Newmont Tanami Pty Ltd v Secretary for Mineral Royalties (NT) - [2020] NTSC 22

CITATION:Newmont Tanami Pty Ltd v Secretary for Mineral Royalties (NT) [2020] NTSC 22
PARTIES:NEWMONT TANAMI PTY LTD
(ACN 007 688 093)
v
SECRETARY APPOINTED PURSUANT TO SECTION 49AA OF THE MINERAL ROYALTY ACT (NT)

TITLE OF COURT:  SUPREME COURT OF THE NORTHERN TERRITORY
JURISDICTION: SUPREME COURT exercising Territory Jurisdiction in an appeal under s 115 of the Taxation Administration Act (NT)
FILE NO:LA 8 of 2015 (21552636)
DELIVERED:  20 May 2020
HEARING DATE:  21 May 2019
JUDGMENT OF:  Kelly J

CATCHWORDS:
Taxation Administration Act2007 (NT) s 115(1)(b) appeal against decision of Secretary to disallow objection to assessment of mineral royalty – Secretary’s decision varied
Mineral Royalty Act 1982 (NT) s 10(2) - whether costs of discontinued project deductable – some project costs deductable
Mineral Royalty Act 1982 (NT) s 4B – project aimed at saving costs and increasing production – project discontinued before completion – whether expenditure on discontinued project “eligible research and development expenditure” – part of the expenditure is “eligible research and development expenditure
Mineral Royalty Act 1982 (NT) s 4 - whether expenditure on discontinued project “operating costs” as expenditure for “maintenance for the purposes of the production (or sale of marketing) of the saleable mineral commodity of a production unit” - expenditure not maintenance for the purpose of production of the saleable mineral commodity
Mineral Royalty Act 1982 (NT) s 4B – expenditure on discontinued project “capitalised” in the relevant royalty year as “non-current assets: property, plant and equipment” – whether such costs were “expended” within the meaning of s 4B as “charges brought to account” in that royalty year - costs were “charges brought to account” and expended in the relevant year
Mineral Royalty Act 1982 (NT) s 4C – whether appellant entitled to a capital recognition deduction in respect of the costs of the discontinued project – whether amount expended was “essential to the setting up and operation of the production unit” – whether expenditure “used” in the relevant royalty year – expenditure not used in the relevant year – appellant not entitled to a capital recognition deduction
Interpretation Act 1978 (NT) s 62B
Mineral Royalty Act 1982 (NT) s 4, s 4B, s 4C, s 10(2), s 49AA
Mining Act 1980 (NT) s 73, s 75
Taxation Administration Act2007 (NT) s 115(1)(b), s 116, s 125(2), s 127

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, Lacey v Attorney-General (Qld) (2011) 242 CLR, Territory Resources Ltd v Secretary for Mineral Royalties (NT) [2018] NTSC 12, applied
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384, Clyne v Deputy Commission of Taxation (1981) 150 CLR 1, Conder Tower Pty Ltd v CSR [2012] VSC 107, Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503, Federal Commissioner of Taxation v Dalco (1990) 168 CLR 1, Independent Commission Against Corruption v Cunneen (2015) 256 CLR 1, Lend Lease Development Pty Ltd v Cmr of State Revenue (Vic) [2012] VSC 108, McGraw-Hinds (Aust) Pty Ltd v Smith (1978) 144 CLR 633, Murphy v Farmer (1988) 165 CLR 19, Westfarmers General Insurance Ltd v CSR [2009] VSC 599, referred

REPRESENTATION:
Counsel:
Appellant:H Symon QC with M Baker
Respondent:  R Seiden SC with S Kaur-Bains
Solicitors:
Appellant:KPMG Law
Respondent:  Solicitor for the Northern Territory
Judgment category classification:    B
Judgment ID Number:  Kel2005
Number of pages:  131

IN THE SUPREME COURT
OF THE NORTHERN TERRITORY
OF AUSTRALIA
AT DARWIN
Newmont Tanami Pty Ltd v Secretary for Mineral Royalties (NT)
[2020] NTSC 22

No. LA 8 of 2015 (21552636)

BETWEEN:

NEWMONT TANAMI PTY LTD
(ACN 007 688 093)

Appellant

AND:

SECRETARY APPOINTED PURSUANT TO SECTION 49AA OF THE MINERAL ROYALTY ACT (NT)

