons, defendants' motion is granted in part and denied in part.


Barrick is one of the world's largest gold mining companies, with a business focus on growing its base of low-cost gold production and gold reserves.[2] In 1994, Barrick acquired Pascua-Lama (the "Project"), an untapped gold mine spanning the border between Chile and Argentina.[3] Pascua-Lama is "one of the biggest and most difficult industrial ventures in the world" presenting many "logistical, operational, and environmental challenges."[4] To access the ore, Barrick planned to carve a massive open-pit gold mine into the peaks of the Andes mountains, fifteen thousand feet above sea level, while taking care not to disrupt the surrounding glaciers.[5]

Because of the possible negative impact of construction on the glaciers, Barrick could not begin the project without first obtaining the necessary environmental approvals from the governments of Chile and Argentina.[6] Barrick went through several rounds of proposals with both Chile and Argentina from 2000 through 2006, before gaining the requisite approvals from both countries.[7] To gain the approvals, Barrick agreed to abide by four hundred environmental conditions in the Chilean environmental impact assessment ("EIA").[8] These focused on addressing environmental concerns related to the Andean glaciers and Barrick's proposed management of water.[9] Barrick was required to implement dust control measures to prevent toxic dust from the mine site and access roads from drifting onto the glaciers to avoid poisoning the water supply.[10] One of these measures included wetting the paths of the mining trucks by permanent irrigation, which would limit the spread of particulates and toxic dust.[11] The approved design also required Barrick to implement a water management system that would divert any waters not impacted by the operations around the facility, and to capture, treat and reuse any water used to minimize environmental impact.[12] To this end, Barrick agreed to construct canals to control the Project's run-off and channel it to a treatment system.[13]

On May 7, 2009, Barrick announced that it would begin construction of the Project.[14] The press release highlighted a "[p]re-production construction estimate of $2.8-$3.0 billion"; that "[c]ommissioning [was] expected in late 2012 and production in early 2013"; and that "[f]ully compliant environmental management and monitoring plans [were] developed and being implemented."[15] The release described Pascua-Lama as "one of the lowest cost gold mines in the world."[16] It explained that "[t]he anticipated total cash costs are $20-$50 per ounce - which would make Pascua-Lama one of the lowest cost gold producing mines in the world."[17] The press release also contained extensive cautionary language that the Company's forward-looking statements, including the cost and schedule estimates, represented expectations and were subject to inherent risks and uncertainties.[18]

A. Cost and Schedule Estimates

In 2006 or 2007, Barrick received an Engineering, Procurement, and Construction Management ("EPCM") proposal to construct Pascua-Lama from the Bechtel Corporation (the "Bechtel Report").[19] The Bechtel Report detailed that project development would cost more than $5 billion and that it would take 4-5 years to complete.[20] Potter, the Senior Vice President of Technical Services and Capital Projects, did not accept this proposal and looked for other EPCM firms who would submit a lower proposal of costs.[21]

Barrick first reported in its May 7, 2009 Press Release and on a shareholder call the same day that the Project had a "pre-production construction estimate of $2.8-$3.0 billion" and that production was expected in early 2013.[22] Barrick confirmed these cost and schedule estimates on earnings calls on July 30, 2009, April 28, 2010, and October 28, 2010, and in its Form 6-K filed with the SEC on April 29, 2010.[23] On February 18, 2011, Barrick reported in its Form 6-K that "capital costs at Pascua Lama were expected to increase 10-20% to $3.3-$3.6 billion due to inflationary pressures, high labor costs, exchange rates, and increased commodity (steel) prices."[24] On July 28, 2011, Barrick announced an increase in the Project budget to $4.7-$5.0 billion.[25] Barrick included this figure in its July 29, 2011 Form 6-K, and indicated that production was on schedule for mid-2013.[26] On February 17, 2012, Barrick repeated the previously announced figure of $4.7-$5.0 billion. However, on July 26, 2012, Barrick announced that capital costs for the Project would increase fifty to sixty percent over the previous budget of $4.7-$5.0 billion, making the new estimate $7.5-$8.0 billion, and disclosed that initial gold production was not expected until mid-2014.[27] Barrick then announced in a November 1, 2012 earnings call that the estimate would be $8-$8.5 billion with first production in the second half of 2014.[28] Barrick confirmed this estimate and schedule in an earnings call on February 14, 2013, Form 6-Ks filed February 15, 2013 and March 26, 2013, and a Form 40-F filed on March 28, 2013.[29] However, on April 10, 2013, Barrick announced that construction work would be suspended on the Chilean side of Pascua-Lama while the company worked to address regulatory requirements, but stated that it was "too early to assess the impact, if any, on the overall capital budget and schedule of the project."[30] On June 28, 2013, Barrick announced that it would delay production until mid-2016 and that it expected to take an after-tax impairment charge[31] of $4.5-$5.5 billion.[32] Finally, on October 31, 2013, Barrick announced that it was indefinitely suspending construction at Pascua-Lama, except for activities required for environmental protection and regulatory compliance.[33]

