Process Minerals International Pty Ltd v Consolidated Minerals Pty Ltd
[2012] WASC 268
•31 JULY 2012
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: PROCESS MINERALS INTERNATIONAL PTY LTD -v- CONSOLIDATED MINERALS PTY LTD [2012] WASC 268
CORAM: KENNETH MARTIN J
HEARD: 22 - 24 MAY 2012
DELIVERED : 31 JULY 2012
FILE NO/S: CIV 1067 of 2012
BETWEEN: PROCESS MINERALS INTERNATIONAL PTY LTD
Plaintiff
AND
CONSOLIDATED MINERALS PTY LTD
First DefendantPILBARA MANGANESE PTY LTD
Second Defendant
Catchwords:
Preliminary issue - Contractual construction - Tailings - Mining waste - Fines material - High iron unbeneficiated fines - Stemming and sheeting uses - Characterisation as waste - Turns on own facts
Legislation:
Nil
Result:
Preliminary issue determined in favour of the defendants
Category: B
Representation:
Counsel:
Plaintiff: Mr M L Bennett & Mr M J M Nas
First Defendant : Mr S Penglis & Mr S M Standing
Second Defendant : Mr S Penglis & Mr S M Standing
Solicitors:
Plaintiff: Bennett & Co
First Defendant : Freehills
Second Defendant : Freehills
Case(s) referred to in judgment(s):
Jones v Dunkel (1959) 101 CLR 298
Process Minerals International Pty Ltd v Consolidated Minerals Pty Ltd [2010] WASC 266
Process Minerals International Pty Ltd v Consolidated Minerals Pty Ltd [2011] WASCA 219
KENNETH MARTIN J:
Introduction
This trial of preliminary issue involves a question of contentious characterisation concerning whether a class of material satisfies the definition of 'Super Fines' which is found in an agreement between the parties dated 10 September 1996, known as the Super Fines Agreement (the SFA). The SFA has been the subject of earlier consideration in prior litigation between the same parties. In action CIV 2272 of 2009, after a lengthy trial concerning issues of construction and interpretation involving numerous agreements between the parties, including the SFA, I delivered reasons for decision on 30 September 2010: see Process Minerals International Pty Ltd v Consolidated Minerals Pty Ltd [2010] WASC 266. That decision was then the subject of appeals and cross‑appeals to the Court of Appeal where reasons were delivered on 13 October 2011: see Process Minerals International Pty Ltd v Consolidated Minerals Pty Ltd [2011] WASCA 219.
In the earlier litigation it was accepted that certain manganese fines material of a dimension less than 1.2 mm, found dry stockpiled at the defendants' manganese ore tenements at Woodie Woodie, constituted 'Super Fines' under the SFA. Accordingly this material was the property of the plaintiff (PMI) to process at its secondary manganese processing plant at Woodie Woodie. Small particles of manganese ore suspended in the slurry pumped directly from the defendants' processing plant at Woodie Woodie to PMI's adjacent plant were also accepted as meeting the SFA's definition of 'Super Fines' in that litigation. The controversy in [2010] WASC 266 was over another category of the defendants' stockpiled waste material. This dry material was uniformly of a much larger dimension and was known as 'coarse rejects'.
The relevant issue of construction in the earlier litigation was whether coarse rejects fit within par (b) of the SFA's definition of Super Fines. The SFA's definition provides:
'Super Fines' means:
…
(b) in respect of the mining tenements set out in paragraph (b) of the definition of Tenement, all tailings that have left the wash plant or the beneficiation plant.
My conclusion in [2010] WASC 266 was that coarse rejects were not Super Fines, as defined: see reasons [228] ‑ [246]. Being of a size uniformly greater than 1.2 mm, coarse rejects, I thought, were too big. The SFA expressly provided that PMI's secondary processing plant would be designed to process Super Fines of a dimension less than 1.2 mm. So screened material would naturally be smaller than the lump or fine materials that the defendants processed at their plant and exported. At [229], having observed that coarse rejects as a subject matter were not expressly mentioned within the four corners of the SFA, I said:
It becomes from there a matter of winkling that conclusion out of subpar (b) of the definition of Super Fines and, in particular, out of the phrase 'all tailings found therein'. I accept that coarse rejects, as subject matter, are in the nature of a mining waste or residue component that is generated as a result of crushing, washing and the defendants' beneficiation plant's overall operation (see exhibit VV). As a consequence, they may well fit within the ambit of a dictionary meaning of the word 'tailings' … the true assessment required is by reference to whether coarse rejects, as a subject matter, fall within the meaning of the term 'Super Fines', as that expression is used within the overall context of the SFA.
The Court of Appeal (Murphy JA, with whom Martin CJ and Newnes JA agreed), reached a different construction of the SFA as regards coarse rejects. Murphy JA identified the ordinary meaning of the word 'tailings' at [48], observing that the parties did not contend or seek to establish that it was a term of art or had a defined industry usage. The ordinary meaning of 'tailings' found in the Macquarie Dictionary (4th ed, 2005) was 'the residue of any product, as in mining; leavings'. Relevantly to the present controversy, his Honour said at [85]:
First, in its ordinary meaning, the word 'tailings' is wide enough to include waste in any form, and not just slurry or waste of a dimension less than 1.2 mm.
The appeal settled the question whether coarse rejects constitute Super Fines. Coarse rejects were tailings. Because the Court of Appeal accepted that tailings can be Super Fines, irrespective of size, PMI has a platform to argue that other materials generated at Woodie Woodie are waste. Therefore, they also qualify as tailings. Thus, they are also Super Fines under the SFA. Hence all waste at Woodie Woodie is said to be PMI's property.
PMI commenced the present action by writ on 18 January 2012. Whilst it concerns the SFA, the dispute does not primarily raise issues of contractual construction. The major SFA construction issues were finally resolved in the Court of Appeal. Rather, the main problem which is the subject of this trial of preliminary issue, is one of correctly characterising other ores which are treated by the defendants in their manganese processing operation at Woodie Woodie. The class of ore now at issue has not been considered in the previous litigation between the parties. The relevant material is known as high iron unbeneficiated fines material (HIUBF). The preliminary issue then, is whether HIUBF fits within par (b) of the SFA's definition of Super Fines.
The interpretation of par (b) of the definition of Super Fines largely having been settled by [2011] WASCA 219, the size of the ore at issue is irrelevant. So also is its accepted character as fines. Rather, the characterisation question is: does HIUBF meet par (b) of the definition of 'Super Fines' as 'tailings that have left the wash plant' of the defendants?
HIUBF
By its very nature, HIUBF is material that has been treated (crushed and washed), but not beneficiated. Hence there is no scope for HIUBF to have reached, let alone left, the defendants' beneficiation plant. Accordingly, only the first aspect of par (b) of the SFA's definition of Super Fines, concerning tailings leaving the defendants' wash plant, is relevant to the characterisation exercise.
For present purposes it is important to appreciate at the outset that, ordinarily, unbeneficiated fines material (generically referred to as UBF) will have been crushed, washed and then have left the defendants' wash plant. UBF as a class can include manganese fines ore which is assessed by the defendants as having a high iron content. This is the HIUBF presently at issue.
The basal question of characterisation is whether or not HIUBF constitutes tailings, for the purposes of the SFA and par (b) of the definition of 'Super Fines'. If it is, ownership of the HIUBF has been assigned to PMI under SFA cl 2.1.
Whether or not the HIUBF (or some of it) is tailings under the SFA is a question which must be answered by reference to whether HIUBF is material that fits the ordinary meaning of 'tailings' constituting (akin to the analysis for coarse reject material by Murphy JA at [85]) 'waste in any form'.
To begin to resolve that question, it is necessary to review the parties' pleadings. That is also necessary in order to gain an appreciation of the longish period spanned by the controversy as regards characterisation of HIUBF under the SFA.
The SFA was entered, as I mentioned, in September 1996. PMI only commenced its secondary processing operation, working on the defendants' tailings, eight years later in 2004.
PMI subsequently built a new secondary processing plant at Woodie Woodie. It became operational in 2005. Since September 2008 a pipeline has connected the parties' respective plants at Woodie Woodie through which the defendants have pumped their waste slurry tailings directly into PMI's adjacent plant.
Background facts and a description of the operation of PMI and the defendants' respective manganese processing operations may be found in my reasons in [2010] WASC 266. None of that is contentious now.
Theoretically, PMI's claim under the SFA could encompass all the HIUBF ever produced at Woodie Woodie. But there is at the outset a dispute over whether PMI's pleadings are wide enough to allow it to assert a claim over HIUBF coming into existence prior to 2004. In my view they are not, as I will relate.
The pleadings: HIUBF
The parties' respective cases regarding HIUBF are in parts of their pleadings in this action (there being other issues in CIV 1067 of 2012 concerning how coarse rejects have been dealt with by the defendants since 2010 and claims for relief in that respect by PMI, not the subject of this trial of preliminary issue).