Respondent

CORAM: KELLY J
REASONS FOR JUDGMENT
(Delivered 20 May 2020)
Background

These proceedings concern the deductibility or otherwise, for the purposes of s 10 of the Mineral Royalty Act 1982 (NT) (“the Act”), of costs incurred in the development of the Tanami Shaft Project at the Granites gold mine (“Granites”).[1]
The appellant, Newmont Tanami Pty Ltd (“Newmont”) is the owner and operator of Granites which is a production unit within the meaning of the Act. Included within the Granites production unit is the Callie Underground Mine located at Dead Bullock Soak.
Underground production began at Dead Bullock Soak in late 1994 and mining operations at that site have progressed steadily deeper underground since the mine opened.[2] In recent years, another ore body (called the ‘Auron’ ore body) has been discovered adjacent to the Callie ore body and worked in conjunction with the Callie ore body. Ore from the mine is brought to the surface in trucks via a single decline.
This system becomes increasingly less economical with depth and requires the maintenance and fuelling of a large fleet of trucks and labour to operate the trucks. In 2006, Newmont initiated the Tanami Operations Optimisation Project (“TOOP”) with the aim of assessing the long term future of the Granites production unit and identifying key growth and cost saving strategies that would be required to extend the life of the mine.
The proposed solution to the inefficiency involved in hauling ore via a single decline from increasing depths was the Tanami Shaft Project (‘TSP’). The objective of the TSP was to enable access to otherwise uneconomical ore and to extend the life of the mine.
In essence, the TSP involved designing a new underground mining structure and method, different from that previously undertaken at Granites, to allow efficient and economical mining of the ore body at depths of between 1300 metres and 1600 metres. The TSP was to consist of a vertical shaft approximately 1300 metres deep connected to the workings of the Granites mine by a sloping horizontal shaft about 900 metres below ground level.
Ore would flow in a gravity assisted fashion to the base of the underground mine for crushing. The crushed ore would then be hoisted directly to the surface via the 1300 metre deep vertical shaft.[3] The underground plant and equipment to be installed as part of the TSP included a primary crusher, materials handling and storage facilities and skip loading equipment.[4] It is not disputed that the purpose of the TSP was to reduce the operating costs of, and to improve the rate and amount of recovery of a saleable mineral commodity from the Granites production unit by extending the life of the mine.
Planning and work on the TSP began in 2010 and continued through 2011 and into 2012. Technical difficulties were encountered (which are discussed in more detail below) and the project was suspended in November 2012. When work on the TSP was suspended, none of the planned underground ore handling equipment had been constructed or installed. However, the horizontal portion of the development is now being used for normal mining activities.[5] All completed works and established infrastructure associated with the TSP has been left in-situ.[6]
Appendices to the judgment (Details of the TSP and expenditure)
This case concerns the interpretation of some key definitions in the Act and the application of those provisions to facts which are largely uncontroversial. The parties filed a chronology of non-contentious facts (“NCF”) which is attached to this judgment as appendix 1, as well as agreed documents. What follows in the body of the judgment is a summary of the progress of the TSP (taken from the NCF and agreed documents) from the time it started until it was suspended, focusing on the design and partial construction of the pilot hole for the main shaft which was never completed. Where it is necessary to refer to specific non-parties such as contractors and consultants, the names used are taken from the NCF.
Also attached to this judgment as appendix 2 is a table of the amounts which Newmont claims were expended on the TSP and which it claims are deductable expenses under the Act. The respondent agrees that the expenses set out in Part A of appendix 2 were expended, but does not agree that they are eligible deductions under the Act. The respondent does not agree that the amounts set out in Part B of appendix 2 were expended or that they are eligible deductions.
Summary of progress on the TSP
By 2009, Newmont had identified that building a vertical shaft that could be used to hoist ore from the base of the mine to the surface would increase production, reduce costs for the movement of ore and extend reserves by improving the access to ore at depth.[7] They had also proposed that there would be additional infrastructure to reduce costs and improve the rate of return.
In February and March 2010 Newmont obtained reports from a geotechnical engineer discussing geotechnical issues at the proposed site for the TSP.[8] The reports discussed the advantages and disadvantages of using raise boring to construct the shaft and the kinds
of lining of the shaft that would be required.[9] The engineer recommended that a geotechnical drill hole be constructed less than 5 metres from the proposed raise bore centre to confirm the rock mass properties of the area. (This would be done by logging and laboratory testing the core from the hole.)
On 5 March 2010, Newmont obtained a report from Combined Resources Engineering (CRE) headed “Tanami Optimisation Project Stage 2 – Hoisting Shaft Design”. The report runs to 206 pages with attachments. In the summary section, the report recites:
The Tanami Operations Optimisation Project (TOOP) has been approved to proceed to a Stage 2 Study (pre-feasibility level) to determine if a business case exists for the installation of a shaft hoisting system.
It outlines the proposed benefits of the proposed system and continues:
Combined Resources Engineering (CRE) has been engaged by NAP to conduct a Level 2 Study for a hoisting shaft, Crusher and Conveyor system. The hoisting and materials handling system will crush, transfer and then hoist ore from 1270 m below the collar (BC) to the surface. Ore will be deposited on a stockpile for loading and transport to the Granites Processing Plant.[10]
The summary goes on to describe two further stages (Stage 3/4 and Stage 5) and outlines the activities planned for each stage. In the section of the report headed “Hoisting Shaft System” the report gives the co-ordinates of the proposed location of the hoisting shaft, the depth of the shaft (1270 metres), and the proposed steps to develop the hoisting shaft system including drilling a pilot hole, raise boring the shaft and concrete lining of the shaft.[11] In the section headed “Project Risks and Optimisation”, the report noted geotechnical risks and recommended the drilling of a geotechnical hole plus evaluation prior to the final project design to mitigate this risk.[12]
On 25 March 2010, Newmont produced a report headed “TOOP Stage 2 Report – Production Shaft” (referring to the TSP). The report notes that the hoisting shaft would be on the existing mining lease with infrastructure underground and on the surface (listed in the report). That report also notes that a geotechnical drill hole, offset from the shaft centre, would be required to establish the ground conditions to be encountered during the construction of the shaft and help determine the ground support required. (If the core log showed the ground to be too poor an alternative site would need to be chosen.)[13]
The TOOP Stage 2 – Production Shaft Report contains a section headed “Execution Plan” which proposes the following steps for constructing a 4.6 metre finished diameter shaft 1300 metres deep.[14]
