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[2014] WAMW 18 __________________________________________________________________________________
Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 1
JURISDICTION : MINING WARDEN
TITLE OF COURT : WARDEN’S COURT
LOCATION : PERTH
CITATION : AMMON v PILBARA IRON ORE P/L & DG DMP [2014]
WAMW 18
CORAM : WILSON M
HEARD : 5, 6 DECEMBER 2011, 18, 19, 20, 21, 22 MARCH 2013 & 8
MAY 2013
DELIVERED : 16 SEPTEMBER 2014
FILE NO/S : PLAINT KR 1/078
TENEMENT NO/S : EXPLORATION LICENCE 47/1140
BETWEEN : Derek Noel Ammon
(Plaintiff)
v
Pilbara Iron Ore Pty Ltd
(1st Defendant)
&
The Director General of Mines
(2nd
Defendant)
Catchwords:
Plaint – Breach of Farmin & Joint Venture Agreement – Feasibility Study – Sufficiency
of Feasibility Study to make Election or Seek to Raise Finance – Implied Terms –
Accuracy – Independence – Completeness – Ore Reserve Statement
Legislation:
Nil
Result:
The Claim by the Plaintiff is proven
The Plaintiff is entitled to the Relief claimed and costs
Representation:
Counsel:
[2014] WAMW 18 __________________________________________________________________________________
Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 2
Plaintiff : Mr CP Shanahan SC & Mr A Herchowitz
1st Defendant : Mr C L Zelestis QC & Mr MP Feutrill
2nd
Defendant : Nil
Solicitors:
Plaintiff : Dwyer Durack
1st Defendant : Corrs Chambers Westgarth
2nd
Defendant : Nil
Case(s) referred to in judgment(s):
Ammon v Pilbara Iron Ore Pty Ltd (No 2) [2009] WAMW 12
Ammon v Pilbara Iron Ore P/L & anor [2012] WAMW 14
Ammon v Pilbara Iron Ore P/L & anor [2013] WAMW 4
Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705
Jones v Dunkel (1959) 101 CLR 298
Fazio v Fazio [2012] WASCA 72
Payne v Parker [1976] NSWLR 191
Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361
RPS v The Queen (2000) 199 CLR 620
Background
1. Derek Noel Ammon (“the Plaintiff”) claims he is the legal and beneficial owner of E
47/1140 (“E”).
2. In summary, the issues in this action are the Plaintiff and Pilbara Iron Ore Pty Ltd
(“1st Defendant”) are parties to the Mindy Mindy Farmin and Joint Venture Heads of
Agreement (“Agreement”) dated 3 September 2002 (“Commencement Date”)
concerning the E. The Plaintiff submits that pursuant to the Agreement the 1st
Defendant was required by 29 January 2008 to have ‘completed a feasibility study’
(“the Study”) in respect of E and provided the Plaintiff with a copy in order for the 1st
Defendant to earn an 80% interest in the E.
3. The Plaintiff and the 1st Defendant were the only two participants in the Agreement.
The 1st Defendant is owned in equal shares (50/50) by Consolidated Minerals Ltd
(“CML”) and Fortescue Metals Group Ltd (“FMG”).
4. In or about July 2006, SRK Consulting Australasia Pty Ltd (“SRK”) was engaged by
CML for and on behalf of the 1st Defendant for the purposes of the preparation of the
[2014] WAMW 18 __________________________________________________________________________________
Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 3
Study. On or about 25 January 2008, the 1st Defendant delivered to the Plaintiff a
report prepared by SRK (“SRK Report”) that the 1st Defendant said was the Study.
5. The Plaintiff contends the SRK Report was not the Study, that is a completed
feasibility study, for the purposes of the Agreement as the SRK Report could not, and
did not, enable the Plaintiff to exercise his rights under clause 4.6 of the Agreement
(to make an election to either contribute to the joint venture or withdraw from the
joint venture under the terms of the Agreement) or clause 4.7 of the Agreement (if an
election is made to contribute under the Agreement to raise finance).
6. The Plaintiff submits the 1st Defendant having failed to provide him with the Study is
deemed to have withdrawn from the Agreement and thereby forfeited any rights to
any interest in E.
7. The Plaintiff alleges that, in purported reliance upon clause 6.9 of the Agreement, the
1st Defendant lodged with the Department of Industry and Resources (“DOIR”), now
Department of Mines and Petroleum, a power of attorney. The Plaintiff submits the
1st Defendant was not authorised to lodge the power of attorney and claims he was
not notified by the 1st Defendant of its intention to lodge the power of attorney with
DOIR.
8. The Plaintiff states on or about 11 March 2008 the 1st Defendant, in purported
reliance upon the Agreement and the power of attorney, lodged with DOIR a transfer
of an 80% interest in E from the Plaintiff to the 1st Defendant. The Plaintiff submits
such lodgment or transfer was not authorized by him and, in any event, the 1st
Defendant, by that date, was deemed to have withdrawn from the Agreement.
9. On 4 April 2008 an injunction was granted by this Court preventing the registration
by the Director General, DOIR, (“the 2nd
Defendant”) of the transfer of the 80%
interest held by the Plaintiff in the E to the 1st Defendant.
10. The Plaintiff seeks a declarations that the 1st Defendant is deemed to have withdrawn
from the joint venture, that the power of attorney is invalid and that the form of
transfer of the 80% interest in the E is also invalid. An injunction is also sought by
the Plaintiff restraining the 1st Defendant from representing that it has any right or
interest in E, from representing that it holds a power of attorney to sign on behalf of
the Plaintiff to do anything necessary to maintain the E and from representing that it
is the manager of the joint venture operations in respect of E.
Preliminary Issues
11. On 5 December 2011, shortly after the commencement of the substantive hearing in
this matter, the parties sought the determination of Preliminary Issues. On 6
December 2011, the Plaintiff applied for and was granted leave to amend the Plaint
(“Amended Plaint”). The 1st Defendant did not seek to amend its Response. The
Preliminary Issues were determined in Ammon v Pilbara Iron Ore P/L & anor
[2012] WAMW 14 (“the PI Decision”) and were summarised in Ammon v Pilbara
Iron Ore P/L & anor [2013] WAMW 4 at paras [3] to [6] as follows:
[2014] WAMW 18 __________________________________________________________________________________
Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 4
“3. That decision followed the commencement of the hearing of the substantive proceedings
between the parties on 5 December 2011. On 6 December 2011, the Plaintiff sought and
was granted leave to further amend the Plaint (“the Amended Plaint”). The Plaintiff
and the 1st Respondent agreed the Amended Plaint raised the Preliminary Issues on the
construction of some of the terms of the Agreement. The 1st Respondent did not seek to
amend its Response to the Amended Plaint and its counsel advised the Warden it did not
intend to do so.
4. As a consequence of the Amended Plaint both the Plaintiff and the 1st Respondent
agreed the hearing of the substantive proceedings should be adjourned to allow the
Warden to determine the following Preliminary Issues:
Whether the Agreement should be construed as pleaded by the Plaintiff at
paragraph 11 of the Amended Plaint, and
Whether the implied term pleaded by the Plaintiff at paragraph 12 of the
Amended Plaint can be implied according to law.
5. The terms of the Amended Plaint the subject of the Preliminary Issues states:
“11. On a proper construction of the Agreement, the Plaintiff says that the purpose of the
"feasibility study" to be completed by the First Defendant under clause 4.5 of the
Agreement was to inform the Plaintiff's Election, which required that any such
feasibility study be delivered to the Plaintiff, to allow the Plaintiff to decide either to:
(1) Withdraw and first offer to transfer his interest in the First Defendant pursuant
to clause 4.6 of the Agreement, for the then net present value of that interest
calculated by reference to the "feasibility study", or
(2) Contribute to Joint Venture Expenditure and seek to raise project finance
pursuant to clause 4.7 of the Agreement.
12. It was an implied term of the Agreement that to be a "completed feasibility study" for
the purposes of the Agreement, including those at paragraph 11, any such feasibility
study must:
(1) be accurate enough to enable the Plaintiff to seek to raise project finance
pursuant to clause 4.7 of the Agreement;
(2) be independent, in that any information provided by or on behalf of, a
participant in the Joint Venture (‘Participant’) for the purposes of producing
such a feasibility study be independently verified;
(3) be reliable, in that any information or data is provided by a Participant for the
purposes of producing such a feasibility study not be inaccurate or incomplete,
and
(4) include any reserve statement required to enable the Plaintiff to seek to raise
project finance pursuant to clause 4.7 of the Agreement.” (“Implied Term”)
6. The Decision answered each of the Preliminary Issues in the affirmative. On 10 August
2012, the 1st Respondent filed a notice of appeal against the Decision in respect to the
Preliminary Issues. That appeal was withdrawn by the 1st Respondent because, I
understand, the determination of the Preliminary Issues was not a final decision of the
substantive proceedings between the parties pursuant to s. 147(1) of the Mining Act
(“the Act”).”
[2014] WAMW 18 __________________________________________________________________________________
Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 5
The Breach of the Implied Term
12. The determination of the Preliminary Issues of the existence of implied terms in the
Agreement (“Implied Terms”) gives rise to the alleged breach of the Agreement by
the 1st Defendant. For the purposes of completeness and a full understanding of the
closing submissions by both the Plaintiff and the 1st Defendant it is appropriate to
note the provision of clause 19 of the Amended Plaint which states:
“19. In breach of the implied term the SRK Report was not accurate independent, reliable or
complete as required by the Implied Term.
Particulars of Breach of Implied Term
A. The SRK Report was not accurate enough to enable the plaintiff to seek to raise project
finance pursuant to clause 4.7 of the agreement because it was not accurate to, at least ±
10 – 15%, in that:
i. The work completed by SRK, to assess the hydro-geological, geotechnical and
mining issues going to the technical and economic feasibility of development and
mining of the Tenement, was classed by SRK, “as being at Scoping to Pre-
Feasibility levels of accuracy”, and the resulting in overall level of accuracy for the
work completed by SRK was classed by SRK as “Pre-Feasibility” (SRK Scope,
Appendix 26, at 1);
ii. The study completed by Dowding, Reynard & Associates Pacific (Pty) Ltd)
(“DRAP”) relied on by SRK in estimating the cost of the crushing and screening
options for mining the Tenement deposit (“DRAP Study”), was described by DRAP
as a “Scoping Study”, “ based on details, information and assumptions provided by
others”( the correctness of which could not be guaranteed by DRAP), and was
expressed by DRAP to have a ± 30% level of accuracy; it was intended solely for the
confidential usage of CML and was not for distribution to any third party and could
not be used for the raising of finance without the written approval of DRAP;
iii. The study relied on by SRK, to estimate the costs of transporting the Minerals mined
at the Tenement, was provided by Worley Parsons (“WP”) and was expressed by
WP to be a “screening level estimate, normally defined as ± 25-30% accuracy”, with
“considerably more engineering required to produce a definitive estimate of ± 15%
accuracy”, and
iv. The financial sensitivity ascribed by SRK for the purpose of calculating the post-tax
net present value of the Tenement was ± 40% for the iron ore pricing and ± 50% for
the operating costs (SRK Report, at 129).
B. The SRK Report was not independent in that:
i. it relied on information and data provided by the First Defendant to SRK (and
sourced from CML or FMG whose interests were in common with the First
Defendant) and which information was not independently verified by SRK, which
information and data included:
a. the quantity, extent and nature of the Minerals (SRK Report, at 19);
b. the financial input parameters used by SRK to optimise the estimated
resources of the Tenement deposit (SRK Report, Covering letter, dated 24
January 2008 at 2), and
c. iron ore price forecasts and marketing, and
ii. SRK, by the First Defendant's Instructions, was not required to provide a reserve
[2014] WAMW 18 __________________________________________________________________________________
Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 6
statement for the Tenement as part of the SRK Report, and despite the fact that such
a statement was identified by SRK, by reference to the JORC Code 2004, as being
the “minimum standard“ to ensure that investors and their advisers have all the
information they would reasonably require for forming a reliable opinion on the
results and estimates being reported” (SRK Scope, Appendix 26 at 3) such a
statement was not included in the SRK Report; and
iii. SRK acknowledges (in Appendix 26 of the SRK Report at 3) that it did not
critically review the WP, DRAP, HWE and Coffey reports.
C. The SRK Report was not reliable in that information and data supplied to SRK by the
First Defendant for the purposes of producing the SRK Report in accordance with the
First Defendant's Instructions was in accurate or incomplete, in that:
i. SRK's estimate that there is 23.6 Mt (million tonnes) of all available in the tenement
was based on a 55% Fe cut off, and is predicated on SR case review of work by
Twomey and Chen for a report, dated February 2006, which was provided to SRK by
the first defendant, (SRK Report at 19) and is RK's estimate does not take into
account any subsequent work which, according to the first defendant's application to
renew the tenement licence (made in December 2007) had delineated “a resource of
44.8Mt based on a 55.2% Fe cut off”;
ii. SRK's conclusions concerning hydro-geological conditions in the Tenement are based
on data from a study conducted in 2004 for FMG in an area of the East Pilbara that
did not include the Tenement, and which data has not been substantiated by any field
investigations in the Tenement (SRK Report at 75) at an additional cost of
$287,000, quadrillion and labour (SRK Report at 74) , to address “the issue of
collecting field data" for the Tenement (SRK Report at 73);
iii. SRK’s geotechnical analysis is based on old drill records and core photos (SRK
Report at 76) from earlier scoping and pre-feasibility work (SRK Scope, in
Appendix 26 at 1) and has not been confirmed by additional field work (SRK
Report at 76) , thus "further feasibility work is recommended" (SRK Report at 83)
at an additional cost of "approximately $100,000 for consultants plus [an estimated ]
drilling costs for proximally 16 holes”,(SRK Report at 76);
iv. SRK's mining study is based on previous scoping and pre-feasibility work (SRK
Scope, Appendix 26 at 1) a 2006 mineral resource review completed by CML which
was constrained by a 45% Fe grade shell (SRK Report at 86) and did not include
the dilution data that was collected (SRK Report at 97);
v. SRK’s mining study excludes two areas of the ore body due to limited drill hole
support (SRK Report at 96); and indicates that more detailed feasibility studies are
needed in the following areas:
a. to “refine the or loss parameters”(SRK Report at 97);
b. to "better quantify the effects of the foot wall undulation on dilution /ore
loss” (SRK Report at 98);
c. to "define the ‘shape’ of the contact footwall surface - as this would have a
significant impact on dilution and/or ore loss” (SRK Report at 98-99);
d. to “ define the water table and volume of ‘wet ore’…”(SRK Report at
102);
e. to “determine the schedule for feeding the wet ore through the process
plant” (SRK Report at 102);
[2014] WAMW 18 __________________________________________________________________________________
Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 7
f. to “further investigate the in-pit and external dewatering systems” (SRK
Report at 103);
g. to assess the extent to which the ore might be extracted using “free dig or
rip, doze and load operations as an alternative to drill and blast” (SRK
Report at 104);
h. to explore the “opportunity to minimise the amount of waste hauled external
to the pit - as this will impact positively on mining costs” (SRK Report at
106);
i. to ensure the pit and operations are adequately protected against cyclones
(SRK Report at106);
j. to define extent of the ore deposit in the southern portion of the Tenement
which was not included in the financial evaluation but could add more than
the 1.3 million tonnes of ore that was excluded from the feasibility study
(SRK Report at 106), and
k. the operational cost estimates, provided to SRK by the First Defendant,
included an item that issued the Plaintiff would elect to contribute to the
Joint Venture (pursuant to clause 4.6 of the Agreement) but would be unable
to obtain a project finance (within the meaning of clause 4.7), and would
therefore be entitled to a 2.5% Royalty, notwithstanding that such an
entitlement could only arise after the Plaintiff made his election under
clause 4.6 of the Agreement and that was yet to happen on 25 January 2008
when the SRK Report was delivered to the Plaintiff (SRK Report at 122,
124 and Appendix 25 p 1).
D. The SRK Report was not complete because it failed to include a reserve statement.”
Onus of Proof
13. The Plaintiff bears the onus of proof to prove, on the balance of probabilities, that
the SRK Report did not amount to the Study as required under the Agreement as the
SRK Report could not, and did not enable the Plaintiff to exercise his rights under
clauses 4.6 or 4.7 of the Agreement as pleaded in paragraphs 11 and 12 of the
Amended Plaint.
The Case for the Plaintiff
Witnesses and Exhibits
14. The Plaintiff's case comprised of the admission into evidence of the various
documents it says were used and were relied upon in the preparation of the SRK
Report by the 1st Defendant in what it says amounts to the Study. Various other
documents pertaining to the giving or taking of instructions by the 1st Defendant for
the purposes of the preparation of the SRK Report were also produced into evidence
by the Plaintiff.
15. The documents relied upon by the Plaintiff and produced into evidence were reports
by expert witnesses including Mr Quentin George Amos (“Mr Amos”) and Mr
Michael John Lawrence (“Mr Lawrence”) who analysed the content of the SRK
Report to determine whether, in their opinion, the content of the SRK Report met the
requirements to be considered the Study. Those expert witnesses also gave oral
evidence.
[2014] WAMW 18 __________________________________________________________________________________
Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 8
16. Mr Peter Roderick Williams (“Mr Williams”) as also called by the Plaintiff to give
evidence regarding the preparation of the SRK Report.
The Agreement
17. The Plaintiff submits it is important to understand the Agreement and manner in
which it says the Agreement was intended to operate if one is to appreciate his case
against the 1st Defendant.
Participants in the Agreement
18. The Plaintiff and the 1st Defendant were the only two participants in the Agreement
on the Commencement Date with the 1st Defendant equally owned in joint shares
(50/50) by CML and FMG.
The Commencement Date of Agreement and Joint Venture
19. On the Commencement Date the Plaintiff was then the applicant for the grant of the
E. It was not until 30 January 2003 the E was granted (“Grant Date”) to the Plaintiff.
The Agreement commenced on the Commencement Date but unincorporated joint
venture agreement between the Plaintiff and the 1st Defendant did not commence in
accordance with the terms of the Agreement until the Grant Date.
20. The nature of the Agreement between the Plaintiff and the 1st Defendant is described
under the definition of ‘Formation’ to mean:
“The Participants hereby associate in an unincorporated joint venture for the
purpose of exploring and, if warranted, developing and mining the Tenements.”
21. The tenements described in the Agreement include the E. However, the Agreement
also contemplates the inclusion of ‘any other mining tenement or interest in a mining
tenement acquired by the Joint Venture’.
Interest Retained by the Plaintiff
22. The Agreement provides that any ‘Joint Venture Interest’ in the ‘Tenements’ was
subject to the Plaintiffs ‘Retained Interest’ contained within clause 5 which states:
“Ammon retains at all times, full ownership and interest in the Mindy Mindy
bedded hematite resource located in the southern portion of the Tenements and
covered by blocks 2585u and 2586q, r, v and w.”
Payments to Plaintiff Prior to Grant Date
23. The 1st Defendant agreed under the terms of clause 3 of the Agreement to make two
payments to the Plaintiff prior to the Grant Date being:
a. At clause 3.1, commencing on the Commencement Date, the 1st Defendant
would pay to the Plaintiff in advance the sum of $5000 for every 30 day period
until the Grant Date, and
b. At clause 3.2, within 14 days of the Grant Date the 1st Defendant agreed to pay
to the Plaintiff $250,000 by way of reimbursement for past expenditure in
relation to the Tenements.
Joint Venture Interests of Plaintiff and Defendant at the Grant Date
24. On the Grant Date, the Agreement provides at clause 2.2 that the respective ‘Joint
Venture Interest’ held by the Plaintiff and the 1st Defendant is as follows:
[2014] WAMW 18 __________________________________________________________________________________
Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 9
‘The Joint Venture shall commence on the Grant Date and on that date
the Joint Venture Interests of the Participants are:
PIO 0%
Ammon 100% ‘
25. Accordingly, on the Grant Date when the Joint Venture commenced between the
Plaintiff and the 1st Defendant the Joint Venture Interest held by the 1
st Defendant
was 0%.
26. The Agreement defines ‘Joint Venture Interest’ at clause 1.1 as follows:
‘means, subject to the Retained Interest, the following obligations, benefits and
rights of a Participant expressed as a percentage and determined in accordance with
this Agreement:
a) the obligation, subject to the terms of this Agreement, to contribute
that percentage of all Joint Venture Expenditure;
b) the ownership of an right and benefit as a tenant in common to receive
in kind and to dispose of for its own account that percentage of
Minerals produced by the Joint Venture;
c) the beneficial ownership as a tenant in common of an undivided share
in that percentage of all Joint Venture Property.’
