Aker Kvaerner settles Tonopah dispute

Equatorial Mining, based in Sydney, Australia, will receive US$101 million from engineering firm Aker Kvaerner to resolve legal claims surrounding the failed Tonopah gold mine in Nevada. The settlement is one of the largest on record in the mining industry.

Equatorial Mining reached the settlement with Kvaerner U.S., a subsidiary of Norway-based Aker Kvaerner ASA, after a series of meetings in London.

“We’re not happy that we ended up having to pay at all because we clearly and honestly believe that we should not be held responsible for the fact the mine did not perform,” says Kvaerner spokesman Geir Arne Drangeid.

Equatorial sued Kvaerner in March 2001 for breach of contract, negligence and fraud.

Equatorial claimed the engineering firm misrepresented findings of a feasibility study it did to assess the value of the Tonopah copper mine, leading to the mine’s failure.

The Norwegian company was found guilty in July 2003 of preparing a phony feasibility study that estimated copper production of 54 million lbs. per year over 10 years at the Tonopah copper mine, 320 km north of Las Vegas, Nev. Equatorial Mining bought the mine from Cyprus Amax for US$70 million in 1997, based on the feasibility study provided by Kvaerner. The engineering firm subsequently won the contract to build the processing plant at Tonopah.

Once the plant was commissioned in 1999, it was discovered that copper recoveries were substantially less than initial estimates. The operation was shut down in spring 2001.

In a statement, Equatorial told shareholders that “Kvaerner’s representations in the feasibility study had been, from the beginning, inaccurate, incomplete, unsubstantiated, and misleading.”

Equatorial took a writedown of US$100 million on Tonopah in 2000.

Kvaerner says its insurance would likely cover about half the damages.

The damages dwarf the US$28-million compensation awarded to Anaconda Nickel in its claim against engineering firm Fluor over the design of the troubled Murrin Murrin nickel laterite plant.