Thursday, May 03, 2018

Arguments about gold vein refrain mainly remain in vain

By Rodney F. Tonkovic, J.D.

A Second Circuit panel has affirmed that a gold mining company was not misleading investors when it repeatedly expressed confidence in a glowing estimate of how much gold a project could produce. In a ruling by summary order, the panel concluded that none of the three sets of statements at issue constituted a material misstatement or omission (Martin v. Quartermain, May 1, 2018, per curiam).

Pretium Resources, Inc. bought a gold mine in 2010 and retained several independent experts to help develop the project. A few years later, Pretium made public a report by one of these consultants estimating how much gold the project could produce and noted at the same time that it would start a sampling program, overseen by Strathcona Mineral Services Ltd., to confirm the estimate. Pretium also said that it would issue results as they were received and that Strathcona would report on the overall program at its conclusion.

Cleopatra vein. Over late summer 2013, Pretium issued a series of filings and press releases reporting favorable results from the sampling program and expressing faith in the estimate. The company was especially pleased with the discovery of what it called the "Cleopatra Vein," a narrow but high-grade deposit. Subsequent releases showed a shift toward the Cleopatra Vein but expressed continued confidence that there were "high-grade gold mineralized domains" in the project.

An October 2013 press release, however, announced that Strathcona had resigned before completing the sampling program and without issuing its report. Two weeks later, Pretium disclosed that Strathcona believed that Pretium's previous statements about the viability of the estimate were "erroneous and misleading." Pretium's stock price dropped and this action was filed. The district court held that the complaint failed to plead falsity and scienter.

Not shining them on. The investors, in essence, claimed that Pretium made materially false and misleading statements about the sampling program that artificially inflated the value of its stock. The panel disagreed, concluding that none of the three sets of statements at issue constituted a material misstatement or omission.

The complaint first alleged that Pretium had expressed continued faith in the estimate without revealing Strathcona's opinion that the sampling program would not bear out those projections. Pretium's statements were opinions, the court said, not facts. Continuing, the court explained that the allegations suggested that Pretium, despite Strathcona's contrary opinion, believed that the estimates would prove accurate. Further, Pretium stressed all along that its views were its own, preliminary, and subject to a forthcoming independent audit. The company was not required to disclose Strathcona's preliminary opinion when Strathcona had left before completing the report it was hired to issue.

Next, the complaint asserted that Pretium had skewed the sample program to highlight the unrepresentative Cleopatra Vein. Pretium's disclosures, however, made it clear that the Cleopatra Vein was atypical, the court said, and made no secret of the fact that Pretium planned to increase the portion of the sample drawn from the vein. The press releases also discussed the vein separately from the other samples and provided specific information about its location and dimensions.

Finally, the complaint alleged that Pretium defrauded investors by stating that it was planning, with Strathcona, to increase the portion of the sample drawn from the Cleopatra Vein when, in fact, Strathcona objected to skewing the sampling program. Here, Pretium's announcement made it clear that the sampling program would be skewed toward the Cleopatra Vein. If Strathcona felt that this would skew the program, disclosing that would merely duplicate, rather than significantly alter, the information available to the investors.

The case is No. 17-2135.