The Earning Period
27. The terms of the Agreement provide for a process that enabled the 1st Defendant,
from the Grant Date, to increase its Joint Venture Interest from 0% and earn a Joint
Venture Interest of 80%.
28. The Agreement defines at clause 1.1 an ‘Earning Period’ which means:
‘..the period commencing on the Grant Date and ending as provided in clause 4.2.’
29. The extent of the Earning Period is defined at clause 4.2 of the Agreement to be as
follows:
‘Subject to clause 4.3, the Earning Period will end when PIO has completed a
feasibility study on the tenement or 5 years from the Grant Date whichever occurs
sooner.’
30. It is the contention of the Plaintiff that the verb ‘earn’ was intended to encapsulate
the 1st Defendant's obligation to complete a feasibility study and that was the primary
obligation during the Earning Period.
31. Accordingly, the Earning Period began on 30 January 2003 and continued until
either:
i. the expiry of five years on 30 January 2008, or
ii. the completion and delivery of a feasibility study by the 1st Defendant to
the Plaintiff,
whichever occurred the sooner.
[2014] WAMW 18 __________________________________________________________________________________
Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 10
32. In the PI Decision, the Warden found for the 1st Defendant to have ‘completed a
feasibility study’ a copy of the Study was required to have been delivered to the
Plaintiff.
33. The Agreement, at clause 4.1, required that during the first 30 months of the Earning
Period, the 1st Defendant was to contribute ‘not less than $1,000,000’ to ‘Joint
Venture Expenditure.’ Accordingly, between the Grant Date and over a period of 30
months the 1st Defendant was obliged to expend a minimum of $1,000,000 on the
types of expenditure defined within clause 1.1 as Joint Venture Expenditure as
meaning:
‘..all costs, expenses and liabilities incurred in connection with the exploration, development
and mining of the Tenement for Minerals, accounted for in accordance with accounting principles
accepted in Australia including (without limitation):
a) Outgoings;
b) an administrative overhead charge not exceeding 10% of the direct
expenditure, excluding expenditure on the construction of facilities for a
mining operation or in the conduct of a mining operation;
c) the cost of negotiations with native title claimants, whether pursuant to the
Commonwealth Native Title Act 1993 or otherwise, and the costs associated
with obtaining any necessary aboriginal heritage clearances in respect of the
Tenements.’
34. Expenditure incurred by the 1st Defendant prior to the Grant Date and therefore
before the commencement of the Earning Period in respect of expenditure defined at
paragraph c) of the definition of Joint Venture Expenditure was deemed to have been
incurred during the Earning Period pursuant to clause 4.1 of the Agreement.
Completed Feasibility Study
35. The events that would occur if the 1st Defendant did or did not complete a feasibility
study during the Earning Period are contained within clauses 4.4 and 4.5 of the
Agreement and state:
‘4.4 Effect of failure to Complete Feasibility Study
If PIO fails to complete a feasibility study during the Ending Period then it shall be
deemed to have withdrawn from the Joint Venture pursuant to clause 15.1.
4.5 Assignment of Earned Interest
If PIO completes a feasibility study during the Earning Period, PIO shall be deemed
to have acquired from Ammon and 80% Joint Venture Interest, so that at the
expiration of the Joint Venture Interest of the Participants shall be as follows:
PIO 80%
Ammon 20%
The Effect of a Completed Feasibility Study
36. Pivotal to the Amended Plaint is whether the delivery by the 1st Defendant to the
Plaintiff of the SRK Report amounted to the delivery of the Study within the 5 year
period from the Grant Date and then signalled the end of the Earning Period under
the terms of the Agreement.
[2014] WAMW 18 __________________________________________________________________________________
Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 11
37. The importance of the delivery of the SRK Report by the 1st Defendant to the
Plaintiff and whether it amounted to the Study is that it is the determinative feature
as to whether the Joint Venture remained on foot and if it did not then the 1st
Defendant was deemed, pursuant to clause 15.1 of the Agreement, to have
withdrawn from the Agreement.
38. The Plaintiff contends the SRK Report is not the Study and therefore the Agreement
with the 1st Defendant is at an end. It is for that reason the Plaintiff submits the 1
st
Defendant and the Plaintiff place such significance within the Agreement for the
requirement for the Study.
39. On the other hand, the Plaintiff contends if it is the case the 1st Defendant by
delivering the SRK Report to the Plaintiff has met its requirements to have delivered
the Study the 1st Defendant has increased its Joint venture Interest from 0% to 80 %
and holds a significant majority interest.
40. What also follows if the 1st Defendant has, by delivering the SRK Report to the
Plaintiff, also delivered the Study is the Plaintiff must make an election (“Election”)
regarding the 20% Joint Venture Interest then held by the Plaintiff pursuant to clause
4.6 of the Agreement.
41. The Plaintiff submits the SRK Report is not the Study delivered to the Plaintiff
within the Earning Period and as such the Plaintiff continues to enjoy a 100% Joint
Venture Interest and has not been required to make an Election under clause 4.6 of
the Agreement. As a consequence, the Plaintiff submits the Earning Period ended on
30 January 2008, being five years after the Grant Date, and the 1st Defendant is
deemed to have withdrawn from the Agreement.
Election by the Plaintiff
42. Clause 4.6 of the Agreement allows the Plaintiff to make an Election from a number
of choices in respect to his continued involvement under the terms of the Agreement.
The Plaintiff maintains the Election by him was only required to be made if the SRK
Report was the Study, which is denied by him, and it was delivered within the
Earning Period.
43. Clause 4.6 of the Agreement provides:
‘4.6 Election by Ammon
Upon PIO earning its 80% Joint Venture Interest it shall notify Ammon of this in writing
and Ammon shall have a period of 90 days within which to elect, by notice in writing
whether he wishes to
…[(i)]… Contribute to the Joint Venture in accordance with his 20% Joint Venture
Interest or …..
…[(ii)]… Withdraw from this Agreement and the Joint Venture.
If Ammon elects to withdraw he shall first offer to transfer his Joint Venture Interest to
PIO for the then net present value calculated by reference to the feasibility study and on
terms to be agreed between Ammon and PIO at that time.
PIO and Ammon shall have a period of three months from the date of Ammon’s offer to
PIO within which to agree the terms, and PIO shall have a further three months from the
date upon which such terms are agreed within which to make payment.
[2014] WAMW 18 __________________________________________________________________________________
Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 12
If PIO does not elect to accept Ammon’s offer, or if terms cannot be agreed within the
three month period, Ammon may offer to sell his Joint Venture Interest to a third party.
If terms are agreed but PIO does not make payment within the further three month period
then PIO shall be liable to pay interest on the outstanding amount at the rate prescribed in
clause 9.2, unless the parties have agreed to extend the further three month period.’
44. The Plaintiff does not dispute the SRK Report was delivered to the Plaintiff by the 1st
Defendant on or about 25 January 2008. However, the Plaintiff denies the SRK
Report was the Study and as such the Plaintiff maintains he was not required to make
the Election under clause 4.6 of the Agreement within the 90 day period that would
have expired on or about 23 April 2008.
Free Carry Period
45. The Agreement provides at clause 2.5 for a Free Carry Period during which the
Plaintiff was free from any liability under the terms of the Agreement. Clause 2.5 of
the Agreement provides:
‘2.5 Several Liability
During the Free Carry Period Ammon shall not be liable to PIO or any third parties and
shall be indemnified in respect of such liability by PIO. After the Free Carry Period the
liabilities of the participants to each other and to third parties shall be several in
proportion to their respective Joint Venture Interest from time to time and shall not be
either joined or joint and several.’
46. The term ‘Free Carry Period' is defined in clause 1.1 of the Agreement as follows:
‘means the period from the Commencement Date up until the date upon which Ammon
elects, in accordance with clause 4.6, that he intends to contribute to the Joint Venture in
accordance with his Joint Venture Interest.’
47. The Plaintiff contends until the end of the Free Carry Period the Plaintiff has no
liabilities under the Agreement and no need to seek finance of any sort. The Plaintiff
also contends, failure by the 1st Defendant to complete the Study within the Earning
Period means the Plaintiff has never been put to his Election under clause 4.6 of the
Agreement. In those circumstances, the Plaintiff maintains the Free Carry Period has
not ended, other than as a consequence of the deemed withdrawal by the 1st
Defendant under clause 4.4 of the Agreement.
Finance
48. The Agreement makes provision, in clause 4.6 of the Agreement, for the means by
which the Plaintiff is entitled to raise funds to fund contributions that he would
become liable for if the Plaintiff was to make the Election pursuant to clause 4.7 (a)
of the Agreement, that is to contribute in accordance with clause 4.6 of the
Agreement.
49. Clause 4.7 of the Agreement provides:
‘4.7 Obtaining of Finance by Ammon
a) If Ammon elects to contribute in accordance with clause 4.6 he shall have a
period of 12 months from the date of notification by PIO to Ammon that PIO has
earned its 80% Joint Venture Interest within which to raise project finance (‘the
Finance Raising Period')
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b) During the Finance Raising Period PIO shall find Ammon’s share of Joint
Venture Expenditure until such time as Ammon succeeds in obtaining project
finance, at which time Ammon shall repay to PIO all such expenses incurred by
PIO on Ammon’s behalf during the Finance Raising Period without delay.
c) If Ammon is successful in obtaining project finance he shall immediately advise
PIO in writing and, from that time, he she or become responsible for contributing
to Joint Venture Expenditure in accordance with his Joint Venture Interest, which
shall include liability for cash calls in accordance with clause 9.
d) If Ammon is unsuccessful in obtaining project finance during the Finance
Raising Period or at the election of Ammon at any time during the Finance
Raising Period, Ammon’s Joint Venture Interest will convert to a 2.5% gross
value FOB production royalty in respect of all production of iron or by PIO from
the Tenements, Ammon shall be deemed to have withdrawn from the Joint Venture
and Ammon shall transfer his interest in the Tenements is to PIO at no cost.’
50. The Plaintiff maintains he has not been put to his Election under clause 4.6 of the
Agreement because the SRK Report is not the Study.
51. Further, the Plaintiff maintains the Agreement ensures the Plaintiff could have no
liability to contribute to Joint Venture Expenditure either:
a. during the Free Carry Period, or,
b. pursuant to clause 4.6 if the Plaintiff had made an Election to
contribute, unless he had first successfully obtained project finance
to make the contributions required in clause 4.7.
52. In the absence of an Election by the Plaintiff to contribute under clause 4.6 of the
Agreement, the Plaintiff submits clause 4.7 of the Agreement has no work to do.
53. Accordingly, the Plaintiff maintains he could only continue to participate under the
terms of the Agreement if he:
received the Study;
made an Election to contribute in accordance with clause 4.6, and
having made his Election, successfully obtained project finance
during the Finance Raising Period to make the required contributions
under clause 4.7.
Witnesses for the Plaintiff
Peter Roderick Williams
54. Mr Williams gave evidence he was the managing director of SRK from about 1999
until March 2010, although he finished working for SRK on about 1 July 2012.
55. Mr Williams said another person had prepared the SRK covering letter dated 24
January 2008 under which the SRK Report was transmitted to the 1st Defendant,
although Mr Williams said he signed that letter (‘Transmittal Letter’).
56. The SRK Report was prepared by Mr Carl Murray (“Mr Murray”) a Project Manager
at SRK, according to Mr Williams. Mr Williams said he had no input in the
preparation of the SRK Report.
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57. In 2009, Mr Williams said the solicitors for SRK was Tottle Partners and it was he
who the responsible for dealing with them. Mr Williams was referred to a letter from
Tottle Partners to Dwyer Durack, solicitors for the Plaintiff, dated 30 October 2009
in which details were provided by Tottle Partners on behalf of SRK as to the source
of the AME Forecast Figures used in the preparation of the SRK Report. Mr
Williams confirmed the information was provided to him by Mr Murray.
58. Mr Williams was also referred to a further letter from Tottle Partners to Dwyer
Durack dated 15 December 2009. Mr Williams said he recalled that letter and
obtained the information that forms the basis for the response by Tottle Partners to
Dwyer Durack as having been provided to him by Mr Murray, the author of the SRK
Report.
59. The procedure Mr Williams said was followed within SRK for the preparations of
responses to requests made from their solicitors was for a request to be forwarded to
SRK and a draft answer prepared by Tottle Partners that was forwarded to SRK for
approval.
60. The 1st Defendant did not cross examine Mr Williams.
Quentin George Amos
61. Mr Amos is the managing director of A & M Amos Pty Ltd who supplies consulting
services to the mining industry, infrastructure industry and related industries and also
to non-mining business. Mr Amos is also a teacher in project finance and corporate
finance for various institutions. Further, Mr Amos holds a Bachelor of Science
Degree with Honours in Geology. He is also a Fellow of the Australasian Institute of
Mining and Metallurgy and the Financial Services Institute of Australia.
62. On 11 November 2011, Mr Amos completed a report on the SRK Report at the
request of the solicitors for the Plaintiff (“Amos Report”). By way of summary of the
SRK Report, the Amos Report stated the following:
“In my opinion the SRK Report cannot be considered as a study, which contains
comprehensive information and which has an accuracy level of ± 10-15%. Indeed many
recommendations for additional work are made to bring information, which is
concluded to be at pre-feasibility or scoping study level to feasibility study levels of
accuracy. In some instances information is totally lacking such as hydro-geological
data from the tenement. In other instances as referred to in the body of this report there
is no independent checking of data or conclusions. With those factors in mind I do not
consider that the SRK Report constitutes a feasibility study as would be normally
expected to be delivered to a potential project financier for consideration to advance
funds. Indeed in my opinion with the amount of outstanding issues no project financier
would advance funds to complete the SRK Report to feasibility level even if there was a
year available to complete such work, particularly in today's very tight labour and
mining equipment markets which would make any such sensible completion of a report
within the time frame of one year highly improbable - there is simply a great deal of
work to complete. In my opinion a project financier would consider that the risks of
losing the funds it might advance could be very high and asked it is extremely unlikely
that project finance could be sought successfully by Mr Ammon on the basis of the SRK
Report.”
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63. In cross examination, Mr Amos said he had worked as a geologist in a number of
mines and had been involved in the preparation of feasibility studies in relation to
gold and tin in about 1986. He has not been involved in the preparation of feasibility
studies for iron ore deposits but has had a lot of experience as a financial adviser
looking at iron ore projects.
64. Mr Amos said he used the term “project finance” in the Amos Report to mean
‘where the financiers look towards the economic unit which is - these are the asset
or group of assets from which earnings at derived and to the project cash flows for
the sole repayment of either the loans or the equity involved, and can take security
only over the assets or group of assets of the companies.’ Further, Mr Amos said he
understood the word ‘project’ to mean the development of mining related
infrastructure and the conduct of mining operations.
65. It was not the case that Mr Amos considered ‘project finance’ to be restricted to debt
finance from a bank or other lending institution. He said ‘project finance’ is not
confined to debt and he never, in any way, assumed that was the only recourse to
finance in this case. He went on to explain it could be debt or equity or quasi-debt or
combination thereof in very specific and different circumstances provided by a
variety of different styles of provider.
66. Mr Amos said in preparing the Amos Report he was conscious the Plaintiff might be
seeking project finance for only a 20% interest and the Plaintiff would be seeking
borrowings in the way of finance from any institution which would provide finance
not just a lending institution. The institutions could also include a fund that could
loan the money or a trade finance investor. Mr Amos clarified his meaning of
‘project finance’ as being ‘the injection of money to sustain the development of the
project’.
67. Mr Amos was questioned concerning this reference to the level of accuracy that
banking institutions would expect by way of a level of accuracy of a study that is
presented to it. He was also asked if the reference to the level of accuracy was to the
overall content of the study. Mr Amos said the accuracy he referred to was the
accuracy that one would expect to each piece of data within the data set. He went on
to say he would expect that each piece of data delivered in a project finance sense,
particularly in the categories of operating costs, capital cost, machine performance,
hydrology, seismology, the amount of drilling conducted and particularly with
regard to the accuracy that are derived therefrom he would expect it to be in respect
to each and every single piece of data, not an overall term, but a term specific to each
part of the dataset.
68. It was conceded by Mr Amos that what he would expect may not be what he receives
and what is reflected but, that is what he would expect. Mr Amos was then asked if
the absence of that level of accuracy in each and every item is not necessarily fatal to
the utility of the study for the purposes of seeking finance. Mr Amos was of the view
that not each and every item would be expected to be of that level of accuracy, but if
he were to receive something which had possibly more than one item or one of those
items was less than that degree of accuracy he would be sending the proponent away
and informing them to ‘go and do your homework’.
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69. Mr Amos said if one was looking to start up a mining project that needs some
infrastructure to be built, finance may be needed not only to cover the capital costs
but also to cover a period during which operating expenditure is incurred before
revenue starts to flow.
70. Mr Amos also said requests made to banks and other institutions for the funding of a
mining project would generally construct their own financial model of the project if
they are going to consider it in any detail. However, if the bank or financial
institution did not receive a financial model from the company prior to the bank or
financial institution doing that they would have severe reservations about the data
provided to them by the proponent. It could be the case, said Mr Amos, a prospective
financier would generally either obtain and adopt a proponent’s model or prepare
their own or they could do either.
71. Mr Amos was asked whether lending institutions approached for project finance in
respect to Australian mining projects would have their own economics Department
which assess financial parameters, interest rates, foreign exchange rates in
commodity prices and the like. Mr Amos said the process is one whereby the lending
institution would be given a price deck for inclusion in a model which may pertain to
such items as commodity prices or foreign exchange rates. Mr Amos went on to say
when it came to other matters to be included in the model a lending institution would
seek outside assistance on such things as commodity prices from independent
sources. Such decisions by lending institutions as to whether they use internal or
external sources to provide information varies on the nature of the institution.
72. It was agreed by Mr Amos that in order to engage the attention of a lending
institution who may be prepared to consider to advance some kind of finance for a
mining project the proponent would need to present the leading institution with a
study which concluded that the project was technically feasible, economically viable
and other factors including political and environmental were all satisfactorily dealt
with otherwise the lending institution may not seriously consider the proposal.
73. If all such factors do not point to the proposal being viable or feasible Mr Amos was
of the view there would be no point being there. There may be other modifying
factors which may need to be considered even though a project is economically
viable and technically feasible including political and environmental issues.
74. Mr Amos indicated a proponent who presents a prospective mining project to a
financial institution seeking funding would generally require the proponent to pay
for an independent consultant to review the study and report back to it. However, Mr
Amos said there had been circumstances in which a lending institution has paid for
such studies.
75. Further, Mr Amos generally agreed that alumina and silica are impurities found in
the iron ore and one of the issues for any potential mine project for iron ore is the
issue of how the impurities will react and behave in a furnace with the various levels
of iron ore being processed. He agreed there was more to the marketability of iron
ore than just looking at the grade of iron within the ore.
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76. In re-examination, Mr Amos said a financial institution would not waste its time
conducting or undertaking any of its own work if it is not convinced the level of
accuracy and completeness of data is sufficient for it to be engaged in such a project.
Mr Amos further said, financial institutions have many opportunities all the time and
if someone were to pay them a visit with something that was considered not to reach
those levels of completeness or accuracy there would be a request that they went
back and did some more hard work and then produce a study that had been
completed because then and only then would it be suitable for the financial
institution to commit time and expense to dealing with the proposal in its own right.
77. The level of accuracy and completeness that Mr Amos said he would seek to see in a
feasibility study would be ± 10% to ±15% on all factors particularly the major
factors. On the issue of completeness of data, Mr Amos said were it appears that if
data was not complete it can either be interpreted as a lack of ability or, at worst, a
subterfuge and it would be regarded as being poorly advised to proceed in such a
case.
Michael John Lawrence
78. Mr Lawrence is the Chief Executive Officer and Chief Valuer of a business named
Minval Associates that services the mineral industry in the area of due diligence and
project assessment and subsequent valuation and dispute resolution services. Mr
Lawrence has qualifications in Geology and is, amongst many other qualifications.
Memberships and awards, a fellow of the Australasian Institute of Mining and
Metallurgy.