The premise that the word 'tailings' carries an ordinary meaning as the waste materials of the defendants' operations invites consideration of whether the defendants regarded HIUBF as waste. One person's trash is another's treasure, so it is said. Both parties accept that the designation of material as someone's waste will depend, in part, upon that person's subjective intent to view or label the material as waste. Thus, in this case, the question is: what is the defendants' intention as regards treating HIUBF as their 'trash'?
PMI's position is that a close analysis of the defendants' conduct over time, particularly since 2004, is consistent with much of the defendants' HIUBF material having been regarded by the defendants as waste.
Defendants' position as regards HIUBF
The defendants assert they have never regarded their HIUBF at Woodie Woodie as waste. The defendants accept that they have over time ranked their crushed and washed UBF from most valuable down to least valuable, with ore with a higher manganese content generally being regarded as more valuable.
But the defendants then say the mere fact some of their UBF carrying a higher iron content has been ranked at relatively lower economic levels in an overall 'pecking order' for their UBF, does not indicate that HIUBF is or has been viewed by the defendants as their tailings.
Nor say the defendants would the fact that from time to time, as a matter of operational convenience, some large amounts of HIUBF have been and continue to be deployed for on‑site purposes, such as in the packing of drill holes to assist blasting in its open cut mine operations (stemming material), or as a sheeting base material as foundation in road works, indicate that the used HIUBF was assessed by the defendants as their waste.
The defendants say that at a remote mining location such as Woodie Woodie, it is only reasonable that they as the operators use what is readily at hand for blasting or as material for road base, when required to do so in their mining and processing operation. That does not make the consumed HIUBF a waste product, say the defendants.
The pleadings: Conceptual differences of approach
I turn first to the pleadings to assess the formal parameters of the dispute.
The defendants contend the formulation of PMI's pleaded claim undermines PMI's contention that HIUBF is the defendants' waste (and therefore tailings) for the purposes of meeting par (b) of the definition of 'Super Fines' in the SFA. They also say the pleaded claims only encompass HIUBF produced from 2004 and onwards.
The writ in this action, as mentioned, was issued on 18 January 2012. PMI filed its statement of claim on 15 March 2012.
Going first to the relief sought by PMI, it will be seen that PMI seeks both declaratory and permanent injunctive relief, as well as specific orders. There is a recurrent phrase found used throughout pars A ‑ D of PMI's prayer for relief. For present purposes it is sufficient I set out par A, regarding PMI's claimed declaratory relief:
AA declaration that the stockpiles of High Iron UBF that are or were held, used, or proposed to be used by the defendants as waste or for purposes other than the sale of such High Iron UBF as product that existed at Woodie Woodie as at 18 January 2012 are Super Fines within the definition of that term in clause 1 of the Super Fines Agreement.
(my emphasis in bold)
Counsel for PMI accepted during argument that the phrase 'waste or for purposes other than the sale of such High Iron UBF as product' was deliberately phrased as a disjunction. In other words, this reflected a characterisation argument by PMI to the effect that not only waste, but also a use of HIUBF by the defendants for an end other than outright sale as the defendants' product, engaged par (b) of the SFA's definition of 'Super Fines'. That stance reflects an expansive view of the SFA's definition of 'Super Fines'. It is a view wide enough to catch everything generated by the defendants other than the defendants' saleable products (ie lump or fines ore).
The defendants respond that PMI's 'dragnet' view of what are their tailings at Woodie Woodie is misconceived. They say PMI errs in its foundational premise by commencing its argument with the word 'waste' and moving upwards from there. The defendants say the better place to begin in applying the definition of 'Super Fines', is with 'tailings'. Tailings carries its ordinary meaning as mining waste (in any form, as Murphy JA said in [2011] WASCA 219 [85]). The defendants say there is no basis for PMI to begin the characterisation exercise for HIUBF in reverse, by starting from the misconceived position that everything not sold by the defendants is PMI's, as 'Super Fines'.
Key components in PMI's statement of claim concerning HIUBF are seen at pars 17 ‑ 22. But before setting them out I must note a second major conceptual difference in approach between the positions of PMI and the defendants. PMI commences by addressing HIUBF as a discrete class of material. The defendants begin, however, by identifying HIUBF as a subclass of non‑beneficiated fines material, which they generate from crushing and washing, and which I have already explained is called 'UBF'.
The pleadings themselves
PMI contends at par 17:
At all material times, and at least as from 2004, the defendants in the operation of their wash plant on the Woodie Woodie tenements have generated material described as high iron unbeneficiated fines (High Iron UBF) being material derived from the crushing of ore and treatment in the crusher and wash plant, which material has not been beneficiated by the defendants in the beneficiation plant.
Some understanding of the defendants' ore treatment processes and the use of its crushing, washing and beneficiation plants is necessary. During the trial of action CIV 2272 of 2009 I explained these processes by reference to a 'swim lane' diagram for the Woodie Woodie processing plant which had been tendered as exhibit VV through Mr Roy Stephen Francis, the defendants' group metallurgist: see [2010] WASC 266 [207] and [233]. Exhibit VV is a diagram prepared in the context of a trial concerning coarse rejects. That trial, of course, was never concerned with HIUBF.
Nevertheless, the swim lane diagram still broadly elucidates the complex manganese ore processing by the defendants at Woodie Woodie. The diagram clearly distinguishes between the defendants' processing of lump and fines materials. It also helpfully shows respective size ranges of the defendants' sale products.
What was exhibit VV in the previous trial was tendered in this trial of preliminary issue, as exhibit 1.20. However, this time I am only concerned with the defendants' fines material, not its (more valuable) lump product. Nor am I concerned with the material of a dimension less than 1.2 mm (referred to on exhibit 1.20 as Super Fines). The UBF under consideration, having left the defendants' wash plant at Woodie Woodie, is represented by a light green triangle on exhibit 1.20 and the explanation at note (8), referring to an 'Unbeneficiated Fines (UBF) stockpile'.
Exhibit 1.20 shows a vertical black borderline to the left of the UBF (and unbeneficiated lump materials, or 'UBL'). That line should be treated as moved for the purposes of this trial of preliminary issue, to the right hand side of both triangles. That adjustment to the diagram would then allow exhibit 1.20 to correctly show that the defendants' UBL and UBF has not yet entered either the cyclone plant or the drum plant, and so have not commended beneficiation. See also Murphy JA's explanation of the process at [47] of [2011] WASCA 219.
Turning back to PMI's pleadings, par 19 of the statement of claim (to which the defendants draw attention) contains PMI's three acknowledged exceptions to the asserted unsuitability of HIUBF for use in generating 'the defendants' product'.
The term 'defendants' product', used by PMI at par 19, is not explained in PMI's pleading. It appears to be a reference either to lump or fines products ultimately sold to customers by the defendants. From exhibit 1.20 this amounts to 42% (in the case of lump) and 12% (in the case of fines) all of the material discharged from the defendants' plant at Woodie Woodie. Paragraph 19 reads:
The High Iron UBF itself is not suitable for use in the creation of the defendants' product save for circumstances where it is:
19.1beneficiated and then blended with the defendants' (lower iron content) product to create a larger volume of product of a certain specification and the resulting iron content of that volume of product does not exceed 9% or 15% (depending on the product in question and/or the customer requirements in question);
19.2beneficiated and then sold by the defendants despite its high iron content for customers for use in blast furnaces on the basis that the customer requirements do not stipulate, alternatively, are not affected by the iron content of the defendant's product and thereby in effect require the High Iron UBF; or
19.3sold without undergoing beneficiation.
Paragraph 19 of the statement of claim is constructed on the basis of a double negative (ie 'not suitable', 'save'). Nevertheless, it displays PMI's acknowledgement of the existence of three categories of HIUBF suitable for use in the generation of saleable product by the defendants, being:
(a)beneficiated and blended fines product;
(b)beneficiated high iron blast furnace fines product ('BFF'); and
(c)HIUBF which is sold.
Responding to par 19, par 12 of the defendants' defence recognises the three exceptions, but goes further. The defendants respond:
12.As to paragraph 19 of the statement of claim, the defendants say that High Iron UBF is dealt with by them and sold to customers as follows:
(a)beneficiated and the resulting manganese fines product blended with other manganese fines product to create either a high grade fines product (usually having a manganese content of 44% or more and an iron content of less than 9%) for sale to customers, or a low grade fines product (usually having a manganese content of 40% or more and an iron content of less than 15%) for sale to customers; or
(b)beneficiated and the resulting manganese fines product sold as blast furnace product being a manganese fines product requiring a relatively high iron content; or
(c)itself as product without beneficiation,
and otherwise deny each and every allegation therein.
So in identifying usable HIUBF as their saleable product the defendants essentially identify four (rather than the three PMI accepts) categories of saleable use for their HIUBF, namely:
(a)beneficiated, then blended manganese fines product of a high grade (graded by reference to its high manganese content);
(b)beneficiated manganese fines product of a low grade (graded by reference to a lesser manganese content of 40% or more and with an iron content of less than 15%);
(c)beneficiated BFF product with a relatively high iron content; and
(d)unbeneficiated HIUBF nevertheless sold (by being blended with the defendants' saleable fines).
