Marbridge Mines Limited| v. Minister of National Revenue, [1971] CTC 442, 71 DTC 5231

GIBSON, J.:—This is an appeal from an assessment for income tax for the taxation year 1966 by which the appellant’s claim for exemption from income in the amount of $2,960,950 was disallowed, which sum was income derived during the 1966 taxation year from the operation of its so-called No. 2 mine.

This appeal raises the question of whether or not the appellant’s so-called No. 2 mine was a ‘‘mine’’ within the meaning of Section 83(5) of the Income Tax Act, R.S.C. 1952, ¢. 148.

The appellant in 1960 acquired certain mining claims in the Province of Quebec including Lots 6 to 17, Range V in the Township of La Motte in the County of Abitibi East and com-

menced to carry on exploration and development work on an ore body which had been discovered on the said Lots 9 and 10. In June 1961 Quebec Mining Concession No. 477, covering the said Lots 8, 9, 10 and 11, was granted to the appellant and letters patent with respect thereto were issued on February 26, 1963. On said Lots 9 and 10 the appellant brought into production in April 1962 a mine which is called in these proceedings No. 1 mine. By letter from the Department of National Revenue dated February 18, 1964 the appellant was informed that it had been granted a new mine exemption under Section 83(5) of the Income Tax Act in respect to this said so-called No. 1 mine during the period of 36 months commencing on April 1, 1962.

Thereafter the appellant on the rest of the property, and specifically on Lots 12 and 13, Range V, caused to be carried on in late 1963 and in early 1964 certain surface geophysical exploration work, and then, commencing in May 1964, a diamond drilling program. As a result thereof, the appellant discovered an ore body on the said Lots 12 and 13. It then applied for and obtained Quebec Mining Concession No. 519 covering the said Lots 12 and 13, which was granted to it on April 7, 1965, and letters patent with respect thereto were issued to it on May 27, 1966.

In July 1965 the appellant brought into production in reasonable commercial quantities this mining property which is called in these proceedings No. 2 mine.

On May 12, 1967 it claimed exemption for this so-called No. 2 mine for the period of 36 months commencing August 1, 1965. By letter from the Department of National Revenue dated August 18, 1967 the appellant was informed that the said claim for exemption was denied.

The so-called No. 1 mine and No. 2 mine respectively on Lots 9 and 10 and Lots 12 and 13, Range V, in the said township together with their respective installations are illustrated on Exhibit 2.

Both these so-called mines were relatively small mines. The so-called No. 1 mine, which came into production in April 1962, became mined out in August 1968 after 500,000 to 600,000 tons of ore had been taken out of it through its shaft area.

The so-called No. 2 mine, which came into production in July 1965, became mined out in July 1967 after about 163,000 tons of ore had been taken from No. 2 shaft area.

The appellant did not do the mining itself in respect to either, but instead hired an independent contractor by the name of R. J. Fry and Associates Limited to do the mining.

Both these mines were metal mines, being in the main nickel mines, with small copper findings.

The Minister in making the assessment appealed from acted upon the following assumptions according to the pleadings, namely: (a) that the income of $2,960,950 for 1966 was derived from the operation of a mine; and (b) the extraction of ore from Quebec Mining Concession No. 519 could not by itself be regarded as a mine within the meaning of subsection (5) of Section 83 of the Income Tax Act, but was part of the mine referred to as No. 1, which mine had come into production in reasonable commercial quantities prior to April 1, 1962.

The relevant statutory provisions are Section 83(5) and Section 83(6) of the Income Tax Act which read as follows:

(5) Subject to prescribed conditions, there shall not be included in computing the income of a corporation income derived from the operation of a mine during the period of 86 months commencing with the day on which the mine came into production.

(6) In subsection (5),

(b) “production” means production in reasonable commercial quantities.

The issue in dispute on this appeal is whether or not this so-called No. 2 mine, which came into production within the meaning of Section 83(6) of the Act in July 1965 and from which the said income of $2,960,950 was derived, was a mine within the meaning of Section 83(5) of the Act.