79. Mr Lawrence is the author of a report dated 4 July 2011 titled ‘Independent Expert
Opinion on Pilbara Iron Ore Pty Ltd’s Mindy Mindy Feasibility Study’ (“Lawrence
Report”). Mr Lawrence confirmed it contained his opinion on the matters he was
asked to examine under a letter of appointment and instruction from the Plaintiff’s
solicitors dated 26 June 2011. Prior to that letter of appointment and instruction Mr
Lawrence had received material forwarded to him by the Plaintiff’s solicitor
pertaining to the request on about 5 February 2008. Certain parts of the Lawrence
Report were excluded from evidence consistent with rulings of the Warden on 21 &
22 March 2013.
80. The material received by Mr Lawrence included, apart from letters of instructions
from the Plaintiff’s solicitors, a copy of the SRK Report, the Transmittal Letter and
copies of modelling used in preparation of the SRK Report. A number of
typographical errors were corrected in the Lawrence Report.
81. Mr Lawrence said in the Lawrence Report:
‘The ultimate objective is to produce a document that does (or does not) support the
internal or external allocation of funds to develop the deposit into a mine - the
Bankable/Definitive/Final Feasibility Study. While support for going ahead or not
with a project must be very thoroughly examined and reviewed so as to provide an
unequivocal conclusion, it is paramount that its result is as accurate, precise and
reliable as possible. Hence it also must be complete.’
82. Mr Lawrence outlined the generally non-controversial 3 types of techno-financial
studies of mineral projects in order of their increasing reliability of content and
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advice, which he said is necessarily related to the stage of the development of the
project and thus the extent and availability of geo-scientific and related financial
information on development and likely mining/processing/transport/sales costs. The
three types of techno financial studies of mineral projects cited by Mr Lawrence are:
Scoping Study - asking what could the mineral project be; and is accessible to
continue to explore it. It is a preliminary initial review involving conceptual
designs an order of magnitude costings so that is expected to have study of
imports accurate to only ± 40% to ± 50%.
Pre-feasibility Study - asking what should the mineral project be; it has the
optimum way forward (project configuration and parameters) been identified by
examining and reviewing all of the available options/alternatives. It is a precursor
study to the feasibility study with inputs expected to be accurate to ± 20% to ±
25%.
Feasibility Study - what will the mineral project be; what are the likely risks and
rewards involved with the chosen project configuration/parameters and optimise
design basis for the design specifications; and is the investment case unlikely to
vary significantly because of the thoroughness and due diligence exercise to select
the scenario adopted. It is a holistic technical, economic and socio-political
analysis that must have sought to identify and proposed management of all the
possible ‘project killer’ risks and provide a reliable estimate of project value upon
which an investment decision and allocation of funds can be made. Often the
terms ‘Definitive’ or ‘Bankable’ or ‘Final’ are added to emphasise this primary
purpose. It is expected to have study imports accurate to ± 10% to ± 15%.
83. Mr Lawrence said in the Lawrence Report that an appropriate quantity and quality of
ore reserves are critical to the final economic assessment of iron ore project. An Ore
Reserve Statement (“Reserve Statement”) is required before project funding can
realistically be expected to be allocated according to Mr Lawrence. Mr Lawrence
also noted in the Lawrence Report that the absence of any independently prepared
and verified JORC Code compliant Reserve Statement is another fatal flaw in the
SRK Study because it underpins any claim about the quantity and quality of iron or
that can be produced. According to Mr Lawrence, there was no evidence of material
attempts by SRK to critically verify the assumptions behind the core inputs to its
conclusions, as expected by the JORC Code or the VALMIN Code.
84. In cross examination, Mr Lawrence said in the past 20 years he has not been
involved in the preparation of either a Scoping Study or a Pre-Feasibility Study but
has been retained to examine them from a due diligence point of view to assist
clients establish if the study was adequate for their needs. In the 1970’s, Mr
Lawrence said he has been involved in the preparation of such studies.
85. Mr Lawrence said he had not prepared a Feasibility Study for an iron ore deposit but
has examined then to express an opinion. Much of his work in the last 10 years has
been the valuation of proposals by proponents for prospective financiers for possible
mining projects.
86. Mr Lawrence said when referring in the Lawrence Report to the SRK Report ‘not
containing sufficient reliable information relating to the project’ his focus was the
Plaintiff had to make an Election and needed to have information to make that
Election and what subsequently happened after that was to raise finance to develop
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it. In general terms, Mr Lawrence said project finance generally related to events
after exploration and included development by way of construction of infrastructure.
87. It was pointed out by Mr Lawrence, that generally speaking, it is understood the
raising of project finance is obtained from external banks or other sorts of capital. In
some cases project finance can be raised internally from very large companies but
that also involves a proponent dealing with the board and seeking to advance their
request for funds for a project over some else’s project. Accordingly, Mr Lawrence
made the point that internal funding of project finance still requires consideration of
the feasibility of the proposed project but it is not as demanding as funding from an
external source.
88. In answering the questions posed to him in his instructions from the Plaintiffs
solicitors, Mr Lawrence said his main focus was to ask would the Plaintiff, or if I
was him, have enough information to make an Election. Mr Lawrence went on to say
the Plaintiff had the first hurdle of knowing what to do and as such all information is
reasonably required to make that decision.
89. For the Plaintiff to make an Election, Mr Lawrence said the Plaintiff must base their
decision on the reliability of the information given to him and he should have
confidence of completeness and reliability. Beyond that stage, Mr Lawrence said the
same types of questions would be asked by a bank if the Plaintiff were to approach
them for Project Finance and the question would be ‘why should we?’
90. Mr Lawrence said he understood the maximum interest the Plaintiff would have
under the Agreement was 20% but he did not understand Project Finance to simply
be debt or borrowing and envisaged that it could include equity. However, Mr
Lawrence said he didn't envisage Project Finance would come from an IPO and issue
it meant borrowing of money from somebody that may include a bank or other
lending institution including private equity.
91. According to Mr Lawrence, the amount he understood from the SRK Report that
could be sought by the Plaintiff was approximately 20% of $300 million. Mr
Lawrence said he is aware that there is finance available for 20% shares in projects
but consideration would be on the manner in which the other participants may be
financing their contributions. Mr Lawrence said in the back of his mind during the
preparation of the Lawrence Report he sensed that that may be the direction the
Plaintiff would go to raise Project Finance if required. In those circumstances, Mr
Lawrence said a financier would require a feasibility study conducted to a particular
level of accuracy, whether it is a bank or some other source, of ± 10% to ± 15%
accuracy.
92. It is also the case, said Mr Lawrence, that banks and other financial institutions in
Australia to whom approaches for finance for mining projects are made will almost
invariably require the project proponent to engage an independent firm of engineers
to undertake a review of any feasibility study proffered by the proponent and have it
audited or a due diligence conducted upon it to ensure it has been properly done. The
cost of that review is borne by the proponent.
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93. Mr Lawrence confirmed that major banks have their own economics departments
that attend to their own economic forecasting of financial parameters including
interest rates, foreign exchange, discount rates and commodity prices. Some of those
functions maybe contracted out to consultants. Financial models for mining
proposals are also held by banks or they will utilise the services of a consultant. Mr
Lawrence said banks and other financial institutions will use their own data and
financial parameters when considering mining proposals by proponents and reach
their own conclusions as to the viability of the proposed project.
94. Mr Lawrence was asked by counsel for the 1st Defendant the following:
‘No. I’m just looking at the stage of what happens when someone goes with a
proposal with a feasibility study, how the bank actually enters into the process of
decision making? --- They don't do what you are doing until they are satisfied it is
complete, it's reliable, accurate, precise, all those things and if things are missing - if
certain things are missing, like an ore reserve or something, they simply don't
proceed. They don't bother to waste a scintilla. They have got limited money on a
number of people wanting a piece of it. They expect projects that they are going to -
and so does it internally. You have to have it cooked. It's like a cake; you don't sort of
selling half cooked.’
95. Mr Lawrence agreed the studying of the possible mining venture to exploit a mineral
deposit whether it's by scoping, prefeasibility or feasibility study is an iterative
process. There exists interdependence or interrelationship between the various
factors which affect both be technical and economic feasibility. However, Mr
Lawrence said what is technically feasible and what is economically viable does not
necessarily follow in the mining industry.
96. Further, Mr Lawrence said he would expect those that are involved in reviewing
proposals for finance for mining projects including those associated with the
engineering mining and geo-technical qualifications and those involved in the
financial qualifications would consider, in accordance with their obligations to any
professional bodies, the risks associated with the project and its viability from all
aspects.
97. The content of financial modelling is, according to Mr Lawrence, only as good as the
quality of the imports in and imports out. Financial modelling involves the
application of various sensitivities to determine the impact of various changes in
financial parameters.
98. Mr Lawrence said he prepares valuations of mining proposals and utilises the
services of other professionals depending on the nature of what is required.
According to Mr Lawrence, whether the project is doing a feasibility study, a
valuation or a due diligence the report that is produced is generally collaborative
involving people of different disciplines. The lead author will receive information
for from all other professionals and will give it a reality check by critically
evaluating its content.
99. Mr Lawrence was referred to the cut-off grades for iron ore contained within the
SRK Report. Mr Lawrence said the cut-off grades determine the mine design to
ensure the better grades of all are removed from the mine the first. As a consequence
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by assessing cut-off grades models can be prepared for pit design by varying various
parameters.
100. Mr Lawrence agreed that financial models used as part of a process of studying the
possible mining project is generally speaking to capture all costs which are
potentially going to be incurred by the project participants.
101. In re-examination, Mr Lawrence said he understood when preparing the Lawrence
Report the terms of the Agreement provided, at one end, for the Plaintiff to make an
Election to either contribute or, at the other end, to withdraw. Mr Lawrence said he
understood the word "contributions" to mean if the Plaintiff elected to take 20% he
would therefore be in that position of having to contribute and he would then have to
find money from somewhere.
Closing Submissions by the Plaintiff
102. The Plaintiff submits on an analysis of the documentary and oral evidence presented
in this case he has demonstrated to the requisite standard of proof the SRK Report
delivered by the 1st Defendant to the Plaintiff, on or about 25 January 2008, was not
the Study for the purposes of the Agreement because the SRK Report could not, and
did not, enable the Plaintiff to exercise his rights under either of clauses 4.6 or 4.7 of
the Agreement.
103. The Plaintiff’s assessment of the terms of the Agreement has previously been
referred to in this decision. The Plaintiff also relies upon the evidence of Mr
Lawrence and his assessment of the 3 three types of techno-financial studies of
mineral projects being ‘Scoping Study” of what could the mineral project be with
inputs accurate to only ± 40% - ± 50%, ‘Pre-Feasibility Study’ of what should the
mineral project be with inputs accurate to only ± 20% - ± 25%, and, ‘Feasibility
Study’ of what will the mineral project be with inputs accurate to only ± 10% - ±
15%.
The Role of SRK in the Preparation of the SRK Report
104. The Plaintiff submits the communications associated with the preparation of the
SRK Report and the SRK Report itself all demonstrates the 1st Defendant and its co-
owners, CML and FMG, all acted as one. The role of CML and FMG in the
management and flow of data and information to SRK and the engagement of
contractors is outlined in Appendix 26 to the SRK Report. (Exhibit 21, Volume 10,
pages 4048 to 4051).
105. SRK states in Appendix 26 to the SRK Report that CML, on behalf of the 1st
Defendant, approached SRK in July 2006 and requested SRK submit a proposal for a
Pre-Feasibility Study on the E. The Plaintiff submits the request from CML to SRK
in July 2006 for the proposed Pre-Feasibility Study was done by CML for the sole
purpose of generating a ‘completed feasibility study’ in accordance with the terms of
the Agreement. In January 2007, CML instructed SRK that ‘the FS would commence
in February 2007 with completion targeted for June 2007’.
106. The Plaintiff submits SRK in its own assessment of the SRK Report noted it was
accurate only to ‘Pre-Feasibility’ level. The Plaintiff says, on the basis of the
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unchallenged evidence of Mr Lawrence the level of ‘Pre-Feasibility’ accuracy is ±
20% - ± 25%.
107. Further, the Plaintiff says, as a whole, the SRK Report could never be more than the
accuracy of SRK's own work to a level of ± 20% - ± 25% that is despite SRK’s role
in the provision of its own work and its role in the compilation of the SRK Report.
108. The Plaintiff argues SRK attempts to draw a distinction between work it has
completed itself and work completed by contractor's or information, data or material
provided by others, including work or data and information provided by the 1st
Defendant or its co-owners, CML and FMG, when it refers to SRK being tasked
with ‘compiling a complete study report for PIO’.
109. Although the role of SRK was to compile work completed by both itself and others
and thereby provide to the 1st Defendant a feasibility study, the Plaintiff notes that
some of the work was provided directly to SRK from other contractors including
WP, HWE, Coffey and DRAP. The Plaintiff opines that, in the absence of any other
explanation from the 1st Defendant, the providing of aspects of studies directly to
SRK by other contractors maybe to allow the 1st Defendant to have greater control
over some parameters of the work of SRK.
110. Despite SRK receiving work directly from WP, HWE, Coffey and DRAP the
Plaintiff submits SRK considered that work ‘should be considered as integral to the
substance and outcomes of the report’. (Exhibit 18, Volume 7, page 1700).
111. The Plaintiff commented on the work of DRAP and WP that was received directly
by SRK. Those comments are as follows:
a. DRAP Study
The study completed by DRAP was described by DRAP as a
‘Scoping Study’. The nature and accuracy of the DRAP Study is
contained within it is disclaimer which states the study; ‘is based
largely and materially… on details, information and assumptions
provided by others and DRAP cannot therefore guaranteed the
correctness of the review or study’.
The opinions expressed by DRAP in its study are said by DRAP to
be ‘based solely on the information provided to DRAP’.
The Plaintiff submits the unchallenged evidence of Mr Lawrence is
that a ‘Scoping Study’ is accurate only to ± 40% - ± 50% and not
accurate to ± 20% - ± 25%. DRAP evaluated the accuracy of its
own study at ± 30% which the Plaintiff says he is well below the
level of a Pre-Feasibility study of ± 20% - ± 25%. This, submits the
Plaintiff, is further evidence of the efficacy of the various levels of
accuracy of such reports as described by Mr Lawrence.
Further, DRAP reports that their study was intended for the
confidential use of CML and not a distribution to any third party. It
follows submits the Plaintiff that SRK could only have received a
copy of the DRAP study from CML.
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b. Worley Parsons Study
The WP study was completed in two stages. The first stage was
used by SRK to estimate the cost of transporting minerals mined at
the tenements and is dated 25 October 2007. The second stage is
dated 3 December 2007 and is focused on what was described as
being on the eastern haul route.
WP describes the Stage 1 report as accurate to ± 40% or better. The
Plaintiff submits the Stage 1 report was no better than a ‘Scoping
Study’ in accordance with the categories alluded to by Mr
Lawrence.
WP describes the intention of the Stage 2 study ‘to further develop
their preferred option to a feasibility level of precision to achieve
the feasibility submissions timeline for the eastern route.’ The
Plaintiff submits the comment by WP of the intention of the Stage 2
study demonstrates that the Stage 1 report was less than a
‘Feasibility Study’ and no better than a ‘Scoping Study’ when one
compares it to the evidence and description of Mr Lawrence on the
various levels techno-financial studies.
The WP Study - Stage 2 was submitted directly to be 1st Defendant.
The executive summary of that study was noted by WP to be
accurate to ± 20% - ± 25% and noted as specifically falling short of
‘a definitive estimate of ± 15% accuracy’.
The language used in Stage 2 of the WP study reflects the evidence
of Mr Lawrence in that accuracy of ± 20% - ± 25% is something
less than a ‘Pre-Feasibility’ study or a ‘screening level estimate’.
The Plaintiff submits WP acknowledged that they did not reach the
level of accuracy of a ‘Feasibility’ level of precision with at least ‘±
15% accuracy’.
The key drivers emphasised in the ‘SRK Scope’ of the SRK Report
that place significance on the WP study were identified early in that
Report as being:
capital to construct the road train haul road,
operational cost of the road train haulage,
operational cost of the rail, port and ship loading facility
It was noted by SRK that the 1st Defendant focus resources on the
above three key areas to increase the overall accuracy of the study
in the time available.
112. The Plaintiff submits SRK certainly understood the SRK Report was intended to be a
‘Feasibility Study’ because SRK acknowledged that in the Transmittal Letter to the
1st Defendant. The Plaintiff noted that SRK identified the overall level of accuracy of
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its work as being something other than what was required as it noted the standard
that was reached was to a degree of accuracy of "Pre-Feasibility".
113. The significance of the level of accuracy of "Pre-Feasibility" in SRK Report was
made apparent, argues the Plaintiff, in the unchallenged expert evidence of Mr
Lawrence regarding the relationship between the three levels of techno-financial
studies in which he said:
“It is common ground throughout the Mineral Industry that there are 3 types of
studies concerned with examining the technical feasibility and economic viability of
exploiting a mineral deposit - a Scoping Study, a Pre-Feasibility Study and a
Feasibility Study - each with an increasing level of confidence and certainty in its
conclusions, due to an increasing level of accuracy and precision in the inputs and
generally greater comprehensiveness in the data. The selected inputs at every stage
must be demonstrably reasonable and objective, with the high expectations of
reliability been for a Feasibility Study, which is more about our business plan and
just construction of a mine and its facilities.”
114. The Plaintiff submits the increasing accuracy, precision and comprehensiveness of
the data results in the ‘high expectation of reliability.. for a Feasibility Study’. From
a commercial sense, the Plaintiff says the evolution required by the different levels
of studies would ensure a financial institution or other source of finance would be
more disposed to lend money if a proposal that is well documented is presented in a
report of what a mineral project will be and is considered to be accurate, concise,
comprehensive and reliable as confirmed by the expert evidence of Mr Amos.
115. The Plaintiff argues SRK was well aware of the purpose of the SRK Report as it
noted the following:
‘Pilbara Iron ore Pty Ltd (PIO) a 50/50 incorporated joint venture between
Consolidated Minerals Ltd (CML) and Fortescue Metals Group (FMG) , is farming
into exploration licence 47/1140 (EL 47/1140) under the Mindy Mindy Farmin and
Joint Venture Heads of Agreement. Under the terms of this agreement PIO must
conduct and present a Feasibility Study (FS) on the viability of EL 47/1140..’ (See:
Exhibit 18, Volume 7 p 1705)
116. Further, SRK stated the following:
‘…the objective of the FS is to determine whether a particular project is:
Technically and practically executable;
Commercially possible and adhere to legislative requirements; and
Financially viable.’
(See: Exhibit 18, Volume 7 p 1706)
117. The Plaintiff contends it is clear SRK well understood the requirements of the task it
was embarking on in the preparation of the SRK Report. Further, the Plaintiff
contends SRK clearly understood it was obliged to produce a ‘Feasibility Study’ and
not a ‘Pre-Feasibility Study’ and that is why SRK went to considerable lengths in the
‘SRK Scope’ to explain the SRK Report was not accurate to the required level of ±
10% - ± 15%.
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118. The Plaintiff relies upon the expert evidence of Mr Lawrence of the role of each
level of techno-financial studies and the requirement for there to be increasing levels
of accuracy in the input data associated with those studies. In that regard, the
Plaintiff submits it is only the highest level of accuracy of inputs, ± 10% - ± 15%, in
a ‘Definitive/Bankable/Feasibility Study’ that is likely to obtain funding.
119. Accordingly, it is the Plaintiff's case that, a ‘Pre-Feasibility’ level of accuracy (at
best) adopted by the SRK Report precluded the Plaintiff's exercise of his rights under
the Agreement to seek to raise Project Finance because it failed to provide a
‘feasibility study’ that was accurate, independent, comprehensive and reliable
The Feasibility Study
Purpose
120. The Plaintiff notes the parties consented to split the case by dealing with 2
preliminary questions of law before going on to the question of the alleged breach.
The preliminary questions of law and its result has been summarised earlier in this
decision. The Plaintiff submits the significance of the “Yes” answers to both the
preliminary questions of law is the purpose of the Study required by the Agreement
and its content have been determined and those issues are no longer a matter for
argument.
121. The purpose of the Study is that set out in paragraph 11 of the Amended Plaint and
its required contents are identified by the Implied Term at paragraph 12 of the
Amended Plaint.
122. The Plaintiff’s case on ‘breach’ has to be determined in the context of the PI
Decision.
123. Accordingly, the Plaintiff submits, the purpose of the Study to be completed by the
1st Defendant was to inform the Plaintiff's Election to allow the Plaintiff to decide
either to:
a. Withdraw and first offer to transfer his interest to the 1st Defendant
pursuant to clause 4.6 of the Agreement, for the then net present value of
the interest calculated by reference to the Study, or
b. Contribute to Joint Venture Expenditure and seek to raise Project
Finance pursuant to clause 4.7 of the Agreement.
