U.S. v. Consolidated Mayflower Mines, Inc.

• Decision Date: 24 July 1995
• Docket Number: 93-4151,Nos. 93-4138,s. 93-4138
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. CONSOLIDATED MAYFLOWER MINES, INC., Defendant-Appellant, Stichting Mayflower Mountain Fonds and Stichting Mayflower Recreational Fonds, Defendants-Intervenors-Appellees, and 18.57 Acres Land, more or less located in Central Wasatch County, State of Utah, Defendant. UNITED STATES of America, Plaintiff-Appellee, v. 18.57 ACRES OF LAND, more or less located in Central Wasatch County, State of Utah, Defendant, and Consolidated Mayflower Mines, Inc., Defendant-Appellee, Stichting Mayflower Mountain Fonds, Stichting Mayflower Recreational Fonds, Defendants-Intervenors-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1470

60 F.3d 1470

UNITED STATES of America, Plaintiff-Appellee, v. CONSOLIDATED MAYFLOWER MINES, INC., Defendant-Appellant,

Stichting Mayflower Mountain Fonds and Stichting Mayflower

Recreational Fonds, Defendants-Intervenors-Appellees,

and

18.57 Acres Land, more or less located in Central Wasatch

County, State of Utah, Defendant.

UNITED STATES of America, Plaintiff-Appellee, v. 18.57 ACRES OF LAND, more or less located in Central Wasatch

County, State of Utah, Defendant,

and

Consolidated Mayflower Mines, Inc., Defendant-Appellee,

Stichting Mayflower Mountain Fonds, Stichting Mayflower

Recreational Fonds, Defendants-Intervenors-Appellants.

Nos. 93-4138, 93-4151.

United States Court of Appeals Tenth Circuit.

July 24, 1995.

E. Scott Savage (Patrick J. O'Hara, with him on the brief), Van Cott, Bagley, Cornwall & McCarthy, Salt Lake City, UT, for defendant Consolidated Mayflower Mines, Inc.

E. Craig Smay, Salt Lake City, UT, for defendants Stichting Mayflower Mountain Fonds and Stichting Mayflower Recreational Fonds.

Joan M. Pepin, U.S. Dept. of Justice, Washington, DC (Lois J. Schiffer, Acting Asst. Atty. Gen., U.S. Dept. of Justice, Washington, DC, Scott M. Matheson, Jr., U.S. Atty. for Dist. of Utah, Salt Lake City, UT, Stephen J. Sorenson, Asst. U.S. Atty. for Dist. of Utah, Salt Lake City, UT, Jacques B. Gelin and Eric G. Williams, U.S. Dept. of Justice, Washington, DC, with her on the brief), for plaintiff.

Before TACHA, FAIRCHILD, ^* and LOGAN, Circuit Judges.

FAIRCHILD, Senior Circuit Judge.

These appeals, argued the same day, arise from a condemnation trial. ¹ The government, pursuant to its power of eminent domain, took 18.22 acres of land, except subsurface minerals, owned by Consolidated Mayflower Mines, Inc. ("CMMI"), for relocation of United States Highway 40 and a natural gas pipeline due to construction of a dam and reservoir near Heber City, Utah. The taking date was March 22, 1988. The parties agreed that the land was worth $67,500, if valued for development as recreational home sites. CMMI claimed, however, that the highest and best use was as a staging area for access to and operation of the Mayflower Mine, to which CMMI has rights under mining leases. The jury found that the highest and best use of the land was for development as recreational home sites, rather than as a mine staging area. That meant that just compensation was $67,500, the amount conceded by the government. CMMI appeals from the judgment entered accordingly (No. 93-4138). Stichting Mayflower Mountain Fonds and Stichting Mayflower Recreational Fonds ("the Stichtings"), intervenors below, are successors to one of CMMI's lessors. On their appeal (No. 93-4151), they challenge limitations the district court placed on the issues they could present at the trial. We affirm.

I.

The 18.22 acres ² were part of a larger parcel of land, made up of 25.08 acres ("the 25 acres"), and owned in fee simple, excluding mineral rights, by CMMI. CMMI also had, under long-term leases, the exclusive right to mine and remove all ores and minerals from 4600 acres owned by the Stichtings and surrounding the 25 acres. The entire area is within lands known as the Park City Mining District.

The principal bone of contention is the underground Mayflower Mine located within the 4600 acres. Discovered in the late 1800s, it produced gold and other minerals until 1972. It was then owned by Newpark Resources. In 1972, Newpark removed and sold trackage, equipment, and pumps; the Mine flooded. ³

In 1972, Newpark sold the 4,600 acres to LON Investment Company, which planned to develop a ski resort on the property. Newpark reserved some of the mineral rights. The old portal to the Mine was on and surrounded by the land sold to LON; no other access to the Mayflower Mine has been created.

