The following is excerpts from court documents filed by Labaton Sucharow LLP on August 2, 2013 in
the U.S. District Court for the Southern District of New York. These documents were related to a class action lawsuit filed on behalf of persons or entities who purchased the
publicly-traded common stock of Barrick Gold Corporation on the New York Stock Exchange between May 7, 2009 and May 23, 2013.
The excerpts focus on information related to the testimony of former employees of Barrick Gold acting as confidential witnesses (CW1 - CW5) in the case.
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Glossary of Abbreviations
CW1: a former manager at the Pascua-Lama Project.
CW2: a former operations manager at the Pascua-Lama Project.
CW3: a former Barrick employee who took part in the Company's finacial reporting process during the latter part of the Class Period
CW4: a labor relations employee at the Pascua-Lama Project during the years 2010 and 2011.
EPCM: an estimate of development costs that Barrick sought in 2006 or 2007 from a prominent engineering, procurement, and construction management firm.
RCA: environmental review process conditions No24/ February 2006).
ORP: monthly report sent to Barrick's Toronto offices titled the Operational Readiness Plan
CW1 stated that as early as 2010 the Project was not in compliance with critical environmental requirements relating to glaciers. The same former employee related that, at the same time that the Company was informing investors that the Project's cost would be between $2.8 and $3 billion, Barrick already had in its possession an engineering report estimating costs for the Project at nearly twice that figure.
In 2010, CW1 learned that Barrick first sought an estimate of development costs in 2006 or 2007 from a prominent engineering, procurement, and construction management firm (the EPCM report), which concluded that developing the Pascua-Lama project would cost more than $5 billion. CW1 understood that the EPCM had been read by certain Project and construction directors at Barrick, and related that the EPCM report was known of and still discussed by the Company's staff between 2010 and 2011, but the company did not reveal these costs to the public.
CW2, a former operations manager at the Pascua-Lama Project for much of the Class Period, corroborated CW1's
assertions regarding the EPCM Report. According to CW2, the EPCM Report and its contents were known to senior Project directors and senior Company managers, including Potter, the Company's Senior Vice President for Capital Projects. CW2 further stated that he attended meetings in Chile with other managers and Ron Kettles, the Project Director at the time. After the meetings CW2 and other managers discussed the Project's cost projections and concurred that there was no way the Pascua-Lama Project could be completed for $3 billion.
In October 2011, according to CW1, Barrick's operations at the Pascua-Lama Project were not in compliance with environmental requirements, including the requirement to keep roads wet to prevent dust from mining operations from settling on near-by glaciers.
On Feb 18, 2011, Barrick indicated that the Pascua-Lama Project could exceed the initial cost estimate of $2.8 to $3 billion. However, CW1 indicated that at that time, estimates of the cost of operations at the Pascua-Lama Project for the remaining nine month of 2011 alone exceeded $1.05 billion - more than 30 percent of the publicly acknowledged cost estimate for the entire Project - and that the Project Director knew of these estimates. Additionally, CW1 stated that as late as March 2011, construction at the Pascua-Lama site had in fact only just begun.
According to CW2, reports detailing problems at the Pascua-Lama Project were prepared each month, and all information regarding the Project was forwarded to the Company's offices in Toronto. Among these reports was a monthly report titled the Operational Readiness Plan ("ORP"). Additionally, CW2 stated that operations staff at the Pascua-Lama Project communicated with staff in Barrick's Toronto office frequently by telephone, leading CW2 to conclude that Barrick's Toronto personnel were "completely aware of what was happening at Pascua Lama."
CW3, a former Barrick employee who took part in the Company's finacial reporting process during the latter part of the Class Period, reported that Defendants held monthly financial meeting at the Company's offices in Toronto, Canada, at which detailed information was discussed with respect to each operating mine and project, such as the Pascua-Lama Project. These monthly financial reviews on occasion led to calls to regional reporting units for clarification of unusual or unexpected expense items, sometimes to the level of identifying specific equipment that needed replacement as a source of cost overruns. Similar project-level financial information and reports were circulated to the Company's capital projects team.
