Claims of Chilean gold fall flat with reg­u­la­tor

BCSC finds Moun­tain­star dis­clo­sures false, mis­lead­ing

Stockwatch Daily - - FRONT PAGE - by Mike Caswell

THE B.C. Se­cu­ri­ties Com­mis­sion has de­ter­mined that Moun­tain­star Gold Inc. and its pres­i­dent, Brent Hugo John­son, mis­led in­vestors be­tween 2012 and 2015 with claims re­lated to Bar­rick Gold Corp.’s Pas­cua Lama project in Chile. Moun­tain­star said that it had a process un­der way in Chile to ob­tain part of the project, but it failed to fully dis­close sev­eral court losses, the BCSC has found. The dis­clo­sure fail­ures came as the

com­pany paid $4.6-mil­lion (U.S.) to a Chilean man as part of an agree­ment for the project.

The find­ings are con­tained in a de­ci­sion that the BCSC re­leased on Fri­day, Oct. 12. They come af­ter a hear­ing that the reg­u­la­tor held in Jan­uary, Fe­bru­ary and March, 2018, be­fore a three-mem­ber panel. Mr. John­son at­tended the hear­ing on be­half of him­self and Moun­tain­star. (He re­quested an ad­journ­ment at one point to ob­tain a lawyer, but the panel turned him down af­ter he was un­able to show how he would pay for one. The panel mem­bers also noted that they had re­ceived ex­ten­sive writ­ten sub­mis­sions from Moun­tain­star’s cor­po­rate lawyer.)

The case cen­tred around claims that Moun­tain­star re­peat­edly made with re­spect to some of the ground un­der­ly­ing Pas­cua Lama, at the time a multi-bil­lion-dollar project that Bar­rick was de­vel­op­ing in Chile. Moun­tain­star said that it had an agree­ment with a man in Chile named Jorge Lope­han­dia (who the BCSC mostly refers to as “L” in its de­ci­sion). Moun­tain­star claimed that Mr. Lope­han­dia had granted the com­pany an op­tion to ac­quire a group of claims that cov­ered some of the same ground as Pas­cua Lama. Mr. Lope­han­dia was un­der­tak­ing le­gal ac­tion in Chile to ob­tain the ground and was seek­ing to have Bar­rick’s claims can­celled. Moun­tain­star ul­ti­mately paid $4.6-mil­lion (U.S.) to Mr. Lope­han­dia un­der the op­tion agree­ment. The deal rep­re­sented the com­pany’s pri­mary as­set.

The prob­lems, as set out by the panel, had to do with the lit­i­ga­tion that Mr. Lope­han­dia was un­der­tak­ing in Chile with re­spect to the prop­erty. Af­ter an early vic­tory, the courts in Chile found against him many times. De­spite the losses, Moun­tain­star stated in its reg­u­la­tory fil­ings that it was in the process of ob­tain­ing the ground, the de­ci­sion states. The com­pany made this claim over a three-year pe­riod “dur­ing which L’s and his brother’s claims were re­peat­edly dis­missed by Chilean courts at ev­ery level,” the de­ci­sion states. The com­pany’s state­ments were false or mis­lead­ing, or they omit­ted nec­es­sary in­for­ma­tion, the panel de­ter­mined.

Dur­ing the hear­ing, the BCSC brought in an ex­pert on Chilean min­ing law to ex­am­ine Mr. Lope­han­dia’s le­gal ef­forts in the coun­try. The ex­pert (only iden­ti­fied as “O”) had prac­tised law in Chile for 20 years and had given ex­pert ev­i­dence on Chile’s le­gal sys­tem in many coun­tries. He pro­vided an af­fi­davit about Mr. Lope­han­dia’s at­tempts at ob­tain­ing ti­tle to the ground. Ac­cord­ing to that af­fi­davit, Mr. Lope­han­dia had filed a court case in Chile seek­ing the can­cel­la­tion of Bar­rick’s claims in July, 2012. The courts at ev­ery level dis­missed the case. The mat­ter went all the way to the Supreme Court of Chile, which re­jected Mr. Lope­han­dia on Jan. 30, 2015. The Supreme Court also dis­missed a sim­i­lar case that Mr. Lope­han­dia’s brother had brought.