·Part 1 would involve carrying out the following site investigations: sterilisation drilling; drilling of a geotechnical hole; geotechnical assessment of the core to ascertain the suitability of the site to establish a shaft; a Stacey and McCracken stability analysis of the proposed shaft to detail maximum stable unsupported span sizes for the core retrieved; conclusions and recommendations as to the stability and support requirements for the proposed hoisting shaft configuration.
·Part 2 would involve shaft construction. Details of the proposed construction method are set out in the report.
In April 2010, Newmont authorised expenditure for activities in Stage 3/4 which included finalising the location of the shaft and the excavation methodology by completing the sterilisation drilling as required and drilling a geotechnical hole.[15] Stage 3/4 also included initiating the excavation of the shaft including –
·     drilling the raise bore pilot hole,
·     completing intermediate shaft access and bottom shaft access,
·     raise boring of the upper section of the shaft, and
·     completing the shaft by the strip and line method.[16]
From October 2010 to January 2011, the drilling contractor, Major Drilling drilled three investigative holes[17] from which core samples were taken. The samples were tested by Curtin University and Surtron Technologies Australiaand used by Dempers & Seymour in their geotechnical analyses.[18]
In April 2011 Dempers & Seymour, geotechnical consultants, provided the final report on the raise bore geotechnical feasibility investigation based on geotechnical logging and laboratory testing of the three investigative drill holes. The report noted that the drill holes intersected with the Meegat Fault which went through the proposed location of the shaft. It was noted that the rock mass through this fault was very poor suggesting that pulling a 2.5 metre diameter raise bore would result in unstable ground conditions. The report recommended that a 2.5 metre raise bore could be pulled through partway (up to 1366 mRL),[19] with the remainder of the shaft being pre-sunk from the surface or, alternatively, that the shaft be raise bored to 1 metre in diameter only, and widened out to the final diameter by alternative means.[20]
In April 2011, after reviewing the Dempers & Seymour report, Newmont eliminated full diameter raise boring as an option for the construction of the shaft. The preferred shaft construction methodology identified was to use the strip and line method to open up the shaft to the final diameter.[21]
By April 2011 Newmont had also determined that the underground infrastructure would include a fuel bay, jaw crusher, materials handling system from crusher to the loading station, loading station, a lined hoisting shaft with rope guides, ore pass transfer system from upper levels to the crusher horizon and access drives and declines to the tipple and conveyor loading level. The surface infrastructure would include shaft headframe, discharge bin, sheet iron winder house, second sheet iron housing, reclaim conveyor and radial stacker, road train loading area, bulk air coolers and utilities.[22]
In a report dated 4 May 2011 headed “TOOP Stage 3-4 Report Project Execution Plan”, Newmont noted that the scope of works for the installation of the production shaft included the following activities.[23]
(a)Obtain statutory approvals and permits to build and operate this mine infrastructure.
(b)Do geotechnical assessment of the proposed surface site for foundation stability for the shaft collar, headframe, winder house, radical stacker, crushed ore stockpile and loading pad.
(c)Do geotechnical assessment of the ground conditions over the shaft length for stability during excavation, excavation methodology and permanent ground support requirements.
(d)Drill a pilot hole the full length of the shaft to intersect both the bottom shaft access level and the intermediate shaft access level.
(e)Develop the bottom shaft access drive to the shaft location at 85 mRL.
(f)Develop an intermediate shaft access drive at 425 mRL to facilitate shaft construction and servicing of the shaft infrastructure using contracted mining service providers.
(g)Raise bore 2.4 metres diameter raise from the bottom shaft access drive to the surface in two stages.
(h)Strip and concrete line the 2.4 metres diameter raise bored shaft out to a finished diameter of 6.5 metres diameter.[24]
(i)Excavate drives and chambers for the installation of a Metso C200 Jaw Crusher or equivalent utilising contracted mining service providers.
(j)Excavate drives and chambers for the installation of a continuous ore handling system from the crusher to the shaft loading station using contracted mining service providers.
(k)Design, procure and construct a shaft loading station that facilitates rapid loading of the shaft skips from a pre-weighed flask or conveyor discharge.
(l)Design, procure and construct a shaft headframe from the haulage of 2.5 Mtpa of ore from 1300 metres depth using ground mounted Koepe winder discharging to a load-out bin.
(m)Design, procure and construct the ore handling from the headframe load-out bin to the crushed ore stockpile using the radial stacker.
(n)Design, procure and construct the winder house and ground mounted winder for the shaft haulage.
By 4 May 2011, statutory approvals and permits had been obtained and the geotechnical assessments had partly been carried out. (Three geotechnical holes had been drilled near the proposed shaft location and a report from Dempers & Seymour dated April 2011 relevant to the ground conditions and stability and excavation methodology had been provided.)
In a report headed “TOOP Stage 3-4 Report Execution Plan”, Newmont noted that approval had been given for early works to be started, being the bottom shaft access drive, intermediate shaft access drive and the pilot hole drilling.[25]
In or around July to August 2011, authorisation was sought and approved for Stage 5 funds to excavate and construct the 1300 metres deep production shaft and the underground crushing station.[26]
From March to about July 2011, Major Drilling drilled the first pass of the pilot hole to 4 inches for the full length of the shaft.[27]
During August 2011 and part of September 2011, Major Drilling reamed the pilot hole out from 4 inches to 6¼ inches from the surface to below the Meegat Fault zone but during these works ground debris from the top weathered section of the hole started to collapse and cause blockages which had to be removed.[28]
In August 2011 Dempers & Seymour was retained to provide “design specifications for the permanent concrete lining for the shaft”.[29]
In September 2011 a casing collar was designed and constructed by AECOM to prevent the weathered rock from collapsing from the surface.[30]
During September 2011, quotes were also obtained from three potential contractors for the supply and fabrication of the raise bore beams and raise bore pads to enable raise boring to occur and G&S Fab Pty Ltd were awarded the contract.[31] (These were to be used by Major Drilling in relation to the reaming of the pilot hole. They were later used by the new drilling contractor, Drilling and Grouting Services Pty Ltd (“DGS”) in 2012 when they opened up the upper section of the pilot hole from the 930 level[32] to the surface.)
In September to October 2011 several options were considered to deal with the unstable ground conditions in order to progress the pilot hole, including cement grouting the Meegat Fault area.[33]
In October 2011 Dempers and Seymour visited the work site and logged the diamond core from the initial 4 inch pilot hole.[34]
In September to October 2011 an attempt was made to cement grout the Meegat Fault, but the attempt did not work to stabilise the area.[35]
In November 2011, in order to try to stabilise the Meegat Fault zone, casing was installed from the surface down beyond the fault zone. The plan was that the casing would stabilise the Meegat Fault zone, which would then allow the pilot hole to be enlarged below the fault zone out on either of the stabilised area before taking out the casing. Different sizes of casing were used after difficulties were experienced with rod jamming and casing failure.[36]

