Calculation of Damages for Cancelled Uranium Licences

Senior Advisor José Alberro acted as the damages expert for the claimant in this international arbitration administered by the Permanent Court of Arbitration in The Hague.

Dr José Alberro acted as the damages expert for the claimant in this matter that involved cancellation of the licences of a mining company. Dr Alberro is currently a senior advisor at Cornerstone Research and cohead of the firm’s international arbitration and litigation practice.

When the government of Mongolia revoked the licences in 2009 that allowed Khan Resources Inc. to conduct uranium mining operations in that country, Khan sought international arbitration to obtain compensation on the basis of the Energy Charter Treaty and Mongolia’s Foreign Investment Law. The tribunal was constituted under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).

The tribunal awarded approximately $100 million in damages to Khan, more than five times the amount the respondent argued had been invested in the project.

A hearing on the merits of the claim and on the damages sustained by Khan was held in November 2013 at the ICC Hearing Centre in Paris. Crowell & Moring acted as counsel for Khan in the arbitration. The respondent maintained that if the tribunal determined that damages were due to the claimant, those damages should be limited to the amount that the claimants had invested in the mining project and not to its economic value. Dr Alberro testified that the value of the project included not just the claimant’s investments but future earnings as well. He demonstrated that once the reserves and costs associated with development and production of the mine are known, the market price of uranium can be used to estimate future earnings with reasonable certainty. The tribunal agreed that in the case of a mine with proven reserves, it did not matter that the mine had not actually come into full production and was not a “going concern.” Furthermore, Dr Alberro argued that by using the Weighted Average Cost of Capital in addition to an adjustment parameter that the respondent called “the chance of success,” the respondent double counted risk. On the matter of prejudgement interest, the tribunal sided with the claimants’ request of interest on a compounded basis rather than on a simple basis, as the respondent had argued.

The tribunal awarded approximately $100 million in damages to Khan, more than five times the amount the respondent argued had been invested in the project.