Claims of Chilean gold fall flat with regulator
BCSC finds Mountainstar disclosures false, misleading
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.