By early December 2011, Newmont was considering three possible options to widen the Pilot Hole out to 15 inches: back-reaming the pilot hole in stages, open hole drilling from the surface and blind hole drilling from the surface.[37]
On 4 December 2011 work began on 12 inch back reaming the pilot hole from the bottom. However, equipment failures were encountered from 9 December 2011. 15 inch back reaming was attempted from 17 December 2011, but there were more equipment failures. Work was stopped and Major Drilling was stood down on 21 December 2011 to allow Newmont to re-evaluate the methodology.[38]
In January 2012, the casing in the Meergat Fault zone section of the shaft was removed and a camera inserted to record conditions in the fault zone. The casing was then re-installed.[39]
Also in January 2012, a report was prepared for Newmont’s Executive Leadership Team recording that the project team was still working on a number of potential options for reaming out the pilot hole from 4 inches to 15 inches.[40] In the meantime, throughout February 2012, discussions continued on the different options available for reaming out the pilot hole to allow the shaft to be developed.[41]
In a document dated February 2012 headed Tanami Shaft Update, Newmont outlined the various options to excavate the shaft and the estimated cost of each option. The options included:
(a)continuing with the original project execution methodology (ie completing the pilot hole as planned, raise boring the shaft to 2.4 metres and then completing the shaft to 6.5 metres using a strip and line methodology);
(b)reverting to a blind sinking option down to the 860 level before establishing a 2.4 metre raise bore from the 860 level to the shaft bottom, followed by using a strip and line method to expand the section of the shaft between the 860 level and the base of the shaft to 6.5 metres;
(c)completing the pilot hole with the current methodology, followed by developing an access on the 860 level to permit access to stabilise the fault, followed by raise boring the shaft to 7.0 metres in three stages.[42]
From 25 January 2012 to 3 February 2012 Major Drilling recommenced 6¼ inch reaming from the bottom of the shaft up to the fault zone.[43]
From 4 February 2012, Major Drilling back reamed up from the bottom of the hole to 15 inches. Major Drilling’s equipment failed again and Newmont terminated the contract with Major Drilling.[44]
In 2011, Newmont had engaged a company, TWSP, as external engineering, procurement and construction management contractors to progress the surface and underground infrastructure.[45] Under the contract Newmont retained responsibility for the pilot hole drilling, raise boring and underground mine development and excavations.[46] TWSP prepared two reports in March 2012 which noted the problems caused by the instability of the Meergat Fault zone and the persistent failure of the reaming head, and outlined eight options for the excavation method to develop the shaft.[47]
Also in March 2012, Dempers & Seymour prepared a further draft report commenting on the possibility of raise boring a 7 metre diameter shaft.[48] The report concluded that this would be possible in some sections only. Although the earlier Dempers & Seymour report in April 2011 had concluded that a 2.5 metre diameter raise bore head could be pulled through the Meergat Fault zone, the March 2012 report concluded that pulling a raise bore head larger than 1 metre in diameter through the fault influenced zone may result in unstable conditions during raise boring. The decrease in critical diameter was due to ground conditions in the pilot hole being worse than those seen in the investigative holes about 50 metres away.
There followed an email exchange in which Newmont’s internal geotechnical engineer expressed the view, based on the “actual data and core photos”, that it was potentially possible to pull a 2.4 metre raise bore through the entire section including the fault if steps were taken to mitigate the risks. The senior project manager from TWSP agreed and said that the strip and line contractor would accept a minimum 1.8 metre hole. He gave his opinion that it would be best to do 2.4 metres up to the fault zone and then go to 1.8 metres.[49]
On 23 March 2012, Newmont recorded a decision to move forward by:
(a)developing the 411 level[50] out to the pilot hole to provide access so that the raise boring could be done in sections;
(b)completing the collar works;
(c)continuing with the earthworks and undertaking preparatory works for a raise bore to be installed to drill the existing pilot hole out to 13¾ inches from the 1291 to 427 level (noting that this might have to be revisited depending on what happened in the Meergat Fault zone);
(d)developing a ramp to the 427 level; and
(e)raise boring from the 427 level to the surface starting with a 2.4 metre diameter raise bore and reducing it to 1.8 metres if necessary.[51]
In March and April 2012, Newmont conducted a number of risk assessments for the continuing development of the pilot hole. One potential hazard identified was that if the Meergat Fault failed, rods and bits would be trapped in the hole.[52]
The contractor who had been engaged to carry out the raise boring was Raisebore Australia Pty Ltd. In March 2012 that company’s contract was varied to accommodate the revised methodology.[53]
In April 2012, the contractor, Raisebore Australia Pty Ltd engaged Coffey Mining Pty Ltd to prepare a report on the stability of the Meergat Fault zone and to provide an opinion on the potential stability of a pilot hole and back reaming of a 2.4 metre raise within the fault area. Coffey Mining Pty Ltd expressed the opinion that raise boring was not recommended to that diameter and further discussions occurred within Newmont and with Raisebore Australia Pty Ltd as to the options.[54]
On 14 June 2012 Newmont contracted with Drilling and Grouting Services Pty Ltd (DGS) for the completion of the upper section of the pilot hole to 15 inches. The scope of work undertaken by DGS included the reaming of the pilot hole to 15 inches in diameter from the surface to the 970 level using a shaft collar at the surface and particular specialised drilling equipment.[55]
In June 2012 Newmont contracted with Central West Concrete Pty Ltd for the shaft collar and concrete sub-brace construction work.[56]
On 23 July 2012, Newmont issued a Project Execution Plan for Stage 5 of the TSP. The scope of works included:
(a)geotechnical assessment of the proposed surface site for foundation stability for the shaft collar, headframe, winder house, radial stacker, crushed ore stockpile and loading pad;
(b)geotechnical assessment of the ground conditions over the shaft length for stability during excavation, excavation methodology and permanent ground support requirements;
(c)drilling a pilot hole the full length of the shaft to intersect both the Bottom Shaft Access level and the Intermediate Shaft Access Level;
(d)developing the Bottom Shaft Access drive to the shaft location at 86 mRL;
(e)developing an Intermediate Shaft Access drive at 411 and 432 mRL for facilitating shaft construction and the servicing of the shaft infrastructure using contracted mining service providers;
(f)raise boring a 2.4 metre diameter raise from the Bottom Shaft Access drive to approx. 830 mRL (to the bottom of Meegat Fault Zone) and raise boring a 1.8 metre diameter raise from the 830 mRL to the surface; and
(g)strip and concrete lining the 1.8/2.4 metre diameter raise bore shaft out to a finished diameter of 6.5 metres utilising a specialist shaft sinking contractor.[57]
DGS began work and by late August 2012, had broken through to the 411 level. DGS then commenced back reaming using raise boring from the 411 level to enlarge the upper section of the pilot hole to its required diameter.[58]
DGS finished back reaming the upper section of the pilot hole to the surface by either September or October 2012 using the raise bore methodology.[59]
An internal Newmont memorandum dated 17 October 2012 summarised the current status of the TSP in the following terms.
(a)There was satisfactory underground development, with the pilot hole opening from 6¼ inches to 15 inches through the Meegat Fault zone without incident.
(b)However, the ground conditions varied significantly and there had been an average production rate of 60% of what was planned by the drilling contractor due to a combination of hardness, blockiness and fragmentation of the rock/ground, with the result that the planned rate of raise boring had been reduced.
(c)The current methodology still carried risks associated with the raise bore reverse reaming of the fault zone and mitigation strategies included the reduction of the radius of the hole through the fault zone to the surface.
(d)The only current activity being undertaken at that time was the reverse reaming of the pilot hole and the underground development works.
(e)Raise bore activities had been suspended on 1 October 2012 on the basis that opening up the shaft to a greater diameter for periods of 18 months would make it susceptible to a failure that could be “catastrophic” in being able to continue the construction of the shaft at its present location.[60]
The memorandum recommended shutting down the project in a logical sequence to enable a timely restart at a later date and on 2 November 2012, Newmont publicised its decision to defer further work on the TSP.[61]
This summary has focused on the progress of pilot shaft aspect of the TSP. In the meantime, other works were undertaken and contracts let to progress the TSP. Details of these are set out in various places in the NCF (Appendix 1).
The Assessment, objection and appeal
On 13 February 2014 the respondent issued Newmont with a royalty assessment (“the Assessment”) for the royalty period from 1 January 2012 to 31 December 2012 (“the 2012 royalty year”). The Assessment adjusted the royalty return lodged by Newmont under the Act by disallowing (inter alia) certain deductions that had been claimed for expenditure on the TSP.
Newmont lodged an objection to the Assessment within time (dated 14 April 2014). The respondent allowed the appeal in part and Newmont has appealed to this Court pursuant to s 115(1)(b) of the Taxation Administration Act2007 (NT) against the decision to disallow the balance of the objection.
The appellant, Newmont, bears the onus of establishing that the respondent’s decision on the objection was wrong,[62] and must prove all matters necessary to enable the Court to answer the statutory question(s) in its favour.[63]
Newmont’s grounds of appeal are not limited to the grounds on which the objection was made[64] and the respondent is not limited to the reasons for disallowing the objection or allowing it in part only.[65]
This Court must arrive at its own decision on the current evidence. On reaching its decision, the Court can confirm the objection decision appealed against, vary the objection decision, or substitute another decision that would have been available to the Secretary.[66]
Grounds of Appeal
Newmont claims that it incurred the following costs in respect of the TSP, including in relation to feasibility studies, engineering design and construction works, in the royalty years ended 31 December 2010, 31 December 2011 and 31 December 2012.[67]

