City of Austin Police Ret. Sys. ex rel. Situated v. Kinross Gold Corp.

• Citation: 957 F.Supp.2d 277
• Decision Date: 06 June 2013
• Docket Number: No. 12 Civ. 1203(PAE).,12 Civ. 1203(PAE).
• Parties: CITY OF AUSTIN POLICE RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. KINROSS GOLD CORPORATION, Tye W. Burt, Paul H. Barry, Glen Masterman, and Kenneth G. Thomas, Defendants.
• Court: U.S. District Court — Southern District of New York

957 F.Supp.2d 277

CITY OF AUSTIN POLICE RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated, Plaintiff,

v.KINROSS GOLD CORPORATION, Tye W. Burt, Paul H. Barry, Glen Masterman, and Kenneth G. Thomas, Defendants.

No. 12 Civ. 1203(PAE).

United States District Court, S.D. New York.

March 22, 2013.

Opinion Denying Reconsideration June 6, 2013.

Joseph R. Seidman, Laurence Jesse Hasson, Michael S. Bigin, Bernstein Liebhard, LLP, New York, NY, for Plaintiff.

Matthew Alexander Schwartz, Robert Joseph Giuffra, Jr., Thomas William Walsh, Sullivan & Cromwell, LLP, New York, NY, for Defendants.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge.

In this putative class action, lead plaintiff City of Austin Police Retirement System (“Austin”) claims that defendants Kinross Gold Corporation (“Kinross” or the “Company”) and four individual Kinross officers violated §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78j(b), 78t(a), and the United States Securities and Exchange Commission's corresponding rule, 17 C.F.R. § 240.10b–5 (“Rule 10b–5”). Austin alleges that Kinross and its officers made materially false and misleading statements to investors to the effect that (1) Kinross had done extensive due diligence before acquiring, in 2010, Red Back Mining, Inc. (“Red Back”), a company mining gold in Africa; and (2) the rapid schedule that Kinross set, after that acquisition, for developing the Tasiast gold mine in Mauritania, which had been a principal asset of Red Back, was achievable.

Presently pending are (1) defendants' motion to dismiss Austin's Amended Complaint for failure to state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6); and (2) Austin's motion to strike certain exhibits which defendants submitted in support of that motion. For the reasons that follow, the Court grants Austin's motion to strike, and grants in part and denies in part defendants' motion to dismiss.

I. Background¹A. Facts

1. Parties

Kinross is a public company whose shares trade on the New York Stock Exchange (“NYSE”). It is engaged in, among other activities, mining, exploring, and acquiring goldbearing properties. Its gold production and exploration activities are primarily in Canada, the United States, the Russian Federation, Brazil, Ecuador, Chile, Ghana, and Mauritania. Am. Compl. ¶ 37.

Red Back is a mining company. In May 2010, Kinross purchased a 9.4% stake in Red Back for $583 million. Id. ¶ 39. In August 2010, Kinross announced its intention to acquire Red Back. In September 2010, Kinross's shareholders approved that acquisition.

Austin is a single-employer, defined benefit, public employee retirement system. It alleges that it purchased common stock of Kinross between August 3, 2010, and January 17, 2012 inclusive (the “Class Period”); that Kinross's stock price had been artificially inflated during that period as a result of material, uncorrected misstatements; and that Austin was damaged as a result. Austin brings this suit individually and on behalf of all other persons and entities which purchased Kinross common stock on the NYSE during the Class Period and retained such shares until after the Class Period ended.²

The four officers whom Austin has sued (“the Individual Defendants”) are Tye W. Burt, who, beginning in March 2005, was Kinross's president and chief executive officer, id. ¶ 26; Paul H. Barry, who, beginning March 31, 2011, became Kinross's president and chief financial officer, id. ¶ 27; Glen Masterman, who was Kinross's senior vice president of exploration, id. ¶ 28; and Kenneth G. Thomas, who was Kinross's senior vice president of projects, id. ¶ 29. For purposes of this Opinion and Order, the Court refers to the defendants collectively as “Kinross.”

2. Timeline of Kinross's Acquisition of Red Back and Tasiast

On May 4, 2010, Kinross issued a news release announcing that its board had agreed to purchase a 9.4% stake in Red Back, for $583 million. Id. ¶ 39. In the news release, Kinross CEO Burt described the Red Back investment as “giv[ing] us a strategic stake in a fast-growing producer with great exploration potential ... and assets in one of the world's most prolific gold regions.” Id. One of Red Back's two primary projects was the Tasiast mine in Mauritania; the other was the Chirano mine in Ghana. Id. The following day, on an earnings call, Burt stated that Kinross had “done our homework here ... West Africa has been on our radar screen for a couple of years. We've got months of technical due diligence and site visits.” Id. ¶ 40.