Pleadings: PMI's two major arguments
I can now proceed to evaluate PMI's two main pleaded arguments (put in the alternative) as regards only certain of the HIUBF (bearing in mind the exceptions acknowledged in par 19) produced by the defendants at Woodie Woodie, which on PMI's case amount to waste, thus tailings, and thus Super Fines.
PMI's two main arguments are pleaded in pars 20 and 21 of its statement of claim:
20.Further, at all material times as and from 2004 the defendants have treated High Iron UBF or part of it as waste by:
20.1separating the High Iron UBF from the fines after crushing; and then
20.2using and making the decision to use the High Iron UBF for purposes other than production of product for sale as set out in paragraph 19 above; or
20.3using or making the decision to use the High Iron UBF in a manner which destroys its recoverability and value; or
20.4otherwise making a decision to discard it from any recoverable stockpile from which it could be beneficiated.
21.Alternatively, at the time the defendants produce and separately store the High Iron UBF, the High Iron UBF is material of an indeterminate character that is and has from time to time thereafter been properly characterised as waste or tailings that have left the defendants wash plant when from time to time the defendants determine that the High Iron UBF or part thereof will be held or utilised for purposes other than the production of product, in which case so much of the High Iron UBF as is determined and treated by the defendants as waste was and is Super Fines within the meaning of the Super Fines Agreement referred to in paragraph 6.2 hereof.
(my emphasis in bold)
PMI then pleads breach of the SFA by the defendants:
22.At all material times as and from 2004 the defendants have breached the Super Fines Agreement by using High Iron UBF or otherwise converting it for their own exclusive use and benefit in a deliberate manner that prevents and has deprived the plaintiff of its right to possession of that material. (particulars omitted)
Needless to say the defendants join issue with pars 20 ‑ 22: see particularly defence pars 13 ‑ 15. Paragraph 13 provides:
As to paragraph 20 of the statement of claim, save to admit that:
(a)some High Iron UBF is stockpiled for future processing;
(b)some High Iron UBF is used for purposes other than directly for production of manganese fines product for sale, namely for stemming for blasting, and 'sheeting';
(c)some High Iron UBF (namely any High Iron UBF used as stemming for blasting of waste) is used in a manner that renders it irrecoverable,
the defendants deny each and every allegation therein.
Towards PMI's alternative case, in par 21 of its statement of claim, that HIUBF is material of an indeterminate character that later becomes waste, par 14 of the defence responds:
The defendants deny paragraph 21 of the statement of claim and say further that:
(a)none of the UBF that leaves the defendants' wash plant (including High Iron UBF) comprises 'tailings' within the meaning of that term as used in the definition of 'Super Fines' in the Super Fines Agreement;
(b)upon the proper construction of the definition of 'Super Fines' in the Super Fines Agreement, material that is not 'tailings' when it leaves the wash plant (which includes all UBF including High Iron UBF) is (save for the portion of such material emitted from the beneficiation plant as tailings during the course of further processing) incapable of subsequently being characterised as 'tailings' within the meaning of that term as used in the definition of 'Super Fines' in the Super Fines Agreement.
As regards the contentions of breach of the SFA, in terms of their dealings with HIUBF since 2004, the defendants plead they have not breached the SFA. The defendants accept, however, that from time to time (par 15):
(a)High Iron UBF has been and is used by the defendants as product for sale in the manner pleaded in par [12] above;
(b)High Iron UBF has been used as stemming for blasting, and for 'sheeting', for the mutual use and benefit of the defendants and the plaintiff.
Distillation of issues from pleadings
From the rival pleadings the parties' dispute over the HIUBF may now be seen framed around a series of key issues.
First, during the hearing PMI seemed to suggest it was asserting a claim to the HIUBF created since the time of the SFA, namely from 10 September 1996. But the three clear references in PMI's pleading to the year 2004 (in pars 17, 20 and 22), being the time at which PMI began its secondary processing operations at Woodie Woodie over Super Fines with its trial processing plant, very clearly nominate 2004 as the commencement point of PMI's claim: particularly par 22 as to PMI's contention of breach. These PMI pleas, I conclude, do confine PMI's case to HIUBF created in 2004 and later.
Second, PMI's characterisation argument about HIUBF as waste is not a blanket one over all HIUBF at Woodie Woodie. Three classes of exception at par 19 of PMI's amended statement of claim acknowledge that position.
Third, PMI's primary argument at par 20 of its pleading, by reference to pars 20.2, 20.3 and 20.4, explicitly grounds itself upon the defendants' so‑called decisions about HIUBF. Each of those three subparagraphs is conjoined to par 20.1, as regards a prior separation of HIUBF, after crushing and washing. As formulated, then, mere separation of HIUBF by the defendants after crushing and washing is not contended by PMI to be enough of itself to render the HIUBF tailings waste. More is needed. The something more, as pleaded in pars 20.2, 20.3 and 20.4, is the subjective intent of the defendants underlying their decisions concerning the HIUBF.
Fourth, as now seen, PMI seems to advance its primary case on the basis that any decision of the defendants to use HIUBF in anything other than in saleable product delivers a conclusion that the HIUBF must be waste, thus tailings, and thus Super Fines.
Fifth, decisions by the defendants to use HIUBF that is stockpiled for non‑sale activities such as stemming (for blasting) or sheeting (for a road base), carries a conclusion, on PMI's case, that the HIUBF's recoverability and value after being used in that fashion is destroyed. Hence, argues PMI, the HIUBF is being dealt with by the defendants in a manner that shows that in truth it is regarded by the defendants as their waste, thus tailings, and thus Super Fines.
Sixth, a decision by the defendants to stockpile HIUBF, on PMI's case, can provide a platform to draw a conclusion that the defendants have discarded the material and therefore assessed it to be waste (but as mentioned, par 20.1 of the statement of claim and its words 'and then', suggest separation alone is not enough).
Seventh, a temporal question presents over when the assessment is to be rendered as to whether any affirmative decision has been made by the defendants to treat HIUBF as waste or not. Must an affirmative decision of the defendants that a batch of HIUBF is waste be made at, or proximate to, the time that the HIUBF material, having been crushed and washed, leaves the defendants' wash plant? Or, could a decision by the defendants as to waste be deferred, to be made later, perhaps much later (ie many years), after the HIUBF has sat unused in stockpile at Woodie Woodie?
Eighth, correlatively to seven, by reference to par 21 of the statement of claim (on PMI's alternative case), can there be a class of HIUBF of indeterminate character, which only acquires its characterisation (for the purposes of the SFA) as waste at a later point in time, once the defendants do finally reach a decision not to use a batch or batches of HIUBF as sale product?
From that last situation a commerciality issue may immediately be seen to arise. Can it be countenanced (perhaps for years) that there are batches of stockpiled HIUBF at Woodie Woodie of indeterminate status? This is in circumstances where world manganese prices, as well as the demands of particular purchasers and customer tolerances for iron in manganese fines, can and do obviously fluctuate over time.
Evaluation of PMI's alternative case: indeterminate status of HIUBF
At the outset I would reject PMI's alternative characterisation argument. I assess it as highly unlikely that reasonable parties to the SFA would have set down a regime that countenanced a category of HIUBF of a long‑term indeterminate character, as potential future Super Fines under the SFA, by reason of decisions or events transpiring possibly years after the HIUBF has left the defendants' plant at Woodie Woodie and been stockpiled.
In my view, par (b) of the definition of 'Super Fines' carries within itself, by reason of considerations of pragmatic utility, the need for the parties to the SFA to be able to know with a degree of certainty, at the time or at least reasonably proximate to the time when material has left the defendants' wash plant, whether or not it constitutes tailings (ie the defendants' waste in any form). If so, it is PMI's material. That is the objective intent of the SFA in my assessment.
Economically marginal UBF or HIUBF stockpiled by the defendants simply cannot have a 'Sword of Damocles' hanging over it, dependent upon the defendants' eventual decision about their ultimate use. There are too many commercial variables at play in a mining export business to accept such a state of suspense as a workable outcome under the SFA. It would also be a result not consistent with the intrinsic nature of a tailing as waste generated from a mining processing operation. Tailings should be something reasonably discernable, at the end of an ore treatment process, as waste - not some undetermined class of material awaiting its final destiny at some uncertain time in the future.
That conclusion is reached as a matter of the overall construction of the SFA. It still leaves open, however, PMI's primary argument on characterisation concerning some HIUBF at Woodie Woodie. To resolve that argument it is necessary to consider the evidence in greater detail.
Apart from documentary evidence in the trial bundle, three witnesses gave evidence at this trial of preliminary issue. For PMI its only witness was its technical director and metallurgist Mr David Geraghty. Mr Geraghty gave evidence‑in‑chief via two witness statements.
The defendants called two witnesses. Each provided a primary and a responsive witness statement.
