Transactions & Cases Detail



Transaction/Case Details

Ontario Commercial List Court dismisses all claims brought against Xstrata Copper by Barrick Gold

DATE CLOSED

June 26, 2012

BUSINESS SECTOR

Mining & Metals

LEAD OFFICE

Toronto

VALUE

750 Million CAD


OVERVIEW

In January, 2010, Barrick Gold Corporation brought a claim against Xstrata Copper for approximately C$750 million in damages. The claim arose out of the alleged breach of a conditional agreement for the sale by Xstrata to Barrick of a 70% interest in the Chilean copper/gold project known as El Morro. Barrick also brought claims against Xstrata’s former partner in the project, New Gold Inc., and against Goldcorp Inc. 
 
The dispute arose after Xstrata had sold its 70% interest in the El Morro project to Barrick for C$463 million, conditional upon non-exercise of New Gold’s right of first refusal under the Xstrata/New Gold shareholders agreement. Barrick pursued follow-on negotiations with New Gold to acquire the remaining 30% interest but failed to arrive at acceptable terms. At the same time that the Barrick/New Gold discussions were reaching an impasse, Goldcorp became interested in the property. With the assistance of BMO investment bankers, Goldcorp and New Gold conceived an arrangement whereby New Gold would exercise the right of first refusal and immediately on-sell the 70% interest so acquired to Goldcorp. Goldcorp would advance the C$463 million for use in New Gold’s exercise of the right of first refusal price, and pay an additional C$50 million to New Gold when New Gold conveyed the 70% interest to Goldcorp.  As well, Goldcorp committed to a commercial production date for the project and improved financing obligations for New Gold under the shareholders agreement in which Goldcorp would ultimately be taking Xstrata’s former place.
 
The right of first refusal was exercised and the Goldcorp/New Gold agreement publicly disclosed in early January, 2010.
Barrick immediately placed all parties on notice that it viewed the transaction as an illegal use of the right of first refusal under Chilean law, which governed the shareholders and the sale agreement.  Before the serial transactions were closed, Barrick brought claims against all parties.  Xstrata rejected Barrick's claims and closed with New Gold, which then closed the same day with Goldcorp, leaving Goldcorp and New Gold as 70/30% owners.
 
Barrick's claims combined allegations of conspiracy, bad faith peformance, inducing breach of contract, restitution and unjust enrichment.  The relief sought against Goldcorp was for the return of the 70% interest via orders of specific performance against both Xstrata and Goldcorp (the latter as the current holder of the disputed interest). The alternative claim against Xstrata was for damages for breach of contract in the amount of approximately C$750 million, with copper and gold prices having increased substantially since the original sale price of C$463 million had been negotiated in the midst of the first round of the global financial crisis.
 
All defendants replied that the exercise of the right of first refusal was fully in accordance with the governing Chilean law, on the strength of three Chilean lawyers' expert testimony.  They denied any conspiracy or bad faith, and maintained that each had acted in accordance with their various contractual and legal obligations, and otherwise in proper pursuit of their legitimate commercial interests.
 
On June 26, 2012, some months after the close of a 35-day trial, the Hon. Justice Wilton-Siegel of  Ontario’s Commercial List Court dismissed all of Barrick’s claims.  The Court accepted Xstrata’s arguments, holding that Xstrata had not breached its sale contract with Barrick. New Gold’s exercise of its right of first refusal after having pre-arranged the immediate onsale to Goldcorp was proper and valid.  The Court dismissed Barrick’s allegations that Xstrata had acted in bad faith in honouring New Gold’s right of first refusal. Further, the Court held that even if Barrick had been entitled to a remedy, the appropriate relief would have been a transfer of the 70% interest from Goldcorp back to Barrick via Xstrata, rather than any damages being paid by Xstrata.
 
As the appeal period was about to expire, Barrick announced publicly that it was not going to appeal.  All that remains to be adjudicated is the defence claim for legal costs, expected to run to many millions of dollars.

McCarthy Tétrault LLP represented Xstrata Copper, the defendant, with a team led by David Hamer.

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