Mining venture disintegrates into legal action

Locked gates prevent outsiders from getting close to the mining site on Tenderfoot Hill, but it’s obvious from a distance that not much is happening and big equipment is nowhere to be seen.

Locked gates prevent outsiders from getting close to the mining site on Tenderfoot Hill, but it’s obvious from a distance that not much is happening and big equipment is nowhere to be seen.

Since 2004, Shannon P. Murphy of Colorado Springs has sought to develop several gold mining claims on the slopes of Tenderfoot Hill near Cripple Creek. He has formed a number of companies to carry out mining operations, including Murphy Mining and Exploration (MME) and Murphy Mining International (MMI).

Outside investors have put millions into the venture.

Some work has been done at the site, where an extensive mining operation was in place during the 1890s. According to MME’s website, “The Company completed a series of surface core drilling holes for the period 2005-2009 and is continuing with this program in order to further delineate the various systems and geology on Tenderfoot Hill.”

But according to a civil action filed Sept. 24 in El Paso County District Court, Murphy has been systematically looting his own companies. Claiming that Murphy has refused to provide them with audited financial data that would enable them to verify that their funds were properly utilized, the plaintiffs want Murphy to step aside as CEO while they undertake an independent examination of the company’s books.

The suit was filed by Gary Nordic and Dana Geyer, described as manager-members of MMI and MME. Other complainants, who are not named in the suit, reportedly include many prominent Colorado Springs business people.

One complainant, who would not speak on the record, is angry and puzzled.

“We think he took millions and converted it to personal use,” the complainant said. “I still can’t understand it — he could have made a lot more money just by getting the mine into production.”

As the legal process begins, one question is sure to be raised: Is Murphy a legitimate businessman with restive and interfering partners, or is he something else?

Company history

The company’s primary mine site is clearly visible from Colorado Highway 67 as the road descends Tenderfoot Hill into Cripple Creek. Fresh mine tailings, wooden fencing and a small white structure can be seen, but otherwise there’s little to distinguish it from the dozens of old mine sites that cover the mountain.

Despite the nine-year lapse between initial exploration activities and anticipated production, Murphy apparently hopes to begin production by year’s end.

“The company and its affiliates have completed specific exploration, rehabilitation, engineering, permitting, and other pre-development activities at the Providence Mine,” according to the company’s website. “Providence Mine has experienced a series of setbacks in 2012 and production will commence before end of year 2013.”

The mine may have been in production for a while during 2011, according to the website — but without a mining reclamation plan.

Responding to a written complaint that Murphy was conducting an illegal mining operation, inspectors from the Colorado Division of Mining, Reclamation and Safety visited the site in September 2012.

There wasn’t much to see.

“The surface disturbance is limited to a small area near the mining entrance,” the report states. “Small temporary buildings, construction materials and equipment were observed in this area. The mine foreman explained that the majority of activity at the mine is focused on retrofitting the existing adit, side tunnels and the main shaft for accessibility and safety.”

Murphy denied that the company was conducting mining operations. Nevertheless, the inspectors noting that “prospecting was complete” required the company to file a mining reclamation plan by last Nov. 30.

Another Murphy affiliate, the Chesapeake Mill, owns a 100-ton-per-day mill located in Victor and also owns the historic Victor Hotel.

The lawsuit

Filed by the Denver office of Sherman & Howard, the suit makes multiple specific allegations of misconduct. Most concern “Murphy’s pattern of self dealing and misappropriation of (company) property and assets, acting in concert with family members, family-controlled entities, and other individuals whose present entity is unknown.”

The suit alleges that as of Dec. 31, 2012, MMI and MME had each raised millions of dollars from investors to finance mining operations, largely in Cripple Creek. While some funds may have been used as intended, the suit alleges much was improperly diverted.

Allegations in the court filings include that, beginning in approximately 2011 and thereafter, Murphy:

Diverted to himself more than $1 million annually, while failing to pay company taxes, payroll and other obligations.

Secretly paid off a disgruntled investor, Steve Schroeder, who had threatened to “shut down” MME based on knowledge he had concerning Murphy’s management of the company. Murphy allegedly paid Schroeder $2.2 million in company funds for his 13- percent interest in MME, using funds raised through a private offering without disclosing this fact to investors.

Settled a lawsuit filed by the Michael W. Jordan Dynasty Trust in 2012 alleging that Murphy had diverted millions of investor funds from MMI and MME for his own use by transferring valuable MMI-owned South African coal assets to the Trust.

“He could have made a lot more money just by getting the mine into production.”

In exchange, the Trust transferred the entirety of its interests in MMI and MME to Murphy personally, and paid Murphy $430,000 for “office building payments.” This may have been related to self-dealing leases that Murphy had executed with MME and MMI for office space in Cripple Creek, at rates far above the market rate.

The suit further alleges that Murphy cut a deal in August to sell $700,000 worth of mining equipment owned by MME and MMI and ship it to Mexico using a shell company that he allegedly controls, Epic Mineral Resources.

The plaintiffs want Murphy removed as manager; a judgment for monetary damages against Murphy and his unnamed co-conspirators; a full accounting, attorney’s fees and a jury trial.

CSBJ attempted to contact Murphy for comment, but he was unavailable.

“I think he’s in Denver,” said the person who answered the office phone in Cripple Creek. “I don’t know when he’ll be back.”

Is there a mine on Tenderfoot Hill? That’s for independent assayers, engineers and mining experts to determine, but small-scale mining such as Murphy proposes is rare nowadays. According to investors familiar with his plans, the mine is projected to produce 75 tons of ore daily, with average values of 0.7 to 1.0 ounces of gold per ton.

By modern standards, that’s extraordinarily rich. The vast Cripple Creek & Victor open pit mine near Victor moves 150,000 tons of ore daily, with an average content of 0.03 ounces per ton.

Has Murphy discovered a rich and extensive ore body that past miners somehow missed? At $1,300 an ounce and a 70-percent recovery rate, the mining and milling operation could realize gross income of $68,250 per day, or nearly $25 million annually.

So why sell off your mining equipment?

One Response to Mining venture disintegrates into legal action

  1. ….. gold mining companies have a rich history of scam.

    richard black
    October 25, 2013 at 11:52 am