Friedland's Environmental Problems

"I don't understand. Is this a loaded question?" The line of query had not been terribly abstract.

This article was originally published in Maclean's Magazine on September 9, 1996

"I don't understand. Is this a loaded question?" The line of query had not been terribly abstract.This article was originally published in Maclean's Magazine on September 9, 1996

Friedland's Environmental Problems

"I don't understand. Is this a loaded question?" The line of query had not been terribly abstract. Did Robert FRIEDLAND, the Canadian mining industry's man of the year, see a dotted-line connection between a chief executive officer of a mining company and the on-the-ground operations of a corporate mine site - that is between himself as the erstwhile CEO of Vancouver-based Galactic Resources Ltd. and its ill-fated Summitville gold mine in Colorado? He did not like the question, and fumbled at first with an answer. "I was chairman and CEO of Galactic Resources for a number of years, a Canadian company with 20 or 30 operating subsidiary companies," he said. Then he reached for a comparison. He could no more expect to have known what was going on at Summitville, he told Maclean's in May, than the chairman of Exxon Corp. would be apprised of "pipe breaks in an oilfield in Azerbaijan."

But little Galactic Resources was no Exxon. And ever since its Summitville subsidiary declared bankruptcy in 1992, leaving an environmental mess that, to date, has racked up $125 million in cleanup costs, Friedland has been, as he has often said, the "poster boy" for chemical waste - "Toxic Bob" to critics.

Now, the U.S. Environmental Protection Agency and department of justice have stepped up their efforts to nail Friedland to the wall. Earlier this year, the two agencies sued Friedland in federal district court in Denver for the mine's estimated cleanup costs. And in late August, they obtained injunctions in Denver, Vancouver and Toronto to freeze $152 million (U.S.) worth of securities owned by Friedland "to ensure that sufficient funds remain available to pay for the cleanup of a hazardous waste site." Friedland first got wind of the seizure when Montreal Trust in Vancouver phoned his office there to say the securities had been impounded. The court orders were issued as he was in the process of exchanging shares in Diamond Fields Resources Inc. for Inco Ltd., the culmination of Inco's takeover of Diamond Fields' huge Voisey's Bay, Labrador, nickel find. The actions were secretly undertaken, said the justice department, "to prevent Friedland from discovering the government's plan and aborting the stock trade."

Reached last week at a hotel in Myanmar (formerly Burma), Friedland decried the justice department's "duplicitous manner," its "stealth" tactics. And he mocked the rationale for the secrecy. "I couldn't have broken it for love or money," he said, referring to his agreement to tender his Diamond Fields shares for those of Inco. "Look, if I wanted to f-- off with the money I could have sold my Diamond Fields shares a hundred times over and put it in banks you've never heard of." For the justice department, that was exactly the point, seizing the moment of the stock swap to nail down the certificates' whereabouts. The U.S. government went so far as to hire a Vancouver private investigator to determine the timing of the share exchange.

U.S. government affidavits state a further reason for seeking the help of Canadian courts: that a successful judgment under the so-called superfund law - the environmental act under which Friedland is being pursued - would likely not be enforceable in Friedland's other corporate bases of Singapore and Australia. Courts in both Vancouver and Toronto will this week hear motions from Friedland's lawyers to quash the orders. Says Friedland: "I am very confident that any judge in Canada would do the right thing."

In arguing for the extraordinary transnational seizure, the U.S. justice department has stepped beyond general notions of corporate accountability to claim that Friedland "in his individual capacity" was an operator of the Summitville mine. The wording is key. To prove Friedland's liability, the U.S. government will have to make the case that he was a hands-on operator.

The EPA has long believed exactly that. In an affidavit, EPA lawyer Nancy Mangone alleged that Friedland "personally made various decisions or instructed on-site personnel to conduct various practices that caused or contributed to the release of hazardous substances upon and from the site." Friedland, she says, "had a primary role in decision-making for the design and installation of the leach pad liner."

Friedland has argued for years that he is not and was not a mine operator. "I've never come within a mile of an operating decision," he says, arguing that he hired the best people, the best firms, including San Francisco-based Bechtel Civil & Mineral Inc., the engineering firm brought in to take the mine into production in 1986. Friedland has also said over and over that he resigned as Galactic's CEO in June, 1990, and as its chairman the following November.