Since the assessment of whether some HIUBF is tailings under the SFA is accepted on both sides to require considerations of the defendants' subjective intentions from time to time, it is convenient to mention the defendants' witnesses' evidence first. I will then assess the defendants' evidence against that given by Mr Geraghty.
The defendants' witnesses at trial
The defendants' first witness was Mr Peter Allen. He is a resident of Jersey in the Channel Islands. His two witness statements became exhibits 7 and 8.
Mr Allen is a director of Consolidated Minerals Ltd (CML), the corporate parent of the first defendant. Mr Allen is presently managing director of marketing for CML, having worked in the CML organisation now for 11 years. Mr Allen had been based out of the first defendant's Perth office until April 2011 and was then moved to Jersey.
Over the course of 11 years in the CML group Mr Allen has spent most of his time engaged in global manganese ore sales and marketing. Mr Allen explained that the marketing work he has performed within the CML group involves marketing the group's manganese products internationally. CML's customer base includes refined manganese alloy producers. They seek high manganese/low iron ore to produce various types of manganese alloy with relatively low levels of iron and other impurities. But there are also customers who are producers of high carbon ferromanganese alloy. Their product can accommodate moderate levels of iron. CML sells, as well, to silico manganese alloy producers. These customers look for ore with higher levels of silica and moderate levels of iron.
Mr Allen explained that CML's customers, purchasing either lump or fines manganese ore, acquire manganese ore from a range of suppliers: CML is not their exclusive supplier. Customers blend variously sourced manganese ores to achieve the end specifications they require for their own product. Hence Mr Allen says CML's ore customers all present their own idiosyncratic demands regarding the composition of CML's lump and fines from time to time.
Mr Allen explained that CML's customers, whilst being aware of CML's general product specifications, treat them as notional. Acquisition contracts entered by CML with a particular customer reflect both the availability of manganese ore within the CML group and the unique requirements of the customer at a particular time. Customer requests can change over time, contract by contract. This is reflected in the end in the contractual terms for each sale.
Mr Allen explained the concept of blending by customers as between lower iron content manganese ore and higher iron content manganese ore. Manganese alloy customers could take ore with an iron content ranging from 2% up to 15% iron. Some purchasers use a blast furnace to create a manganese alloy as a by‑product. Blast furnace customers can use manganese ore that has a high iron content, to produce either pig iron (a product of the iron content of the blast furnace ore) or a slag containing manganese. This slag is sold to manganese alloy producers in place of manganese ore.
Mr Allen said there is no upper limit on the iron content in shipments of blast furnace manganese product, save only that the combined manganese and iron content in the ore which is supplied be in the order of 50% or more, with a minimum manganese content of 20%.
CML's current blast furnace customers are located in China. Presently there is a high demand for manganese and iron ore. Mr Allen says in his witness statement that CML could sell more blast furnace product, but for two operative constraints. First is the limited production capability at Woodie Woodie, coupled with CML's preference to produce higher value, high grade manganese ore. Second are the shipping constraints out of the busy north west port of Port Hedland. With the constrained export tonnage capacity of Port Hedland, CML's preference is to ship the higher value, high grade manganese products, if it can.
Mr Allen provided an explanation of the management of CML's business operation, as between himself and CML's general manager of marketing, Mr Ben Cohen. A weekly production/shipping conference is held. Mr Rodger McDonald, the superintendant at the manganese processing plant at Woodie Woodie (a position held by Mr McDonald since July 2007) is a participant in that weekly meeting. Mr McDonald was CML's other witness at trial and I relate his evidence next.
Mr McDonald provides information to the weekly meeting as to product availability at Woodie Woodie, including the availability of blast furnace product. Using that information Mr Allen and Mr Cohen then formulate a shipping plan and shipping schedule. They do this acting on Mr McDonald's advice to them as to whether there is a sufficient quantity of material to make up a shipment.
Mr Allen gave the history behind CML's more recent blast furnace contracts, both for its fines and lump products. The first blast furnace lump shipment was in April 2009. The first BFF shipment was as recently as April 2011.
Mr Allen said that the blast furnace product shipments arose out of a conversation he had with Mr McDonald in 2008. Mr McDonald had told Mr Allen that there were considerable quantities of processed high iron manganese ore at Woodie Woodie. Market investigations then led Mr Allen to ascertain that some Chinese blast furnaces at the time were starting to use higher iron manganese ore to produce pig iron and manganese rich slag. Mr Allen related going to see such a blast furnace in China which an existing CML customer had then begun to operate. Mr Allen gave some other examples of CML blast furnace contracts. One contract became exhibit 7A (see redacted contract of 18 April 2012 for 10,000 wet metric tonnes of BFF). In this contract the specifications for manganese were 27% minimum and for iron, also 27% minimum.
Having been provided with Mr Geraghty's first witness statement, Mr Allen provided a responsive witness statement (exhibit 8). He referred to the blending practices of some CML customers concerning high grade/low iron manganese ore. Mr Allen said that iron content is a factor consistently raised in contract negotiations with blast furnace customers. Demand in the steel market drives prices both for manganese and iron ore. Across 2011 and 2012, CML has made numerous sales of what could be described as low grade manganese fines having iron specifications ranging between 15% and 19% maximum.
Mr Allen was cross‑examined. He confirmed the idiosyncrasies of the CML group's customer base as regards lump and fine requirements (ts 185). He said that during 2001 he joined the CML group as a marketing manager. He had visited Woodie Woodie (ts 186 ‑ 187). The focus of the CML group's sales efforts at that time was on the sale of high grade manganese lump and fines. The focus was on maximising revenue. Margins were higher on higher grade products (higher grade being a reference to higher grade manganese).
As regards lower grade manganese, Mr Allen said that some low grade product had been put (ie blended into) the higher grade ore stockpile (ts 187). That happened in a context of still meeting a higher grade specification. At the time, higher grade was a manganese content above 48% with, in the case of lump product, an iron content of under 5% or, for fines, an iron content of under 6%. But the iron tolerance threshold for fines, once at 6%, had gradually eased and by 2004 the specified iron content for a high grade manganese fines product was 9% or less (see ts 187).
The following exchange occurred in Mr Allen's cross‑examination, and is relevant to the issue of Mr Allen's knowledge of the defendants' intentions, as regards the assessment of HIUBF as tailings or waste (ts 187 ‑ 188):
You understood the mining operations at Woodie Woodie were designed to screen out low grade ore?‑‑‑They were designed, as you've said, to produce a high grade product. There was a blend always of high grade ores and low grade ores into that shipment stockpile.
But you understood that if there was ore that was extracted with less than 25 per cent manganese it was discarded as waste?‑‑‑At that time I did not understand that. That was not my role at that time.
Mr Allen, I interpolate, appears to have been speaking here about a period immediately after 2001, when he joined the first defendant as a marketing manager (see ts 186). The exchange continued:
You understood that there was a classification of ore within the company that colour coded desirable ores?‑‑‑I only became aware of colour coding probably around 2006.
You didn't understand that in 2003, for example, there was blue ore?‑‑‑I first became aware of blue ore, again I would have thought, around 2005‑2006. Principally my role in 01 to 04 was marketing and I was very much focused on the marketing aspect. There was a general manager of marketing at that time and I assumed that he would be ‑ ‑ ‑
The first defendant's annual report from 2006 (exhibit 6) was put to Mr Allen. It shows in broad terms that around 2005 20 ‑ 30% of the first defendant's sales were of fines and 70 ‑ 80% lump.
Mr Allen was asked about characteristics of fines (in contradistinction to lump). Fines ore, he accepted, tends to have a higher iron content than lump (ts 190). He said that by 2007 ‑ 2008 the manganese ore being mined at Woodie Woodie was displaying a higher iron content than previously. He was asked (ts 190):
When you say higher, your recollection is what was it getting to at that stage?‑‑‑In 07 we started to sell low‑grade lump which was 40‑grade manganese and 15 per cent iron. Low‑grade fines, which was typically 38 to 40 manganese and 15 to 17, 18 per cent iron, off the top of my head I can't tell you when we started selling that but I think it would have been in the region of 2007, 2008, 2009.
These were products you never contemplated selling in 2001 and 4, were they?‑‑‑Correct.
This is product that was simply not on your inventory or stock list then?‑‑‑I can't make that comment.
You didn't attempt to sell that product?‑‑‑Yes. We didn't attempt to sell the product at that time.
Mr Allen was questioned regarding the commencement of sales of BFF by the first defendant around April 2011. He confirmed that the defendant had not previously sold BFF (ts 191). He explained that on a dry metric ton unit basis, BFF now realises about 93% of the value achieved on a sale of high grade fines (ts 191).
As regards the vitally important issue of the first defendant's intent towards HIUBF at Woodie Woodie, Mr Allen was asked a series of questions directed towards more recent experiences with the production of BFF, contrasted with the defendants' preferred line of higher grade manganese lump and fines product (ts 193):
So you don't desire to stop producing high grade manganese lump and fines and produce blast furnace fines?‑-‑Sorry, say that again. We don't desire to ‑ ‑ ‑
Stop producing high grade manganese lump and fines and produce blast furnace fines?‑‑‑If production has feedstock that will make it produce blast furnace fines, we will then find a sale for it.