According to CW4, a labor relations employee at the Pascua-Lama Project during the years 2010 and 2011, by the end of 2011 the Company's management was well aware of numerous environmental violations at the Project related to the construction of a canal that was part of the Project's water management system. In connection with Barrick's responsibility to monitor and report on water quality, the canal included pH meters to detect contamination of the water. However, according to CW4, Project managers were attempting to rush Project construction, which led to water in the canal often being contaminated. CW4 further stated that senior Company managers held meeting during which employees were instructed not to bring cameras to work sites, not to speak to media representatives, and not to speak to government officials -- especially environmental regulators -- because the Chilean officials could shut the Pascua-Lama Project down were they to learn of the environmental problems.
CW2 noted that many of the Company's environmental problems arose from unapproved changes to the original, approved plans relating to water channels -- changes Barrick had made in an attempt to reduce Project costs. CW2 stated that these changes were in place by the end of the first quarter of 2011, and that they were implemented without any notice to Chilean regulators. CW2 further asserted that by the end of 2011, Project managers including Igor Gonzalez (then Barrick's President of the South America region; currently the Company's Chief Operating Officer) were aware of at least three ORPs that described how these changes presented material problems and risks for the Project and the Company over the life of the Project.
CW5 is a former supply chain manager who was employed by Barrick at the Pascua-Lama Project during 2010 and 2011. According to CW5, in 2010 or 2011 the Company discovered that costs for the Project were bring[sic] manipulated after conducting it own internal investigation into the costs and progress of the Pascua-Lama Project. Based on the results of that investigation, the Company removed xxxx and his team.
According to CW2, even the self-reporting by Barrick that did take place only began after the summer thaw in 2011, once the problems with the secretly modified and poorly constructed water treatment canals had become so severe that the Company had no alternative but to inform the Chilean government.
According to CW2, reports detailing costs, progress, and problems at Pascua-Lama such as the monthly ORP were prepared regularly by Project personnel, and all information regarding the Project was sent to the Company's Toronto offices. Additionally, operations staff at Pascua Lama communicated with Toronto frequently by telephone, leading CW2 to conclude that Barrick's Toronto personnel were "completely aware of what was happening at Pascua Lama."
As described by CW3, Barrick's managers held monthly meetings in Toronto, Canada, during which detailed mine - and project-level financial reports were discussed for operations such as the Pascua-Lama Project. As a result, the Individual Defendants had access to a regular stream of information detailing the costs, timeline, and regulatory compliance of Pascua-Lama.
According to CW1, at least as early as 2008 the Company was in possession of the EPCM Report. According to CW1 and CW2, the EPCM Report projected a cost estimate of more than $5 billion for the development of the Pascua-Lama Project. According to CW2, multiple managers at the Project concurred that the Company's initially asserted cost projection of $3 billion was not possible."
According to CW1, "senior Company management who visited the Project site were directly informed of the environmental compliance failures and chose repeatedly to turn down requests by Project-site personnel for additional funding."
According to CW4, Barrick explicitly prohibited Project engineers and construction employees from bringing cameras to work sites and interaction with media and government workers, in order to conceal environmental infractions from regulators. The Company specifically noted that the then-known environmental violations were sufficient for Chilean authorities to halt operations at the Pascua-Lama Project.
According to CW2, Barrick was "unilaterally modifying the regulator-approved Project plans without notifying environmental authorities."
According to CW2 and CW4, "by the end of 2011 Project managers -- including at least one senior company executive -- were aware of at least two internal reports describing ongoing environmental compliance problems due to the company's choices to cut costs rather than comply with the terms of the environmental approvals upon which the entire Pascua-Lama Project relied."
CW1 "as a direct consequence of Defendants' refusal to provide funding for adequate water or dust suppressants over a period of more than a year -- operations at Pascua-Lama were continually being assessed fines for drawing excessive water from local waterways in knowing violation of their environmental agreements. CWI1 concluded that, regarding water use and dust suppression, "Barrick wasn't compliant from day one."