Royalty Year

Total Expenditure

2010 year

$3,590,235.09

2011 year

$23,627,996.00

2012 year

$42,841,337.00

This proceeding concerns the 2012 year. Newmont claims it is entitled to deduct all or part of the costs of the TSP incurred in 2012:
(a)as “operating costs” within the meaning of s 4B of the Act because they are “eligible research and development expenditure” as defined in s 4 of the Act;
(b)alternatively as “operating costs” within the general definition of that term in s 4B(1)(a) of the Act; and
(c)alternatively, as “eligible capital assets expenditure” (defined by s 4 of the Act) in respect of which a “capital recognition deduction” was available as defined in s 4C of the Act.
In respect of the costs of the TSP incurred in the 2010 and 2011 years, Newmont contends that it is entitled to claim deductions for these in the 2012 as “eligible capital assets expenditure” (defined by s 4 of the Act) in respect of which a “capital recognition deduction” was available as defined in s 4C of the Act as they were “used” within the meaning of that section in the 2012 royalty year.
The respondent denies that the TSP expenditure falls within either the definition of eligible research and development expenditure or the general definition of operating costs. Further, the respondent submits that the TSP costs were not “expended” in the 2012 royalty year because they were not brought to account as expenses in Newmont’s financial statements for that year. (They were recorded in the accounts as non-current assets: plant and equipment”.)
The respondent does not dispute that a capital recognition deduction would have been available for the TSP expenditure if the project had gone on to completion and had been used in the operation of the mine in the 2012 royalty year, but contends that no such deduction is available unless and until the TSP was so used in the operation of the Granites production unit.
Legislative framework
Section 9 of the Act imposes a royalty in respect of all minerals obtained from a production unit[68] in a royalty year.[69] The royalty is payable by the holder or holders of mining tenements that form part of the production unit.
By s 10(1) of the Act the royalty payable is 20% of the net value of a saleable mineral commodity[70] sold or removed without sale from a production unit in a royalty year, subject to certain adjustments depending on whether the net value is above or below AUD$50,000. That net value is calculated according to the following formula set out in s 10(2) of the Act.
For the purposes of subsection (1), the net value in a royalty year is calculated in accordance with the following formula:
GR – (OC + CRD + EEE + AD)
where:
GR is the gross realization from the production unit in the royalty year; and
OC is the operating costs of the production unit for the royalty year; and
CRD is the capital recognition deduction; and
EEE is any eligible exploration expenditure, if any; and
AD is the additional deduction, if any, under section 4CA.
This appeal is concerned with “operating costs” and “the capital recognition deduction”. The capital recognition deduction is in turn based on the concept of “eligible capital assets expenditure”.
Operating costs·
Section 4B(1) of the Act defines “operating costs” (relevantly) to mean:
(a)   expenditure which was reasonable in amount and which is directly attributable to, the production, or maintenance for the purposes of production, or the sale or marketing of the saleable mineral commodity of a production unit;
and includes:
(b)        eligible research and development expenditure; and
…
(p)        other matters which were necessary for the proper administration of the production unit;
“Eligible research and development expenditure”, is defined in s 4 of the Act.
“Eligible research and development expenditure” in relation to a production unit in respect of a royalty year, means an amount which was reasonably expended by a royalty payer for research into methods designed to reduce the eligible capital assets expenditure and the operating costs of, or to improve the rate and amount of recovery of a saleable mineral commodity from the production unit.
·The capital recognition deduction
The capital recognition deduction is defined in s 4C of the Act for the purposes of deduction under s 10(2) as “a factor equivalent to a fraction of the value of each item representing an amount of eligible capital assets expenditure and used in relation to the operation of a production unit in each 6 monthly period of a royalty year”, calculated in accordance with the formula set out in the section.
Relevantly, “eligible capital assets expenditure” is defined in s 4 of the Act as follows.
“Eligible capital assets expenditure” in relation to a production unit, means an amount expended which was essential to the setting up and operation of the production unit, in respect of:
(a)   feasibility studies; and
(b)   studies and investigations required by or under a law in force in the Territory to be carried out; and
(c)   site clearing and overburden removal activities up to the date of the commencement of the active operation of the production unit; and
(d)   mine design and shaft sinking and tunnelling; and
(e)   design, acquisition, installation and construction of:
(i)mining plant; and
(ii)treatment plant necessary for the production of a saleable mineral commodity; and
(iii)storage facilities; and
(iv)structures; and
(v)electricity generation and reticulation; and
(vi)water storage and reticulation; and
(vii)communication facilities; and
(viii)transport facilities; and
(ix)town and accommodation facilities; and
(x)other facilities essential to the operation of the production unit; and
(f)   …
Where an amount expended in respect of a production unit may be deducted under more than one head of allowance or deduction, s 4D of the Act prevents it being deducted more than once.
Expenditure in the 2012 Royalty Year
·Issues
The principal issue in the proceeding, concerns the character of the TSP expenditure incurred by Newmont in the 2012 royalty year.
Newmont claims it is entitled to deduct all of the costs of the TSP incurred in 2012 (or alternatively part of those costs):
(a)as “operating costs” within the meaning of s 4B of the Act, because they are “eligible research and development expenditure” as defined in s 4 of the Act;
(b)alternatively as “operating costs” within the general definition of that term in s 4B(1)(a) of the Act because they are “expenditure which was reasonable in amount and which is directly attributable to, … maintenance for the purposes of production, … of a production unit”; and
(c)alternatively by way of a capital recognition deduction as defined in s 4C of the Act because it is eligible capital assets expenditure which was used in the relevant sense in the 2012 Royalty Year.
(a)Eligible research and development expenditure
·The “black hole” contention: is a wide construction required by the context?
In support of its contention that all expenditure on the TSP falls within the definition of “eligible research and development expenditure”, Newmont contends that the language of the definition of eligible research and development expenditure must be construed in the legislative context in which it is found. So much can be accepted.[71] That context relevantly includes both legislative history and extrinsic materials, although legislative history and extrinsic materials cannot displace the meaning of the statutory text.[72] Context must be considered in the first instance, especially when construing general words, and not merely at some later stage when ambiguity might be thought to arise.[73]
Newmont contends further that the legislative context requires that the terms “eligible research and development expenditure” and “operating costs” be construed widely because the evident intention of the legislature is that all expenditure on a production unit (including non-routine and high-risk activities) be caught within one or other of several broad categories of deduction under the Act even if it does not necessarily result in the creation of a capital asset. Newmont contends that it is not the policy of the Act to discourage miners from taking risks for the purpose of extending or expanding their production units by penalizing them for a failed experiment.