But then you have got to stop producing high grade?‑‑‑No. What I'm saying is they blend the high iron product into our standard orders as they can to meet specification. If they have a day or two where they are waiting for high grade or another different feedstock, then they will produce - if they can, they will produce blast furnace and they advise us and we then sell it.
Mr Allen also said under cross‑examination that it remained the first defendant's preference to ship out of Port Hedland its more valuable higher grade manganese fines product (ts 194). He elaborated upon aspects of the shipping constraints at the company's berth at Utah Point, Port Hedland, which only accommodates one or two of the first defendant's departing vessels per month. Referring to a 2012 shipment of 20,000 tonnes of BFF, in an overall shipment of 700,000 tonnes of product planned for May 2012, Mr Allen explained that this most recent batch of BFF had taken approximately four months to accumulate at Woodie Woodie. This BFF had a maximum iron content of 25% and minimum manganese content of 32% (ts 195).
In my overall assessment, Mr Allen was a straightforward and reliable witness. I thought he answered questions, in the main, both responsively and directly. I did not perceive him to embellish. Mr Allen gave his evidence from a rather unique perspective as the person heavily concerned with the first defendant's marketing operations from 2001 to the present. Significantly, there was nothing I could detect in his evidence to suggest or support PMI's basal contention that the first defendant had ever reached an affirmative decision to regard the crushed and washed HIUBF at Woodie Woodie as a mining waste product in the nature of tailings.
Mr Allen's evidence left the impression that the first defendant had taken an understandably economic attitude towards its processed lump and fines at Woodie Woodie, grounded by reference to the materials' potential sale price in a world manganese market that changed over time. World prices are presently at higher levels than they have been in the past, coincident with the strong demand for manganese from a still buoyant Chinese steel industry. That an ore producer and exporter would assess its stockpiles of processed ore from time to time by reference to potential sale prices, taking account of the grades of mineral by reference to levels of manganese content and the levels of impurities, is no surprise in a commercial world. Neither is the realisation that an ore seller and exporter would rank its processed ore in terms of perceived value overall, from highest to lowest.
I divert momentarily from Mr Allen's cross‑examination to observe that merely because a class of fines ore might be viewed as being of a low (or even of the lowest) value, by reason of low manganese content or high impurity content, does not thereby deliver the consequence that the material must be assessed as tailings or waste. When ranking classes of ore according to their value, there must always be a 'bottom shelf' of material. Ranking fines ore from perceived highest value to perceived lowest value is a perfectly orthodox and sensible approach. So also would be a decision that some product perceived to be of a lower value will be stockpiled until prices increase. Deferral of the sale could be for some time, dependent upon an expected (or even hoped for) rise in world prices. Economic considerations are paramount in export industries. Fluctuations in or predictions of world prices for manganese will influence decisions concerning the viability of selling marginal classes of ore.
The fact that a processed fines ore product might be viewed from a ranking perspective as sitting on an exporter's bottom shelf, in terms of potential sale price, cannot be a reliable indicator in an evidentiary sense that a characterisation decision has been made by the ore producer that such material is its tailings or waste. Far more is required to reliably reach that conclusion.
One consideration that I thought emerged with great force from Mr Allen's cross‑examination was the degree of evolution and opening up over time (between 2001 to the present) in the potential worldwide market for HIUBF.
The discernable market capacity to receive HIUBF led PMI to suggest this court might choose to adopt a temporally segmented approach to evaluating the first defendant's intention and decisions over time towards the HIUBF at Woodie Woodie. PMI submitted that at least from 1999 to perhaps 2006, or even to 2009, HIUBF had been regarded by the defendants as waste and therefore as tailings, such that the material generated in those earlier times constituted Super Fines. In evaluating that argument, evidence from the defendants' other trial witness, Mr Rodger McDonald, becomes relevant. I proceed to some of the more salient parts of Mr McDonald's trial evidence.
Evidence of Rodger McDonald
Mr McDonald's witness statements became exhibits 11 and 12. He joined the first defendant's Woodie Woodie workforce as a foreman in 2000. Prior to that, he worked for Newcrest Mining Ltd for 15 years. In July 2007 Mr McDonald was promoted to his present position of Process Plant Superintendent at Woodie Woodie.
In contrast to Mr Allen's knowledge concerning the first defendant's global marketing operations and relationships with its international ore customers, Mr McDonald's perspective was more 'hands on', and concerned the processing of ore at the defendants' Woodie Woodie plant over the last 12 years.
At par 8 of his first witness statement Mr McDonald explains a colour coding system used to identify characteristics in different ores at Woodie Woodie, ranging from highest to lowest manganese content. The colour coding system also takes into account the differing levels of various impurities in the ore, including iron. This is illustrated in diagrammatic form (in exhibit 1.15) which shows red‑coloured ore as being of the highest grade by reason of its high manganese content (roughly 49 ‑ 60%) and a maximum iron content of approximately 11%.
Mr McDonald explained how these colours were spray painted onto stockpiles of processed ore at Woodie Woodie as identifying markers to show and identify the characteristics of each stockpile. Mr McDonald said records were not kept as to stockpiles of ore which had not been beneficiated.
Mr McDonald's evidence explained the operation of the Woodie Woodie crushing plant in a context of the first defendant's daily production plan and stockpiling of lump and fines product. As mentioned, for present purposes, I am only concerned with UBF. Mr McDonald also explained the levels of contact he has with the first defendant's various departments, including the mining department and the marketing and finance department.
Mr McDonald's evidence was that planning of the first defendant's shipments of manganese ore products out of Port Hedland occurs (as could only be expected) well in advance, by reference to a rolling three month shipping schedule. Various information is incorporated by Mr McDonald into his production plan, and he aims to have ore shipments made up approximately one or two weeks before the ship is due to berth at Port Hedland to receive the first defendant's ore for export.
Mr McDonald related the nature of his contact with the first defendant's mining department as regards the six pits at Woodie Woodie, which produce manganese ore of different characteristics. Mr McDonald explained that grade‑control drilling data is the key information provided to him from the mining department. That data comprises estimated quantities of ore available to mine and its chemical makeup, including the content of manganese, iron and other materials in the ore.
Mr McDonald informs the mining department which batches of ore from which particular pits he wants delivered for processing to the Woodie Woodie processing plant. Varying characteristics of different batches of ore from particular pits bear upon Mr McDonald's processing operation. Various batches of processed materials may be blended to meet specifications for particular shipments.
From the mined ore that is stockpiled at two or three pads next to the processing plant, a loader feeds ore into the crusher. Loader drivers are directed (either by Mr McDonald or one of the plant foremen) at pre‑shift meetings as to what ore from a particular stockpile is to be fed into the crusher during a particular shift. Using grade‑control drilling data and his past experience at Woodie Woodie, Mr McDonald has a good appreciation of the characteristics of the ore being fed into the plant at a particular time, even before it is processed. Batches of processed material are then assayed after being beneficiated, providing more information about the composition of the beneficiated ore.
Mr McDonald related how UBF is created, as ore material falls to the ground having passed over a screen (exhibit 11, par 32). From the swim lane diagram (exhibit 1.20B), a screen 2 is seen essentially as item 4 in the explanation to that diagram, generating the 20% UBF material described in item 8. Mr McDonald said batches of manganese ore from different pits or different colour codings are processed separately in the initial crushing, scrubbing and screening process (par 33).
With regard to UBF more generally, Mr McDonald related:
34.In the case of UBF, when a batch of UBF falls on to the ground after passing over Screen 2, a front‑end loader picks it up. The loader driver deals with the batch of UBF in accordance with directions which I give to him at the pre‑shift meeting. UBF is usually dealt with as follows:
(a)some batches of UBF will be loaded straight into the nearby fines beneficiation plant for further treatment (beneficiation). We try to do this as much as we can, to avoid the expense and inefficiency of double‑handling the UBF;
(b)other batches of UBF get loaded on to a truck and moved to one of a number of stockpiles;
(c)if the grade of a batch of UBF is high enough, it may be taken straight to the product stockpiling area and added to the shipment of fines then being built up. If this happens, the batch of UBF will not undergo any further processing (beneficiation);
(d)some batches of UBF material are stockpiled close to the fines beneficiation plant for further treatment. This usually happens when we are producing a lot of UBF and the fines beneficiation plant cannot keep up;
(e)some batches of UBF are stockpiled in a separate UBF stockpile area some distance from the plant for later treatment. This area is known as the 'high iron UBF stockpile area'. This UBF usually (but not always) comprises UBF with a higher iron content relative to other UBF available at the time.
35.There is no particular definition of 'high iron UBF' (or 'high iron UBL') - it is simply material that we set aside for later processing because its iron content is higher than other material then available.
