On April 9, 2012, Awate.com (Gedab News) reported that a class action lawsuits have been filed against Nevsun Resources [i]
Below is a summary of a securities fraud class action lawsuit brought on behalf of those who purchased the common shares of Nevsun between March 28, 2011 and February 6, 2012 inclusive, against Nevsun Mining Company. The plaintiff, claims that Nevsun, in violation of the anti-fraud provisions of the Exchange Act knowingly, or at least recklessly, made materially false and misleading representations about Nevsun’s only revenue-producing property, the Bisha Mine, a purported gold and base metal mine in Eritrea.
Bisha mining company is jointly owned by Nevsun Mining (a Canadian company) and Eritrean mining company (owned by the Eritrean government).[ii]
In January 2013, Human Rights Watch issued an extensive report titled “Hear no Evil: Forced Labor and Corporate Responsibility in Eritrea’s Mining Sector.” The following is what came in the report:
Nevsun’s experiences show that by developing projects in Eritrea, mining firms are walking into a potential minefield of human rights problems. Most notably they risk getting entangled in the Eritrean government’s uniquely abusive program of indefinite forced labor—the inaptly-named national service program. Through this program the Eritrean government keeps an enormous number of Eritreans under perpetual government control as conscripts. Originally conceived as an 18-month program, the national service scheme now requires all able-bodied men and most women to serve indefinitely, often for years and with no end in sight, under harsh and abusive conditions. Those who try to flee risk imprisonment, torture, and even reprisals directed against their families.[iii]
There is ample evidence that Nevsun has long crossed the “risk of getting entangled in” the abusive slave labor program, the Bisha mine is operated by state owned subcontractors whose work force depends on forced labor. This is a breach of the Universal Declaration of Human Rights that Canada signed in 1948.
Eritrean workers do not have the right to organize and negotiate their working terms, but are forced to work without pay in gold mines and other construction projects. Ex-victims of slave-labor are scattered all over the world but are very reluctant to speak out fearing retaliation and persecution of their relatives by the Eritrean Government.
Since no one can fight for the rights of the victims better than the victims themselves, we encourage people who have been subjected to forced labor, and those who have concrete information of the matters related to such exploitations and violations, to come forward and present their testimonies either publicly or confidentially.
Testimonies can help hasten the pursuit of justice. Gross human rights violations, crimes and abuses, should not be issues that are listened to and forgotten, but pursued through legal avenues. The ordeal of Eritrean victims is crying for justice and resolution. Those whose labor was extracted forcefully should be able to go after the entities that collaborated with the enslavers.
We also call on Eritrean human rights activists, particularly those in Canada, and Eritrean lawyers, to cooperate in pursuing this issue.
Please contact us at the following address: firstname.lastname@example.org
[iii] HRW Report : http://www.hrw.org/reports/2013/01/15/hear-no-evil
Summary (To read the full copy click here)
1. This action is a securities fraud action brought under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder by the SEC, brought by Plaintiffs on behalf of a class of all persons and entities which purchased the common shares of Nevsun between March 28, 2011 and February 6, 2012 inclusive (the “Class Period”).
2. Defendants (as defined below) in violation of the anti-fraud provisions of the Exchange Act knowingly, or at least recklessly, made materially false and misleading representations about Nevsun’s only revenue-producing property, the Bisha Mine, a purported gold and base metal (copper and zinc) mine in Eritrea, a small country in the horn of Africa (the “Mine”, “Bisha”, or the “Bisha Mine”).
3. Throughout the Class Period, Defendants represented that the Bisha Mine had approximately 4.651 million tons of gold ore reserves and 919,000 ounces in the mine’s top layer (the Oxide zone), that Bisha was producing 1,000 ounces of gold per day, that Bisha’s gold ore reserves set it apart from competitor mines because Bisha’s gold ore reserves were high quality, abundant and easy to access. Bisha’s gold ore reserves and actual mining and production of gold at the Bisha Mine were material to investors.
4. The Bisha Mine’s gold ore reserves were also important to Nevsun’s partner in development of the Mine, the government of Eritrea. Through the Eritrean National Mining Company (“ENAMCO”), Eritrea owned 10% of the Mine, and at the beginning of the Class Period, was negotiating with Defendants to purchase an additional 30% interest. Bisha’s gold reserves would affect valuation of the Bisha Mine.
64. In December 2007, Nevsun announced that the Company had entered into an agreement with ENAMCO, under which ENAMCO owned 10% of the Mine and agreed to purchase an additional 30% interest at fair value that would be determined at the time of Bisha’s first gold shipment.
65. A mining license for the Bisha Mine was issued to Nevsun and the Bisha Mining Share Company in 2008 and construction of the Bisha Mine commenced in 2008.
66. On January 4, 2011, Nevsun issued a press release and disclosed its “successful first gold pour” at the Bisha Mine.
67. According to Defendant Trebilcock (in an April 14, 2011 presentation at the Denver Gold Group European Gold Forum), the Bisha Mine’s first gold shipment occurred on January 28, 2011 and triggered a 90-day valuation period for ENAMCO’s 30% stake.
68. On February 22, 2011, after a ramp up during January and February, 2011, Defendants caused Nevsun to begin commercial production at the Bisha Mine.
69. At the beginning of the Class Period, on March 28, 2011, represented gold reserves at the Bisha Mine increased by approximately 15%, to approximately 4.6 million tons of gold ore and the Bisha Mine contained approximately 1.14 million ounces of gold (throughout all zones), including 919,000 ounces of gold in the Oxide zone.