Newmont points out that the formula for calculating the net value of saleable mineral commodity in s 10(2) specifies three broad categories of expenditure for deduction. These bring to account expenditure at different stages of a mining project – exploration (eligible exploration expenditure), establishing production (capital recognition deduction and eligible capital assets expenditure)[74] and operations (operating costs). Newmont contends that the Act ought not be construed so that amounts expended by Newmont on the TSP are not to be accounted for under any of these headings but rather fall into a “black hole” because construction did not proceed in a routine way that would otherwise have resulted in a capital recognition deduction. That would effectively penalize companies where their projects are not carried through to a successful conclusion.
The respondent contends that the Act does not envisage that there will be no expenditure which is ineligible for deductions. This reflects the legislative intention of the Act to levy a royalty on the production of saleable mineral commodities. The Act prescribes a formula in s 10(2) to calculate the net value of that commodity. There is no eligible deduction unless there is a specific deduction permitted under the formula in s 10(2).
The respondent relies on the report of Parliamentary Debates in Hansard, 16 March 1982 at 2175-6 in which it is recorded that the Government had accepted certain industry representations to “allow full interest deductibility, immediate write-off of all exploration expenditure related to the mine, carry forward of losses, recognition of costs of rehabilitation and mine closure and a maximum depreciation period of 15 years,” but did not agree to allow deductions of payments in the nature of royalty on lease purchase costs, although it was prepared to allow deductions of legitimate compensation payments as defined by ss 73 to 75 of the then new Mining Act 1980 (NT). This, it is contended, makes it evident that the Government envisaged that the eligible deductions were to remain specific and circumscribed.
I agree. The scheme of the Act is to impose a royalty on the gross realization from a production unit in a royalty year after deducting the specific categories of costs set out in s 10(2). There is nothing in the scheme of the Act to suggest that “expenditure on all activities associated with mining development” is intended to be deductible. The definitions of the specified categories exclude costs which may be necessary for the production of the saleable mineral commodity of a production unit but which are expended outside the Territory[75] and include expenditure within the Territory on things which would not ordinarily be thought of as activities associated with mining development.[76]
·“Research into methods”
Newmont contends that the TSP expenditure was for “research into methods”. “Research into methods” means inquiry or investigation into a way of doing something which is undertaken in a careful, systematic and detailed manner. Newmont contends that, having regard to that definition, there is no reason to exclude construction activities such as drilling and related excavations when they are also undertaken in investigating methods for construction of a shaft and resolving issues encountered in doing so.
Newmont submits that a review of the facts establishes that, in the context of the TSP, Newmont:
(a)undertook a systematic inquiry into whether to construct a hoisting shaft at the Callie Underground Mine as a method of improving the productivity of the mine; and
(b)systematically investigated methods for construction of the shaft (as the method by which the productivity of the mine would be improved).
Within that investigation, it was necessary to investigate methods by which the fault zone, affecting the ground conditions in the proposed location of the shaft, might be dealt with so that the shaft could be successfully constructed.
The respondent contends that that only research into methods designed to reduce the costs of and increase the recovery from the production unit qualifies as eligible research. I agree. Newmont’s focus on “research into methods” ignores half of the words in the definition of “eligible research and development expenditure” which is: “an amount which was reasonably expended by a royalty payer for research into methods designed to reduce the eligible capital assets expenditure and the operating costs of, or to improve the rate and amount of recovery of a saleable mineral commodity from the production unit”. This can be summarised as “research into methods designed to reduce costs or improve production”.
The respondent contends further that, on the facts, Newmont had completed the research into the method it would adopt to reduce costs and increase production through the TSP by 2011. Subsequent steps taken to execute and progress the project when hurdles and unplanned events arose, were remedial in nature or investigations into the construction methodology, not research into the method to reduce costs or increase production.
The respondent submitted that, by May 2011, Newmont had determined that the way to reduce the costs for Newmont and increase the rate and amount of recoverable mineral from the Granites production unit was to proceed with the following method, (referred to in submissions by the respondent as “the Method”):
(a)undertake works to build a vertical shaft hoist at the agreed location to a depth of 1300 metre deep with a finished diameter of 4.7 metres (“the shaft”) using the construction methodology outlined in para [87]; and
(d)undertake works for the underground infrastructure and the surface infrastructure (“the infrastructure”) outlined in para [88].
By April 2011, after reviewing the Dempers & Seymour report referred to in paras [18] and [19] above, Newmont settled on the vertical shaft construction methodology that would be adopted and the underground and surface infrastructure that would be constructed.
(a)Newmont eliminated full diameter raise boring as an option for the construction of the shaft.
(b)The preferred shaft construction methodology identified was to use the strip and line method to open up the shaft to the final diameter.
(c)This method involved the following steps:
·drilling the pilot hole using a directional drill to 15 inches,
·then using raise boring,
·then using the strip and line method to take the hole out to the required finished diameter of the shaft of 4.7 metres.
By April 2011 Newmont had also determined that the underground and surface infrastructure would include all of the elements listed in para [20] above and, in the report dated 4 May 2011 headed “TOOP Stage 3-4 Report Project Execution Plan” referred to in para [21] above, had outlined the activities which would be included in the scope of works. (See para [21](a) to (n) above.)
Hence, the respondent contends, the cost of constructing the pilot shaft was expenditure on construction, and expenditure on investigating ways to overcome the problems encountered as a result of the Meergat Fault (and any other unforeseen difficulties) was, at most, expenditure on investigating methods of construction/or implementation of “the Method” which had already been fixed upon.
Neither Newmont’s nor the respondent’s contentions on this issue can be accepted in full. The issue is discussed further at para [101] to para [137] below after discussion of the other ancillary construction issues.
·“Reasonably expended for …”
To fall within the definition of eligible research and development expenditure, the amount at issue must be “an amount which was reasonably expended” by a royalty payer for [the relevant kind of] research.
Newmont contends that the use of the word “for” research into methods denotes an objective inquiry as to what expenditure is “for” having regard to all the facts and circumstances of the case and not the subjective intention of the decision makers who authorised the expenditure at the time. No doubt the decision makers hoped that the expenditure would produce a working shaft and associated infrastructure which would reduce costs and increase production. However, looking objectively at what occurred, Newmont contends that the expenditure on the TSP turned out to be for a failed experiment that meets the description of research into methods designed to reduce costs or increase production.
Further, Newmont contends that, read as a whole, the phrase “reasonably expended … for research into methods” only requires there to be a connection between the expenditure in question and the research into methods: it does not require a direct connection between the expenditure and the research. This means that the definition is wide enough to include expenditure on items that might otherwise be regarded as only indirectly connected with the research in question, as an adjunct to it, or ancillary or incidental. The principal focus of the submissions of both parties was on the expenditure on the pilot hole which was the principal activity associated with the TSP in 2012 and which Newmont characterises as, essentially, an investigation into how to construct the shaft given the difficulties associated with the Meergat Fault. However, Newmont also contends that its construction of the phrase “reasonably expended for”, would allow the inclusion of other expenditure on the TSP during the 2012 Royalty Year (for example horizontal shafts and other infrastructure) as incidental to that investigation.
Elaborating on this contention, Newmont submits that the term “reasonably expended” does not require consideration of whether the expenditure was reasonable in amount or connote expenditure solely for the relevant purpose. Rather, the word “reasonably” informs the word “for” in the definition, so that the expenditure is caught if it could reasonably (ie fairly and sensibly) be said that the expenditure was for the purpose of research into methods of the relevant kind when all the facts and circumstances are viewed objectively.
On this construction, the expression “reasonably expended” operates in contradistinction to an expression such as “exclusively expended”, or “directly and immediately expended”.
Newmont points out that elsewhere in the Act, where the legislature intended to impose a requirement as to the quantum of expenditure, it used an expression such as “reasonable in amount”[77] or “reasonable fees”.[78] This may be contrasted to the use of a single, compound expression in the definition of “eligible research and development expenditure” – namely, “reasonably expended by a royalty payer for research into methods …”.
I do not agree with this contention. The respondent contends that the expression “reasonably” attaches to the expression “expended” and does not inform the expression “for”. I agree. That is the ordinary grammatical meaning of the phrase in context: “reasonably” is an adverb which modifies the verb “expended”.
As for the fact that a composite expression has been used, given its ordinary meaning, the composite phrase “reasonably expended for research (of the relevant kind)”, means more than just “reasonable in amount”; it must have been objectively reasonable to expend that amount on that particular research for the relevant purpose. (For example, no matter how modest the amount, it could never to be said to be reasonable to expend money on, say, a clairvoyant, an astrologer or a diviner to investigate ways to save costs or increase production.[79] No issue arises as to the reasonableness in this sense – or the monetary sense – of the expenditure at issue in this case.)
The respondent contends that the implication of this is that, in the context of the Act, the test for whether an amount is “for” eligible research requires that the expenditure must, at least, be for the dominant or leading or prevailing purpose of eligible research as opposed to for some other purpose, such as construction. The expenditure must, at least, have an immediate connection with the research, which is not satisfied where the purpose of the activity is directly that of progressing construction.
I do not consider it necessary to go so far as to say that research must be “the dominant or leading or prevailing purpose” of the expenditure. I do, however, agree with the respondent’s contention that a common sense approach to the connection should be adopted: the relationship between the activity and the expenditure should be such that a reasonable person, applying his or her common sense, would fairly regard the activity which is the object of the expenditure as research into methods designed to reduce costs or increase production.