In this aspect of Mr McDonald's evidence the critical characterisation argument over what is or is not the first defendants' tailings and waste at Woodie Woodie is apparent. It will be recalled that PMI does not seek to characterise as waste any UBF that does actually proceed to be beneficiated, or any UBF that is added (ie directly, without beneficiation) to shipments of fines being built up. Nor does PMI assert any claim over UBF stockpiled close to the Woodie Woodie beneficiation plant for further treatment, when the plant on occasions cannot keep up processing of such materials.
It is over UBF as referred to in par 34(e) of Mr McDonald's witness statement that PMI predominantly asserts rights under the SFA, as its Super Fines. But as regards this material, Mr McDonald uses the phrase in par 34(e) 'for later treatment', and, in par 35, 'for later processing'. Mr McDonald was challenged over this nomenclature in cross‑examination, due to the HIUBF stockpiled material being located some distance away from the processing plant. That less proximate location was suggested to Mr McDonald to indicate the likely non‑use or abandonment of the HIUBF by the defendants. As well, the longish period of time for which the material was generally stockpiled as HIUBF was also put to Mr McDonald as supporting PMI's suggested conclusion that this HIUBF had effectively been tagged as unsaleable product by the first defendant. In addition the fact that a large stockpile of HIUBF was at present to be found stacked on top of the coarse rejects stockpile was put to Mr McDonald as indicating that this stockpiled HIUBF was of a similar character as coarse rejects and hence, was a waste product. Finally, it was suggested that some non‑sale uses of the material, namely the stemming and sheeting for which HIUBF has been and continues to be used in large quantities, had effectively destroyed the HIUBF, or at least were only consistent with the first defendant deciding that this HIUBF constituted tailings.
Mr McDonald had explained by his witness statement that his decisions to use UBF material stockpiled in the HIUBF area may arise in various circumstances, including:
(i)when the first defendant did not have available higher grade or higher yielding fines to produce; or
(ii)when a shipment of blast furnace product was being made up; or
(iii)as part of a high grade fines shipment.
Mr McDonald related that in 2008 the Woodie Woodie processing plant processed (including by beneficiation) very large volumes of HIUBF. At the time there was no other ore available to process. During cross‑examination, Mr McDonald elaborated, saying that this was because blue ore, (which he identified and explained by reference to exhibit 1.15 as the bottom blue coloured rectangle, comprising both the areas which are dark blue and cyan, with iron up to a maximum of 32% and manganese at levels of approximately 15% up to 30%) had been given to PMI (ts 249 and ts 282).
Mr McDonald said, and I accept, that by late 2011 most of the HIUBF that had been stockpiled in preceding years at Woodie Woodie had been consumed in making up shipments of export product (par 52, exhibit 11). He also explained a more recent phenomenon of the chosen production of BFF.
Mr McDonald said that HIUBF had and would continue to be used at Woodie Woodie because it was cheaper to use HIUBF at current manganese prices than stemming material such as aggregate. Mr McDonald explained (par 58(c) and (d)):
(c)material used for stemming has to be dry, so sometimes the lowest quality (ie highest iron) UBF stockpile is not chosen, because it has not fully dried out after the initial crushing, washing and screening process. Some better quality UBF might be chosen instead;
(d)this means that if we are running low on better quality UBF to process, we might end up beneficiating some UBF that is of a lower grade UBF than is being used at the time for stemming.
Mr McDonald said 'UBF in stockpile that is available for use for stemming is also available for use, and is used, for beneficiation' (par 59). He explained the uses of some HIUBF in sheeting in pits or on roads. Sheeting HIUBF does not need to be dry. Only the lowest quality material was selected for this purpose.
Mr McDonald also provided a statement in response to Mr Geraghty's statement. This responsive statement became exhibit 12. Mr McDonald explained that the blending processes at the Woodie Woodie plant are mainly implemented after the ore has been beneficiated. A blending process can be best controlled with the assistance of assay results for beneficiated materials.
Concerning the storage of a large quantity of HIUBF (approximately 78,000 dmTs) on top of a coarse rejects stockpile, Mr McDonald said (exhibit 12, par 8):
(a)I decided that some UBF with a high iron content should be stored on the coarse rejects stockpile, because there was no room left in the usual UBF stockpile area at the time to store the material;
(b)the defendants had built a new pad on the eastern side of the plant for additional storage of UBF material, but the pad was being used at the time for the temporary storage of super fines (belonging to PMI) which had been removed from TSF2.
At par 9 Mr McDonald rejected the contention (emerging from Mr Geraghty's statement) that the defendants created a stockpile of material at Woodie Woodie for use for stemming and/or sheeting.
Like Mr Allen, Mr McDonald was subjected to comprehensive cross‑examination. For Mr McDonald this proceeded over two and a half hours. During cross‑examination, this exchange occurred (ts 236 ‑ 237):
We know that you can treat, you choose to treat, some fines which have a relatively high level of iron and keep a stockpile of beneficiated fines separate from other fines because you know it has got a higher Fe content?‑‑‑True.
But other fines you separate out because they have got high iron and you don't beneficiate them at all. You put them to one side?‑‑‑If we get the opportunity we will treat them.
Now let's deal with that. You started [at the] plant in 2000 as a foreman?‑‑‑Yes.
It had been going for about, hadn't it?‑‑‑Yes.
It had stockpiles on site of unbeneficiated high iron fines, didn't it - - -? ‑‑‑Yes.
‑ ‑ ‑ when you started it?‑‑‑Yes.
And those stockpiles were what you used for sheeting and for stemming?‑‑‑No. Some we treated.
After a series of questions concerning the use of material for stemming and sheeting up to the time Mr McDonald was first engaged in 2001, this exchange ensued (ts 238):
When you say they were used, they were not sold by themselves as product, were they?‑‑‑No, but we would have treated ‑ ‑ ‑
No. Hang on a second. I'm not asking you to make any assumptions. When you say 'we would have', I'm only asking you to tell his Honour what you actually know, not what you are assuming or surmising?‑‑‑What I actually know is that we treated those stockpiles through the fines plant as well.
KENNETH MARTIN J: Through the beneficiation plant?‑‑‑Yes.
BENNETT, MR: There were thousands of tonnes of those fines, weren't there?‑‑‑Yes.
When you say 'we treated those fines', are you saying, 'On occasions when we had low iron material going through we would treat separately some high iron to produce these beneficiated stockpiles to blend to make product'?‑‑‑We would have done it that way and if we run out of low iron fines to feed. We would have kept the fines part running with the high iron stuff. We always have. We have never ever shut the fines plant down because we have only had high iron feed to feed. We have always kept the plant running.
See also ts 240:
You got to site in 2000. There were thousands of tonnes of unbeneficiated fines. They were stockpiled separately and when you first joined Consolidated Minerals you were informed, weren't you, that they were not of themselves product that Cons Min was attempting to create or sell?‑‑‑No. What used to happen is that the plant superintendent at the time, Grant - Grant and I used to go out and have a look at them, because if we were running short of dirt we would go out and have a look at the different piles and select them and say, 'Well, this is the better one. We'll take that'.
During cross‑examination, Mr McDonald was asked to sketch the locations of various stockpiles of material at the first defendant's processing plant. His rough sketch became exhibit 13 (see ts 244). Various locations were identified, one of which Mr McDonald identified as 'Madonna Wall'. Some numerals were applied by Mr McDonald on this sketch, as seen upon exhibit 13. They are explicable by reference to another document and diagram which is exhibit 3, tab 129. See also Mill stockpiles as at 1 May 2012 referred to in exhibit 3, tab 130 (with some redactions). HIUBF is at stockpiles 18 ‑ 22, 36 and 37 (locations 36 and 37 being referred to as 'Eastgate' by Mr McDonald). The coarse rejects stockpile identified by Mr McDonald was location 1 on exhibit 3, tab 129.
Under cross‑examination Mr McDonald elaborated on the processing situation he encountered in 2008 when he 'ran out of fines to treat for a while' (ts 249). By treating the HIUBF at this time he effectively exhausted what was the stockpile of that material at the time. In consequence, Mr McDonald built up a stockpile of beneficiated, high iron, high manganese ('dirt', as he called it) ready for sale, but then unsold and with no matching shipping or sales schedule.
Part of Mr McDonald's processing methodology in 2008 for HIUBF was explained as building up a beneficiated stockpile, so that the material could be blended in with other material at some later point. Mr McDonald said the HIUBF he beneficiated in 2008 had now, in 2012 been sold, albeit in approximately 2010 or 2011 (ts 250). Some was sold as BFF. At ts 251, Mr McDonald said:
I actually treat what I can. We do a budget and a three‑months rolling forecast. If I crush more, I crush more. If I can [beneficiate] more, I [beneficiate] more. If I can put more through the fines plant, I put more through the fines plant.