124. It is of note, submits the Plaintiff, the choices the Plaintiff had to elect from as
provided in the Agreement were choices solely to be made by the Plaintiff and then
only made on the basis of a ‘completed feasibility study’. Accordingly, the continued
participation by the Plaintiff is determined by the Election made by the Plaintiff. In a
like manner, the continued participation by the 1st Defendant is made by its
assessment and evaluation of a ‘completed feasibility study’. That issue was referred
to by the Warden in the PI Decision at [81] to [83].
125. In reference to the PI Decision, the Plaintiff submits that whilst the ‘completed
feasibility study’ was for the benefit of both participants, it was to inform the
Plaintiff of his Election and future participation in any joint venture. The Election
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was a matter solely for the Plaintiff and was not a joint decision between the Plaintiff
and the 1st Defendant.
126. The Plaintiff submits, the importance of the Study is the basis to determine
participation in the joint venture by the Plaintiff’s Election and the 1st Defendant's
decision whether to withdraw or seek the transfer of the 80% Joint Venture Interest
and the ‘completed feasibility study’ could be used by the ‘Joint Venture participants
to utilise the purposes of advancing the objects of the Agreement’. (see: PI Decision
at [81])
127. Further, the Plaintiff submits this is what makes the Agreement more than a mere
‘farmin’ Agreement. The Agreement is at the heart of the determination of who is to
continue to participate in the joint venture in respect of the mineral project described
in any ‘completed feasibility study’ delivered to the Plaintiff by the 1st Defendant.
Until those who are to continue to participate in the joint venture identified the
mineral project described in any ‘feasibility study’ cannot be advanced.
128. The manner contemplated by the Agreement to determine who was to participate in
the joint venture is by the Plaintiff either electing to withdraw, or, electing to
contribute, pursuant to clause 4.6 of the Agreement, but, in the event he can't raise
Project Finance, the Plaintiff ultimately cannot continue to participate in the joint
venture at all (save that the Plaintiff would still receive a royalty). In such
circumstances, the 1st Defendant would be left with a 100% Joint Venture Interest
and the consequence would be that the Agreement would be rendered nugatory.
129. Accordingly, the Plaintiff submits the only manner in which he can continue to
participate in the joint venture is if he makes his Election to contribute and is able to
raise Project Finance as required by clause 4.7 of the Agreement. The choices the
Plaintiff had on his Election are all dictated by the ‘feasibility study’ to be
‘completed’ by the 1st Defendant.
130. The Plaintiff states SRK were requested by the 1st Defendant to examine and report
on a very discreet project based solely on the E. SRK described the project the
subject of the SRK Report as follows:
‘This study reports the likely outcomes from establishing a mining and processing
operation of the deposit utilising or only from E 47/1140, within the limits of the
study supplied by PIO’ (Exhibit 18, Volume 7, Tab 46, page 1700)
131. Notwithstanding the discrete project based solely on the E that SRK took 5 years to
complete a report on, SRK noted:
‘..further studies are required on a number of aspects of the feasibility study to allow
certainty in the final detailed mine design stage of the project’(Exhibit 18, Volume 7,
Tab 46, page 1700)
132. The Plaintiff submits there was no prospect that he could be armed with any
‘feasibility study’ other than the SRK Report during the 90 days in which he had to
make his Election, or during the Finance Raising Period described in clause 4.7 (a)
of the Agreement, that being 12 months less the time taken to make the Election. The
Plaintiff argues if the SRK Report was not ‘complete’, in that, it either (i) did not
allow the him to seek to raise Project Finance pursuant to clause 4.7 of the
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Agreement, (ii) was not independent, (iii) was unreliable, or (iv) was incomplete,
then any Election by him would become meaningless because, ultimately, he would
be forced to withdraw from the Joint Venture.
133. In that regard, the Plaintiff refers to the PI Decision at [85] in which the Warden
found the entire purpose of the Agreement was:
‘.. to determine if it was feasible for the Joint Venture to explore and, if warranted,
mine the Tenement. The tool agreed by the Plaintiff and the 1st Defendant in the
Agreement to determine the feasibility of the very purpose the Joint Venture was the
Feasibility Study the 1st Defendant agreed to undertake in return for gaining an 80%
Joint Venture Interest. The Plaintiff and the 1st Defendant would be entitled under
the terms of the Agreement to make their own independent and informed decision on
the basis of the completed Feasibility Study whether they considered the objects of
the Joint Venture were in fact feasible. Upon making such independent and informed
decisions from the content of the Feasibility Study both the Plaintiff and the 1st
Defendant could make the election of which of their rights they wish to exercise
under the Agreement.’
134. Accordingly, the Plaintiff maintains it is the ‘completed feasibility study’ that
describes the only project for which any Project Finance could be sought by the
Plaintiff. It is also the ‘completed feasibility study’ that provides the basis for
calculating the net present value of the Plaintiff's 20% Joint Venture Interest if the
Plaintiff makes his Election to withdraw from the joint venture.
135. The only Project Finance the Plaintiff is entitled to raise are those described under
clause 4.7 of the Agreement in respect to the Plaintiff's contribution to Joint Venture
Expenditure, that the Plaintiff described as being in respect to 20% Joint Venture
Interest. Joint Venture Expenditure is a defined term under the Agreement and is
described by the Plaintiff as being both retrospective and prospective to include
holding costs of the tenements and future costs towards project expenditure.
136. The Plaintiff submits that SRK understood, as Mr Lawrence opined, a ‘Feasibility
Study’ is required to address a particular mineral project as that project ‘will be’ and
also to address the financing of it.
137. To that extent, the Plaintiff submits, the unchallenged expert evidence of both Mr
Lawrence and Mr Amos was to seek Project Finance such a feasibility study to be
complete must be accurate to ± 10% - ± 15% and include a Reserve Statement.
138. The Plaintiff maintains the only purported ‘feasibility study’ available to him was the
SRK Report that was not complete because it was neither accurate to ± 10% - ± 15%
nor did it include a Reserve Statement.
139. Accordingly, the Plaintiff says the failure of the 1st Defendant to ‘complete’ a
‘feasibility study’ within the meaning of the Agreement rendered the Plaintiff's
Election meaningless and deprived him of the opportunity to participate in the joint
venture.
140. The second issue determined by the Warden in the PI Decision was whether the
Implied Term pleaded by the Plaintiff at paragraph 12 of the Amended Plaint was to
be implied. The Warden determined it was the implied term of the Agreement that
for there to be a ‘completed feasibility study’ it must that any feasibility study be
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accurate, independent, reliable (not incomplete or inaccurate) and include a Reserve
Statement.
141. The Plaintiff submits the basis upon which the Warden determined the Implied Term
was to be implied captured the essence of the Plaintiff's case, that is the SRK Report
did not put the Plaintiff in a position where he could exercise his rights under clauses
4.6 and 4.7 the Agreement because it was not complete and provided him either with
‘no information or insufficient information to enable him to exercise his rights’.
142. The Warden said in determining that the Implied Term was to be implied in the PI
Decision at [92] – [94] the following:
’92. The terms of the Agreement does not define nor specifies what the 1st Defendant
must do to be said to have ‘completed a Feasibility Study on the Tenements'
pursuant to clause 4.2 of the Agreement. On a proper construction of the
Agreement it is clear that implications must be made to enable the terms of the
Agreement to be properly implemented for the benefit of both the Plaintiff and the
1st Defendant.
93. To enable the Plaintiff to properly inform himself of his election under the
provisions of clause 4.6 of the Agreement or to seek to contribute to Joint Venture
Expenditure and raise Project Finance pursuant to the provisions of clause 4.7 of
the Agreement goes without saying that the Feasibility Study must contain
information of the standard that commercially validates the findings or conclusions
of the information contained within the Feasibility Study. There is no common
sense for the 1st Defendant to suggest it was not contemplated by the Plaintiff that
the Feasibility Study it was required to complete within 5 years would not be
utilised either by it or the Plaintiff for the advancement of any obligations or rights
they had under the terms of the Agreement or for the advancement of the very
purpose of the Agreement being ‘for exploring and, if warranted, developing and
mining tenements’ as contained within clause 2.1 of the Agreement.
94. If that were not the case the 1st Defendant could, on production of a document of
little commercial worth purported to be a document created in compliance with
clause 4.2 of the Agreement, earn an 80% Joint Venture Interest and leave the
Plaintiff in a position that he was none the wiser as to the feasibility of exploring
and, if warranted, developing and mining tenements and have no information or
insufficient information to enable him to exercise his rights under clause 4.6 of the
Agreement and therefore destined the Plaintiff to lose his Joint Venture Interest.
Such a situation is not contemplated on a proper construction of the Agreement.’
143. Accordingly, the Plaintiff’s case on breach of the Agreement focusses on paragraphs
14 and 19 of the Amended Plaint and engages deficits in the SRK Report going to
accuracy, independence, reliability and completeness.
Breach
Accuracy – Clause 14(1) and 19A Amended Plaint
144. The Plaintiff submits the PI Decision require that any ‘completed feasibility study’ be
accurate enough to enable the Plaintiff to seek to raise Project Finance pursuant to
clause 4.7 of the Agreement. If the Plaintiff elected to contribute to Joint Venture
Expenditure it would be in accordance with a 20% Joint Venture Interest to make
contributions in accordance with clauses 4.7(b) and 4.79(c) of the Agreement.
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145. The Plaintiff maintains if a ‘Feasibility Study’ that was accurate to it least ± 10% - ±
15% was required to seek Project Finance then the Plaintiff is entitled to judgement
against the 1st Defendant because the SRK Report was not such a ‘feasibility study’.
146. The Plaintiff submits its case on accuracy relies upon the breaches pleaded at
paragraphs 19A(i), (ii), (iii) and (iv) of the Amended Plaint that go to the level of
accuracy of:
a. the work completed by SRK (19A(i));
b. the DRAP Study (19A(ii));
c. the WP Study (19A(iii)), and
d. the financial sensitivity prescribed by SRK for the purpose of calculating
the net present value of the project (19A(iv)).
147. It is the Plaintiff's case that in order for the Plaintiff to be able to seek to raise
Project Finance pursuant to clause 4.7 of the Agreement the accuracy of a
‘completed feasibility study’ was required to be at least ± 10% - ± 15%. That degree
of accuracy of ± 10% - ± 15% for a ‘completed feasibility study’ is established,
submits the Plaintiff, by the unchallenged expert evidence of Mr Lawrence and Mr
Amos.
148. The Plaintiff relies upon the evidence of Mr Lawrence that if techno-financial
studies are incomplete or not to a high enough standard where material inputs are
expected to be known to it least ± 10% - ± 15% as in a Bankable/Definitive/Final
Feasibility Study the project funding application would be refused. The objective
review and assessment by Mr Lawrence of the SRK Report concluded the SRK
Report did not meet these criteria and his opinion was not challenged in cross-
examination. Similarly, Mr Lawrence held the opinion that project financiers would
be unable to assess the commercial merits of the exploitation of the E on the basis of
the SRK Report and Project Finance would not be made available to fund the
Plaintiff’s participation in any joint venture. The opinions of Mr Lawrence as to the
level of accuracy required to seek to raise Project Finance and the content of the
SRK Report, submits the Plaintiff, all fit into the various types of reports described
by Mr Lawrence as Scoping Studies, Pre-Feasibility Studies and Feasibility Studies.
149. The Plaintiff also submits Mr Amos gave unchallenged expert opinion that
established the levels of accuracy within the SRK Report were not of a level of
accuracy that would receive any serious consideration for finance particularly where
inputs on hydro-geological, geotechnical and mining issues were classified as pre-
feasibility levels of accuracy. Mr Amos concluded the SRK Report cannot be
considered a study which contains comprehensive information and which has an
accuracy level of ± 10% - ± 15%.
150. The Plaintiff then dealt with each of the alleged breaches on this ground of the
Amended Plaint.
Work by SRK
151. The work completed by SRK to assess the hydro-geological, geotechnical and
mining issues were classified by SRK as being at a level of ‘Scoping’ to ‘Pre-
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Feasibility' levels of accuracy and the resulting overall levels of accuracy for the
work completed by SRK was classified as ‘Pre-Feasibility’.
152. The Plaintiff submits SRK stated in the SRK Report that it was required to produce
a “Feasibility Study” and not a ‘Pre-Feasibility Study’. However, the Plaintiff
submits that because of SRK’s role as a compiler and analysis of information
provided by others for the purposes of the SRK Report the level of accuracy in the
vicinity of ± 20% - ± 25% tainted the whole of the SRK Report. Accordingly, the
Plaintiff submits the SRK Report was effectively a ‘Pre-Feasibility Report 'and not
a ‘Feasibility Study'.
DRAP Study
153. Studies provided to SRK for the purpose of producing the SRK Report, including
the DRAP Study, were integral to the substance of the outcome of the SRK Report
and were not accurate to a level of ± 10% - ± 15%. The Plaintiff submits the DRAP
Study was a ‘Scoping Study’ that was evaluated by DRAP to an accuracy of ± 30%.
That was well below the level of a ‘Pre-Feasibility Study’ and certainly not within
the requirements of a ‘Feasibility Study’.
WP Study
154. The WP Study was produced to estimate cost of transporting minerals and was
expressed by WP to be ‘a screening level estimate, normally defined as ± 25% - ±
30% accuracy’. The WP Study stated that considerably more engineering was
required to produce a definitive estimate of ± 15% accuracy.
155. In similar circumstances to the DRAP Study, the Plaintiff the submits when one
combines the level of accuracy of the WP Study with the levels of SRK’s own work
the multiplied outcome results in an even higher level of inaccuracy.
Sensitivity Analysis
156. The Plaintiff points to the financial sensitivity ascribed by SRK for the purpose of
calculating the net present value was ± 40% for iron ore pricing and ± 50% for
operating costs. The use this level of sensitivity was the subject of opinion by Mr
Amos who stated:
“However, there can be no confidence in the accuracy and precision of all inputs to
the SRK Financial Model from an objective review of the evidence in the MM Study
since no final level of accuracy/ provision is provided. One would reasonably expect
the accuracy/precision level of inputs to be given in such a study and that it would be
the required ± 10% - ± 15%. Instead, there is only the indication that it was much
less precise that (sic) required because the financial sensitivity analysis was
performed using a much higher ± 40% which is more typical of a Scoping Study than
a Feasibility Study.”
Independence – Clause 19B Amended Plaint
157. The Plaintiff submits the SRK Report was not independent in that it relied on
information and data provided by the 1st Defendant, including its co-owners CML
and FMG, that was not independently verified by SRK.
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158. The term ‘independently verified’ is used in the context, submits the Plaintiff, to
refer to the fact that SRK accepted such information and data uncritically and did not
seek to confirm the accuracy or reliability of such information or data. The Plaintiff,
says SRK, acknowledged it accepted the information and data uncritically in the
Transmittal Letter. (Exhibit 18, Volume 7, Tab 46, page 1701).
159. The Plaintiff identifies the information and data used in the compilation of the SRK
Report includes the 3 categories in paragraphs 19B(i), (ii) & (iii) of the Amended
Plaint as:
a. quantity, extent and nature of the minerals,
b. the financial input parameters used by SRK to optimise the estimated
resources of the tenement deposit, and ,
c. iron ore price forecasts and marketing.
160. The unchallenged opinion evidence of Mr Lawrence, argues the Plaintiff, is
supportive of his case when Mr Lawrence stated in the Lawrence Report that it is:
‘imperative that any Feasibility Study produce an objectively accurate result that can
be relied upon when making a decision on the technical feasibility and economic
viability of a project.’ and ‘otherwise it is deficient and there can be no confidence in
its content and conclusion’ and further that, ‘is widely inputs to any Feasibility Study
must come from independent sources about which there can be no reasonable
apprehension of bias.’ (Exhibit 3 page 47 lines317-1324)
161. The Plaintiff argues SRK identifies within the SRK Report that it did not
independently verify the information and data it used particularly as follows:
a. the accuracy of the results and conclusions from the review are entirely
reliant on the accuracy and completeness of the information and data
supplied by others (Exhibit 18, Volume 7, page 1733);
b. SRK optimised the resource primarily based on financial input parameters
supplied directly from CML, DRAP, FMG, WP and the 1st Defendant and
did not independently undertake any first principal costings studies or
independent benchmarking studies to verify the information supplied
(Exhibit 18, Volume 7, page 1701);
c. the financial model presented in the SRK Report relies on the same
information used with the mining study, but also included further
information supplied by the 1st Defendant (Exhibit 18, Volume 7, page
1701), and
d. SRK has not critically reviewed the WP, DRAP, HWE or Coffey reports
and has taken information supplied from these reports in good faith
(Exhibit 21, Volume 10, page 4051).
Clause 19B(i)(a) and 19B(ii) of the Amended Plaint
162. The Plaintiff submits, SRK was instructed by the 1st Defendant not to provide a
Reserve Statement for the ‘Tenements’ as part of the SRK Report (‘SRK Scope”,
Exhibit 21 Volume 10 page 4051) that being despite the fact such a Reserve
Statement was identified by SRK, by reference to the JORC Code (2004) as being
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the ‘minimum’ and standard ‘in to ensure that investors and their advisers have all
the information they would reasonably require for forming a reliable opinion on the
results and estimates are being reported’ such a statement was not included in the
SRK Report (Exhibit 21, Volume 10, page 4051).
163. It is the position of the Plaintiff such an instruction by the 1st Defendant
compromised the independence of the SRK Report.
164. The Plaintiff argues such a lack of independence is demonstrated in that the study by
Twomey and Chen (2006) was prepared internally by the 1st Defendant and went
into the critical question of the quantity, extent and nature of the minerals. (Exhibit
19, Volume 8, page 2127)
165. The Plaintiff further argues, the Warden’s findings in the PI Decision dispelled the
argument by the 1st Defendant that the JORC Code (2004) and the VALMIN Code
(2005) did not apply in respect of attending the proper content of a ‘completed
feasibility study’. (PI Decision at [96])
166. The requirement there be a Reserve Statement included in a ‘completed feasibility
study’, the Plaintiff contends, arises from both the JORC Code (2004) and the
established practice by project financiers as noted by the expert evidence of Mr
Amos. (see: Exhibit 4, page 14, [30])
167. It is argued by the Plaintiff that SRK accepted the SRK Report should be JORC
compliant. In that regard, the Plaintiff says the description of a study by Twomey
and Chen (2006) titled ‘Final JORC Report’ was used by SRK to determine the
extent of the mineral resource on the ‘Tenements’. SRK stated in the ‘SRK Scope’
that the SRK Report was based upon the ‘mineralised resource’ rather than a JORC
compliant reserve:
“SRK was not asked to report on a reserve statement for the Mindy Mindy FS.
The use of the term ‘ore’ in this report does not imply that the material has been
assessed following the guidelines of the JORC Code and should be read as a
‘mineralised resource’ above 55% Fe, 3.32 Al203 and 7.725% SiO2 ONLY’.
Clause 19B(i)(b) of the Amended Plaint
168. The Plaintiff submits that most of the financial input parameters relied upon by SRK
in compiling the SRK Report were provided by the 1st Defendant, including from its
co-owners CML and FMG, and none of those parameters were independently verify.
An analysis, by the Plaintiff, of the final financial model used by SRK evidences, it
is submitted, the following sources of information and data:
From CML:
a. exchange rates to be used,
b. date for variable and fixed native title compensation,
c. corporate data regarding the nominal discount rate, annual CPI and corporate overheads
and taxes,
d. Global Lump Ratio data,
e. information on ‘contingencies’ to be utilised,
f. information and data on ore moisture content and a Wet or Dry model,
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g. Ore Shipping Specifications to be used including data on Fe%,
h. Office Capex Costs,
i. Process Plant Salvage data, and,
j. operating and labour costs.
From FMG:
a. data for use on a Royalty Lump, Royalty Fines and Ammon Royalty, and,
b. metal prices used for Iron Ore Pricing (Fines) and the Annual Iron Ore Price Increase.
Clause 19B(i)(c) of the Amended Plaint
169. The Plaintiff submits the iron ore prices provided to SRK were created by using the
AME data September 2007 to 2008 and using FMG’s ‘internal conservative
assumptions’. The Plaintiff further submits, the ultimate decisions regarding the
source of iron ore prices to be used in the SRK Model was made by CML. The
sources for the ‘Iron Ore Pricing (Fines) ’ and ‘Annual Iron Ore Price Increases’ is in
a memorandum from Mr Daman Edwards of FMG to Mr Hans Mohle of CML in a
memorandum dated 11 September 2007.