(Mr. John son raised t he ques­tion of the suit­abil­ity of the ex­pert, say­ing that the ex­pert was not im­par­tial. Mr. John­son claimed that the ex­pert had a link to Bar­rick, his law firm hav­ing worked for a com­pany that was in a joint ven­ture con­nected to Bar­rick. The panel re­jected Mr. John­son’s ar­gu­ment, not­ing that the wit­ness was not aware of any such link and that Mr. John­son did not present any sup­port­ing evi-


Mr. Lope­han­dia had other pro­ceed­ings un­der way in Chile as well, but these met with no more suc­cess. On Oct. 2, 2014, the Supreme Court of Chile dis­missed six re­lated cases and, two weeks later, re­jected a re­quest to re­con­sider the mat­ter. De­spite these set­backs, Moun­tain­star’s fil­ings sim­ply stated that the project was “the sub­ject of lit­i­ga­tion” and that the prop­erty rights were “not de­ter­minable at this time ... . ” The panel de­ter­mined that this was far from ad­e­quate dis­clo­sure of the sit­u­a­tion. Even if there were ef­forts to pur­sue the mat­ter fur­ther, the com­pany failed to prop­erly set out the state of af­fairs, the BCSC found.

The panel fur­ther re­jected Mr. John­son’s claim that he was sim­ply re­ly­ing on events as com­mu­ni­cated to him by Mr. Lope­handi a’s Chil ean lawyer. Ac­cord­ing to the de­ci­sion, Mr. John­son did not ob­tain in­de­pen­dent le­gal ad­vice. He also failed to ap­pre­ci­ate that Mr. Lope­han­dia’s lawyer was in a con­flict of in­ter­est as he was op­er­at­ing at Mr. Lope­han­dia’s di­rec­tion, the de­ci­sion states.

One item of con­tro­versy dur­ing the hear­ing that was never en­tirely re­solved was the mat­ter of a pur­ported 2017 de­ci­sion of the Supreme

Court of Chile. Mr. John­son and Moun­tain­star claimed that the de­ci­sion was a key to their case. BCSC en­force­ment staff said that they had never seen a copy of it, and they ques­tioned if it even ex­isted. The panel says that Mr. John­son had many op­por­tu­ni­ties to present the de­ci­sion, but did not do so. Fri­day’s de­ci­sion is only on li­a­bil­ity, and does not ad­dress the mat­ter of penal­ties for Moun­tain­star and Mr. John­son. The reg­u­la­tor will not make that de­ter­mi­na­tion un­til af­ter both sides have made writ­ten sub­mis­sions. The de­ci­sion is not the fi­nal word on li­a­bil­ity, as Mr. John­son and Moun­tain­star could still take the case to the Court of Ap­peal for Bri­tish Columbia. Moun­tain­star no longer trades, the Cana­dian Se­cu­ri­ties Ex­change hav­ing delisted the stock on Sept. 22, 2016. The stock traded as high as $1 in 2010, but was hov­er­ing around 10 cents be­fore it stopped trad­ing.

As for Pas­cua Lama, it met with many con­tro­ver­sies un­re­lated to Moun­tain­star. The Chilean govern­ment did not ap­prove a mine for the site af­ter con­sid­er­able po­lit­i­cal op­po­si­tion, mostly from en­vi­ron­men­tal groups. Chile’s en­vi­ron­men­tal court has since or­dered Bar­rick to def­i­nitely close the site. Bar­rick pre­vi­ously sus­pended work and recorded a $5.1-bil­lion (U.S.) im­pair­ment charge.


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