Mr McDonald: Assessment
Overall, Mr McDonald presented to me as a 'hands on', pragmatic, knowledgeable and thoroughly honest witness. It seemed to me that Mr McDonald, with his long years of experience at Woodie Woodie, was the most knowledgeable person in the courtroom about ore processing at Woodie Woodie. I thought he displayed a very deep knowledge as to the actual production processes of the first defendant at Woodie Woodie. Although challenged most comprehensively in a long cross‑examination about his, or the defendants', attitude towards HIUBF across his 12‑year tenure at Woodie Woodie, Mr McDonald's responses always firmly and unfailingly rejected the proposition that HIUBF was viewed as waste.
I did not assess Mr McDonald to be dissembling or advocating the first defendant's case by his forthright answers to questions. Rather, it seemed to me Mr McDonald was articulating in his no nonsense way the untarnished facts as he saw them, in response to the waste contentions to the contrary from cross‑examining counsel.
Mr McDonald's evidence, on my assessment, was fully consistent with the first defendant simply ranking classes of fines according to their likely saleable value.
On my assessment, counsel for PMI's careful cross‑examination of Mr McDonald made no real inroads towards showing that the uses of HIUBF for stemming and sheeting signified that HIUBF constitutes or constituted tailings or waste. Nor did counsel's questions concerning the stockpiling of HIUBF material on the coarse rejects stockpile gain any traction with Mr McDonald. That was all explained, very reasonably I thought, as operational decisions Mr McDonald had made in the light of the exigencies of the day.
In the end, I was left impressed by the probative responses of Mr McDonald to questions put to him. For the period 2000 to 2012, his evidence is firmly incompatible with drawing any conclusion that the first defendant had made decisions at Woodie Woodie which might be viewed as consistent with a description of the HIUBF in stockpile as tailings, waste or Super Fines.
PMI's materials
I mention first Mr Geraghty's evidence on the preliminary issue. David Geraghty is PMI's technical director. He is a qualified metallurgist with 15 years' experience in the mining industry, in Western Australia, nationally and overseas. He obtained a bachelor of metallurgical engineering with honours from the University of South Australia in 1996. He was appointed the general manager of PMI on 4 August 2003 and his position was re‑titled 'technical director' in 2007. Mr Geraghty says he is familiar with the Woodie Woodie mining leases owned by the defendants and he has inspected PMI's operations regularly since 2004. He has, on several occasions, visited the defendants' plant, although his visits have been less frequent since 2004 following the establishment of PMI's secondary processing operation plant at Woodie Woodie.
Mr Geraghty's evidence is given, naturally enough, at a fairly general level, largely because he is an outsider who can only observe the defendants' primary manganese ore processing operation at Woodie Woodie.
In terms of marketing of manganese ore, Mr Geraghty, like Mr Allen, is aware that manganese ore is generally sold to meet the individual customer's requirements as to the chemical and physical specification of the purchased ore (par 14, exhibit 14).
At par 17 of Mr Geraghty's witness statement, in addressing high grade manganese fines, he observes that chemical specifications are typically for a 'minimum manganese content of 42% ‑ 44% by weight and a maximum iron ore content of 9% by weight'. A clarification of that observation as to being for high grade manganese emerged in cross‑examination (see ts 144). At par 19 of his witness statement, in the context of assessing whether a particular element is high or low, Mr Geraghty opines that, generally speaking, in his experience, 'high' as regards iron in manganese ore, would involve the presence of more than 10% Fe in manganese fines. The observation relates, it would appear, to the period before 2012. However, the generality of this observation seems to me to be such that I must afford it very little weight. That is particularly so in circumstances where all parties seemed to accept that the bespoke requirements of a particular customer are to be addressed under their individual contracts which will vary with the idiosyncrasies of a particular customer's requests from time to time.
Between pars 24 and 41, Mr Geraghty explains the concept of blending of manganese ore. The explanation is provided at a fairly general level, particularly by his observation in par 24 that manganese ore is blended from different locations on a mining tenement. On this point, I prefer the more fact‑specific evidence of Mr McDonald concerning the actual blending the defendants carry out at Woodie Woodie, and which mainly occurs after beneficiation at the first defendant's processing plant. The same observation is also applicable to par 25 of Mr Geraghty's statement.
Mr Geraghty was challenged strongly in cross‑examination about par 31 of his witness statement in relation to an assertion that, from his own knowledge, operations at Woodie Woodie had historically mined manganese ore with a low iron content. By that Mr Geraghty meant ore with an iron content of approximately less than 4% by mass (ts 148 ‑ 150). In terms of the source of knowledge of that generalised observation, see ts 155 ‑ 157. However, Mr Geraghty's observations as an outsider upon these historical practices is too generalised to afford any assistance. Public records which Mr Geraghty relies upon in part for his opinions ceased in 2006, when the first defendant ceased to be a public company. The other source of knowledge Mr Geraghty relied on emerged as (non‑specific) conversations with PMI's customers over what CML had mined. That is hearsay knowledge, still far too generalised and unverifiable. The proposition asserted by Mr Geraghty at par 31 is not established.
Mr Geraghty provided further evidence about the limited sintering capabilities of fines material with a high iron content (par 34, exhibit 4). He also described the use of HIUBF when introduced with other iron ore into a blast furnace. None of this evidence seemed to me to be particularly contentious. But nor did I find it of any particular assistance. Likewise, Mr Geraghty's generalised observations at par 38 concerning the world market when iron ore prices are very high is of no assistance as regards the behaviour of particular customers.
Mr Geraghty explained stemming in what I assess to be uncontroversial terms (par 43). However, Mr Geraghty's reference to stemming at par 45 related to the iron ore industry and practices of Rio Tinto at its Tom Price mine. Such observations are of marginal usefulness. At par 45 Mr Geraghty said, 'Otherwise it is common to use material that is non‑saleable or least valuable such as high iron UBF'. The observation is important. It bears directly on the characterisation question at issue. It draws attention back to the key distinction between a waste product as tailings (which under the SFA is PMI's material), contrasted with an ore seller's perfectly understandable ranking of its fines materials from most valuable to least valuable. A hierarchy of perceived value is to be expected. Mr Geraghty's use of the phrase 'least valuable' in par 45 in reference to HIUBF is wholly consistent in my view with the defendants' legitimate ranking of fines product by reference to value. It is a long way off being a designation of the least valuable material as tailings or waste. Also relevant to this ranking process are fluctuations (actual or anticipated) in world manganese prices, the availability of product to process, shipping schedules, new markets, new customers and idiosyncratic customer product demands for product from time to time.
At pars 46 ‑ 48, Mr Geraghty explains sheeting and the potential recoverability of that material. At par 49, Mr Geraghty expresses his view about the non‑use by a miner of material which it considers to be a valuable product. Mr Geraghty refers in his witness statement at par 52 to some photographs of the high iron stockpiles at Woodie Woodie. See exhibit 1, tab 17 for a series of photographs which are illustrative. But in my view they do not advance PMI's argument that HIUBF is waste.
At par 53, Mr Geraghty speaks of the likely need of a miner to regularly access sheeting and stemming material in large volumes and indeed on a daily basis to enable the blasting of rock bodies. Sheeting material is also required on a regular basis, particularly after heavy rains and flooding. That such materials are used and, indeed, found in stockpiles, is addressed by Mr Geraghty at par 53 and par 54. Daily tonnages in 2010 and 2011 of these materials are identified in par 54.1.1 and par 54.1.2.
Mr Geraghty's usage calculations were the subject of a printout in terms of stemming material at exhibit 1, tab 18. Mr Geraghty takes issue with the assertion that any use of HIUBF for stemming or sheeting is for the benefit of PMI as well as for the benefit of the defendants. That evaluation largely depends upon whether one takes a wide or narrow view of the basis upon which PMI operates its secondary processing operation by reference to the first defendant's tailings. On a wider view, the first defendant either could not operate or would operate less efficiently if it could not use such materials for stemming and sheeting. On the other hand, PMI takes the view that other material could be used by the defendants without the use or destruction of what it considers to be its material under the SFA.
At the end of the day most of Mr Geraghty's evidence, naturally enough, was addressed from an outsider's perspective and very generalised. To the narrow extent it is in conflict with more specific evidence by Messrs Allen and McDonald, I prefer their direct evidence, given from their superior knowledge base as insiders.
Documentary evidence relied upon by PMI
PMI relies upon certain of the defendants' documents thrown up in the discovery process to support its arguments that HIUBF is waste.
The first is a memorandum of 23 May 2003 from Mr Allan Quadrio to Mr Michael Kiernan and others. The subject heading of this memorandum is 'Inclusion of Blue Ore in Pit Optimisation - FOR DISCUSSION'.
I note that this memorandum (apart from being a discussion document) is earlier in time than the 2004 timeframe for which PMI has chosen to frame its pleaded case. To a large extent it is therefore reflective only of what is irrelevant history. More substantively, the memorandum discusses the potential utilisation of blue ore with a manganese content in a range, assessed to be low at that time, of 25% to 35%. Use of this ore is in contradistinction to an optimised use at that point in time of red and green ore with manganese content exceeding 35%. (This is graphically illustrated by exhibit 1, tab 15, although that diagram is prepared by reference to the timeframe of July 2011. From that graph it will be seen that blue ore in 2011 is now represented as having a manganese content in the order of just above 15% up to 30% manganese and with a maximum iron content of approximately 6% (the rectangle showing ore in the cyan coloured range captures ore of the same low manganese content but with a higher iron content)).
