Aussie miner seeks damages from contractor

Denver — Australia’s Equatorial Mining has filed suit against consulting giant Kvaerner, seeking US$145 million in damages after the Tonopah copper mine in southern Nevada failed to live up to expectations laid out in a 1997 feasibility study.

Equatorial, which is 94%-held by Australia’s AMP Life, suspended operations at the mine in early March, when it became evident the cash flow was inaccurate. Sharply higher energy costs aggravated the situation.

Metallurgical studies are needed before production can resume. The company expects to make a decision along those lines by year-end.

Commercial production began at the US$50-million mine in the third quarter of 2000, based on recommendations by Kvaerner. The consultant was then engaged in a US$50-million contract for engineering, procurement and construction at the project.

Kvaerner says Equatorial made material miscalculations in connection with the project and its claims are without basis.

The operation was focused on secondary chalcocite mineralization half a mile east of the main Hall porphyry deposit, where, in the 1980s, Cyprus Amax tried to mine molybdenum.

At full capacity, the mine was expected to produce 50 million lbs. copper cathode per year. However, production during the last half of 2000 reached only 30% of the target.

Reserves stand at 90.5 million tons averaging 0.31% copper, enough for 10 years of operation, according to the feasibility.

Equatorial has written down the value of the project, totalling A$180 million, against 2000 earnings.

In a related matter, AMP Life has assumed the loan facility for the Tonopah project, along with other outstanding liabilities. Through its wholly owned subsidiary, Quay Mining, AMP also offered A$1 per share for the remaining 6% of Equatorial that it does not already own.

Equatorial’s other major asset is a 39% stake in the El Tesoro copper mine, in northern Chile, where Kvaerner has been engaged in a US$170-million engineering and construction contract. London-based Antofagasta (ANFGF-Q) holds the remaining 61%.

Meanwhile, Equatorial has signed an agreement to sell its Mineral Park copper mine in northern Arizona to Mercator Minerals (ML-V), formerly Silver Eagle Resources.