The Maclean Mining Company Limited v. Minister of National Revenue, [1969] CTC 257, 69 DTC 5185

THURLOW, J.:—This is an appeal from a re-assessment of income tax in respect of profits of $1,255,144 realized by the appellant in its 1963 taxation year. The issue between the parties in respect of this amount, as stated in the agreed statement of facts, is whether it was derived from the operation of a mine during the period of 36 months commencing with the day on which the mine came into production within the meaning of Section 83(5)* [1] of the Income Tax Act.

That the income in question was derived from the operation of a mine is not in dispute. What is in dispute is whether the Maclean workings (to use what I hope is a sufficiently neutral expression) which came into production as defined in Section 83(6) on or about January 1, 1963 and from which the income was derived constitute a mine to which the section applies or whether these workings are but part of a mine which came into production many years earlier and are on that account not within the section.

The appellant was incorporated in November 1961 and is a wholly-owned subsidiary of Terra Nova Properties Limited. The latter company has since 1928 been the lessor to American Smelting and Refining Company (hereafter referred to as ASARCO) (or at times its subsidiary, Buchans Mining Company Limited) of certain mining rights and minerals in a large tract of land including the area in and about the town of Buchans in the Province of Newfoundland under arrangements for the sharing by Terra Nova Properties Limited of profits from the mining operations carried on by ASARCO, or its subsidiary, on the said land. Following its incorporation the appellant, by assignment from Terra Nova Properties Limited and by agreement with that company and ASARCO, became entitled to the reversion in that portion of the land in which the Maclean workings are situate and to the share of the profits arising from operations thereon by ASARCO which would otherwise have accrued to Terra Nova Properties Limited.

ASARCO (or at times its subsidiary) has been engaged in mining operations in and about the town of Buchans since 1928. In that year, following extensive exploratory work, it began mining ore, containing lead, zine and copper, to provide ore feed for a mill of approximately 385,000 tons annual milling capacity which it had constructed the previous year near a shaft which had been sunk to extract the ore from seven ore bodies comprising a group known as the Lucky Strike ore bodies. These lay at surface level and extended to a depth of 710 feet below the surface. The largest of them had a horizontal length of nearly 2,000 feet and from 1928 until 1958, when the ore bodies were worked out, some 6.7 million tons of ore were extracted from them.

In the meantime between 1931 and 1935 another shaft had been sunk more than a mile to the eastward of the Lucky Strike shaft for the purpose of extracting similar ore from two other large ore bodies known as the Oriental ore bodies which also lay at surface level and which extended to a depth of some 445 feet. An underground haulage tunnel had also been constructed at a depth of 575 feet below the surface of the ground for the purpose of transporting the ore from the Oriental shaft to the Lucky Strike shaft where it was raised to the surface and fed to the mill. From 1935 to 1963 some 3.6 million tons of ore were mined from these two ore bodies.

Between 1943 and 1955 some 209,623 tons of ore were also mined from three small ore bodies known as the Old Buchans ore bodies which had been discovered as far back as 1905 and which lay at surface approximately one-half mile west of the Oriental shaft. These ore bodies extended to a depth of just over 220 feet and the material from them was transported via an underground tunnel 150 feet below the surface to the Oriental shaft, down that shaft to the haulage tunnel and thence by it to the Lucky Strike shaft where it was raised to the surface and fed to the mill. By 1955 these three ore bodies had been worked out.

In the meantime in 1948 in the course of an extensive exploratory drilling program two large ore bodies known as the Rother- mere ore bodies were discovered to the north-westward of the Lucky Strike ore bodies at a depth extending from 740 feet to 1,700 feet below the surface of the ground. These ore bodies were brought into production in 1950 following the sinking of a shaft some 3,000 feet to the north-westward of the Lucky Strike shaft and the construction of an underground haulage tunnel at the 585 foot level from the Lucky Strike shaft to the Rother- mere shaft. From 1950 to the end of 1963 some 3.9 million tons of ore were mined from the Rothermere ore bodies and transported via the Rothermere shaft and the haulage tunnel to the Lucky Strike shaft where they were raised to the surface for processing in the mill.