The 2003 Quadrio discussion memorandum contains observations about a recent successful treatment of blue ore from what I assess to be the pit known as Lewis (hence the reference to Lewis Blue). As part of the background observations, Mr Quadrio wrote in May 2003 in the aftermath of the successful treatment both in quantity and quality of Lewis Blue ore:
This ore is outstanding in that it generates high quality product at moderately high yield with very low Iron. In addition to this a very large amount of high iron material that was previously considered waste has been blended into the lump and fines products. Double 8 Blue ore has performed similarly although there are some issues with contaminants.
Under the heading 'Chemical Analysis', Mr Quadrio referred to a potential optimisation of more blue ore. He said, 'High iron ore should be excluded from the calculation due to the inability of these types of ores to successfully make product grade at an acceptable yield in their [own] right'. Those observations precede a discussion about blending significant amounts of high iron lump and fines from low grade stocks into a shipment. After reference to a table summarising ore obtained from Bells Orange, Hannah Blue and Hannah Orange, Mr Quadrio observed:
As can be seen none of this low grade material will make product in its own right. Under circumstances where there is insufficient low iron, high manganese product to carry it, the low grade material will be left in stockpiles untreated. Production of fines from the high iron material suffers the same circumstance but is exacerbated due to the natural bias of Iron towards the fines.
As a consequence, any pit that has high iron (greater than 5%?) in the low grade resources should not have Blue ore considered in the optimisation parameters for the pit.
I do not assess Mr Quadrio's observations to indicate that the low grade, high iron material was regarded as the defendants' tailings. The document is only a discussion memorandum in 2003 about product optimisation. It expressly recognises the potential to blend significant amounts of high iron lump and fines from low grade stocks in the context of optimisation parameters.
Read in its proper context Mr Quadrio's memorandum shows that the defendants' optimisation parameters as regards minimum acceptable levels of manganese and impurities (including iron) have fluctuated over time. This is hardly a surprise.
Next PMI relies upon exhibit 1, tabs 4, 5 and 6. These documents comprise a series of April 2007 communications including email chains. The communications are between the first defendant's staff (Messrs Alistair Croll, Derek Byrne and others) and relate to ore given to PMI under interim arrangements between the parties agreed in 2007 (see Mr Croll's email to Mr Byrne of 15 April 2007 referring to 'interim feed arrangements'). There is discussion about the use of UBF as road base material. Mr Byrne's email to Mr Croll of 24 April 2007 said:
The lowest quality of fines has historically been used for road base. There is usually a pile of high Fe UBF that is used for this purpose … Are you happy to continue the established practice of using the lowest quality material for road repairs?
This communication does not assist PMI. If anything, it is consistent with the first defendant having ranked its ore according to value. Use of material taken from the 'bottom shelf' as road base material (or indeed as stemming material) does not, in my view, carry with it an evidentiary conclusion that the material used is tailings or waste. That is particularly the case for a remote location such as Woodie Woodie where supplies of useable materials can be expected to be limited and a 'make do' approach is required. I observed in [2010] WASC 266 [219] that the use of coarse rejects was equivocal. The same analysis applies to the use of HIUBF for stemming and sheeting.
In fact, this communication rather suggests to the contrary in terms of designating HIUBF as 'lowest quality material'. The fact the material used for sheeting in roads was described by 'Rod' in an email to 'Derek' (exhibit 1, tab 7) as 'pretty crappy' takes matters no further in favour of PMI's waste contention.
Moreover, I assess this sporadic email evidence as being thoroughly outweighed by the direct evidence of the defendants' witnesses at trial, particularly Mr McDonald who gives these communications, in my assessment, a better context.
PMI also draws attention to an August 2008 communication from Mr Francis to Mr Allen referring to unbeneficiated fines 'with a high iron content that would be grading at an estimated 20% to 30% Mn which we may or may not treat in the future' (exhibit 1, tab 13). That again only tends to suggest to me a stockpiling scenario, with the first defendant reserving its position in terms of future treatment of the material. But that does not suggest that HIUBF constitutes tailings or waste. I assess a 'wait and see' stance as being perfectly understandable, bearing in mind the nature of the product and the world market in which it is to be sold, fluctuating world prices and the idiosyncratic manganese and iron demands and tolerances of customers from time to time. Hence, I assess a 'wait and see' stance as regards beneficiation of HIUBF as being wholly incompatible with such material having been affirmatively assessed to be tailings by the defendants. An affirmative decision as to tailings is required from the first defendant, not a decision to 'wait and see'. As I said earlier, par (b) of the definition of 'Super Fines' in the SFA requires an affirmative decision by the first defendant that the HIUBF constitutes tailings, and that such a decision must be proximate to the time the HIUBF leaves the first defendant's wash plant.
If the HIUBF is not the subject of any affirmative decision by the first defendant at a time proximate to that material leaving the first defendant's wash plant, then in my view it does not fall within par (b) of the SFA's definition of 'Super Fines'. That position is not amenable to subsequent revision. A scenario of non‑decision by the defendants and a stockpiling of the material to await development in fluctuating world market conditions or changes in the world manganese price over time or an assessment as to the tolerance of the world market for higher iron content, in my view, is a scenario inconsistent with the material being assessed as tailings or waste.
Finally, PMI placed emphasis upon a document generated by the first defendant's computer system, referred to as a 'pronto sheet' (exhibit 1, tab 16). The 29 pages of that computer printout covering the period 1 January 2010 to 16 January 2012 uniformly show that one of the columns in that document, under the heading 'tv stock code', has inserted the word 'waste' under every entry. This document appears to be a movement record referable to materials with a comments column filled in by unspecified persons (possibly equipment operators).
PMI relies on this document to advance the tailings arguments. But in the face of the totality of the evidence of the trial, I am not prepared to attribute much significance to a pro forma sheet that carries a uniform code reference of waste. Nor do I assess it as appropriate to draw a Jones v Dunkel (1959) 101 CLR 298 type of adverse inference against the defendants by reference to a computer‑generated pro forma document.
Exhibit 1, tab 18 appears to be a continuance of pronto sheet records subsequent to 16 January 2010 carrying the same tv stock code designation across 40 pages of printout in the period between 16 January 2010 and 12 January 2012. There seems to be a time period overlap between the two documents. Again, I feel it would be a mistake to read too much into a pro forma computer‑generated record. Like observations apply in respect of exhibit 1, tab 19. The uniform designation of 'waste' seems to have altered after 2 February 2012. See exhibit 1, tab 19, where a standard tv stock code of 'UBF' is now used. However there are still sporadic references to waste in the period after 2 February 2012 through to 19 April 2012 in the tv stock code although that is now very much the exceptional case.
Similarly, I was unmoved by some bland references to waste in several other of the first defendant's documents, including a work procedures manual under the heading 'Pit Work: Ore Spotting Procedure'. See exhibit 1, tab 9, referring both to 'mineralised waste' and 'waste', which has a manganese content of less than 25%. In the same document, there is a reference to high iron material with a manganese content of more than 35% and an iron content exceeding 6%. Such documents only reflect, in my view, the first defendant's process of ranking the understandable assessment of its fines product according to value. As I have found, that is not enough to constitute a decision by the first defendant to classify that lower value material as tailings.
Work procedures manuals of the defendants are found in exhibit 3, tabs 126 and 127, and were applicable at October 2006 and January 2009 respectively. But Mr McDonald explained in cross‑examination how he operated the Woodie Woodie processing plant in reference to the ore spotting procedures manual. The thrust of his evidence was that the work procedures documents were more relevant to the mining department than to his operation of the processing plant, once quantities of lump and fines ore had been trucked to him at the processing plant. Mr McDonald's evidence seemed to me to be logical on this point. Again, I accept it.
A further document (exhibit 1.19) within this bundle of material indicated the standard pronto sheet entry had been reprogrammed as from 5 February 2012, so that it did not at the tv stock code refer to waste. It now used the more generic description 'UBF'. As I have already stated, this change in nomenclature simply displays the analytical unhelpfulness from the bland application of a label. What is called for is a more specific assessment as to the particular qualities and treatment of particular materials by direct evidence from someone on the ground with personal insights. Hence, the significance of the evidence of Mr McDonald, which I have accepted.
Conclusion
In the end, PMI has failed to establish on this preliminary issue that any stockpiles of HIUBF at Woodie Woodie (presently in the order of 90,000 tonnes on the approximate calculations by Mr Geraghty, which appear to accord with Mr McDonald's assessment of the present position: see exhibit 55 and ts 232), meet the description in par (b) of the SFA's definition of 'Super Fines'.
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