Thalanga Copper Mines Pty Ltd v Cromarty Resources Pty Ltd; Cromarty Resources Pty Ltd v Thalanga Copper Mines Pty Ltd (No 2) [2021] NSWSC 1017

Supreme Court New South Wales

Medium Neutral Citation: Thalanga Copper Mines Pty Ltd v Cromarty Resources Pty Ltd; Cromarty Resources Pty Ltd v Thalanga Copper Mines Pty Ltd (No 2) [2021] NSWSC 1017 Hearing dates: 10 August 2021 Decision date: 13 August 2021 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: Damages not to be calculated on basis the Waterloo deposit would be developed from September 2023 Catchwords: CONTRACTS –– mining tenements – royalty payable as percentage of net sales realisation – calculation of loss of bargain damages – whether damages should be calculated on basis that named mineral deposit would be developed from September 2023 Cases Cited: Thalanga Copper Mines Pty Ltd v Cromarty Resources Pty Ltd; Cromarty Resources Pty Ltd v Thalanga Copper Mines Pty Ltd [2021] NSWSC 640 Category: Consequential orders Parties: Thalanga Copper Mines Pty Ltd (Plaintiff/Cross-Defendant) Cromarty Resources Pty Ltd (First Defendant/Cross-Claimant) Red River Resources Limited (Second Defendant) Representation: Counsel: A S McGrath SC with T Jonker (Plaintiff/Cross-Defendant) J C Kelly SC with A J Barnett (First Defendant/Cross-Claimant)

Solicitors: McCullough Robertson (Plaintiff/Cross-Defendant) Piper Alderman (First Defendant/Cross-Claimant) File Number(s): 2019/53887