71. By the beginning of the Class Period, material negative trends were adversely affecting Bisha’s operations, and red flags had already appeared, that put Defendants on notice that Bisha’s reported gold ore reserves were materially overstated.
72. Unknown to investors by March 31, 2011, Bisha’s Strip Ratio was 4.9, approximately 81% over the 2011 Strip Ratio.
73. Also unknown to investors, Defendants caused operations at the Bisha Mine to mine through the Oxide zone materially faster than reported because there were significant pockets of worthless waste rock, instead of gold ore. The Bisha Mine’s waste rock was placed in waste dumps located to the east and south of the Mine pit.
74. This was material because acceleration of mining through the Oxide zone indicated that Bisha’s gold ore reserves would be exhausted sooner than reported, negatively affecting cash flows from gold sales and the Company’s valuation.
75. Defendants and Nevsun’s senior management at the Bisha Mine had access to the mining statistics and production reports through the Skire Unifier platform and, further, observed these negative trends based on routine reconciliations of actual production to the reported reserves and through the day to day observation of production.
76. Nevertheless, in the face of these material negative facts and red flags, Defendants represented that the Bisha Mine’s gold ore reserves were 4.651 million tons and that the Bisha Mine had 919,000 ounces of gold in the Oxide zone. In truth, at that time, Defendants knew or at least ignored with reckless disregard and failed to disclose that Bisha’s gold reserves were overstated by approximately 1.2-1.3 million tons, or by 35% (an overstatement of approximately 190,000 to 220,000 ounces of gold), Bisha’s Strip Ratio was materially higher than the 2011 Strip Ratio and was materially increasing, and Bisha’s production at the rate of 1,000 ounces per day was unsustainable. These material facts were not disclosed during the Class Period.
77. During April, May and June 2011 (the Bisha Mine’s first full quarter of operations), production trends at the Bisha Mine materially deteriorated. Specifically, Defendants knew that the Strip Ratio further increased and was at 5.1 by June 30, 2011, approximately 88% over the 2011 Strip Ratio.
78. On May 3, 2011, Defendants caused Nevsun to issue a press release that was filed with the SEC on Form 6-K that represented that Bisha continues to have a “strong operating performance” and that Defendants and ENAMCO agreed to “finalize the Bisha purchase price by June 30, 2011”, approximately eight weeks later than previously represented by Defendants.
79. On June 30, 2011, Defendants disclosed yet another delay in the finalization of ENAMCO’s purchase price pursuant to the 2007 Agreement.
80. In August 2011, Defendants and ENAMCO agreed to a purchase price of $253 million for ENAMCO’s 30% stake, resulting in a gain to the Company of $242.5 million.
81. During the second half of 2011 (July through December 2011), known to Defendants but not Nevsun investors, Bisha’s Strip Ratio continued to increase and was 6.6 for the second half of 2011, an increase of approximately 144% over the 2011 Strip Ratio and an increase of 35% since the beginning of the Class Period, and was 5.9 for 2011.
82. On September 2 and 6, 2011, Hardie sold 180,000 Nevsun shares – 100% of his Nevsun holdings at that time – for proceeds of approximately $1.3 million, on trading days when Nevsun common shares traded at or near Class Period high prices ($7.30 per share and $7.27 per share, respectively).
83. On September 18, 2011, Davis sold 224,600 shares at $6.68 per share for proceeds of $1.5 million.
84. Unknown to investors, in September 2011, Vickers, Bisha’s Operations Manager, and Pretorius, Bisha’s Project Manager, left Nevsun/Bisha Mining Share Company, and by November 2011, Rogers, General Manager of the Bisha Mine since 2005, left Nevsun/Bisha Mining Share Company.
85. The loss of these key executives was a blow to Nevsun and another red flag.
86. Also in late 2011, Defendants, concerned about the material shortfall in gold ore production that they had been observing since the beginning of the Class Period, caused two engineering companies, AGP Mining Consultants and another engineering company, to rebuild Bisha’s Oxide reserve model.
88. On November 15, 2011, on a conference call with investors, notwithstanding all of these red flags and negative trends of which Defendants were aware, or at least recklessly disregarded, Defendant Davis represented that “things were going very well” at Bisha and reported mining statistics, but he misled investors by failing to disclose the material negative trends that were negatively affecting the Bisha Mine’s operations.
89. Also, on November 15, 2011, Rogers sold 69,000 shares at $6.00 per share. On
December 1, 2, 7 and 9, 2011 Rogers sold an additional 306,500 shares between $6.00 and $6.05 per share. In total Rogers sold 375,500 shares, 100% of his Nevsun stock, for proceeds of approximately $2.28 million.
92. On February 7, 2012 Defendants shocked investors when, before the market opened, Defendants caused the Company to issue a press release titled “Nevsun 2012 Outlook Including Production Guidance” (“Feb. 7 Press Release”), in which Defendants disclosed, among other things, that Nevsun had materially overstated gold reserves at the Bisha Mine by 30-35% (or by approximately 1.2-1.3 million tons), and that the amount of gold to be produced in 2012 would be about half of what Nevsun previously represented to investors, a condition that negatively affected Nevsun’s cash flows and the Company’s net present value.
96. On February 7, 2012, following the above disclosures, Nevsun’s common shares declined by $1.94 per share on the NYSE Amex, from a closing price of $6.34 per share on February 6, 2012, to close at $4.40 per share on February 7, 2012, a decline of nearly 31% on heavy volume.