·Was all or some of the expenditure on the TSP eligible research and development expenditure?

Putting the resolution of the above issues together:
(a)there is no legislative intention that all expenditure in a production unit must fall into one of the heads of deduction in s 10(2);
(b)the only expenditure that qualifies as eligible research and development expenditure is expenditure on research into methods designed to decrease costs or increase production;[80] and
(c)to be eligible research and development expenditure, it has to be an amount reasonably expended for such research. (In practical terms, that means that the relationship between the activity and the expenditure must be such that a reasonable person, applying his or her common sense, would fairly regard the activity which is the object of the expenditure as research into methods designed to reduce costs or increase production.)[81]
Newmont contends that all of the TSP expenditure (including that expended in 2012) amounts to eligible research and development expenditure on the following basis.
(a)Newmont contends that the facts establish that the expenditure on Stages 2 and 3/4 of the TSP was expenditure on “research into methods”. These project stages comprised careful and detailed investigation into the feasibility of proceeding with the proposed hoisting shaft (in Stage 2) followed (in Stage 3/4) by preliminary design studies and geotechnical investigations to determine preferred options for proceeding with the project.
(b)Newmont contends further a review of the facts establishes that development of the pilot hole also was also “research into methods”.
(i) When difficulties were encountered in reaming out the initial pilot hole from 4” to 6 ¼”, Newmont undertook a series of steps which were, plainly, investigation of methods for resolving those issues. Moreover, prompted by those difficulties, Newmont undertook a renewed investigation of the appropriate methodology for excavating the entire shaft.
(ii) The drilling and reaming of the pilot hole was, itself, an investigation. First, there was an inherent risk of failure in raise boring a shaft which geotechnical assessment could never eliminate. Accordingly, drilling and reaming out the pilot hole was as much an investigation of the proposed methodology for excavating the shaft as it was a first step in constructing it. The reaming of the pilot hole met with difficulties almost immediately. The pilot hole and the shaft never “settled in” to a construction phase but remained the subject of investigations into methods by which the shaft could be successfully constructed.
(iii) Further, the core of the pilot hole was taken, in accordance with normal practice, and used in geotechnical assessments of the proposed excavation methodology for the shaft.
(c)Newmont contends that the other costs associated with the TSP (shaft access, earthworks and site preparation, external procurement and construction management services and ventilation shaft and crusher vent rise pilot hole) are to be regarded as reasonably expended for “research into methods”. They were either necessary to reaming out the pilot hole and construction of the shaft more generally and/or they were items that it was necessary to complete as part of the interrelated work streams that kept the project on track and, therefore, operationally viable. (In the case of engineering design work undertaken as part of the external procurement and construction management services, Newton contends that is eligible research and development expenditure in its own right.)
The respondent agrees that some of the initial expenditure on the TSP may have amounted to eligible research and development expenditure but not that expended in 2012, which is the expenditure at issue on this appeal.
The respondent contends that none of the amounts expended during the 2012 royalty year were eligible research and development expenditure because research into “the Method” by which Newmont intended to reduce its costs, increase production and increase the operational life of the mine was completed in 2011.
I do not accept that the whole TSP consisted of research and development into methods designed to reduce costs or increase production as that concept is explained in para [101] above. In my view, on a common sense view of the TSP project as a whole, a reasonable person, applying his or her common sense, would not fairly regard the whole of the work being conducted on the TSP in 2012 as research into methods designed to reduce costs or increase production.
However, I do not think one can draw a sharp line and say, as the respondent contends, that once “the Method” had been fixed upon in 2011, any expenditure after that was necessarily expenditure on development or construction of the work pursuant to “the Method”. The situation was more fluid than that and some relevant research continued into the construction phase as difficulties were encountered and investigations needed to be undertaken into how they were to be dealt with. In one sense the respondent is correct in categorising these investigations as investigations into construction methodology, but that does not mean that at least some of those activities cannot be also categorised as research into methods of reducing costs or increasing production, given that the purpose of the TSP was to reduce costs and increase production. Some of the activities associated with the TSP carried out in 2012 can fairly be regarded as investigations into methods of achieving this objective.
·The Joint Expert Report
A useful starting point in determining which of the costs expended in 2012 can fairly be said to be regarded as investigations into methods of achieving the objective of reducing costs and increasing production is the Joint Expert Report.
Newmont engaged an expert geotechnical engineer, Mr Daniel O’Toole BEng (Hons), FIEAust, CPEng EngExec, NER, APEC Engineer IntPE (Aust), MAustIMM(CP) to provide his opinion on a number of issues relating to the geotechnical uncertainties associated with the design and development of the TSP and the methods of dealing with those uncertainties. Mr O’Toole produced a report dated 29 August 2018.
The respondent engaged a geotechnical expert, Mr John Braybrooke BSc (Hons), DIC, MSc to comment on the O’Toole Report which he did in a report dated 21 December 2018.
Summary
Subsequently the experts conferred and produced a joint report dated 29 April 2019. The Joint Expert Report contained the following.
(a)The experts set out their joint opinions on the geotechnical uncertainties associated with the design and development of a project such as the TSP and the methods by which such uncertainties are addressed at different stages of the development and implementation of a shaft based mining methodology.
(b)They prepared a table listing the geotechnical uncertainties associated with the TSP and set out the activities undertaken by Newmont for resolving those issues.
(c)They agreed that, from a geotechnical perspective, characterising an activity as construction does not necessarily mean that it cannot also be characterised as inquiries and investigation into the method by which construction is being undertaken.
(d)They listed the activities associated with the TSP that could also be characterised as inquiries and investigation into the raise boring methodology by which construction of the shaft was to be undertaken.
(e)They listed the problems encountered with the TSP once drilling of the pilot hole had started that necessitated further enquiries and investigations and what those enquiries were.
(f)Finally, they prepared a table listing the activities undertaken on the TSP and the service providers who undertook those activities and categorised them as “Investigation Inquiry & Design” or “Construction”, noting where they disagreed or had insufficient information to fully allocate an activity.
(g)They also produced schematic diagrams of the pilot hole development at the stage when pressure grouting was being considered and at the stage when work on the TSP was suspended in December 2012 as well as a schematic diagram of the proposed horizontal development.
Geotechnical uncertainties

