Two of the world's largest gold miners are set to face off in a Toronto courtroom Monday in a battle for control over a promising copper-gold project in northern Chile.
Toronto-based Barrick Gold Corp., the world's largest gold producer, is fighting Goldcorp Inc. after the Vancouver company scooped up a majority stake in the El Morro development, one of the largest known copper and gold deposits in South America.
Barrick alleges Goldcorp's deal to buy Swiss miner Xstrata PLC's 70-per-cent stake in El Morro was done illegally and is suing both parties, along with New Gold Inc., which has a 30-per-cent stake in the project.
Barrick launched the legal action 17 months ago, and the lengthy trial is set to begin in Ontario Superior Court after months of discussions failed to result in a settlement.
The fight over El Morro is the latest example of how desperate miners are to secure what's left of the world's diminishing reserves and resources. Gold and copper have hit record-high prices in recent months, each led by different factors. Gold is being driven by investors seeking a safe haven against the threat of rising inflation, while the price of copper is rising as a result of strong demand from rapidly industrializing nations, notably China.
Barrick's battle for El Morro comes alongside its battle to buy pure copper producer Equinox Minerals Ltd., a fight it quickly won after besting by $1-billion a hostile $6.3-billion bid by China's Minmetals Resources Ltd.
Barrick investors have rebelled against the Equinox play, driving down the stock 15 per cent since the bid was announced in late April. Their concern is that the proportion of Barrick's production that comes from copper – about 20 per cent once the deal closes – will be too high.
El Morro contains proven and probable reserves of about eight million ounces of gold and six billion pounds of copper, and is located in one of the world's most mining-friendly jurisdictions.
Barrick reached an agreement to buy the majority stake in El Morro for $465-million (U.S.) in late 2009 from Xstrata.
But New Gold had a right of first refusal on the stake, and exercised that right in an unusual way. It borrowed $463-million from Goldcorp to buy it, then flipped it to Goldcorp in exchange for an additional payment of $50-million. The deal closed in February, 2010.
Barrick alleges the deal breached the El Morro shareholders agreement and "is unlawful and improper." Goldcorp, Xstrata and New Gold each filed statements of defence last year denying Barrick's allegations.
Top executives at all four companies are expected to testify during the first phase of the trial expected to unfold over the next three weeks. The second-stage of the trial is set for October and will deal more with remedies Barrick is seeking, including regaining the project or significant financial compensation for what it sees as economic damages from the failure of its agreement.
El Morro is located about 80 kilometres east of the city of Vallenar, near Barrick's Pascua-Lama and Cerro Casale projects in Chile.
There are some strange wrinkles to the case, including that New Gold chairman Randall Oliphant was the CEO of Barrick from 1999 to 2003.
What's more, Barrick and Goldcorp are partners in operations such as the Marigold mine in Nevada as well the Pueblo Viejo development project in the Dominican Republic.
Both companies have been working together in recent weeks to address problems at Pueblo Viejo, after recent heavy rains damaged the tailings facility at the $3.5 billion project, due to begin production early next year.