During this period, there were a number of internal reports that suggested the cost estimate and production schedule were inaccurate. In mid-October 2010, a Project Plan Report "concluded that the current estimate of $2.8 billion capital budget was infeasible within the Company's allotted 36-month time frame" and that "the time line was at least 18 months too short."[34] In July 2011, Barrick engaged a third-party consulting firm to conduct a "high-level audit of the original (2009 Estimate) and forecasted estimate (June 2011)."[35] The T&T Report concluded that the original estimate complied with typical Class III Barrick standards, but that the forecast estimate required some adjustments.[36] Also in July 2011, Barrick undertook a high level review of risk exposure, and concluded in the Risk Exposure Report that internal controls at Pascua-Lama suffered from "[i]naccurate reporting of deliverables/failure to adequately monitor progress" and had "[n]o formal system in place for scope/change management."[37] Monthly progress reports in July and September 2011 and January 2012 identified Project concerns and internal control deficiencies, including "[s]ignificant inaccuracies, omissions and inconsistencies in monthly reports"; "[c]ost [m]anagement [p]rocess weaknesses and inaccurate reporting"; and "[r]isk [m]anagement [p]rocess weaknesses contributing to inaccurate reporting."[38]

B. Environmental Compliance

In April 2010, the Pascua-Lama Project Manager (the "Project Manager") began oversight of construction and infrastructure within the Pascua-Lama Project.[39] He met with Chief Operating Officer Kinver and told him that he needed additional funds to maintain compliance with environmental requirements and the schedule, but was told to make do with the existing budget.[40] However, at the time the Project Manager began managing the Project, it was not environmentally compliant.[41] The Project did not have enough water to comply with the requirement to keep the roads near the mine wet to prevent toxic dust from being blown onto nearby glaciers.[42] The Project Manager found a compound that could be used instead of water, but Barrick determined that it was too expensive and refused to purchase it.[43]

In January 2010, Barrick was sanctioned for its failure to implement 2012 Monthly Report, Ex. 29 to Greenfield Decl., at 3-4. measures intended to reduce particulate matter emissions.[44] A report in May 2011 from regulators stated that "dust [was] falling on top of the glaciers."[45] Although Barrick had agreed to build canals near the mine to remove runoff water, Barrick changed the plans to build these canals to cut costs by thirty-five percent without prior governmental approval.[46] The Operations Manager at Pascua-Lama drafted three reports explaining his concerns and how the changes to the canals would hurt Barrick in the long run, and presented these reports to Barrick's South American Operations Manager.[47] However, Barrick made the changes, which resulted in environmental problems that were severe enough to cause Barrick to inform the Chilean government.[48] This eventually led to an injunction suspending work on the Project.[49] Internal reports throughout the period identified other issues with environmental compliance.[50]

Despite this, Barrick made numerous statements regarding its environmental compliance. In Barrick's October 28, 2010 earnings conference call, Regent, Barrick's Chief Executive Officer, stated that "the Pascua-Lama project... [is] not impacting the glaciers surrounding our operations" and that "we're in compliance with our permits and we're in compliance with the provincial legislation."[51] Barrick also repeatedly stated in its Forms 6-K and other filings that Pascau-Lama had been "undertaken pursuant to existing environmental approvals" and that "[w]e have a comprehensive range of measures in place to protect [sensitive environmental] areas and resources."[52]