The planned depth of the Rothermere shaft was originally 1,715 feet which would have taken it to the deepest level of the ore body. However, in 1950 surface drilling had disclosed the presence of an even deeper ore body located some 3,000 feet to the north-westward of the shaft. The shaft was thereupon extended to a depth of 2,513 feet and a tunnel was opened at the 2,300 foot level to the new ore body for the purpose of carrying out further exploratory drilling to determine its size and quality. This ore body has become known as the Maclean ore body and is the ore body from the mining of which the income here in question was derived. It is about half a mile long, it has a maximum width of 600 feet and its average thickness is 40 feet. It is estimated to have contained some 3.5 million tons of ore all lying at a depth of from 2,050 to 3,250 feet below the surface of the ground. Between 1957 and 1960 a shaft was sunk from the surface of this ore body to a depth of 3,536 feet and a haulage tunnel about a mile long was also constructed connecting it with the Lucky Strike shaft at a depth of 585 feet from the surface. Ore from this ore body is raised by the Maclean shaft to the 585 foot level and transported via this tunnel to the Lucky Strike shaft where it is raised to the surface and milled. Waste rock from the operation is raised directly to the surface at the Maclean shaft and stockpiled there for ultimate removal by truck. Production of ore from this ore body in reasonable commercial quantities was achieved in the latter part of 1962 and some 247,000 tons of ore were mined from it in 1963, the year in question in these proceedings. The construction of the haulage tunnel was undertaken for economic reasons concerned with the use of the existing underground facilities at the Lucky Strike shaft and in preference to surface haulage which would have involved difficulties in winter and greater expense.

The Maclean shaft was constructed at a cost of $2,250,000 exclusive of other development costs incurred to bring the Mac- lean ore body into production. The shaft is circular in shape, and is 14 feet in diameter. It is fitted with hoisting compartments, a manway compartment and spaces for pipes, cables and other equipment. It has openings for ten levels at which ore is mined, has a loading pocket from which the ore is loaded in skips and hoisted, a dump for waste rock and pumping stations at three different levels. At the surface there are five or six buildings including what is referred to as a head frame and a hoist house.

Both the operation of the Maclean workings and the systems for working them are integrated with those of the other mineral workings at or near Buchans and with the mill as part of a single operation carried on by ASARCO. There is but one man- agement and staff—all employed and directed by ASARCO. The production of ore from all the workings is geared to the capacity of the mill to process it. While records are kept as to the quantity and quality of the ore extracted from different workings it is all fed to the mill and no further distinction is made between any of it or of its products. Sand for filling worked out spaces, compressed air to operate pneumatic drills and ventilating air for the Maclean workings are all supplied and conducted by systems which serve the Rothermere and Maclean workings via the Rothermere shaft and the exploratory tunnel previously referred to. Excess water from the Maclean workings is carried away by the same route to the Rothermere shaft where it is pumped to the surface. Miners working the Maclean deposit reach it via the Rothermere shaft and the same tunnel, though some personnel gain access by the Maclean shaft.

On these facts the precise question to be determined, as I see it, is whether the Maclean workings constitute a mine within the meaning of Section 83(5) of the Act. In its context in that section the word ‘ mine” in my opinion has its ordinary meaning and this indeed was the position taken by counsel for both parties, though they differed in their submissions as to the application of the section to the facts. However, the ordinary meaning of the word ‘‘mine’’ is not precise and can vary widely according to the context in which it is found. In its context in Section 83(5) it is obviously intended to embrace something the development of which Parliament wished to encourage by granting a three-year exemption from income taxation. In North Bay Mica Co. Lid. v. M.N.R., [1958] S.C.R. 957; [1958] C.T.C. 208 at 212, a somewhat similar earlier section was held to apply where a mine had been established at the abandoned and dismantled site of a former mining operation.

In that case Cartwright, J. (as he then was) speaking for the majority of the Court said :

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; . . .

