Company prepares mining feasibility study without performing tests: Breach of contract: Fraud: Financial losses: Verdict

Law Reporter, Apr 2004

Equatorial Tonopah, Inc. v. Kvaerner U.S., Inc., Nev., Nye County Dist. Ct., No. CV 16392, July 16, 2003.

Equatorial Mining North America, a mining concern, was considering the purchase of a copper mine in Tonopah, Nevada. Equatorial contracted with Kvaerner U.S., an engineering firm, to prepare a feasibility study. Kvaerner allegedly based its study on assumptions of the mine's probable yield, rather than performing confirmatory tests. Kvaerner reported that the mine would show a potential yield of 80 to 85 percent in the first year. Equatorial decided to purchase the mine. Equatorial paid $15 million for the mine and hired Kvaerner to build a processing plant at the mine at a cost of $43.8 million. Equatorial also entered into hedging agreements committing it to sell its future production to various purchasers at set prices.

After production began, it became clear that the Tonopah ore could not yield enough copper to be profitable. Actual copper recovery was approximately 37 percent. Equatorial was forced to purchase copper on the open market in order to satisfy its commitments. The company experienced financial losses totaling nearly $140 million.

Equatorial sued Kvaerner, alleging breach of contract, fraud, breach of the covenant of good faith and fair dealing, and violation of Nevada's Deceptive Trade Practices Act, Nev. Stat. §§ 598.0903 et seq., among other things.

A jury awarded $136.9 million. The court awarded costs and attorney's fees, bringing the award to over $163 million. Defendant has filed several posttrial motions and has indicated it will appeal the verdict if they are denied.

Plaintiff's experts were Corby Anderson, hydrometallurgy, Butte, Mont.; Amado Guzman, hydrology, Tucson, Ariz.; Gilbert Coleman, economics, Reno, Nev.; and Michael Fondi, attorney fees, Reno, Nev.

Defendant's experts were Martin C. Kuhn, hydrometallurgy, Tucson, Ariz.; Juan Gonzalez, economics, San Francisco, Cal.; Richard Nielsen, geology, Tucson, Ariz.; and James Brierley, bacteriology, Denver, Colo.

Plaintiff's Counsel

R. Paul Yetter, Houston, Tex.

* W. Chris Wicker, Reno, Nev.

Michael S. Rowe, Minden, Nev.

Pamela Richey, Burnet, Tex.