Minister of National Revenue v. The Maclean Mining Company Limited, [1970] CTC 264, 70 DTC 6199

PIGEON, J. (all concur) :—The American Smelting and Refining Co. Ltd. (Asareo) or its fully owned subsidiary Buchans Mining Co. Ltd. have been mining at Buchans, Newfoundland continuously since 1928 pursuant to arrangements with Terra Nova Properties Limited (Terra Nova). The first shaft that was sunk is known as the ‘‘Lucky Strike Shaft’’ and the mill was built close to it. There were also some open pit operations as well as other shafts successively sunk for mining other ore bodies. These were known as the ‘‘Buchans River Inclined Shaft’’, the ‘‘Oriental Shaft’’ and the ‘‘Rothermere Shaft’’. An underground haulage way was also built to connect all shafts so that all the ore could be finally hoisted up the Lucky Strike shaft for feeding the mill.

In 1950, as a result of surface diamond drilling, there were indications of what is now known as the MacLean ore body Plans were then made to deepen the Rothermere shaft to 2,513 feet from its planned depth of 1,715 feet and to drive an exploratory heading from that shaft at a depth of 2,300 feet to the indicated ore body. This work was duly performed and, from the exploratory heading, diamond drilling was carried out between 1953 and 1957 for delimiting the ore body. A shaft was then sunk for mining it and in 1958 a haulage way was built to carry the ore to the Lucky Strike shaft. In 1960, a small quantity of ore was extracted from the MacLean ore body but full production in reasonable commercial quantities was reached in 1963 only.

In the meantime, respondent had been incorporated under date November 14, 1961 and, on December 21, 1961, had obtained an assignment from Terra Nova of the latter’s title to the mines and minerals of the MacLean ore body. Then, on January 1,1962, respondent entered into an agreement with Asarco and Terra Nova so as to enjoy the benefits from the arrangements previously made, in respect of the profits to be derived from ore extracted from the MacLean ore body. This agreement provides that ‘‘Asarco shall have the widest discretion . .. in determining the apportionment of costs’’ of the use of ‘‘all the facilities of the mining venture”.

Those are, in brief, the circumstances under which respondent has claimed for the 1963 taxation year the benefit of Section 83(5) of the Income Tax Act that reads:

83. (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 36 months commencing with the day on which the mine came into production.

The Minister has disallowed the claim. From the re-assessment made on that basis, an appeal was taken to the Exchequer Court. By judgment dated March 24, 1969, this appeal was allowed by Thurlow, J. The only question on the appeal to this Court is whether he was correct in holding that the workings at the MacLean ore body are a “mine” within the meaning of Section 83(5). He said:

Do the MacLean workings then constitute a mine within the ordinary meaning of that term as used in Section 83(5)? There is, first, an extensive and distinct body of ore, which originally contained enough material to feed the mill at Buchans for about nine years, situate horizontally more than 1,000 feet from the nearest known ore body and vertically more than 350 feet deeper than it. Next, there are the mining shaft and other extensive excavations in the ground made specifically for the extraction of that particular body of ore. There are present, as well, all the necessary buildings, tackle, equipment, machinery and systems, whether by extension of existing systems or independently installed, to carry out the mining of the particular body of ore. There is undoubtedly the capability of producing ore. Finally, the expenditures of capital required for the installation of the shaft and the other developments required to bring this particular body of ore into production were made in the course of what I would regard as a venture in the pursuit of profit by the extraction of the particular body of ore. This, together with the subsequent operation of extracting the ore, as I see it, constitutes in itself a mining concern notwithstanding its integration with the larger and overall operation. The workings accordingly appear to me to have all the characteristics of a mine within the meaning of the statutory provision.

Then, dealing with the Minister’s contention that the Mac- Lean workings are simply an extension of an old or existing mine into a new ore body and not a new mine within the meaning of the statute, he added :

There would, as I see it, be no difficulty in deciding that an extension of a mining. operation into a new body of ore, found lying adjacent to a body being worked, by using the same excavation, shaft and facilities for mining it was not a mine to which Section 83(5) applied. That conclusion, however, would, in my view, be reached not because what was being considered was an extension of a previously existing mine but because on the facts as disclosed it could not by itself be regarded as a mine in the ordinary sense of the word. It will no doubt in every close situation become a matter of fact and degree whether or not what is being considered is a mine but to my mind the example I have put is far different from the present situation where all the elements necessary for a distinct mine appear to me to be present.