But as previously reported by Maclean's, an ongoing U.S. grand jury investigation has highlighted Friedland's timing. According to affidavits filed in Vancouver this spring, Galactic's Denver counsel made a presentation to Friedland and the board on environmental matters in the same month that he resigned as CEO. In November, 1990, the Denver firm billed Galactic for a memorandum "that expressly dealt with the legal liabilities of Galactic's directors." The Vancouver filings relate to the efforts of Friedland and other former officers to block the release of corporate communiqués between Galactic-Summitville and its Denver counsel. Appended to the filings was a grand jury subpoena for documents from a host of officers, including Friedland, Robert Cook, Galactic's vice-president, finance, and Summitville mine managers Samye Buckner and Tom Chisholm. Buckner and Chisholm were indicted last November. That case is expected to go to trial early next year. Last week, assistant U.S. attorney Ken Scott told Maclean's there is "still an ongoing criminal investigation concerning all Summitville matters. Obviously, we wouldn't be pursuing this unless there were the possibility of further charges." In May, Scott struck an agreement with Summitville's trustee in bankruptcy, which pleaded guilty to 40 felony counts on behalf of the company.

Summitville's troubles started at its inception. A so-called heap leach facility, the mine was designed to retrieve gold from huge piles of ore by sprinkling it with a cyanide solution. But the design failed to account for the 30 feet of snow that descends on the San Juan Mountain range most winters. In its rush to meet production targets to comply with lending agreements with the Bank of America, Summitville pushed ahead with winter construction. Early on, the heap leach "pad," a synthetic liner that sits under the crushed rock, was ruptured from a snow slide, and the cyanide solution started to leak into the groundwater.

With the high precipitation levels, it became clear that the mine, which was permitted as a "zero discharge" facility, would need to discharge into the adjacent river system. In fact, it was the problem of acid mine drainage - runoff containing copper, silver and other metals - that was the pre-eminent environmental issue at Summitville. "Acid mine drainage and heavy metals are the principal issues," says Paul Jones, chairman of the Colorado Mining Association's Summitville task force. "Galactic made them significantly worse, but they were there from the 1870s." Because miners have been working Rio Grande County for more than a century, it has been impossible to audit precisely the damage caused by Summitville. A study by Denver engineering consultants Knight Piésold and Co. blamed Summitville management for "chronic contamination of shallow groundwater and periodic uncontrolled discharges." But it also stated that water quality downstream from the mine "was considered unsuitable to support fish because of the acid water emanating from historic drainage tunnels." In late July, the EPA reached a $950,000 settlement with Cleveland-Cliffs Iron Co. for contributing to the hazardous nature of the site in the late 1960s.

While environmentalists battle over what damage can be attributed to Summitville's operations, the EPA contends that the environmental risk increased when the company abandoned the site. The high level of water in the leach pad, said the EPA, "threatened to cause a catastrophic release of cyanide and metal-contaminated water." Since then, the agency's efforts to stabilize the site have increasingly drawn criticism for the enormous amounts of money spent and for its own inability to meet environmental standards on water discharges.

Meanwhile, the EPA's Mangone remains eager to hear from Friedland directly. In March, she told Maclean's that she had been trying to serve Friedland for more than a year with "request for information" forms. Given the scope of those requests - all U.S. and Canadian income tax returns for the past five years; an accounting of asset transfers or bank withdrawals in excess of $5,000 - she could not have been surprised when Friedland proved elusive.

With the latest civil actions, the EPA will most certainly hear from Friedland now. Last week he was on his way to Kazakhstan, where he is pursuing other mining ventures. In the next few weeks, a heap leach copper project in Mongolia that he helped finance and that Samye Buckner has been leading the construction on will start production. Back in Myanmar, Robert Cook is overseeing a heap leach copper project for Friedland's Indochina Goldfields Ltd.

Again, there are bad optics in the empire. Only when the Summitville mess is settled once and for all will the Friedland story become crystal clear.

Maclean's September 9, 1996