In M.N.R. v. The MacLean Mining Company Limited, [1970] S.C.R. 877; [1970] C.T.C. 264, the Supreme Court of Canada had occasion to consider the meaning of the word ‘mine” in Section 83(5) of the Income Tax Act. It held that that word could not be interpreted as meaning ‘‘a portion of the earth containing mineral deposits’’, but instead meant ‘‘a mining concern taken as a whole, comprising mineral deposits, workings, equipment and machinery capable of producing ore’’ (cf. North Bay Mica Company Limited v. M.N.R., [1958] S.C.R. 597 ; [1958] C.T.C. 208, Cartwright, J., as he then was, at page 601 [212] ; and Avril Holdings Limited v. M.N.R., [1970] C.T.C. 572, Pigeon, J. at page 574).

It was submitted on behalf of the respondent that the key words in this interpretation in this case of the meaning of the word ‘‘mine’’ in that subsection were ‘‘a mining concern taken as a whole’’ and as a consequence, a broad meaning should be given to the word “concern” which should include taking into consideration all the economic aspects of the operation of the mine; and therefore the appellant to succeed on this appeal had to establish that in respect to the so-called No. 1 mine and No. 2 mine that there existed at all material times in effect two mining concerns taken as a whole. As to this, the respondent submitted that on the whole of the evidence, the appellant failed to do so; instead it only established that the appellant’s mine consisted of two separate ore bodies called on this appeal No. 1 mine and No. 2 mine.

The appellant submitted that the interpretation of the word ‘‘mine’’ in Section 83(5) of the Income Tax Act made in M.N.R. v. The MacLean Mining Company Limited (supra) did not have such a wide meaning as was submitted by the respondent; instead, the words ‘‘a mining concern taken as a whole’’ as employed in that case were specifically restricted by the word following, namely, ‘‘comprising’’ and the catalogue of the only things included that is to say, ‘‘mineral deposits, workings, equipment and machinery, capable of producing ore’’. In respect to the words ‘‘capable of producing ore’’, the appellant relied on the words of Pigeon, J. in M.N.R. v. The MacLean Mining Company Limited (supra) at page 882 [267], viz.: Mining itself is complete by the production and hoisting of the ore . . . ”.

It was also the submission of the appellant that what was done with the ore thereafter constituted ‘‘treatment’’ of it; and it categorized ‘‘treatment’’ as: (1) “milling”, which includes firstly ‘‘primary grinding’’ and then the work of putting the ore into what is referred to as concentrates; (2) ‘‘smelting’’, which work puts the concentrates into a condition called matte ; and (3) ‘‘refining’’, which work produces in the case of the metal coming out of this mine, pure nickel.

In the subject case, as the evidence indicated and as are illustrated on Exhibit 2, the various underground workings, equipment and machinery capable of producing ore, the ventilation and escape raises and every other physical thing necessary to bring the ore to the surface are separate and distinct in the so-called No. 1 and No. 2 mines ; and in respect of none of these is there any integrated system for the extraction of ore, unless it could be said that two accidental and incidental common things could establish the contrary proposition. These things are a powder magazine between the two so-called mines on the ground surface, which powder magazine was used for the storage of dynamite for both the mines; and a common water line to one pond which originally came from a creek, which water lines in both cases were surface lines.

In my view, these two matters are of no significance or assistance in resolving the question in issue on this appeal.

After the ore was hoisted to the surface from each of the so-called respective mines, common facilities were used for treatment of the ore by both. Firstly, the same crusher house for primary crushing was used for the ore hoisted to the surface from the shaft in No. 1 mine and also for the ore hoisted to the surface from the shaft in No. 2 mine. Then after primary crushing, the ore was transported from this primary crusher house to the mill of Canadian Malartic Gold Mining Limited some miles away to be milled into concentrates.