In my view, the decisive consideration in favour of the Minister’s decision is that the MacLean ore body was not developed as a separate mine. An essential step in the process was the deepening by some 800 feet of the Rothermere shaft and the driving from that shaft of an exploratory heading some 2,300 feet underground towards the MacLean ore body. The substantial expenditure involved in deepening the Rothermere shaft and carrying an exploratory heading over a considerable distance shows that the use of the Rothermere workings was of very substantial importance in that development.

Such use was also going to be of substantial importance in the actual working of the MacLean ore body. It appears that the miners as a rule reach their working places and return to the “dry” that way. Compressed air for operating their drills as well as sand for filling the mined-out stopes also comes that way as well as the fresh air for ventilation, the exhaust only being by the MacLean shaft. Furthermore, all the water that seeps into the MacLean workings is carried out that same way, being pumped first from the bottom to the tunnel that was built as the exploratory heading, flowing by gravity to the Rothermere shaft due to a slight grade that was thoughtfully provided and being finally pumped up the Rothermere shaft.

It may be that the MacLean ore body, being completely distinct from the others and separated from the nearest other, the Rothermere, by a substantial distance of over 1,000 feet, could have been developed and operated as a distinct mine. In my view, it is clear that this is not what happened in fact. This ore body was developed as an integral part of a mining operation including the Rothermere. Not only did its development. proceed as an expansion of that underground operation towards. the other ore body but it was not designed to be operated otherwise than as a unit with the Rothermere. Some essential facilities without which the MacLean ore body cannot be worked at all are provided by the Rothermere workings, such as ventilation. On this account, with respect, Thurlow; J. was in error in saying: “all the elements necessary for a distinct mine appear to me to be present’’.

There is also the fact that ore is not carried to the surface until it reaches the Lucky Strike shaft at the end of an underground haulage way and is then treated in a common mill after being mixed with the ore from the other pits. However, these factors may not be decisive. Mining itself is complete by the production and hoisting of the ore and one can well conceive of a single mill serving several mines. The building ‘of an underground haulage way rather than a surface road or railway as means of transporting the ore from a mine to a common mill may possibly make no difference. Those questions are therefore left open.

What I find decisive against the view that the MacLean workings are a separate mine is the fact that those workings were developed from the Rothermere workings which were substantially altered for the purpose of developing the MacLean ore body and of exploiting it for producing ore. Some 800 feet of the Rothermere shaft and the whole of the exploratory heading were dug for that sole purpose. Those parts of the tothermere workings are really integral parts of the MacLean workings without which the latter could not be operated and would not be producing ore.

In order to reach a different conclusion, one would have to interpret the word ‘‘mine’’ in Section 83(5) as meaning ‘‘a portion of the earth containing mineral deposits’’. This is not the usual meaning, the usual expression in that sense being “ore body’’. It is well known that mines often, if not generally, include several ore bodies. Parliament cannot possibly have intended that a mining concern would get the benefit of the three-year exemption whenever a new ore body was being mined. This is an exception and it must be strictly construed. In this connection, I would refer to what Cartwright, J. (as he then was) said in North Bay Mica Co. Lid. v. M.N.R., [1958] S.C.R. 597 at 601; [1958] C.T.C. 208 at 212:

For the appellant it is contended that the word “mine” as used in clause (b) of Section 74(1) means not “a portion of the earth containing mineral deposits” but rather “a mining concern taken as a whole, comprising mineral deposits, workings, equipment and machinery, capable of producing ore”. Support for this contention is sought in the circumstances that if “mine” has the first of the two suggested meanings, then, (i) the phrase “certified . . . to have been operating on mineral deposits” is inapt as it. presupposes an entity capable of carrying on operations; and (ii) the draftsman should have substituted for the clause “that came into production” the clause “that was brought into production”. From this the appellant goes on to argue that the “mine” of the appellant is one entirely different from the “mine” of Purdy Mica Mines Limited.

I incline to the view that this contention is sound; but, be that as it may, the facts appear to me to bring the claim of the appellant within the plain words of the section.

For these reasons I would allow the appeal; reverse the judgment of the Exchequer Court and dismiss the appeal from the re-assessment with costs in both Courts against respondent.