While some of the wording referred to as supporting the appellant’s contention in that case is not found in the present Section 83(5) and the use in the French language edition of Section 83(5) of the expression ‘‘provenant de l’exploitation d’une mine” is at least suggestive of the word ‘‘mine’’ being used in reference to the ore body to be mined, neither party sought to attribute to the word any narrower meaning than that referred to in the passage cited, that is to say, “a mining concern taken as a whole, comprising mineral deposits, workings, equipment and machinery, capable of producing ore’’. Indeed the chief difference between the parties seemed to me to lie in that the appellant stressed the element of capability of producing ore while counsel for the Minister emphasized his concept of “a mining concern taken as a whole’’.

To my mind the question posed by the present case is not to be solved by looking at the Buchans’ locality as a whole and posing the question whether there is more than one operation being carried on or more than one mining concern there or more than one mine. The correct approach, as I see it, is to examine the facts relating to the Maclean workings themselves in the picture as a whole while bearing in mind the object of the statutory provisions.

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.

Two further considerations which appear to me to lend support to this conclusion are (1) that the installation and equipment of the Maclean shaft suggests that the previously existing shafts, facilities and equipment would not have served satisfactorily the purpose of exploiting the Maclean ore body if, indeed, they could have been made to serve it at all, and (2) that the investment of capital and the development of the productive capacity of the Maclean workings, which otherwise might or might not have taken place, appear to me to be among the objects that the exemption of the section was designed to encourage.

The Minister’s contention was basically that there is and has been but one mine at Buchans and that the Maclean 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. That the Maclean workings can in a sense be regarded as an extension of the earlier workings is, I think, undeniable. It depends on how the matter is viewed. Almost any additional step by ASARCO in the development of its undertaking at Buchans might in some sense be regarded as an extension of its original undertaking there. I have more difficulty in regarding the whole mining operation there as being one of a single mine but perhaps that too is possible. From the point of view of ASARCO it probably could be convenient to refer to the whole mining and milling undertaking at Buchans as a mine when distinguishing it from a similar undertaking somewhere else in the world. In a like context it might be possible to refer to the mining portion of the operation, as well, as a mine though I should have thought the plural of the word would be more apt. Apart from such a context one seeking a word to characterize the mining operation at Buchans would, I think, almost certainly choose the plural for it seems to me that only in a strained or particular sense would all the various workings there be referred to as a “mine”.

Moreover to determine that workings are in some sense an extension of a previously established mine is to my mind inconclusive on the question to be answered. The expressions “new mine’’, “old mine’’ or similar expressions are not found in Section 83(5). Nor is the word ‘‘extension’’ found in the wording. The word used is “mine” and the question which it poses is whether the facts disclose a mine to which the section applies. There would, as I see it, be no difficulty in deciding that an extension of a mining operation to 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 opinion the fact that the mining and milling operation of ASARCO at Buchans, or the mining operation alone can be regarded in each case as a single operation is also inconclusive. One might, for example, say the same of two sets of workings ten miles apart with no physical connection between them but conducted by the same management and staff. That it can be said that there is but one operation is, no doubt, a fact to be considered along with the other facts and it seems possible that the degree of integration of the systems and management, in a case where the other facts are inconclusive, may even become decisive. But as a fact bearing on the question it appears to me to pale in importance to facts such as the wide separation of ore bodies in distance and depth, the necessity for substantial separate facilities to extract the ore and the need to invest substantial amounts of capital specifically for the purpose of setting up the physical establishment required for profitable extraction of the ore.

Counsel for the Minister also cited Spencer v. Scurr (1862), 31 Beav. 334, and Cowley v. Wellesley (1866), 33 Beav. 635, in support of his submission that all the workings at Buchans constituted one mine. These cases, however, were concerned with the question of the right, as between tenant for life and remainderman, to rentals from the exploitation of mineral deposits and turn on a principle which, as I see it, has no bearing on a question of the kind involved in the present case. I do not therefore regard them as useful in a case of this kind.

The appeal accordingly succeeds and it will be allowed with costs.