170. The unchallenged expert opinion evidence given by Mr Lawrence is relied upon by
the Plaintiff to establish the lack of independence in the SRK Report including:
‘The basic parameters and assumptions underlying the SRK Model Pre-Feasibility
Cost Model calculations appear to me to be mainly based upon uncritical acceptance
of the unreasonably pessimistic, unrealistically inaccurate, and/or unsubstantiated
import provided by FMG and CML; an import from sub-consultants that was
disclaimed and/or stated to be of an unacceptably unreliable accuracy and precision
for a Feasibility Study.’ (Exhibit 3, page 47 & 48, line 1336-1341).
171. Further examples of what the Plaintiff says is lack of independence in the SRK
Report is noted in the Lawrence Report and includes:
‘the absence of any independently prepared and verified JORC Code compliant
reserves is another fatal flaw in the…[SRK Report] … because they underpin any
claim about the quantity and quality of iron ore that can be produced. Iron ore
specifications provided by FMG via ….[the 1st Defendant] … were uncritically
accepted and used by SRK’. (Exhibit 3, Page 49, lines 1394-1397)
and,
‘Without independently verify data to acceptable levels of accuracy/precision (± 10%
- ± 15%), especially with key data coming from non-independent related parties;
with overall VALMIN Code non-compliance; without a JORC Code-compliant Ore
Reserve Statement…[the SRK Report]…. is not independent’. (Exhibit 3, page 50,
lines 1425-1430)
and, further,
‘the SRK Report failed to ensure that many critical inputs were free from
apprehension of bias.’ (Exhibit 3, page 64, Lines 1860-1861)
172. The Plaintiff also submits the unchallenged evidence of Mr Amos was also critical of
the lack of independence in the SRK Report including:
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‘In some instances information is totally lacking… in other instances.. there is no
independent checking of data or conclusions with those factors in mind I do not
consider that the SRK Report constitutes a feasibility study as would normally be
expected to be delivered to a potential project financier for consideration to advance
funds’. (Exhibit 4, page 25, paragraph [52])
Reliable and not Inaccurate or Incomplete – Clause 19C Amended Plaint
173. The Plaintiff argues the SRK Report was not a Feasibility Study that was reliable or
complete as required by the Implied Term as the information and data supplied to
SRK by the 1st Defendant was unreliable, inaccurate or incomplete. The failure to
meet that requirement is made clear, submits the Plaintiff, by the content of the SRK
Report itself and confirmed by the expert opinions of Mr Lawrence and Mr Amos.
174. The acknowledgement by SRK that further significant work remains to be done is
apparent within the Transmittal Letter and identifies additional in-depth studies that
would have to be undertaken at significant costs and includes:
a. a Resource Review;
b. further Geotechnical Review;
c. further Hydrogeological Review;
d. further Mining and Environmental Studies, and
e. a Port Option Review.
175. Further, the ‘Executive Summary' of the SRK Report records the need of a further
geotechnical work to be completed with an estimated cost of $100,000 in fees.
176. The Plaintiff further submits the evidence that establishes the SRK Report was
inaccurate or incomplete includes:
a) no reference to and no substantiated field investigation of data
gathered from the E concerning hydro geological conditions;
b) provision for a further $400,000 to be spent on hydrological study
and $500,000 to be spent on a ‘definitive feasibility study’;
c) failure to confirm by additional fieldwork, geotechnical analysis
based on old drill records and core photos from earlier Scoping and
Pre-Feasibility work in;
d) information based on previous Scoping and Pre-Feasibility of a
mineral resource review completed by CML in 2006 constrained by
a 45% Fe grade shall and did not include the dilution data that was
collected;
e) excludes two areas of the ore body and establishes the need for
more detailed feasibility studies in a number of areas including all
loss parameters, effects of footwall undulation on dilution/ore loss,
and the water table and volume of ‘wet ore’, determined the
schedule feeding the ‘wet ore’ through the process plant, further
investigate the in-pit and external dewatering system, assess the
extent to which all might be extracted using free dig or rip, doze
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and load operations as an alternative to drill and blast, explore the
opportunity to minimise the amount of waste hauled external to the
pit as this will impact positively on mining costs, ensuring pit
operations are adequately protected against cyclones, define the
extent of the order deposit in the southern portion of the tenement
as it was not including financial evaluations and could add more
than 1.3 million tonnes or ore that was excluded from feasibility
study;
f) estimate for the payment of a 2.5% royalty.
177. The Plaintiff points to the opinion of Mr Lawrence that if material technical studies
remain to be undertaken the SRK Report is rendered unreliable and there can be little
confidence in its results. The failure to provide a JORC Code compliant Reserves
Report as would be expected by potential financiers in a Feasibility Study is also
evidence Mr Lawrence says renders the SRK Report more unreliable.
178. There is effectively no information and data in the SRK Report with respect to the
hydrogeology, dewatering and groundwater salinity issues on the E and that,
according to Mr Lawrence, has an impact on the completeness of that report. The
Plaintiff also highlights the SRK Report acknowledges the need to carry out further
hydrogeological drilling and consultant study on the Tenements for the next level of
the Feasibility Study. The lack of hydrogeological information is inextricably linked,
according to Mr Lawrence, to a similar lack of tenement specific environmental
management and approval information that would impact on a project financier
considering funding options until regulatory approvals are in place.
179. Further, the Plaintiff submits that Mr Lawrence was of the opinion the lack of
information of the geotechnical nature and missing Mining Study and Port Option
Review would have a moderate to minor impact but overall says the absence of such
studies would make the SRK Report unreliable.
180. In a similar vein, Mr Amos also reached similar conclusions, as did Mr Lawrence,
concerning the incompleteness of the SRK Report and its potential effect upon any
application for Project Finance.
Reserve Statement – Clause 14(2) and 19D Amended Plaint
181. The Plaintiff submits the SRK Report was not complete because it failed to include a
Reserve Statement. Further, the Plaintiff submits the 1st Defendant does not dispute
the SRK Report did not contain a Reserve Statement.
182. SRK stated in the SRK Scope that the SRK Report was based upon the “mineralised
resource” rather than JORC compliant reserves because:
‘SRK was not asked to report on a reserve statement for the Mindy Mindy FS.
The use of the term ‘ore’ in this report does not imply that the material has been
assessed following the guidelines of the JORC Code and should be read as a
‘mineralised resource’ above 55% Fe, 3.32% Al203 and 7.725% Si02 ONLY.’
183. The Plaintiff submits the evidence of Mr Lawrence that an appropriate quantity and
quality of ore reserves are critical in the final economic assessment of an iron ore
project. Reference was made by Mr Lawrence to a paper by Butler (1994) which
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describes ‘a banker's view of cash flow’ confirms the opinion of Mr Lawrence that
ore reserves are required before project funding could realistically be expected to be
allocated.
184. Further, the Plaintiff argues Mr Lawrence also gave evidence that a Reserve
Statement, not an ore resource statement is required in the SRK Report which has
been given to the Plaintiff for, inter-alia, the purpose of the Plaintiff making his
Election under the Agreement with such an Election only being able to be made on a
reasonably informed commercial basis. The Plaintiff also relies on the opinion of Mr
Lawrence that there is no evidence of any material attempts by SRK to critically
verify the assumptions behind the critical inputs to its conclusions as would be
expected under the JORC Code (2004) and VALMIN Code (2005).
185. The Plaintiff also relies upon the observations and opinions of Mr Lawrence that the
absence of any independently prepared and verified JORC Code ore reserve is
another fatal flaw in the SRK Report because that underpins any claim about the
quantity and quality of iron ore that can be produced. Mr Lawrence also noted the
iron ore specifications provided by FMG via the 1st Defendant were uncritically
accepted and used by SRK.
186. The unchallenged opinions of Mr Amos are also relied upon by the Plaintiff to
demonstrate the consequences of the lack of a Reserve Statement. Mr Amos noted
the lack of a Reserve Statement would imply that the project cannot be demonstrated
to be economically viable at this time, and, the inclusion of a Reserve Statement
within the Feasibility Study would be expected by a great majority of financiers,
especially if asked to finance a minority joint venture in a mining project. Mr Amos
went on to note the successful raising of project finance without a Reserve Statement
would be highly improbable.
187. In particular, the Plaintiff relies upon the acknowledgement by SRK of the JORC
Code (2004) as being the ‘minimum’ standard ‘to ensure that investors and advisers
have all the information they would reasonably require for forming a reliable
opinion on the results and estimates being reported.’ (Exhibit 21, Volume 10, page
4051)
1st Defendant’s Defence
Affirmative Defence
188. The Plaintiff argues the 1st Defendant pleads a denial at paragraph 19(c) of its
Second Further Amended Response that the SRK Report ‘failed to conform’ with the
alleged Implied Term. However, the Plaintiff says the 1st Defendant then pleads in
the Particulars to paragraph 19(d) of the Second Further Amended Response (“the
Particulars”) an affirmative defence the SRK Report did meet the requirements of
the Implied Term.
189. It is not the case, argues the Plaintiff, the 1st Defendant can refer to the Implied Term
as an ‘alleged implied term’ when the PI Decision found the Implied Term is a term
of the Agreement and if the SRK Report does not meet the terms of the Implied
Term then the 1st Defendant has failed to deliver a ‘completed feasibility study’ for
the purposes of the Agreement.
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190. The 1st Defendant was required to provide references of the material upon which it
relied in support the Particulars. That material was provided in the form of a Table
referred to a ‘References to Feasibility Study in 1st Defendant’s Particulars’ dated 18
March 2013. The Plaintiff states that Table is the only account available of the
meaning of the Particulars in the context of the voluminous material adduced into
evidence in this proceeding.
1st Defendant’s Particulars of Defence – Generally
191. The Plaintiff observed the 1st Defendant adduced none of its own expert evidence nor
did it adduce any evidence at all in support of the affirmative defence pleaded in the
Particulars.
192. Further, the Plaintiff submits, the pleadings by the 1st Defendant in the Particulars
1(a) state ‘the authors of the SRK Report’ reached their conclusion ‘for reasons that
were fully explained’ that the ‘undertaking of a development and mining operation
on any part of the tenement is as a stand-alone activity indicated marginal economic
returns and net economic parameters would need to change significantly in order to
return results which would lead to investment.’ The 1st Defendant also pleaded at
paragraph 1(b) of the Particulars that ‘the authors of the SRK Report reached their
conclusions based on calculations of various kinds and other non-quantitative
evaluations that were considered it in an iterative and independent manner all of
which were assessed as a whole’.
193. None of the ‘authors’ were called to give evidence regarding the significant detail
relied upon by the 1st Defendant in paragraph 1(c)(i)-(iv) of the Particulars upon
which it is contended the conclusions expressed in the SRK Report were based.
194. The 1st Defendant, despite having every opportunity to do so and in the absence of
any suggestion they were unable to do so, submits the Plaintiff failed to call or
adduce any evidence from the ‘authors of the SRK Report’ who could give evidence
about the matters they took into consideration, their reasoning and matters they
independently verified, how thy explained that reasoning, their conclusions and what
they were based upon and how it could be said the SRK Report could be constituted
as a ‘feasibility study’ that it had been commissioned to provide.
195. In those circumstances, the Plaintiff submits, the Warden should draw an inference
the ‘authors of the SRK Report’ were unable to give any evidence that would assist
the 1st Defendant in establishing the affirmative defences pleaded in the Particulars.
196. The Plaintiff argues the SRK Report speaks for its self as there is no evidence before
the Court from the ‘authors of the SRK Report’ they independently verified the
matters pleaded in paragraphs 3 and 4 of the Particulars, or evidence regarding the
general and unparticularised allegations at paragraphs 1(a) of the Particulars, or what
they took into consideration and whether those matters included the matters pleaded
in paragraph 1(b) and (c) of the Particulars.
197. The Plaintiff drew the attention of the Warden to the consideration of the High Court
in Jones v Dunkel (1959) 101 CLR 298 in respect to when an adverse inference
might be drawn from the unexplained failure of a party to lead evidence from
particular witnesses. The considerations of the scope and operation of the principles
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in Jones v Dunkel (supra) in the decision in the High Court in RPS v The Queen
(2000) 199 CLR 620 at [25]-[26], Kuhl v Zurich Financial Services Australia Ltd
(2011) 243 CLR 361 at [63]–[64] and the Supreme Court of WA (Court of Appeal)
in Fazio v Fazio [2012] WASCA 72 at [135] were all referred to by the Plaintiff.
198. The Plaintiff submits it is the 1st Defendant who needs to explain or contradict the
discrepancies identified by the Plaintiff in the SRK Report in circumstances where
the authors of the SRK Report had been commissioned by the 1st Defendant and
acted upon the 1st Defendant instructions. In those circumstances, the Plaintiff argues
the appropriate inference that should be drawn is the evidence of the ‘authors of the
SRK Report’ could not assist the 1st Defendant.
Paragraph 1 of the 1st Defendants Particulars
199. In paragraph 1 of the Particulars, the Plaintiff submits, the 1st Defendant pleads the
positive defence in that the SRK Report was ‘sufficiently accurate’ and did not
require a Reserve Statement for some 4 reasons. The Plaintiff argues this plea by the
1st Defendant meets the contention at paragraph 14 of the Amended Plaint that a
‘completed feasibility study’ had to be both accurate to ± 10% - ± 15% and contain a
Reserve Statement.
200. There has been no expert evidence to support such a defence adduced by the 1st
Defendant, argues the Plaintiff, and further, to the extent the 1st Defendant relies
upon the ‘authors of the SRK Report’ it should be subject to the inference based on
the rule in Jones v Dunkel (supra).
201. Further, the Plaintiff contends the unchallenged expert evidence he led contradicts
the affirmative defence pleaded by the 1st Defendant.
202. The positive defence relied upon by the 1st Defendant is done so, submits the
Plaintiff, because, firstly, the 1st Defendant says the ‘authors of the SRK Report’
concluded, for reasons that were ‘fully explained’ the undertaking of a development
and mining operation on any part of the E as a stand-alone entity indicated marginal
economic returns and that economic parameters would need to change significantly
in order to return results which would lead to investment. The Plaintiff argues the 1st
Defendant ignores the purpose for which the SRK Report was required under the
terms of the Agreement and the reasons identified in the PI Decision being to allow
both parties to exercise their rights under the Agreement including, in the Plaintiff's
case his Election whether to withdraw to contribute to the Joint Venture.
203. The Plaintiff says the ‘completed feasibility study’ was not intended to establish
some rule of thumb as to whether mining should proceed immediately, it was, inter
alia, to give to the Plaintiff an accurate, independent, reliable a complete account of
the E to established industry levels for the purpose of the Plaintiff deciding whether
to, in his view developing and mining the E may be ‘warranted’ during the period
contemplated by the Agreement.
204. The unchallenged evidence of both Mr Lawrence and Mr Amos, submits the
Plaintiff, is the SRK Report should have included a Reserve Statement according to
the JORC Code without which the Plaintiff would be denied the information he
required to make his Election. Further, the Plaintiff submits the SRK Report was
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Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 39
self-consciously aware of the need to comply with the JORC Code as it specifically
notes the reasons why there was no Reserve Statement as it was at the instruction of
the 1st Defendant.
205. Secondly, the Plaintiff says the 1st Defendant contended the authors of the SRK
Report reach conclusions based on calculations of various kinds and other non-
quantitative evaluations that were considered in an iterative and interdependent
manner all of which were assessed as a whole. The Plaintiff notes that no references
have been made to the Table referred to a ‘References to Feasibility Study in 1st
Defendant’s Particulars’ dated 18 March 2013.
206. The Plaintiff argues the affirmative defence pleaded by the 1st Defendant at
paragraph 1(a) of the Particulars does not negate the need for a Reserve Statement
and ignores the purpose of a ‘completed feasibility study’ as found by the Warden in
the PI Decision. It is the case, states the Plaintiff, the conclusions of a ‘completed
feasibility study’ may deliver a negative net present value of what the Plaintiff
bargain for in return for an 80% Joint Venture Interest was a reliable study that could
support his decision-making regarding the E and hence the decision concerning the
Implied Term contained within the PI Decision that an inaccurate, partial, unreliable
or incomplete study was worthless to the Plaintiff as a basis for such decision-
making. The Plaintiff contends he is entitled to be sceptical of the SRK Report it
being a report prepared upon the instructions of the 1st Defendant that concluded the
E had a negative net present value of -$22 m to -$5m but which had been the subject
of significant litigation since early 2008.
207. Thirdly, the Plaintiff submits, the 1st Defendant at paragraph 1(c) of the Particulars
say the ‘authors of the SRK Report’ reach their conclusions based on assessments of
various factors including the distance of the E from the coast the deposit size could
not support the construction of dedicated port and rail facilities and so on. Without
evidence from the said ‘authors’ the Plaintiff submits he cannot know with certainty.
However, the Plaintiff points to the ‘authors’ themselves acknowledging in the SRK
Report of the need to carry out further investigations and produce a report that was
accurate to ± 10% - ± 15% at a future cost of $500,000 for a further feasibility
study, ‘a Definitive Feasibility Study’.
208. Finally, in paragraph 1(d) of the Particulars, the 1st Defendant states there was no
present or prospective identifiable expenditure to which the Plaintiff could seek to
raise Project Finance. The Plaintiff submits the whole purpose of a ‘completed
feasibility study’ is to identify with particularity the project to which it relates and
the project for which the Plaintiff might seek finance under clause 4.7( c) of the
Agreement, as stated in the words of Mr Lawrence what the project ‘will be’. The
evidence of Mr Lawrence was mirrored by SRK’s own account of its task in
preparing the SRK Report.
Paragraph 2 of the 1st Defendants Particulars
209. The 1st Defendant claims in defence to the matters raised in paragraph 19 of the
Amended Plaint that the SRK Report is sufficiently accurate and reliable having
regard to the assessments made by the authors of the SRK Report of the principal
factors affecting feasibility and viability of developing and mining the E.
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210. The Plaintiff submits this defence by the 1st Defendant is directly contradicted by the
expert evidence of Mr Amos and Mr Lawrence that the SRK Report was not
accurate as required by the Agreement and was incomplete.
Paragraph 3 & 4 of the 1st Defendants Particulars
211. The 1st Defendant claims in its Particulars the SRK Report was independent because
it was ‘independently verified by the authors expressly and implicitly.’
212. The Plaintiff submits the defence by the 1st Defendant has not been made out and
relies upon the content of SRK Report itself in which it states the extent to which
SRK did not independently verify information provided to it:
‘SRK optimise the resource primarily based on financial input parameters supplied
directly from CML, DRAP, Fortescue Metals Group (FMG), Worley Parsons (WP),
and PIO. SRK did not independently undertake any first principle costing studies or
independent bench-marking studies to verify the information supplied.’ (Exhibit 18,
Volume 7, Tab 46, page 1701)
213. Further, the Plaintiff points to the authors of the WP Study who deferred to client
expectations and the nominated option to be used. The source of the financial
parameters used by SRK to optimise the resource puts this beyond doubt in that
many aspects of the SRK Report stated further work or information was needed or
required.
214. The unchallenged expert evidence of Mr Lawrence as to uncritical acceptance of
input from sub-consultants that are disclaimed and/or stated to be of unacceptability
unreliable accuracy and precision for feasibility studies and that information must
come from independent sources to eliminate any arguments of a reasonable
apprehension of bias forms the very argument, submits the Plaintiff, that the East RK
report was not independent and was not independently verified by the authors.
215. As to paragraph 4 of the Particulars, concerning the source of the iron ore price
forecasts that were said by, the 1st Defendant, to have been obtained from an
independent source namely, AME Mineral Economics, and otherwise reviewed by
the authors of the SRK Report, the Plaintiff says the unchallenged adduced evidence
were they were created by FMG and the ultimate decision to use those prices in the
SRK Model was made by CML.
216. The Plaintiff further submits, paragraph 4(d) of the Particulars and the defence by the
1st Defendant that information from WP, DRAP, HWE, and Coffey was all derive
from independent sources does not answer the allegations of breach as that
information is not independently verified by SRK as it was required to do under the
terms of the Agreement. The Plaintiff says SRK by simply obtaining unreliable or
inaccurate information or data from a 3rd
party cannot meet the standards of
independence and inaccuracy required by the Implied Term.
Paragraph 5 of the 1st Defendants Particulars
217. The Plaintiff submits the defence raised by the 1st Defendant paragraph 5 of the
Particulars that the sensitivities analysis within the SRK Report is not affected by the
conclusions expressed by the authors of the studies has not been made out.