In 1975, Newpark and LON created CMMI (now a wholly-owned subsidiary of Newpark), and each issued a mining lease to CMMI, giving it the exclusive right to mine their properties. They conveyed the 25 acres to CMMI, evidently as a staging area for mining. The Stichtings obtained LON's properties in December 1977, for resort development. They, therefore, stand as lessor of CMMI's mineral rights, and owner of the 4,600 acres, including the old portal. Pursuant to the mining lease between CMMI and LON (now the Stichtings), the Stichtings were entitled to a 0.6% royalty on net smelter returns for minerals mined. The Stichtings also could withhold consent for CMMI activity which would or might interfere with the surface use. ⁴ This background is more fully recounted in the opinion in Stichting Mayflower v. Newpark Resources, 917 F.2d 1239 (10th Cir.1990).

Operation of the Mayflower Mine could be accomplished most economically through the old portal, owned by the Stichtings. They do not permit its use. There was evidence that possible alternative points of access, other than the 25 acres, and including the nearby Ontario Mine, are not feasible.

In simplistic terms, Mayflower Mine consists of a vertical shaft from at or near the surface to a depth of 3,000 feet, with drifts and raises branching off. The adit (often referred to as a tunnel) from the old portal reaches the shaft 800 feet below its top. The adit is about 7,000 feet in length.

At trial, Mr. Miller, an experienced mining engineer, produced a plan for working the Mayflower Mine from the 25 acres. A new adit would be driven from a new portal on the 25 acres, about 1,800 feet, passing under an area known as the Village Site, and would intersect the old adit about 300 feet from the old portal. The elevation of the new portal would be 6,360 feet above sea level, and the new adit would have to be graded to rise 80 feet in order to intersect with the old adit.

The mine had flooded, with water in the shaft pretty well up to the old adit. Mr. Miller described how the new adit would be driven, buildings built on the 25 acres, pumps installed so as to remove an estimated 150 million gallons of water, plus normal accumulation thereafter, trackage, hoist, and equipment replaced, and electric power brought in. A road would be prepared for hauling ore to a mill (which would be installed at a distance of 7.9 miles), and a pipeline laid to carry water about two miles to a treatment facility. The preliminary work would take 18 months. Production, with a work force of 70, would start then, and continue for 3 1/2 years.

Mr. Simos, who had been head geologist at the Mayflower Mine when operating, testified that in 1988 there were 175,000 tons of ore which would be profitable to mine at the then gold price of $443.00 per ounce, cost of operation being taken into consideration. Mr. Miller calculated that that amount of ore could have been produced under the plan. He estimated that $32 million would have been received for ore during the 3 1/2 years, $6,100,000.00 would have been spent as capital over the first 1 1/2 years. Total cost of operation, and cost of shutdown would be $20,256,000, yielding a net return of $5,644,000, over the period of operation.

Mr. Stuart, a retired accountant, testified to an opinion that the fair market value of the Mine was $8 million. His opinion was based on his estimates of interest on borrowings and Mr. Miller's estimates of the capital requirements, costs, and receipts for the 175,000 tons of ore. He computed the present value (1988) of cash flows over the five-year period at $3.522 million. It was difficult to find sales of comparable properties. In an effort to come as close as possible to comparables, he looked at 31 sale or acquisition transactions in 1987 and 1988 involving companies related to gold-mining. He narrowed these down to 20 and then pared them down to eight or nine that he thought were most comparable where the properties were working mines. In most instances, only a fractional interest in a gold mine had been acquired, but he calculated the amount paid for each dollar of revenue. He ultimately computed three types of multipliers and derived values, based on Mr. Miller's figures, of 57.8 million dollars, 28.1 million dollars, and 53.5 million dollars. He considered these high and gave the average of them only 10% weight. He gave the 3.522 million dollars derived from the income approach 90% weight and thus reached his final opinion of a market value of 8 million dollars.

The government produced evidence to show that carrying out Mr. Miller's plan would ultimately result in loss of some of the initial capital outlay. Mr. Bohnet is a mining engineer with experience in underground mines and in preparing feasibility studies for mining projects. He had gone over Mr. Miller's plan and testified to items where he believed Mr. Miller had allowed an inadequate amount, such as for dewatering the mine, had omitted needed equipment, such as air conditioning for the hot portions of the mine, had proposed equipment inadequate to perform the needed function, such as an eight inch pipeline for dewatering where a 12 inch diameter was needed. He estimated the required capital outlay at $10,440,270.00. He also believed that operating cost would amount to $116.20 per ton instead of Miller's $73.50 per ton, and felt there would be less revenue because the declining grade of ore would result in less recovery of gold per ton. He testified that according to his figures, the return from 175,000 tons of ore would be greater than the cost of operating the mine, but would not pay back the capital required to begin operation.

He also testified that large companies look for gold mines with a potential of 500,000 ounces of gold. The Mayflower was expected to produce from 50,000 to 75,000 ounces.

William Pincus, a government witness, is manager of the mineral economics department of a consulting firm. He is a geologist, with experience in the mining industry. He testified that serious investors in the mining business tend to have a conservative approach because of the risk. Large mining companies want...