Quadrant’s Damages Expert Testifies in Mexican Offshore Phosphate Mining Deposit Arbitration
Quadrant’s damages expert, Dr. Flores, was retained by the United Mexican States (“Respondent”) as a quantum expert in an arbitration initiated by Odyssey Marine Exploration, Inc. (“Claimant”) under the North American Free Trade Agreement and the UNCITRAL rules (ICSID Case No. UNCT/20/1). The dispute arose from Respondent’s denial of environmental permitting to Exploraciones Oceánicas S. de R.L. de C.V. (“ExO”), the Mexican subsidiary of the Claimant, which sought to develop a phosphate deposit located off the coast of Baja California Sur (“Don Diego”).
Claimant’s core business for over a decade was discovering shipwreck sites in the deep ocean and conducting archaeological excavations. In 2009, the company began to shift focus away from shipwreck discovery to mineral resource exploration in the ocean, such as the offshore phosphate deposit Don Diego. In 2012, ExO was granted a 50-year mining concession for the exploration of the Don Diego deposit−a deposit that had been known for over 50 years but was never able to reach the production stage due to technical and economic reasons. In 2014, Claimant submitted its environmental impact study to Mexico’s authorities. In 2016, the authorities denied the Claimant’s request for environmental approval. Claimant alleged that this permit denial eliminated the entire economic value of the Don Diego project. Claimant sought in excess of US$ 2 billion using the Discounted Cash Flow (“DCF”) method.
Dr. Flores testified on the fair market value of Don Diego at the time that the environmental permit was denied. Dr. Flores assessed that the early exploration stage of the Don Diego project precluded the DCF methodology, relying on the technical expertise of mining engineers and industry wide sources such as the World Bank and the Canadian Institute of Mining, Metallurgy and Petroleum (CIM). The DCF was a speculative exercise in this case as greenfield mining projects, like Don Diego, have to achieve several milestones to progress from an exploration project to a producing project, such as, assessing economic viability through feasibility studies, securing financing and offtake agreements with customers, and obtaining the necessary permitting. Dr. Flores also analyzed the market sentiment surrounding Don Diego and Odyssey around the relevant time period by studying analyst reports, corporate filings, and the movements in Odyssey’s market capitalization.
The Tribunal (President: Mr. Felipe Bulnes Serrano, Co-arbitrators: Prof. Stanimir A. Alexandrov and Prof. Philippe Sands) has yet to render an Award on this matter.
Respondent was represented by the United Mexican States Secretaría de Economía, Pillsbury Winthrop Shaw Pittman LLP, and Tereposky & De Rose. Dr. Flores was supported by a Quadrant team that included Brendan Moore, Ivan Lopez, Francisco Sanchez, and Dario Gatti.
Source: ICSID