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218. The argument of the Plaintiff is the expert evidence of Mr Lawrence was levels of
financial sensitivities ascribed by SRK for the purposes of calculating the net present
value of ± 40% for iron ore pricing and ± 50% for operating costs directly impacts
on the conclusions in the SRK Report.
219. The Plaintiff refers to paragraph 5(a) of the Particulars to demonstrate the 1st
Defendants argument the size of the ore body refer to any application to renew the E
was based on a cut-off grade of 52% Fe whereas the estimate in the SRK Report was
based on a cut-off grade of 55.2% Fe. The variation in the Fe % cut-off grade
between the SRK Report and the renewal application for the E is unexplained by the
1st Defendant as is the reason the % cut-off grade was chosen by SRK. The Plaintiff
points out the variation in the Fe % cut-off grade represents a difference between a
resource of 44.84 Mt at a cut-off grade of 52% Fe and 23.64 Mt with a cut-off grade
of 55.2% Fe used in the SRK Report.
220. The variation in the resource of iron ore between the cut off grades of 52% and
55.2% is massive, as argued by the Plaintiff, and can only be explained as being
unreliable (in the absence of an explanation) or inaccurate (the wrong cut-off grade
being chosen).
221. Further, the Plaintiff submits in paragraph 5(c) of the Particulars in which the 1st
Defendant contends the inclusion of the 2.5% royalty does not affect the reliability,
accuracy or completeness of the SRK Report is not made out. The Plaintiff says
there has been no evidence produced by the 1st Defendant to counter the expert
evidence of Mr Lawrence and Mr Amos on this issue.
222. In cross-examination of Mr Lawrence and Mr Amos by the 1st Defendant, the
Plaintiff submits the 1st Defendant sought to raise issues not pleaded in that,
generally speaking, lending institutions will take their own view either internally or
externally or a mixture of both on the financial parameters in each case.
223. The Plaintiff argues, in the PI Decision, the Warden found the purpose of a
‘completed feasibility study’ precludes any case run by the 1st Defendant that the
accuracy, independence, reliability or completeness of such a study doesn't matter
because a bank or financier will conduct their own due diligence. The Plaintiff
submits that is so for two reasons, firstly, a ‘completed feasibility study’ was to
inform the Election by the Plaintiff as well is to allow him to raise Project Finance.
Accordingly, argues the Plaintiff, if the SRK Report was flawed, as is alleged by the
Plaintiff, then the Plaintiff does not get to the point of raising Project Finance at all
because the SRK Report doesn't support the exercise of the Plaintiff’s right to make
the Election. Secondly, the Plaintiff submits, in accordance with the expert opinion
of Mr Amos, any approach made to a potential project financier with the SRK
Report would not have been treated seriously and additional work would need to be
done to bring the levels of accuracy within those normally expected of a ‘feasibility
study’.
224. The cross-examination of the Plaintiff's expert witnesses that the words ‘project
finance’ was a reference to finance for the development, being building the
infrastructure, roads accused trips and opening up land for crushing and screening,
and a mining operation is argued by the Plaintiff to be an attempt by the 1st
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Defendant to enter into an argument about construction issues of the Agreement
which had already been decided in the PI Decision and which has been held cannot
be revisited.
225. In any event, the Plaintiff argues Project Finance to be raised pursuant to clause 4.7
(c) of the Agreement can only be in relation to the Plaintiff’s 20% Joint Venture
Interest in the project described in such a ‘completed feasibility study’ and is not
finance required to conduct the whole of the project but includes the Plaintiff’s share
of Joint Venture Expenditure.
226. For those reasons, the Plaintiff submits, the breaches it has identified in the manner
in which the 1st Defendant instructed SRK on how the SRK Report should be
prepared, what it should contain, the manner in which information and data upon
which it was based was sourced, created and compiled, precluded the Plaintiff from
relying upon it to make his Election or to seek finance.
227. Accordingly, the Plaintiff say he is entitled to the relief as pleaded.
Case for the 1st Defendant
Witnesses for the 1st Defendant
228. The 1st Defendant did not call any witnesses to give oral evidence.
Closing Submissions by the 1st Defendant
229. The 1st Defendant submits in its extensive closing submission that a feasibility study
evaluates the prospects of successfully exploiting a mineral deposit and such a study
requires an examination of technical feasibility, economic viability and the so called
‘modifying factors’ being external risk factors such as political, environmental and
other matters.
230. A feasibility study relating to a mineral deposit has, submits the 1st Defendant, many
possible outcomes that may range from an opinion that it is likely that a mineral
deposit can be successfully exploited in prevailing and reasonably foreseeable
circumstances to an opinion that it is to the contrary.
231. The conclusion reached in the SRK Report indicated, argues the 1st Defendant, a
negative conclusion being the mineral deposit was likely to give a ‘marginal
financial return’ and that ‘economic parameters would need to change significantly
in order to return results which would lead to an investment.’
232. The 1st Defendant submits the Plaintiff in the Amended Plaint makes no challenge to
the outcome of the SRK Report. Accordingly, the 1st Defendant says in considering
whether the SRK Report confirmed the Implied Terms which has been found to be
part of the Agreement it is necessary to take into account both the fact the SRK
Report reached a negative conclusion and this conclusion is not challenged in these
proceedings.
233. The 1st Defendant further submits the Plaintiff has not proved the SRK Report was
prepared in breach of the Implied Terms because in essence:
a. it was not inaccuracy which prevented the SRK Report from being
used to assist the raising of Project Finance, it was the fact the SRK
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Report reached a negative conclusion, and in any event there was
no evidence a study which reaches a negative conclusion requires a
particular degree of accuracy;
b. a report which reaches a negative conclusion cannot be found to be
unreliable because of alleged inaccuracies or incompleteness unless
the inaccuracies or incompleteness affect the conclusion which the
Plaintiff does not allege in this case;
c. the Implied Terms of independence does not apply to information
obtained by a participant from an independent consultant and
passed on to the persons who are conducting a feasibility study, nor
does it apply to information which is properly and reasonably
provided by joint venture participant who has engaged a consultant
to prepare a feasibility study and, in any event, if any information
did require independent verification it was sufficiently verified by
SRK;
d. the SRK Report was not incomplete because of the absence of a
Reserve Statement as no such statement could be prepared because
of the negative conclusions.
Issues
234. The 1st Defendant submits the issue in these proceedings is whether the 1
st Defendant
completed the Study during the Earning Period in compliance with clauses 4.2 to 4.5
of the Agreement and thereby earned an 80% Joint Venture Interest. That issue
raises 2 questions being the proper construction of the Agreement and the
application of that construction to the facts. The first question has, submits the 1st
Defendant, been dealt with in the PI Decision wherein the Warden held the
Agreement made between the Plaintiff and the 1st Defendant includes the Implied
Terms pleaded in paragraph 12 of the Amended Plaint. Consequently in Ammon v
Pilbara Iron Ore P/L & anor [2013] WAMW 4 the Warden held that no further
issue of construction may be raised by the 1st Defendant at trial and leave to amend
the Response was refused.
235. The only matter the 1st Defendant submits is now to be determined is whether the
SRK Report does, or, does not conform with the Implied Terms of the Agreement
found to exist by the Warden.
236. The 1st Defendant submits the Plaintiffs case is the content of the SRK Report does
not conform with the Implied Terms. The Plaintiff’s pleaded case is confined,
submits the 1st Defendant, to specific allegations made in paragraph 19 of the
Amended Plaint and, therefore, the Plaintiff has no further, or alternative, case
regarding breach of the Implied Terms. Therefore, the 1st Defendant submits as the
Plaintiff bears the onus of establishing the SRK Report did not conform with the
Implied Terms in the manner alleged in paragraph 19 of the Amended Plaint. If the
Plaintiff fails it follows that the 1st Defendant has earned an 80% Joint Venture
Interest.
The Implied Terms of the Agreement
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237. The 1st Defendant raises two aspects of the Implied Terms as found by the Warden in
the PI Decision.
238. Firstly, the 1st Defendant submits in February 2013 the Plaintiff argued the term
‘project finance’ means finance for the purpose of funding the Plaintiff's
contributions to Joint Venture Expenditure. The 1st Defendant submits the Warden’s
decision does not expressly deal with that point and thus it is not clear whether the
Warden has accepted the Plaintiff’s submission or has taken the view the point need
not be decided.
239. Accordingly, the 1st Defendant submits if the Warden has implicitly accepted the
Plaintiff’s submissions as to the meaning of ‘project finance’ then it would seem that
the Implied Terms requires a ‘completed feasibility study’ to be one which enables
the Plaintiff to seek to raise any finance that might be required for the Plaintiff’s
share of any Joint Venture Expenditure that might be incurred at any time.
240. Secondly, the 1st Defendant submits it has not been held that the Implied Terms
means a ‘completed feasibility study’ must be a study that opines that mining of the
E is technically feasible and economically viable. If the Implied Terms were to have
the meaning the 1st Defendant says it would be inconsistent with the express terms of
the Agreement which referred to a feasibility study. The meaning the 1st Defendant
submits should be attributed to feasibility study is a study conducted for the purpose
of evaluating feasibility and viability of mining tenement. A feasibility study is not
something that, the 1st Defendant submits, involves a predetermined outcome.
According to the 1st Defendant, this point was expressly accepted by the Plaintiff in
oral submissions made on 26 February 2013 and there is nothing in the Warden’s
written reasons in 2012 and 2013 to suggest that this undisputed point is to be
disregarded.
241. The 1st Defendant further submits the Plaintiff, during its Closing Submissions, sort
to depart from previous submissions made as to the meaning of the term ‘project
finance’ and contended that apart from finance for the Plaintiff’s share of past
expenditure the expression also refers to the Plaintiffs 20% share of finance for
prospective contributions to expenditure on the project identified in a ‘completed
feasibility study’. Such contentions by the Plaintiff is said by the 1st Defendant to
represent a new and significant difference in the Plaintiffs previous position in that it
seeks to link ‘project finance’ to a possible project that is the subject matter of the
feasibility study. It cannot be the case, the 1st Defendant submits, that ‘project
finance’ could be sought for a project that is not assessed to be technically feasible
and economically viable it is clear the Plaintiff now contends that to be a ‘completed
feasibility study’ it must result in the identification of a technically and economically
feasible and definitive and identifiable, project with the development and mining of
the tenement in respect of which the ‘project finance’ could be sought.
242. The 1st Defendant submits the Plaintiff’s submissions is founded upon an unpleaded
meaning of ‘project finance’ that is different to that upon which the Plaintiff opened
his case and that is inconsistent with the Plaintiff’s acceptance that the Study does
not require such a study to result in a positive conclusion that development and
mining of the E is technically and economically feasible. Accordingly, the 1st
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Defendant submits no leave should be given to the Plaintiff to now raise that
contention.
243. In any event, the 1st Defendant submits the Plaintiff’s submission is absurd as it
means the parties to the Agreement intended the scope of the project they were
responsible for carrying out and for which the Plaintiff should have the opportunity
to seek Project Finance should be determined by a consultant and not the parties
themselves or that the Plaintiff is to have an opportunity to seek finance for a project
to which the majority participant has made no commitment at all. The 1st Defendant
submits the language of the Agreement is not capable of yielding such a senseless
meaning.
244. Further, the 1st Defendant submits, on the contrary, the point sought to be raised by
the Plaintiff completely ignores the express provisions of the Agreement that deals
very clearly and sensibly with how decisions are to be made by the participants
themselves as to whether they will proceed with a mining project and, if justified,
what the project will be.
Scope of the Breaches Alleged by Plaintiff in Paragraph 19 of Amended Plaint
245. The 1st Defendant submits the alleged breach by the Plaintiff of the Implied Terms
are found in clause 19 of the Amended Plaint and are based on the premise the SRK
Report was not accurate, independent, reliable or complete in 4 respects being:
19A: Insufficient accuracy to seek to raise project finance;
19B: Not independent because related parties provided information that was
not verified by SRK;
19C: Unreliable because data supplied to SRK by the 1st Defendant was
inaccurate or incomplete, and;
19D: Incomplete because of the absence of a reserve statement.
246. The 1st Defendant submits, the Plaintiff in paragraph 19A of the Amended relies
upon 4 grounds being:
a) the failure to carry out 3 particular aspects of the SRK Report being,
hydrological, geotechnical and mining issues, cost of crushing and
screening options and cost of road transport, to a level of accuracy of ±
10% - ± 15%;
b) the conduct of the sensitivity analysis being a consideration of project
economics based upon a range of iron ore prices and operating costs.
247. It is noted by the 1st Defendant the Plaintiff does not identify any inaccuracy in any
input data in respect to the sensitivity analysis.
248. In respect to paragraph 19B of the Amended Plaint, the 1st Defendant submits the
Plaintiff relies upon 3 grounds being:
a) information provided by the owners of the 1st Defendant, namely CML
and FMG;
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b) acceptance of an alleged instruction from the 1st Defendant not to
provide a Reserve Statement, and;
c) the alleged absence of any critical review of the reports submitted by
WP, DRAP, HWE and Coffey.
249. In respect to paragraph 19C of the Amended Plaint, the 1st Defendant submits the
Plaintiff relies upon 6 grounds that each identify information and data supplied by
the 1st Defendant which the Plaintiff alleges is in accurate or incomplete being:
a) a resource estimate referred to by the 1st Defendant in a renewal
lodgement of December 2007;
b) the inclusion of a royalty payment that could become payable to the
Plaintiff under clause 4.7 of the Agreement which was included because
it was a potential cost, and;
c) 4 other grounds identified in various aspects of the SRK Report that
were identified by SRK as requiring further avenues of study.
250. The 1st Defendant submits it does not follow the identification of the matters in issue
in paragraph 19C of the Amended Plaint renders the SRK Report unreliable. The 1st
Defendant submits the inaccuracy or incompleteness of data and information used in
the SRK Report can only render the SRK Report unreliable if the inaccuracy or
incompleteness somehow affects the validity of the conclusions reached in the study.
The 1st Defendant submits that is not what is alleged by the Plaintiff in clause 19C of
the Amended Plaint.
251. In respect to paragraph 19D of the Amended Plaint the 1st Defendant submits the
Plaintiff relies upon only 1ground and that is the SRK Report was incomplete
because it failed to include a Reserve Statement.
252. The 1st Defendant submits the cross-examination of Mr Lawrence and Mr Amos
resulted in it being made clear that a study which concluded that mining is not
economically viable cannot support a Reserve Statement.
253. In deciding whether the Implied Terms have been breached, the 1st Defendant
submits it is important to recognise the Plaintiff has raised specific allegations of a
confined nature in paragraph 19 of the Amended Plaint particularly:
a) there is no allegation the Implied Terms were breached because the SRK
Report failed to reach a positive conclusion as to the economic viability
of mining the E;
b) there is no allegation deficiency in the SRK Report had any effect upon
the validity or reasonableness of the conclusions that were reached, and;
c) there is no allegation deficiencies in the SRK Report were such as to
deprive it of the character of a feasibility study.
254. The analysis of paragraph 19 of the Amended Plaint by the 1st Defendant is
confirmed, it is submitted, by the ruling of the Warden on admissibility of evidence
delivered 21 March 2013 when it was held that:
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a) the pleadings are decisive in the parties are bound by what is raised,
accordingly the Plaintiff is confined to the case pleaded in paragraph 19
of the Amended Plaint;
b) paragraph 19 of the Amended Plaint does not include any allegation the
SRK Report could not be used to enable the calculation of the net present
value of the Plaintiffs interest and informed his intention under clause
4.6 of the Agreement;
c) there is a distinction between the scope of an obligation and the extent to
which the obligation is said to have been breached, and paragraph 19 of
the Amended Plaint does not allege that any of the deficiencies pleaded
in the Implied Terms affected the conclusion of the SRK Report, and;
d) paragraph 19 of the Amended Plaint does not specifically allege the SRK
Report was incapable of being used as a feasibility study or the Plaintiff's
Election was hindered.
Evidence of the Experts Mr Amos and Mr Lawrence
255. According to the 1st Defendant, both Mr Lawrence and Mr Amos analysed the SRK
Report on the understanding the SRK Report would enable the Plaintiff to seek to
raise ‘Project Finance’ for the Plaintiff’s share of development and mining project
described in the SRK Report with capital costs of approximately $300 million. The
1st Defendant highlights that none of the expert evidence of either Mr Lawrence or
Mr Amos address the capacity of a feasibility study to be used to raise Project
Finance for unspecified investigation of a mining tenement. The 1st Defendant
submits that position is not surprising as it would be difficult to imagine how Project
Finance could be sought at all for an unspecified amount, for an unspecified period
for unspecified activities or purposes.
256. According to the 1st Defendant, both Mr Amos and Mr Lawrence also confirmed the
following:
a) a financier would undertake its own review or analysis of any feasibility
study presented by a project proponent, at the cost of the project
proponent in which you would provide its own financial inputs;
b) a competent person preparing a Reserve Statement under the JORC Code
would be concerned with whether the proposed project was technically
feasible, economically viable and not subject to any other external risk
factors;
c) a financier would not begin to consider a request to provide project
finance unless the project proponents had prepared a study which
concluded that it was feasible and viable to mine the relevant deposit and
there were no negative external or modifying factors;
d) the main financial parameters used in a feasibility study were usually
provided to the study authors by the person for whom the study was
being conducted, and;
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e) a feasibility study of a possible mining venture is an iterative process,
where there is interdependence and interrelationships between technical
and financial factors affecting feasibility and viability.
257. The 1st Defendant also submits Mr Lawrence held the view that authors of feasibility
studies expressly or implicitly evaluate financial parameters provided to them by
project proponents and includes them if the parameters appear to be reasonable.
Accordingly, it is submitted that even if a project proponent is the source of part of
the information used in the study, provided that information is expressly or implicitly
evaluated then considered reasonable the author of the report may use that
information without affecting the independence of the study.
258. It is submitted that Mr Amos confirmed in his evidence that financiers use their own
project model and financial inputs/parameters to assess the merits of a finance
proposal. He confirmed that financial parameters used in the study provided by a
party seeking finance are not necessarily relied upon by financiers. Accordingly, it is
said it follows the provenance and accuracy of the financial parameters used in such
a study have no effect on the usefulness of the study in the process of seeking
finance.
259. The 1st Defendant, submits the Plaintiff has failed to prove that the authors of the
SRK Report uncritically accepted or did not independently verify the resource
estimate for the E and financial parameters upon which the SRK model was based or
that the SRK Report contained the inaccuracies alleged in paragraphs 19C(ii)-(v) of
the Amended Plaint. The 1st Defendant argues large sections of the Lawrence and
Amos Report are either inadmissible or should be given no weight on the grounds
the opinions expressed are based on unproven facts. In many instances, the 1st
Defendant maintains the opinions of Mr Amos and Mr Lawrence are to be properly
characterised as argument and not matters of expert opinion.
260. The 1st Defendant details by reference to each of paragraph 19 of the amended plaint
why it submits the Plaintiff has failed to prove his case.
Was SRK Report Sufficiently Accurate for Project Finance ? – Paragraph 19A
261. The 1st Defendant submits the Plaintiffs pleaded case is the SRK Report required a
level of accuracy of at least ± 10% - ± 15% to enable Project Finance to be raised.
262. The 1st Defendant concedes while the level of accuracy of at least ± 10% - ± 15% is
not part of the Implied Terms itself, it may be accepted that prospective financiers
will generally require a project proponent to produce a positive feasibility study of
that level of accuracy when seeking project finance for developing a mining project.
In that regard, the 1st Defendant said both Mr Lawrence and Mr Amos expressed
opinions of the expected level of accuracy but were referring expressly to a case
where finance was being sought for the development of a mining operation and not
something else.
263. It is self-evident, submits the 1st Defendant, the expert evidence of Mr Lawrence and
Mr Amos established that financiers will not contemplate providing project finance
where the proponent’s feasibility study suggests that mining is not technically
feasible or economically viable.
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264. It is the conclusion that mining the E was not economically viable that prevented the
SRK Report from being of any assistance to the Plaintiff in seeking to raise Project
Finance. Put another way, the 1st Defendant submits, the SRK Report concluded
there was no commercially viable project that should be developed. Accordingly, the
feasibility study was complete, according to the 1st Defendant, without the need to
further investigation to demonstrate to a higher level of accuracy that there will not
be a commercially viable project. As there was no project identified in the SRK
Report to which the Plaintiff would need to seek to raise finance if he were to elect
to contribute towards Joint Venture Expenditure.
