Barrick Gold Corp. should be forced to answer for its role in the Bre-X Minerals Ltd. fraud because it failed to warn investors of the "bombshell results" when it tested 135 core samples and 130 showed no gold, says a filing in a Texas-based class action lawsuit.
Barrick has asked it be dropped from the huge suit because it was conducting limited due diligence on Bre-X's Indonesian property and had no direct duty to the Calgary junior's investors.
It has also said it was bound by confidentiality agreements.
But lawyers behind the class action argue Toronto-based Barrick made statements aimed directly at Bre-X shareholders when it promised to be "fair" in any partnership deal to develop the Busang deposit -- and that changes everything.
"Once Barrick began to disseminate such statements, which targeted Bre-X shareholders, it assumed an important duty: to make full and complete disclosure," says the filing in Texarkana, Tex.
"In concealing the most crucial piece of information in Barrick's, or anyone's, possession -- namely that independent testing had indicated there could be no gold at Busang -- Barrick violated its duty to make full disclosure."
The 34-page filing, in opposition to Barrick's motion to dismiss, says Barrick went even further by continuing to talk publicly about its plans to acquire the junior explorer.
"These statements were calculated to leave investors with the false impression that Barrick had confirmed Bre-X's representations regarding the size of the gold deposit at Busang."
Class action lawyers also claim Barrick had an ally in former executive Daniel McConvey, who had joined Lehman Bros. Inc. as a gold analyst and became "a bell cow for Bre-X stock."
Their filing says Barrick told Lehman about the dud test results, then turned a blind eye as the New York investment bank made statements saying Barrick had "done its homework" and was "perfectly positioned" to acquire Bre-X.
Barrick, one of the world's biggest gold producers, argues in its bid to have the allegations thrown out it makes no sense to say it knew about the salting scam and ignored it, because the deception was destined to be uncovered and the company would only be embarrassed by its involvement.
"Barrick will be vigorously putting forth its case in court to dismiss these frivolous claims," spokesman Vince Borg said yesterday.
It has maintained that its testing of Busang core was "inconclusive."
Barrick has declined to elaborate, citing the confidentiality agreement, but a report on the fraud by Strathcona Mineral Services Ltd. said three months after the dud results, Barrick obtained and tested 53 salted core samples that all showed gold.
Barrick also said in court documents it was prepared to commit billions to develop the remote Indonesian property, which would have been financial folly had it been aware of the fraud.