Then after that, for smelting, the concentrates were sent to the smelter at Sudbury owned by the parent company of the appellant, Faleonbridge Nickel Mines Limited, to be smelted into matte.

Thereafter, according to the evidence, for refining, the matte was sent to a refinery in Norway owned or controlled by Falconbridge Nickel Mines for the purpose of refining the matte into pure nickel.

The evidence as to integration of economic operation established that there was one mine manager for both these so-called mines, one geological staff, one work force, one contractor who caused all the mining to be done. The evidence also was that it would have been possible to integrate the various underground workings, equipment and machinery for both No. 1 mine and No. 2 mine so as to make one integrated system for the extraction of ore, but that it would have been more expensive both in time and money to have done so. <

On these facts, the question is whether or not there was a mine, namely, the so-called No. 2 mine on this property of the appellant distinct from the so-called No. 1 mine within the meaning of the word ‘‘mine’’ in Section 83(5) of the Income Tax Act.

In this connection, in Johnson’s Asbestos Corporation v. M.N.R., [1966] Ex. C.R. 212; [1965] C.T.C. 165, the Court in dealing with other subsections of Section 83 of the Act, at page 216 [169] said: ‘‘In order to avoid confusion as to whether the word mining is used to refer to all of the operations commencing with prospecting and ending with removal of the mineral from the ground or is used to refer only to removal of the mineral from the ground, I shall use the word ‘extraction’ to refer to the removal of the mineral from the ground.’’ The Court in making these observations for the purpose of that case, was negativing the argument that ‘‘exploration’’ and “development” were also mining as was the final act of “extraction”. From this it may be inferred that the Court in that case also considered that mining ended with extraction of the mineral from the ground.

This seems to be in accord with the dictum in the MacLean Mining (supra) case.

As I understand it, mining ends with the bringing of the mineral ore to the ground surface and that before that terminal point, three stages of physical operation have been gone through, namely: (1) exploration, (2) development, and (3) (extraction) mining. Then following the bringing of the minerals to the surface the physical operation that takes place is ‘‘treatment’’ of the ore. And again treatment consists of three stages of physical operation, namely: (1) milling which includes the rough primary grinding, (2) smelting, and (3) refining.

If the wider definition of concern as a whole in an economic sense which would include all economic aspects of such operation in reference to mining were to obtain, as submitted by the respondent, such probably would rule out any person who had integrated his or its operation from having more than one mine for the purpose of Section 83(5) of the Income Tax Act. There are no words in this subsection or its judicial interpretation which suggest this result.

The evidence also was that not every mine has a mill, or a primary crusher for the ore.

In my view, there can be a mine within the meaning of Section 83(5) of the Income Tax Act that does not have a mill or a primary crusher.

In my view, there can be a mine also within the meaning of Section 83(5) of the Act, even if there is one management, one work force, one payroll, other integrated services and so forth. These are matters of personnel and personnel services, and not the physical things of a mining concern taken as a whole which make it “capable of producing ore’’ and are irrelevant in the consideration of the question on this appeal.

In sum, ore is the end product of a mine and it is only the physical things in a mining concern taken as a whole which cause it to be “capable of producing ore’’ that are relevant in the determination of whether in a given case there is or is not a mine within the meaning of the subsection. Economic factors such as the integration of management, work force or financing and all other such factors, and also the method or manner of employment of facilities for the treatment, refining or smelting of the ore after the ore has been hoisted to ground surface are all irrelevant in such determination.

In my view, therefore, the so-called No. 2 mine of the appellant referred to in these proceedings was a mine within the meaning of ‘‘mine’’ in Section 83(5) of the Income Tax Act, and the appellant therefore is entitled to its claim for exemption from income.

The appeal is allowed with costs, and the matter is referred back for re-assessment not inconsistent with these reasons.

Counsel for the appellant may prepare in both official languages an appropriate judgment to implement the foregoing conclusions and may move for judgment in accordance with Rule 172(1)(b).