265. The negative outcome of the SRK Report was not challenged in paragraph 19 of the
Amended Plaint by the Plaintiff. The Implied Terms did not require the SRK Report
to be positive. In those circumstances, the 1st Defendant submits, the Implied Terms
cannot possibly apply to a study that reaches a negative conclusion, irrespective of
the meaning attributed to ‘project finance’ for the purposes of the Implied Terms.
266. For those reasons the 1st Defendant submits none of the alleged breaches pleaded by
the Plaintiff in paragraph 19A (i) – (iii) of the Amended Plaint have been
established.
267. The terms of paragraph 19A (iv) of the Amended Plaint is according to the 1st
Defendant of a different character to the other allegations in paragraph 19A. This
ground of the breach does not affect accuracy at all and means the base case
analysed by SRK was subjected to a sensitivity analysis involving a range of iron ore
prices and operating costs with both Mr Lawrence and Mr Amos indicating it was
usual practice to include a sensitivity analysis in a project model.
Was SRK Report Independent? - Paragraph 19B
268. The 1st Defendant submits paragraph 19B of the Amended Plaint alleges the SRK
Report was not independent because SRK relied on information and data provided
by the 1st Defendant or from its owners CML or FMG. The threshold question the 1
st
Defendant submits arises is whether paragraph 12(2) of the Amended Plaint
pertaining to the Implied Terms found to apply to the Agreement has any application
to the information and data.
269. It is argued by the 1st Defendant that information and data obtained by a participant,
or a related party of the participant, from an independent, 3rd
party consultant, and
passed on to another consultant who has the responsibility for the preparation of a
feasibility study, is not in any relevant sense of lacking in independence. Such
information and data cannot possibly require independent verification submits the 1st
Defendant. Accordingly, the 1st Defendant submits CML managed the flow of
information between FMG, the 1st
Defendant, 3rd
parties and SRK is irrelevant and
does not come within paragraph 12(2) of the Amended Plaint.
270. The Agreement provides, argues the 1st Defendant, for the 1
st Defendant to complete
the feasibility study and it is the 1st Defendant who is entitled to conduct the study or
engaged others to do so, and in the latter case to provide information to the study
authors. The 1st Defendant correctly points out the feasibility study is not required
exclusively for the Plaintiff.
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271. The 1st Defendant further says, the expert evidence of both Mr Lawrence and Mr
Amos clearly establish it is usual practice, for good reason, for a joint venturer who
has arranged for a feasibility study to be conducted to supply the major financial
parameters to be used in the study model (e.g.: forecasts of interest rates, exchange
rates, minerals prices). That is because, submits the 1st Defendant, these parameters
relate to major areas of risk and a venturer is entitled to take its own view of the
level of risk that it is prepared to assume. As such, any recipient of a feasibility
study, including the study model, whether a prospective financier or another joint-
venture participant can make use of the study and model by inserting its own
financial parameters. The 1st Defendant argues the inclusion in the study model of
the major proponents financial input does not affect the independence or utility of
the study.
272. There is no explanation or reason within the Lawrence Report, says the 1st
Defendant, that supports an opinion to the effect that SRK should have
independently verified the conclusions in information relied on by WP, DRAP,
HWE or Coffey simply because those parties had been engaged by one or more of
CML, FMG or the 1st Defendant.. Further, the Lawrence Report does not support an
opinion to the effect that a failure to do so gives rise to an apprehension of bias,
deficiency or lack of confidence in the content or conclusion of the SRK Report.
Accordingly, on that basis the 1st Defendant submits to the extent the Lawrence
Report expresses such opinions, they are inadmissible or are to be given no weight
and this affects the whole of sections 5.6 and 6(e)(ii) of the Lawrence Report. (see:
Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370, 375-378, 387-390,
and Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at [85]).
273. It is argued by the 1st Defendant for those reasons that, in so far as paragraph 19B(i)
of the Amended Plaint relates to an independent 3rd
party consultants information
which was passed on to SRK by the 1st Defendant and insofar as that information
relates to financial input parameters which a proponent is expected to provide, there
can be no breach of paragraph 12(2) of the Amended Plaint pertaining to the Implied
Terms found to apply to the Agreement because that part of the Implied Terms is
inapplicable to those matters. In any event independent verification by a feasibility
study author can occur either expressly, implicitly or by a combination of both
submits the 1st Defendant. In that regard, it is said by the 1
st Defendant that Mr
Lawrence accepted that a professional person to whom information is provided were
almost invariably implicitly scrutinise information to reasonable as before adopting
it.
274. The 1st Defendant noted the authors of the SRK Report made an express statement
that ‘SRK has exercised all due care in reviewing the supplied information. While
SRK has compared key supplied data with expected values, the accuracy of the
results and conclusion from the review are reliant on the accuracy and completeness
of the supplied data’. (SRK Report - Ex 18, volume 7, page 1733)
275. Three further matters are raised by the 1st Defendant pertaining to paragraph 19B(i)
of the Amended Plaint being:
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a) the SRK Report expressly states the mineral resources estimate was
reviewed as should be evident by the detailed discussion of that topic in the
report and there is no evidence to the contrary;
b) the financial input parameters used by SRK to optimise the estimated
resources of the tenement deposit were expressly or implicitly assessed as
is apparent from the detail extent of the consideration of the topic as
follows:
i. as to all parameters as noted in Exhibit 18, volume 7,
Appendix 19 and Appendix 22 contained within Exhibit 21
Volume 10 where SRK stated it was responsible for mining
optimisation meaning it reviewed and evaluated the darter for
that purpose;
ii. as to DRAP, Exhibit 18 Volume 7;
iii. as to WP, Exhibit 18 Volume 7 and Appendices 4-5 in Exhibit
19 Volume 8;
iv. as to CML, Exhibit 18 Volume 7;
v. as to FMG, Exhibit 18 Volume 7.
c) The iron ore price forecasts were sourced from a leading industry
forecaster, AME, and needed no further verification and SRK’s adoption of
the conservative approach to escalation implicitly involved an assessment
and acceptance of the reasonableness of that approach. (Appendix 6 to
SRK Report at Exhibit 18, Volume 7, and Exhibit 19, Volume 8)
276. Further, the 1st Defendant says the Plaintiff has failed to adduce any direct evidence
capable of proving that the authors of the SRK Report did not independently verify
or uncritically accept the financial parameters. It is argued by the 1st Defendant that
the Plaintiff's case is founded on the construction of the SRK Report and certain
communications none of which supports the Plaintiff's contention, in that:
a. The statement in the Transmittal Letter that ‘SRK did not
independently undertake any first principle costing studies or
independent benchmarking studies to verify the information
supplied’. The 1st Defendant states that independent first principle
costing or benchmarking studies were not perform does not give rise
to an inference that the express implicit independent assessment of
those parameters by SRK referred to above will not carried out.
Further, the 1st Defendant points to the evidence of Mr Lawrence
where he acknowledged that he would expect the author of a
feasibility study to have undertaken assessments of that kind. It is
said by the 1st Defendant the submission by the Plaintiff that SRK
acknowledge in this letter that it uncritically accepted information
and data is plainly wrong.
b. In a similar vein, the 1st Defendant says this statement in Appendix
26 of the SRK Report that SRK had not critically reviewed the WP,
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DRAP, HWE or Coffey reports does not affect the independence of
those reports or infer that the contents of those reports were not
expressly or implicitly assessed by SRK in the manner referred to
previously. Put in its context it is submitted the statement by SRK
simply means that the information in the WP, DRAP, HWE and
Coffey reports were not verified by SRK performing or
commissioning its own first principle costing or benchmarking
studies.
c. The Plaintiff's reliance upon passages in the Lawrence Report are
based upon the unproven assumptions the authors of the SRK
Report did not independently verify financial parameters. Similarly,
the 1st Defendants submits those parts of the Lawrence Report it has
referred to its written submissions are for the reasons previously
expressed inadmissible or should be given no weight.
d. The e-mails from Mr Hans Mohle to Mr Murray on 21 November
2007 do not establish that the ultimate decisions regarding the
source of iron ore prices to be used in the SRK Model were made by
CML. The source of the iron ore prices used in the case of SRK
Report are disclosed in Appendix 6 of that report (see: Exhibit 19
Volume 8) and the reasons why and what information was relied
upon is explained in the same report at Exhibit 18 Volume 7. The
prices used were based on the forecast of AME, a reliable
independent source for iron ore price is recommended by FMG and
accepted to be such by Mr Amos. The assumptions about the
marketability of iron ore were based on a signed MOU between
FMG and Rizhao Steel Holdings Group Ltd. It is argued by the 1st
Defendant that SRK implicitly assessed and accepted the
reasonableness of these parameters and the assumptions upon which
they were based.
277. It is contended by the 1st Defendant that no inference can be drawn the evidence of
Mr Murray would not have assisted the 1st Defendant can be drawn by the failure of
the 1st Defendant to call him. In that regard, the SRK Report speaks for itself and the
authors expressly or implicitly indicate they have assessed and accepted as
reasonable the information and data upon which they have relied to draw the
conclusions they have expressed in the SRK Report. Accordingly, the 1st Defendant
submits the principles derived from Jones v Dunkel (supra) and Fazio v Fazio
(supra) have no application because the 1st Defendant was not required to explain or
contradict anything upon which the evidence of one or more of the authors of the
SRK Report could be expected to shed light.
278. In any event, the 1st Defendant submits the authors of the SRK Report could not be
regarded as persons the 1st Defendant would be expected to call as there was no
evidence of any ongoing relationship between SRK or Mr Murray and the 1st
Defendant or any other matter from which it could be inferred that SRK or Mr
Murray should be regarded as being in the 1st Defendant’s camp. It is pointed out by
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the 1st Defendant that the Plaintiff subpoenaed Mr Murray with the intention of
calling him as a witness and then, without explanation, failed to do so. Accordingly,
in those circumstances, the 1st Defendant argues Mr Murray should be considered at
least, equally available to both parties, and in such circumstances the rule in Jones v
Dunkel (supra) has no application. (Payne v Parker [1976] NSWLR 191).
279. It is submitted by the 1st Defendant the Plaintiff misstates the effect of the sentence
in Appendix 26 of the SRK Report (Exhibit 21, Volume 10) that SRK were
instructed not to prepare a Reserve Statement. The correct interpretation of that
sentence, according to the 1st Defendant, is SRK was ‘not asked to report a Reserve
Statement’ which does not mean they were instructed not to do so. The inclusion or
otherwise was left to SRK.
280. Despite that the evidence was, according to the 1st Defendant, the preparation of the
SRK Report was an iterative process in which many factors are affected each other.
The preparation of a Reserve Statement was necessarily bound up with an
assessment of the technical feasibility and economic viability of a possible project
for the exploitation of the tenement is and as such they were interdependent
considerations.
281. Because the conclusion of the SRK Report was that he would not be technically or
economically feasible to develop the E it follows, argues the 1st Defendant, the
Reserve Statement was neither required nor possible. Accordingly, even if the
sentence in question can be read as an instruction it did not distract from the
independence of the SRK Report given that the authors of that report concluded that
mining was not viable.
282. It is argued the contention of the Plaintiff in paragraph 19B (ii) of the Amended
Plaint that SRK did not critically review the work of the 4 other consultants is not
supported by any evidence that the 4 consultants were not independent of SRK and
the 1st Defendant. In those circumstances, there was no need for the work of the 4
consultants to be critically reviewed or verified. The 1st Defendant says it pleaded in
its defence the SRK Report both expressly and implicitly evaluated the work of the 4
consultants. Despite that the 1st Defendant submits the work of the 4 consultants
were self-evidently from an independent source because:
a) the evaluation of options by WP reflects an implicit assessment of
information supplied (see: Exhibit 18, Volume 7 and Exhibit 19, Volume
8);
b) one of 3 DRAP options were selected and it reflects an express evaluation
of those options from Appendix 3 (see: Exhibit 18, Volume 8 and Exhibit
19, Volume 8;
c) the analysis by HWE reflects an implicit assessment of the information
supplied from Appendices 10-17 (see: Exhibit 18, Volume 7 and Exhibit
21, Volume 10);
d) the analysis by Coffey reflects an implicit assessment of the information
supplied from Appendices 24 (see: Exhibit 18, Volume 7 and Exhibit 21,
Volume 10).
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283. Moreover, the Plaintiff does not allege any want of independence of information or
data affected either the accuracy of the conclusion expressed in the SRK Report or
the capacity of that report to assist the raising of Project Finance within the plea
contained in paragraph 19B of the Amended Plaint.
Was SRK Report Unreliable because of Inaccurate or Incomplete Instructions from
1st Defendant? – Paragraph 19C
284. The Plaintiff complains in paragraph 19C of the Amended Plaint that information
provided by the 1st Defendant was unreliable because it was inaccurate or
incomplete.
285. The 1st Defendant submits a feasibility study is not unreliable, merely because it has
some inaccuracies or some incompleteness about it. Further, the 1st Defendant says
inaccuracy or incompleteness can only affect reliability where the inaccuracy or
incompleteness is of such a kind or extent as to detract from or destroy the validity
or reasonableness of the conclusions reached in the study. The 1st Defendant further
states information may be incomplete or inaccurate without having the slightest
effect on the conclusions reached in a study or the principal reasons for the
conclusions.
286. The Plaintiffs pleadings, says the 1st Defendant, raises no allegation in paragraph
19C(ii)-(iv) of the Amended Plaint that any of the matters there alleged has had any
effect on the reasonableness or validity of any of the conclusions reached in the SRK
Report or of the principal reasons for those conclusions.
287. The 1st Defendant submits in respect to paragraph 19C (i) of the Amended Plaint the
resource estimate of 44.8 Mt stated in the application for extension of term of the E
in December 2007 reveals a transposition error of information that was reflected in
the table of the SRK Report. The renewal application confuses Fe % content with Fe
% cut-off grade.
288. Further, the 1st Defendant submits the reference by the Plaintiff in paragraph 19C(i)
of the Amended Plaint to the SRK Report not taking account of any subsequent
work, wrongly conveys the impression that there had been further studies conducted
since the Twomey and Chen Report (2006), when clearly of the 1st Defendant’s
lodgement of an application for extension of term in December 2007 was referring to
the same material that SRK relied upon. That lodgement and application for
extension of term, submits the 1st Defendant, was made before the SRK Report was
completed in January 2008 and, therefore, refers to work done after the grant of the
E and not work done after the SRK Report was completed.
289. The inclusion of the royalty that could be payable to the Plaintiff under clause 4.7 of
the Agreement represents, submits the 1st Defendant, the inclusion of the potential
cost over which all participants have no control. Further, the 1st Defendant says the
Implied Terms or the Express Terms of the Agreement required the SRK Report to
be one made exclusively for the purposes of the Plaintiff and was for the benefit of
both parties to the Agreement. (PI Decision at [81]). The 1st Defendant submits the
inclusion of the potential royalty payment to the Plaintiff was appropriate to ensure
the SRK Report addressed all potential costs of the participants taken together.
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Despite there being no introduction to include the potential royalty payment, SRK
were invited to do so because that cost represented a worst-case scenario for a
possible mining project and as with any other financial input, the model can be run
with a different amount inserted. Accordingly, the 1st Defendant says the presence of
the potential amount of royalty does not affect the reliability of the SRK Report at
all.
290. The 1st Defendant submits the balance of matters alleged by the Plaintiff in
paragraph 19C (ii)-(v) of the Amended Plaint maintains the SRK Report was
unreliable because data and information supplied to SRK by the 1st Defendant was
inaccurate or incomplete. These pleadings by the Plaintiff is said by the 1st
Defendant to be an attempt by the Plaintiff to prove a breach of paragraph 12 (3) of
the Amended Plaint as to reliability as found to apply to the Agreement in the PI
Decision. Further, the 1st Defendant submits paragraph 19C (ii)-(v) of the Amended
Plaint does not correctly state the terms and effect of the SRK Report. The correct
and proper context in which SRK Report is to be considered is set out in a Table
attached to the written submissions. The 1st Defendant maintains the authors of the
SRK Report have made no unqualified recommendations to the effect that further
feasibility or other work be undertaken. It says in each instance, the authors drew
attention to additional work, review or study that could be undertaken should there
be any further feasibility work. In those circumstances, it is submitted these matters
do not reveal any unreliability, inaccuracy or incompleteness of information and data
for the purposes of a feasibility study.
291. The opinions of Mr Lawrence and Mr Amos are said by the 1st Defendant to be
inadmissible or to be given no weight to the extent they rely on the alleged
inaccuracies identified in paragraphs 19C (ii)-(v) of the Amended Plaint as they are
based on unproven assumptions. Further, the opinions expressed by Mr Lawrence
and Mr Amos are said by the 1st Defendant to suggest be SRK Report is not reliable
because further studies would be required in order for it to be sufficiently accurate to
obtain finance for the development and mining of the tenements. The 1st Defendant
submits the opinions of Mr Lawrence and Mr Amos are irrelevant because the SRK
Report is unchallenged in its conclusion, that is, development and mining of the
tenements is not economically viable. Accordingly, the reliability of the SRK Report
as the means for informing all parties about the lack of economic viability of
developing a mining tenement is not in question or addressed by Mr Lawrence or Mr
Amos in their respective reports.
Was SRK Report Incomplete in absence of Ore Reserve Statement?–Paragraph 19D
292. The 1st Defendant agreed the SRK Report did not include a Reserve Statement, but
did include a ‘resource estimate’ which was said by the authors of the SRK Report
to be JORC Code compliant.
293. The Plaintiff pleads in paragraph 12(4) of the Amended Plaint that a ‘completed
feasibility study’ requires there to be included a Reserve Statement to enable the
Plaintiff to seek to raise Project Finance pursuant to clause 4.7 of the Agreement.
The 1st Defendant submits a Reserve Statement can only be properly made where it
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is concluded that mining a deposit is technically feasible and economically viable
and the ‘modifying factors’ are or can be favourably resolved.
294. As the SRK Report did not reach a positive conclusion that mining on the E was
technically feasible, economically viable and the modifying factors are or can be
favourably resolved, the 1st Defendant says that such a Reserve Statement is
therefore not required. In any event, the 1st Defendant submits the Implied Terms do
not require the SRK Report to reach a positive conclusion or do what is not proper,
that is, to include a Reserve Statement when no positive conclusion was reached.
295. For those reasons the 1st Defendant considers the Plaintiff has failed to prove his
claim. Accordingly, the 1st Defendant says it has earned an 80% Joint Venture
Interest of the E pursuant to the terms of the Agreement. Further, the 1st Defendant
says it is entitled to a declaration it is entitled to be registered as proprietor of 80% of
the E and the Plaintiff must do all things necessary to enable the 1st Defendant to be
registered as the 80% owner of the E. Further, the 1st Defendant requires an order the
Plaintiff execute and provide a registrable transfer of an 80% interest in the E.
Findings
296. The general rule is the performance of a contract must be precise and exact. Whether
the alleged performance satisfies this criterion is a question to be answered, first, by
ascertaining the construction of the contract, so as to see what the parties mean by
performance, and, then, to ascertain the facts so as to see whether that which has
been done corresponds to that which was promised. If there is the slightest deviation
from the terms of the contract, the party not in default would be entitled to say the
contract has not been performed.
297. The purpose for which the 1st Defendant was obliged to ‘complete a feasibility study’
for the use of the Plaintiff was determined in the PI Decision at [85] and noted in this
decision at [133].
298. The Implied Terms of the Agreement and the reasons why the Implied Terms were
required were determined in the PI Decision at [92] – [94] and noted in this decision
at [142].
299. I find the Plaintiff was entitled to expect in performance of the express and Implied
Terms of the Agreement by the 1st Defendant that, at the end of the Earning Period
and in return for an 80% Joint Venture Interest in the E, the 1st Defendant would
deliver to him and have ‘completed a feasibility study’ sufficient that the Plaintiff
could inform himself of his Election to either withdraw and act in accordance with
clause 4.6 of the Agreement or contribute and act in accordance with clause 4.7 of
the Agreement.
300. I find the task to be undertaken by the 1st Defendant, in accordance with the express
terms and Implied Terms of the Agreement, was to have ‘completed a feasibility
study’ within the Earning Period, not a Scoping Study or a Pre-Feasibility Study, but
a Feasibility Study.
