OURAY – Local gold miners Ken Orvis and Lance Barker have been acquitted in a “gold salting” case, according to their attorney Roger Sagal of the Tisdel Law Firm in Ouray.
For five years from 2001 to 2006, Orvis and Barker and their company Au Mining delivered ore from their Golden Wonder Mine outside Lake City to industry giant Barrick Goldstrike Mines in Carlin, Nev., for milling. Barrick is a Canadian firm, which claims to be the biggest gold producing company in the world.
All seemed to be going well until, Sagal says, “Barrick cryptically invited us to a meeting on another topic in Salt Lake City in April 2007 and served us with a lawsuit.” Barrick claimed that Orvis and Barker “artificially inflated” the gold content, and therefore the value per ton of their ore, by adding man-made “microcrystalline gold” to assay samples. Barrick sought damages of more than $22 million.
In order for Barrick to determine the value of Au’s (or any third-party supplier’s) shipments they shovel samples of the delivered ore into five-gallon buckets which are then graded by Barrick’s assay laboratory. Multiply the gold content in the buckets by the tonnage delivered, and you have the value owed to Orvis and Barker.
At the July trial in Gunnison, Barrick relied on the testimony of a Dr. R.J. Watling, a professor of forensic science at the University of Western Australia. Dr. Watling claimed that, using a scanning electron microscope, he had discovered “microcrystalline gold” in the Au samples, gold that “did not exist in nature.” It therefore had to be man-made, and further had to have been surreptitiously added to the samples.
Barrick bolstered its case by pointing out that Orvis and Barker had themselves done the shoveling of the ore into the five-gallon buckets, something the defendants did not contest.
“Salting” is not new. Unscrupulous miners have forever concocted ways to up the gold content of their raw ores. One way was to fire shotgun blasts loaded with gold pellets into the walls of their mines. The most infamous salting case of all time happened in Indonesia in the 1990s, and it involved Barrick.
Another Canadian company called Bre-X claimed to have discovered a huge gold deposit at Busang on the island of Borneo. Core samples showed fantastic promise. Bre-X’s stock soared. The Indonesian government of president Suharto got involved as did industry players, like Barrick. The strike was deemed too big for Bre-X to handle alone.
More core samples came out of the ground, and by 1997 the deposit was estimated to contain 70 million ounces of gold. Bre-X’s value on the Canadian stock exchange grew to approximately US$6 billion.
But the fraud quickly unraveled when the project manager for Bre-X, a Filipino geologist, jumped to his death from a helicopter. And soon thereafter due-diligence core samples showed “insignificant amounts of gold.” The Busang samples had been salted, in one case with gold that had been shaved off of gold jewelry. Investors lost billions. Barrick suffered a major embarrassment. And the Canadian stock exchanges were forced into a tumultuous self-examination that is still being felt today.
In Gunnison, Sagal’s defense of Orvis and Barker centered around the testimony of Paul Spry, a geology professor from Iowa State University, who testified that the alleged man-made gold in the samples did exist naturally in telluride ore deposits, and that it “precipitated from boiling solution during volcanic mineral deposition events.” He even showed the jury that “microcrystalline” gold existed in the sample Barrick took directly from the Golden Wonder Mine after the litigation commenced.
“The jury obviously believed our guy,” Sagal said.
As for the “opportunity” argument – the fact that Orvis and Barker shoveled their own ore into the assay buckets – Sagal had an answer for that, too. Barrick was understaffed; some of its own employees admitted as much. In fact, they testified that they had asked the defendants to help with the bucket-filling.
Sagal also uncovered internal Barrick emails that stated (damningly) “logistically Goldstrike doesn’t have the people or the equipment in place to perform an accurate Met accounting on high grade materials.”
Why were two small-scale miners accused of fraud by the world’s biggest gold-mining company? Sagal doesn’t know for sure. But he thinks it may have to do with problems inside the company regarding its “toll ore”(third-party vendors like Au) program, including a whistle-blower incident and a subsequent cover-up by management.
“It was definitely a unique case,” Sagal said. “I’ve been basically consumed with this case for the last three years.”
Neither Orvis or Barker could be reached for this story.
If Barrick can't even manage to properly account for the head grade in intermittent small ore shipments from one little tiny mine, how can it assert that it is using proper sampling techniques and obtaining accurate assay results for all the ore from its various Joint Ventures all over Nevada and other places where it is the Operator, with sole responsibility for proper accounting?
Thus: How can anybody with a royalty or JV interest be sure that they are getting their correct royalties or percentages of the net revenue?
Seems like lots of other people may be looking at the transcripts of the testimony in this case once word gets out!