On August 2, 2010, Kinross issued a press release announcing that its board had unanimously agreed to acquire, for $7.1 billion, all outstanding shares of Red Back common stock that Kinross did not already own. Id. ¶ 42. Under the merger agreement, Red Back shareholders were to receive, for each Red Back common share, 1.778 Kinross common shares and 0.110 common share purchase warrants, requiring the issuance of 425 million common shares and 26 million common share purchase warrants. Id. ¶ 43.

The following day, the start of the Class Period, Burt publicly stated that the dilution of Kinross's common shares was justified based on the “very large amount of work” Kinross had done, including on the Tasiast mine. Id. Kinross touted the Red Back acquisition as presenting a “transformational opportunity” for Kinross to become a “gold growth powerhouse,” given, among other things, “the significant upside in reserves that we believe exists at Red Back, and Kinross's ability to accelerate that potential.” Id. The same day, Burt told analysts that Kinross's goal was to “fast track” work at the Tasiast mine and that it planned to “embark on an accelerated exploration and development program” at Tasiast. Id. ¶ 56.

On August 5, 2010, in a quarterly earnings conference call, Burt told Kinross investors that the Red Back acquisition had been “based on the extensive due diligence and technical work that we have completed over the last six months,” including “intensive engineering, technical, geologic, metallurgic, and hydrological work.” Id. ¶ 45. He added that “we have done far more homework than one would typically see in a significant acquisition.” Id. Kinross held out the Tasiast mine as the “centerpiece of the Red Back acquisition.” Id. ¶ 46. In a presentation on August 16, 2010, Kinross stated that it possessed the requisite “experience and financial strength to optimize Red Back's assets and fast-track development plans ... at Tasiast.” Id. ¶ 56.

On August 9, 2010, Kinross announced that a shareholder meeting and vote on the Red Back acquisition would be held September 15, 2010. Id. ¶ 59. Several weeks later, Kinross learned that a large proxy advisory firm, Institutional Shareholder Services (“ISS”), would issue a negative recommendation to Kinross shareholders regarding the merger. Id. On September 1, 2010, Kinross issued a news release entitled “Kinross provides additional information on Red Back transaction.” Id. The news release, which Austin claims was intended to dissuade shareholders from heeding ISS and voting against the merger, updated investors about Kinross's development plans for Tasiast. It set out what Austin terms “aggressive milestones for the anticipated completion [by Kinross] of the expansion program [at Tasiast] based on Kinross's purportedly extensive due diligence.” Id. ¶ 60. Specifically, Kinross projected that it would complete a scoping study for the mine by December 2010, a feasibility study by July 2011, and the expansion project in its entirety within 36 months, in the fourth quarter of 2013. Id.

Notwithstanding Kinross's September 1, 2010 update, the following day, ISS issued a negative recommendation as to the merger. ISS stated that although it was possible that “there is significantly more gold in the ground than is reflected in current reserves or analyst estimates,” the transaction was too costly for Kinross shareholders to “tak[e] on the risk of that bet.” Id. ¶ 62. In a news release issued on September 3, 2010, Kinross rejected ISS's analysis, stating that ISS lacked relevant technical understanding and knowledge. Kinross reiterated its view that the Tasiast mine had immense potential. It cited “six months of exhaustive due diligence by its geologists, technical teams, and management, supported by independent opinions of respected outside consultants.” Id. ¶ 63.

On September 7, 2010, Red Back announced a 42% increase in its estimate of Tasiast's gold resources. Id. ¶ 64. Burt, speaking for Kinross, stated that Red Back's new estimate “confirms Kinross's view of Tasiast's tremendous potential based on our six months of intensive due diligence.” Id. ISS's proxy analyst, in response, stated that ISS adhered to its recommendation that shareholders oppose the merger. The ISS analyst stated that Kinross had not given “detailed support” to enable shareholders to understand its claims as to “how great the potential is” of the Tasiast mine. Id. ¶ 65.

On September 15, 2010, Kinross held a special shareholder meeting. Id. ¶ 66. Despite ISS's negative recommendation, 66.4% of Kinross shareholders approved the acquisition. Id. On September 17, 2010, the transaction was completed. Id.

3. Timeline of Post–Acquisition Events Relating to the Tasiast Mine

In or around October 2010, core drilling began at Tasiast, and, by November 2010, approximately 28 rigs were drilling at the mine and sending back samples. Id. ¶¶ 48, 88. In December 2010, Kinross completed its scoping study of the mine, in keeping with the schedule it had set. Id. ¶ 83.

On February 16, 2011, Kinross issued a press release setting out a schedule for development of the Tasiast mine. Id. ¶ 109. Kinross projected that the feasibility study would be complete by mid–2011, that construction would commence in mid–2012, and that mining operations would begin in early 2014. Id. ¶ 77. Each of those deadlines was consistent...