C. Disclosures

On June 6, 2012, Barrick announced the termination of CEO Regent, and his replacement by then-CFO Sokalsky.[53] Media reports proposed that one explanation for replacing Regent was "problems with the giant Pascua-Lama Project."[54] Barrick's stock declined approximately 3.8% on heavy trading volume.[55] On July 26, 2012, Barrick disclosed that capital costs would increase by fifty to sixty percent, and production would be delayed until mid-2014.[56] Sokalsky stated that "overall project management structure had let us down."[57] Barrick's stock dropped 3.2% and media and analyst reports described the news as "outrageous" and indicative of a "lack of controls."[58] Other analysts linked the disclosed problems with Pascua-Lama to Regent's termination.[59] On November 1, 2012, Barrick again disclosed substantial increases in capital costs.[60] In response, Barrick's stock declined 9.4%.[61] On April 1, 2013, the media reported that an Appeals Court in Chile had issued an order halting construction work on Pascua-Lama and that Barrick could be fined millions as a result of failing to comply with environmental rules.[62] Barrick issued a press release stating that it was suspending construction work on the Chilean side while working to address environmental requirements.[63] Barrick's stock declined approximately 8.4%.[64] On May 24, 2013, the media reported that Chile's Environmental Superintendent had issued a resolution suspending Pascua-Lama for non-compliance with environmental permits, that it had imposed the maximum penalty possible under Chilean law, and that Barrick had admitted to twenty-two of twenty-three environmental violations.[65] Barrick's stock fell two percent, even though the Company halted trading for approximately three hours during the day.[66] On June 28, 2013, Barrick disclosed that it would take an impairment charge of $4.5 to $5.5 billion, almost its entire investment in the project, and that production would be delayed up to a year and a half.[67] Barrick's stock dropped approximately 3.1%.[68] On October 31, 2013, Barrick announced that it had suspended the Project indefinitely and its stock dropped approximately 5.4%. The next day, Barrick announced a three billion dollar equity offering in order to pay down debt and for other corporate purposes, including "capital expenditures relating to Barrick's existing portfolio of mines."[69] An analyst report attributed this need to raise capital to cost overruns and stated that "delays with Pascua Lama have left Barrick with less cashflow to service its debt."[70] Barrick's stock dropped approximately 7.1%.[71]


A. Rule 12(b)(6) Motion to Dismiss

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the court must "accept[] all factual allegations in the complaint as true and draw[] all reasonable inferences in the plaintiff's favor."[72] The court may consider "the complaint, [] any documents attached thereto or incorporated by reference and documents upon which the complaint relies heavily, "[73] as well as "legally required public disclosure documents filed with the SEC[]...."[74]

The court evaluates the sufficiency of the complaint under the "twopronged approach" suggested by the Supreme Court in Ashcroft v. Iqbal. [75] Under the first prong, a court may "begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth."[76] For example, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."[77] Under the second prong of Iqbal, "[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief."[78] A claim is plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."[79] "The plausibility standard is not akin to a probability requirement" because it requires "more than a sheer possibility that a defendant has acted unlawfully."[80]

B. Heightened Pleading Standard Under Rule 9(b) and the Private Securities Litigation Reform Act ("PSLRA")

Private securities fraud claims are subject to a heightened pleading standard. First, Rule 9(b) requires plaintiffs to allege the circumstances constituting fraud with particularity. However, "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally."[81]

Second, the PSLRA provides that, in actions alleging securities fraud, "the complaint shall, with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind."[82]

C. Leave to Amend

Whether to permit a plaintiff to amend its complaint is a matter committed to a court's "sound discretion."[83] Federal Rule of Civil Procedure 15(a) provides that leave to amend a complaint "shall be freely given when justice so requires."[84] "When a motion to dismiss is granted, the usual practice is to grant leave to amend the complaint."[85] In particular, it is the usual practice to grant at least one chance to plead fraud with greater specificity when a complaint is ...

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