301. I find the Plaintiff was entitled to make his Election, based upon the content of the
1st Defendant having ‘completed a feasibility study’, in any way he chose,
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notwithstanding the conclusion reached by the ‘completed feasibility study’ may
have been positive or negative on the development of the E, because the Plaintiff,
and the Plaintiff alone, was entitled to make his Election of either of the options
available to him pursuant to clause 4.6 and 4.7 of the Agreement.
302. I further find, in accordance with the obligation upon the 1st Defendant to have
‘completed a feasibility study’, the Plaintiff was entitled to expect the inputs used in
the compilation of the SRK Report and the SRK Report as a whole would amount to
a ‘feasibility study’ by the 1st Defendant would meet the requirements of the Implied
Terms to be accurate, independent, reliable (not inaccurate or incomplete) and
contain a Reserve Statement. I accept the uncontested oral and documentary
evidence of Mr Lawrence and Mr Amos and find the SRK Report lacked such
features and did not meet the Implied Terms of the Agreement such that the SRK
Report could be considered to be a feasibility study.
303. I find the only document upon which the Plaintiff could rely in the exercise of any of
the Plaintiff’s rights under the Agreement, irrespective of which options the Plaintiff
exercised under his Election, was the ‘completed feasibility study’.
304. Central to the determination of the Plaint is the classification of the varying types of
techno-financial studies concerning proposed mining projects. The unchallenged oral
and documentary expert evidence of Mr Lawrence establishes there are 3 levels of
techno-financial studies of proposed mining projects, each with inputs of information
and data of expected degrees of accuracy, being Scoping Study (what project could
be with input accuracy ± 40% - ± 50%), Pre-Feasibility Study (what project should
be with input accuracy ± 20% - ± 25%) and Feasibility Study (what project will be
with input accuracy ± 10% - ± 15%) (Exhibit 3 pages 11-14).
305. I accept the evidence of Mr Lawrence and find the 3 levels of techno-financial
studies and their associated purposes and levels of input and conclusions of accuracy
described by Mr Lawrence are understood and accepted within the mining industry
as the standards by which such reports should be and are prepared.
306. I find upon the documentary evidence, the 1st Defendant including its co-owners
FMG and CML and many of the companies contracted to contribute to the various
reports and data used in the preparation of the SRK Report and SRK itself all made
reference to the degrees of accuracy of either the inputs or the conclusions they
reached in terms consistent with the 3 types of techno-financial studies of proposed
mining projects as described by Mr Lawrence.
307. I find SRK, WP and DRAP were well aware of the varying types of techno-financial
studies, the respective levels of input accuracy required in such studies and that they
were preparing a study for a Feasibility Study. SRK makes reference in the SRK
Report to both Pre-Feasibility Study and Feasibility Study. SRK also identified the
level of accuracy of its own work within the SRK Report as being to a level of a Pre-
Feasibility Study of ± 20% - ± 25%. Further, the DRAP work within the SRK Report
was reported by its authors to be at a level of a Scoping Study being a level of
accuracy of ± 40% - ± 50%. Despite the assessment by DRAP that the level of
accuracy of its study was that of a Scoping Study it independently assessed its
accuracy at ± 30%. WP reported Stage 1 of its study as accurate to ± 40% or better
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which is according to the evidence of Mr Lawrence no better than a Scoping Study.
Stage 2 of the WP study was noted by WP as accurate to ± 20% - ± 25% and falling
short of a ‘definitive estimate of ± 15% accuracy’. In this regard the content of the
various reports prepared by the contributors to the SRK Report all identify the
standard and level of accuracy of their reports. I find the level of accuracy of these
reports all speak for themselves as measured by their authors.
308. I find on the above basis and accept that each of the authors of the various studies
used in the compilation of the SRK Report were familiar with the varying types of
techno-financial studies and the respective levels of input accuracy required in such
studies.
309. I am fortified, because of the above conclusions by the authors of the various reports
used within the SRK Report, in my conclusion and findings that the 3 types of
techno-financial studies of proposed mining projects described by Mr Lawrence are
well understood and accepted within the mining industry as the standards by which
such reports are prepared.
310. I find, in accordance with Appendix 26 to the SRK Report, the 1st Defendant and its
co-owners CML and FMG, acted as one in the engagement of contractors to prepare
various studies for inclusion in the SRK Report and also managed the flow of data
and information to SRK. I also find, in accordance with Appendix 26 to the SRK
Report, the role of SRK was to compile a report of all the studies received directly
from other contractors engaged by either CML or FMG on behalf of the 1st
Defendant, the data and information forwarded to SRK by the 1st Defendant and the
work carried out and its own assessment of the hydro-geological, geotechnical and
mining issues by SRK for the E. The information received from the other
contractors, including WP, HWE, Coffey and DRAP, were included in the SRK
Report on the basis it ‘should be considered integral to the substance and outcomes
of the report’. (Exhibit 18, Volume 7, page 1700)
311. I find SRK was well aware of why it was engaged by the 1st Defendant. As early as
July 2006, SRK had been approached by CML to prepare a proposal for the
preparation of a Pre-Feasibility Study on the E to investigate the financial viability of
a standalone project mining only Direct Shipping Ore from the E. Later, in January
2007, CML advised SRK that a Feasibility Study would commence in February 2007
with a completion targeted for June 2007. SRK were instructed by CML to
commence the work on 22 January 2007. (Exhibit 21, Volume 10, Tab 49, pages
4049 to 4050). Further, SRK, in its covering Transmittal Letter dated 24 January
2008, referred to the document it was forwarding to the 1st Defendant as a Feasibility
Study. (Exhibit 18, Volume 7, Tab 46, page 1700).
312. I reject any suggestion or submission by the 1st Defendant that there is no allegation
by the Plaintiff any deficiency in the SRK Report had any effect upon the validity or
reasonableness of the conclusion reached or the Plaintiff was inhibited in making his
Election at because the conclusion of reached or there were any deficiencies in the
SRK Report were such as to deprive it of the character of a feasibility study.
313. The case pleaded by the Plaintiff is the SRK Report did not meet what was required
to be produced under the express terms and Implied Terms of the Agreement such
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that it was a ‘feasibility study’. The 1st Defendant submits the Plaintiff should have
and could have made his Election on the SRK Report despite its negative conclusion.
I reject that submission by the 1st Defendant. The SRK Report did not meet the
standard required to be considered to be a ‘feasibility study’ because it did not meet
the Implied Terms of being accurate, independent, reliable (not being incomplete or
inaccurate) and containing a Reserve Statement. The PI Decision at [92] – [94] and
repeated at [142] of this decision made it clear that the very existence of the Implied
Terms was to ensure the 1st Defendant did not produce a document of a standard that
did not commercially validate the findings and conclusions within the document
purported to be the ‘Feasibility Study’.
314. I find the 1st Defendant produced, in the form of the SRK Report, a document that
was of little commercial worth and did not adequately validate its findings or
conclusions because it was inaccurate, not independent, not reliable (because it was
incomplete and inaccurate) and contained no Reserve Statement. The uncontested
oral and documentary evidence of Mr Lawrence and Mr Amos adequately
demonstrates the shortfall and failings in the SRK Report. It is beyond
comprehension the inputs of the various reports could not each meet the same level
of accuracy and varied between being of a standard of a Scoping Study (± 30%) in
the case of the DRAP Study and of a standard of a Screening Level (± 25 % - ± 30
%) in the case of the WP Study with an overall level of standard of a Pre-Feasibility
Study of accuracy of (± 20 % - ± 25 %) for the whole of the SRK Report. That is
against the background of the admission by various authors of the reports that form
the SRK Report that there is incomplete information used within their reports or that
further information was required before the SRK Report would meet the standard
required to be considered a Feasibility Study.
315. It is not the case the express terms or the Implied Terms of the Agreement required
the Plaintiff to make his Election based on whatever the content of the SRK Report
was that was produced to him. The Plaintiff was obliged to receive a report that
amounted to a ‘completed feasibility study’ that incorporated the Implied Terms. The
Plaintiff did not receive a ‘completed feasibility study’ that incorporated the Implied
Terms and as such he was not only not obliged to make his Election but he could not
as the terms of the Agreement had not been met by the 1st Defendant as the Plaintiff
was presented with the SRK Report that was inaccurate, not independent, was
unreliable and did not contain a Reserve Statement. I find the Plaintiff could have no
faith in the content of the SRK Report because of the failings in it meeting the
Implied Terms and was, therefore, not a Feasibility Study.
316. I do not to accept the terms of the Agreement have been substantially performed by
the 1st Defendant. I accept the uncontested evidence of both Mr Lawrence and Mr
Amos and find the various defects in the SRK Report, including the shortfalls and
additional information required to be ascertained, make it inaccurate, not
independent, unreliable and did not contain a Reserve Statement to the extent it was
significantly short of what was required for it to be considered a Feasibility Study
under the terms of the Agreement or that the Plaintiff could rely upon to make his
Election.
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317. I specifically find the 1st Defendant failed to ‘complete a feasibility study’ that met
the requirement of the Implied Terms for the following reasons.
Accuracy
318. I accept the uncontested evidence of both Mr Amos and Mr Lawrence and find that
for a proponent to seek project finance for a mining proposal they must produce a
Feasibility Study with inputs accurate to ± 10% - ± 15%. I also accept the evidence
of Mr Amos and Mr Lawrence and find the content of the SRK Report was not
accurate to a level of ± 10% - ± 15% and it was at best a Pre-Feasibility Study with a
level of accuracy of ± 20% - ± 25%. I also accept the evidence of Mr Amos and Mr
Lawrence the SRK Report if produced to seek finance would be unable to be
assessed on its commercial merits and funding would be refused.
319. I find the studies by SRK, DRAP and WP used as part of the SRK Report were all
self-evaluated by the authors to be at a level of accuracy to be at best Pre-Feasibility
Study level of ± 20% - ± 25%. The Plaintiff was entitled, under the express terms
and Implied Terms of the Agreement, to receive a Feasibility Study with a level of
accuracy of ± 10% - ± 15% that being sufficient to inform the Plaintiff of his
Election and as previously stated, if necessary upon the Election of the Plaintiff to
seek Project Finance or to be the basis of the exercise of any other right that may
exist under the terms of the Agreement.
320. The reason the 1st Defendant was required by the Implied Terms to produce a
Feasibility Study that was accurate was because it would enabled the Plaintiff to
inform himself of his Election under the provisions of clause 4.6 of the Agreement or
to seek to contribute to Joint Venture Expenditure and raise Project Finance pursuant
to the provisions of clause 4.7 of the Agreement. The PI Decision at [93] went on to
say ‘the feasibility study must contain information of a standard that commercially
validates the findings or conclusions of the information contained within the
Feasibility Study. The Plaintiff was entitled to expect the content of the SRK Report
would be accurate to a standard recognized for a Feasibility Study and capable of
informing his Election to either withdraw and act in accordance with clause 4.6 of
the Agreement or contribute and act in accordance with clause 4.7 of the Agreement.
321. The unchallenged evidence of both Mr Lawrence and Mr Amos is clear, the level of
accuracy of the SRK Report fell below what is accepted for a Feasibility Study and it
was incapable of supporting the exercise of the Plaintiff’s ability to an Election to
contribute and then act in accordance with clause 4.7 of the Agreement.
322. I do not propose to repeat the documentary or oral evidence of Mr Lawrence and Mr
Amos or the closing submissions of the Plaintiff on the Implied Terms. I wholly
accept the evidence lead by the Plaintiff and submissions of the Plaintiff in this
regard.
323. The Plaintiff was entitled to expect the 1st Defendant would ‘completed a feasibility
study’ that was based upon and contained information of a sufficient standard and
degree of accuracy he could rely upon in the exercise of his Election and then also
rely upon, if necessary, to seek to pursue the exercise of the rights as a consequence
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of his Election, including seeking Project Finance within the time constraints under
the Agreement.
324. I find the level of accuracy required of the 1st Defendant for the SRK Report to be
regarded as the 1st Defendant having ‘completed a feasibility study’ has not been
met.
Independence
325. I accept the submission of the Plaintiff and find various data, information and reports
received by SRK for the preparation of the SRK Report were not independently
verified and the information was accepted uncritically and was not verified for
accuracy or reliability and as such is not independent.
326. I do not propose to repeat the documentary or oral evidence of Mr Lawrence and Mr
Amos or the closing submissions of the Plaintiff on this Implied Term. I wholly
accept the evidence lead and the closing submission by the Plaintiff in this regard.
327. The unchallenged evidence of both Mr Lawrence and Mr Amos is critical of the
acceptance of information and data from the various contractors of either SRK or the
1st Defendant by SRK, including both CML and FMG, without independent
verification. Both Mr Lawrence and Mr Amos made comment and were critical of
such actions and explained the need for there to be objectively accurate results so
there can be no reasonable apprehension of bias.
328. I accept that evidence, in the circumstances of this case, is at the very heart of the
need for the verification of data and information in the preparation of such report.
The Plaintiff is entitled to be confident the content of a ‘completed feasibility study’
is based upon information and data that is not biased or inaccurate particularly where
the source of that information is from or arranged by a party that has an interest in
the outcome of the purpose of the supply of the information and data in the first
place. It is also the case the information and data provided, in the circumstances of
this case, must be of a standard for the purposes for which it may be used including
the need for the information and data to be passed on and assessed for the purposes
of raising Project Finance, if so required, by the Election of the Plaintiff.
329. I find the level of independence required of the 1st Defendant for the SRK Report to
be regarded as the 1st Defendant having ‘completed a feasibility study’ has not been
met.
Reliable (not Inaccurate or Incomplete)
330. I accept the unchallenged evidence of both Mr Lawrence and Mr Amos and find the
SRK Report was not reliable because it was incomplete and/or inaccurate.
331. The SRK Report acknowledges additional in-depth studies need to be undertaken at
significant cost, details of which are outlined at paragraph [174] of this decision. I
accept the SRK Report acknowledges the need for further geotechnical work to be
completed. I further accept the unchallenged evidence of both Mr Lawrence and Mr
Amos of aspects of the SRK Report that are either inaccurate or incomplete as
outlined in paragraphs [176] to [180] of this decision.
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332. I accept the unchallenged evidence of Mr Lawrence and find the SRK Report
contained almost no information and data in respect to the hydrogeology, dewatering
and groundwater salinity issues on the E.
333. I find the SRK Report was not reliable because aspects of the SRK Report were
incomplete and/or inaccurate. I further find the 1st Defendant failed to comply with
the Implied Term of the Agreement.
334. The 1st Defendant had a significant obligation upon it when it entered into the
Agreement with the Plaintiff to ‘complete a feasibility study.’ The Feasibility Study
was for the benefit of both the Plaintiff and the 1st Defendant in the decisions they
were to exercise regarding their respective rights under the terms of the Agreement.
The 1st Defendant had, as part of its obligation to ‘complete a feasibility study’, to
ensure it presented to the Plaintiff a Feasibility Study that was reliable and not
incomplete and/or inaccurate in any aspect. The Plaintiff had no role to play in the
preparation of the Feasibility Study, yet was obliged under the terms of the
Agreement to rely upon the 1st Defendant to provide to him with a ‘complete
feasibility study’ such that he utilise the content to both inform and decide on the
Election he should make under the terms of the Agreement. Further, if the Election
the Plaintiff was to make under the terms of the Agreement was to contribute the
Plaintiff was obliged to raise finance within restrictive time frames and would be
reliant on the Feasibility Study to seek that finance.
335. It is against that background the Plaintiff was entitled to have confidence the 1st
Defendant would ‘complete a feasibility study’ to aid the making of his Election in
the knowledge the feasibility study produced by the 1st Defendant was reliable by not
being inaccurate or incomplete and he could also use the Feasibility Study to seek
finance if that was his Election.
336. I accept the unchallenged evidence of both Mr Lawrence and Mr Amos and the
content of the SRK Report and find the SRK Report was unreliable because it
required further significant information and data as noted above.
337. I find the SRK Report was not reliable, as its content was incomplete and/or
inaccurate, and could not be regarded as the 1st Defendant having ‘completed a
feasibility study’ in accordance with the terms of the Agreement.
Reserve Statement
338. I find the SRK Report was not complete because it did not contain a Reserve
Statement.
339. There is no dispute by the 1st Defendant that the SRK Report did not contain a
Reserve Statement. The 1st Defendant says a Reserve Statement was not necessary
because of the negative conclusion reached by the SRK Report.
340. The unchallenged evidence of Mr Lawrence was a Reserve Statement was critical in
the final economic assessment of an iron ore project. Further, Mr Lawrence stated a
Reserve Statement was necessary before Project Finance could realistically be
expected to be allocated. Mr Lawrence also stated a Reserve Statement, and not an
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ore resource statement, was required by the Plaintiff to reasonably and commercially
inform his Election.
341. Mr Lawrence stated the absence of any material attempts by SRK to critically verify
assumptions in the conclusions as would be expected under the JORC Code and
VALMIN Code. The failure to provide a JORC Code and VALMIN Code compliant
conclusion is regarded by Mr Lawrence as another ‘fatal flaw’ in the SRK Report
because it underpins any claim about the quantity and quality or iron ore that can be
produced.
342. Mr Amos gave unchallenged evidence the lack of a Reserve Statement would imply
a project cannot be demonstrated to be economically viable. The inclusion of a
Reserve Statement is expected by a great majority of financiers for mining projects
and it would be highly improbable the Plaintiff would be able to obtain Project
Finance without such a statement.
343. The absence of a Reserve Statement was said by SRK to be as a result of SRK ‘not
being asked to report on a reserve statement’. SRK also acknowledged the
importance of assessments under the JORC Code as being the minimum standard ‘to
ensure that investors and advisors have all the information they would reasonably
require for forming a reliable opinion on the results and estimates being reported’.
344. I accept the unchallenged evidence of Mr Lawrence and Mr Amos and find a
Reserve Statement was required for the SRK Report to be considered as the 1st
Defendant having ‘completed a feasibility study.’
345. I accept the evidence of Mr Lawrence and find the failure to include an Ore Reserve
Statement within the SRK Report was a fatal flaw to the ability of the Plaintiff to
make his Election and, if necessary, to raise Project Finance.
346. Without information concerning the quality and quantity of the very mineral at the
heart of the Agreement between the Plaintiff and the 1st Defendant, I find the
Plaintiff could not be in a position to properly assess the viability of any potential
mining project and, therefore, would not be in a position to properly make his
Election as required under the express and Implied Terms of the Agreement. Further,
I find the lack of a Reserve Statement within a completed Feasibility Study would
almost certainly render any application for finance, if the Election was made by the
Plaintiff to contribute, highly improbable of success as the viability of any potential
mining project would be unable to be assessed.
347. Although the 1st Defendant may not have requested of SRK a Reserve Statement be
included in the SRK Report, I accept and find on the unchallenged evidence of both
Mr Lawrence and Mr Amos it was necessary because a Feasibility Study at a level of
accuracy of ± 10% - ± 15% requires it to be present and given the very purpose for
which the completed Feasibility Study may be called upon to be used for by the
Plaintiff in this case, included the raising of finance such application would demand
it be present before any probability of success were to be expected.
348. I find the SRK Report did not contain a Reserve Statement and could not be regarded
as the 1st Defendant having ‘completed a feasibility study’ in accordance with the
terms of the Agreement.
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Conclusion
349. For those reasons, the Plaintiff has discharge the onus upon him and I am satisfied
upon the balance of probabilities the 1st Defendant did not deliver to the Plaintiff a
‘completed feasibility study’ within the time limits and the express terms and Implied
Terms of the Agreement.
350. The Plaintiff is entitled to the relief sought in the Plaint.
351. Accordingly, subject to submissions from the Plaintiff, the I propose to make the
following orders:
i) There is a declaration the 1st Defendant is deemed to have withdrawn from the
Joint Venture;
ii) There is a declaration that Power of Attorney No 10265H is invalid, and
iii) There is a declaration the Transfer lodged by the 1st Defendant on 11 March
2008 to transfer an 80% interest in E 47/1140 to itself is invalid.
iv) An injunction is granted restraining the Mining Registrar from registering the
Transfer lodged by the 1st Defendant on 11 March 2008 to transfer an 80%
interest in E 47/1140 to itself.
v) An injunction be granted restraining the 1st Defendant, its servants, workmen
and agents from representing the 1st Defendant:
a. has any right or interest n E 47/1140;
b. holds a power of attorney to sign on behalf of the Plaintiff to do
everything necessary to maintain E 47/1140; and,
c. is the manager of the Joint Venture Operations in relation to E
47/1140.
vi) The 1st Defendant is to pay the costs of the Plaintiff, including any reserved
costs and the costs of any expert witnesses, to be assessed if not agreed.
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