Judgment 1. I gave judgment in this matter on 4 June 2021. [1] I shall use the same abbreviations here. 2. I directed the parties to confer and agree on what, if any, further matters required resolution before final orders could be made in the proceedings. [2] 3. There is one matter that continues to divide the parties. 4. That matter is the assumption that should be made in relation to the commencement of production at the Waterloo Primary deposit, to which I referred at [255] of the judgment. 5. The question is, will production at the Waterloo deposit commence: 1. as Thalanga contends, in September 2023, and be run in parallel with production from a deposit that does not form part of the Tenements, known as the "Liontown" deposit; or 2. as Cromarty contends, in June 2033, after production at Liontown has concluded, or is near conclusion. 1. The Liontown deposit is much larger than the Waterloo deposit, having a Mineral Resource of 4,138 kt as at FY20, compared to Waterloo's Mineral Resource at that date of 707 kt. 2. It is common ground that, if Thalanga's contention is correct, it is entitled to judgment in a sum in the order of $22 million, but that if Cromarty's contention is correct, Thalanga's entitlement to judgment is for a sum in the order of $19.8 million. 3. Accordingly, a lot turns on the question of what, if any assumption, can be made about when the Waterloo deposit will be developed. 4. The onus is on Thalanga to show that the scenario it posits is probable. As Thalanga is an outsider to the mining operations conducted at the Tenements, it can have no direct knowledge of what Cromarty will do in relation to the Waterloo deposit. Its case is based on the public announcements of Cromarty's parent, Red River, and on inferences it contends are to be drawn from those announcements. 5. There are four deposits relevant to the question now before me. They are the West 45, the Far West, the Waterloo and the Liontown deposits. 6. In its written and oral submissions, Thalanga directed considerable attention to the assumptions made by the two experts who gave evidence before me; Mr Gemell for Thalanga and Mr Jaski for Cromarty/Red River. 7. Both Mr Gemell and Mr Jaski assumed that production at the Liontown deposit would start in September 2022. However, in relation to the Waterloo deposit, Mr Gemell assumed production would commence in September 2023 (evidently because, on the assumptions he made, production would cease at the Far West deposit at around that time), whereas Mr Jaski assumed that production at the Waterloo deposit would commence only in June 2033, and after the Liontown deposit had been in production for some 10 years. 8. However, the assumptions made by the experts prove nothing. 9. What must be considered is what underlying evidence exists that casts light on the question of when the Waterloo deposit will be exploited. 10. Thalanga pointed to a presentation made by Red River to the "RIU Explorers Conference" in February 2019. Part of that presentation was a slide headed "Extending Operational Life" which forecast that the West 45, Far West, Waterloo and Liontown deposits would be developed in that order (thus with Waterloo being the third deposit to be developed). The slide also forecast the simultaneous development of a number of deposits including, from FY23, the Waterloo and Liontown deposits. 11. However, as was pointed out on behalf of Cromarty, later public announcements made by Red River showed that this plan changed. 12. Thus, on 18 February 2020, Red River made an ASX Release in which Mr Palancian, Cromarty's Managing Director, was quoted as saying: "We previously planned to develop Waterloo as the third deposit at Thalanga, but the discovery of the Liontown East deposit and the New Queen drilling results show that Liontown is a much larger mineralised system and it's still open along strike and depth." 1. About a month later, on 11 March 2020, Red River published a further ASX Release in which Mr Palancian was quoted as saying: "The material upgrade to the Liontown Mineral Resource, with contained gold and copper more than doubling is an outstanding result, and validates our decision to develop Liontown as the third mine as part of our Thalanga operations, especially given its high gold content." 1. Thus, Red River announced that it proposed to develop the Liontown and Waterloo deposits sequentially, rather than concurrently, with Liontown taking Waterloo's place as the "third mine". 2. A little earlier, on 17 January 2020, Red River published an ASX Release: "The ongoing exploration success at Liontown has increased potential to develop the deposit, with Red River seeking to accelerate production at Liontown ahead of developing the zinc-rich Waterloo deposit." 1. This announcement stated, in terms, that Red River proposed to develop Liontown "ahead of" Waterloo. 2. On 18 February 2020, Red River published a further ASX Release stating: "Continued high-grade polymetallic results from Liontown have led Red River to prioritise developing Liontown ahead of the zinc-rich Waterloo deposit, (which will be placed on hold), increasing Red River's mill throughput at Thalanga, as well as gold and silver production. … Red River had previously planned to develop the zinc-rich Waterloo Project as the third mining operation. Waterloo will now be placed on hold." 1. This announcement stated that, not only did Red River propose to develop Liontown "ahead of" Waterloo, but that the Waterloo deposit "will now be placed on hold". 2. Red River published further ASX announcements on 11 March 2020, 23 April 2020 and 5 May 2020 to the effect that it proposed to develop Liontown as "the next (third) mine" as part of its Thalanga operations. 3. These matters were confirmed by the evidence that Mr Palancian gave in his Affidavit of 20 May 2020, read in the hearing before me, in which he stated: "It was my intention at the time of [the publication of the ASX announcements to which I have referred] to accelerate production at Liontown ahead of developing Waterloo. That remains my intention". 1. Mr Palancian did not there refer, in terms, to Red River's announcement that the development of Waterloo was then "placed on hold". But these were matters of public record and Mr Palancian was not challenged about them. 2. In May 2020, Red River made a presentation to the "NWR Communications Virtual Resources Conference" in which it stated that it was "developing Liontown as next base metal mine" and that "Far West + Liontown will enable [Red River] to 'fill the mill'". 3. The presentation made no reference to the Waterloo deposit, consistently with it then being placed "on hold". 4. The reference to Red River being able to "fill the mill" was, evidently, a reference to Red River's ability to exploit the capacity of its facility which, at that time, was estimated to be 650 ktpa. 5. But it seems unlikely that Red River was seeking to convey to the May 2020 Conference that production from "Far West + Liontown" would necessarily amount to 650 ktpa as, in its Financial Report for FY20, it set out, as part of production "highlights", that the total tonnes mined and processed at the Thalanga facility were 334 kt at 331 kt for FY20. 6. In its Annual Financial Report for FY20, Red River's Non-executive Chairman stated, as part of the "Chairman's Message": "The Liontown Project will continue to advance towards production, with the combination of Far West and Liontown underpinning an operational life in excess of 10 years for the Thalanga Operation, and increasing Red River's exposure to copper and precious metals (gold and silver)". 1. The Chairman made no reference to the Waterloo deposit, again consistently with it then being "on hold". 2. In these circumstances, I cannot be satisfied that Cromarty will commence exploiting the Waterloo deposit in September 2023. Indeed, the evidence suggests it will not and that its exploitation is indefinitely "on hold" whilst Cromarty seeks to develop the Liontown deposit as its "third mine". 3. In these circumstances, I am not able to make any finding as to when Cromarty will develop the Waterloo deposit. 4. The result is that Thalanga has failed to discharge its onus of showing when the Waterloo deposit will be exploited and failed to establish that its damages should be calculated accordingly. 5. I understand that Cromarty accepts that, in those circumstances, Thalanga's damages should be calculated on the basis that production on the Waterloo deposit will commence in 2033. [3] 6. I also understand the parties are otherwise agreed as to the orders that should be made to finalise these proceedings. 7. The parties should send my Associate short minutes of such orders.