So far as geotechnical uncertainties are concerned, the experts agreed that the chief geotechnical uncertainty with respect to the TSP was the stability characteristics of the Meergat Fault.
The Joint Expert Report outlines the activities undertaken to resolve those geotechnical uncertainties at different stages of the project. This included the drilling of the three investigative boreholes in 2011, geotechnical logging and surveying of the holes, and sampling and testing of the cores.
The only activities listed in what the experts described as “the construction phase” which were said to be undertaken to resolve the geotechnical uncertainties were the logging of the drill core from the pilot hole (which occurred in October 2011) and rock mass classification methods to characterise the ground conditions to assess shaft stability with respect to raise boring. (This was reported in the Dempers & Seymour reports: Design Specification of Permanent Concrete Lining for the Tanami Shaft, December 2011[82] and 7m Raisebore Geotechnical Feasability Investigation Draft Report, March 2012.)[83] Only the latter report constituted work performed (and a cost incurred) in 2012. I have considered the categorisation of this report below[84] and have concluded that the cost of that report is an eligible research and development expenditure.
Construction activities also characterised as inquiries and investigations (Joint Expert Report para 16.)
The experts agreed that the following activities characterised as construction could also be characterised as inquiries and investigations into the raise boring methodology:[85]
(a)backfill in an investigation as to whether the cement would glue the fault zone together;
(b)water pressure testing to investigate whether or not pressure grouting would likely be successful in gluing the fault together;
(c)investigation of the fault zone by use of a CCTV camera inspection which necessitated removing the casing previously installed over the zone;
(d)investigation of alternative methods of enlarging the pilot hole to 15 inches by back-reaming from the bottom of the hole, and by downhole rotary drilling.[86]
The activities listed in this part of the Joint Expert Report (para 16) appear to be the same as the activities listed in para 21 of the Joint Expert Report, set out at para [116](a), (c), (d) and (e) and, as such, do not require separate consideration.
Further enquiries and investigations necessitated by problems encountered with the TSP (Joint Expert Report para 21)
The experts stated that problem encountered with the TSP once drilling of the pilot hole had started was continual fall-in of material from the Meergat Fault zone while carrying out 6¼ inch reaming. They say that this necessitated the following further enquiries and investigations:[87]
(a)attempts to glue the fault zone together by backfill grouting (unsuccessful);
(b)logging the core recovered from the pilot hole and reassessing stable hole dimensions using McCraken & Stacey;
(c)water pressure testing to determine whether or not grouting would be successful in gluing the fault together (unsuccessful);
(d)inspection of the fault zone using a CCTV camera;
(e)enquiries into alternative methods of enlarging the pilot hole to 15 inches, including back reaming from the bottom of the holes and trials thereof;
(f)engaging an external geotechnical review consultant (Coffey Mining) to review the conditions and comment on options; and
(g)enquiries into alternative access shaft construction options including an intermediate shaft pillar above the 411 level.
Looking at the activities listed in para 21 of the Joint Expert Report, it seems to me that the physical activities described in (a), (c) and (e) in para [116] above[88] (ie attempts to glue the fault zone together and attempts to enlarge the pilot hole to 15 inches, including back reaming from the bottom of the hole) are the kind of “nuts and bolts” activities rightly described by the respondent as, at most, investigations into construction techniques. These were things that were attempted while the pilot hole was being drilled and if they had been successful, would have been incorporated into the works. In cross examination, the experts agreed that ground conditions are always uncertain to a degree so that all drilling activity can be characterised in some sense as an investigation into how to do the drilling. (If what is being done does not work because of geotechnical uncertainties, it is necessary to think of another way of doing it – or to stop doing it.) This does not mean that all such activities can be reasonably characterised as research into methods of saving costs or increasing production even if the project being undertaken has that overall purpose.
The fact that the results of the activities set out in para [116](a), (b) and (d) may have fed into the analyses in the reports discussed below, does not mean that that was their purpose or that they can, on that account, be reasonably characterised as research into methods of saving costs or increasing production.
The activity in (c) (recording conditions in the fault zone by CCTV) is different. That was an activity which was done solely to provide information to enable decisions to be made about the method by which the project would proceed. That activity should reasonably be characterised as research into methods of saving costs or increasing production. (The logging of the pilot hole core, referred to at para [116](b) above, was also done for the purpose of these investigations, but that occurred in 2011.)
Although there is some difficulty marrying up the descriptions of the activities listed in para 21 of the Joint Expert Report as further enquiries and investigations necessitated by the problem of continual fall-in of material from the Meergat Fault zone, with the agreed non-contentious facts chronology attached in Appendix 1 and summarised at paras [11] to [55] above (and with the list of expenses in Appendix 2), I think that the other matters listed in para 21 (set out at para [116](f) and (g) above), must intend to refer to the reports by external contractors and consultants discussed in more detail in the summary of the progress of the TSP at paras [11] to [55] above. The categorisation of these reports is discussed below[89] and I have concluded that the costs associated with these reports does meet the definition of eligible research and development expenditure.
Drilling the pilot hole
There is a disagreement between the two experts as to whether drilling of the cored directional pilot hole involved inquiry and investigation. In Mr O’Toole’s opinion, the pilot hole is a construction activity that may also be characterised as inquiry and investigation. The basis for this opinion is that the drill core from the pilot hole was geotechnically logged and used in the assessment of the raise bore stability, resulting in a change in proposed excavation design.
In Mr Braybrooke’s view, the pilot hole was an essential part of the raise bore shaft construction. (This is acknowledged by Mr O’Toole in para 13 of his Expert Report of August 2018.) The fact that it was cored and that eventually the core was geotechnically logged was, in Mr Braybrooke’s view, ancillary to its construction purpose.
I do not think that a reasonable person, applying his or her common sense, would fairly regard the expenditure on drilling the pilot hole as research into methods designed to reduce costs or increase production.
This conclusion, (and the conclusion above that the “nuts and bolts” investigations necessitated by the problems posed by the Meergat Fault do not qualify as eligible research and development expenditure) is not intended as a criticism of either expert – or even disagreement with the experts’ opinions. There is a need to distinguish between activities which may be described as strategic and those of a more “nuts and bolts” nature which would more accurately be described, as the respondent suggested, as, at most, investigations into the construction technique to be used. The experts’ opinions were not directed to any such distinction. They were asked to provide various opinions, within their area of expertise, on activities that could be characterised as “inquiries and investigation into the method by which construction is being undertaken”. While the Joint Expert Report was helpful in explaining the nature and purpose of the different kinds of work performed on the TSP, it is matter for the Court to decide whether all of the activities characterised as “investigations into the method by which construction is being undertaken” fall within the statutory definition of eligible research and development expenditure.
·Activities described in the Summary of Progress of the TSP
Referring next to the summary of progress of the TSP in paras [11] to [55] above, those in paras [11] to [35] occurred before the 2012 Royalty Year and so are irrelevant for this part of the decision on the appeal.
In my view, the actual drilling activities referred to in paras [39], [40], [48], [51] and [52]; the contract variation referred to in [46] and the construction work referred to in para [49] all fall outside what a reasonable person, applying his or her common sense, would fairly regard as research into methods designed to reduce costs or increase production. So do the “other works” undertaken to progress the TSP referred to in para [55].[90]
That leaves the activities referred to in paras [36], [41], [42], [43], [44], [45], [47] and [50] and the internal Newmont documents referred to in paras [37], [38], [40], [50], [53] and [54].
The TWSP Report referred to in para [41], the Dempers & Seymour Reports referred to in para [42] and the email exchange referred to in para [43], the risk assessments referred to in para [45] and the Coffey Mining report referred to in para [47] would all, it seems to me, be fairly regarded as research into methods designed to reduce costs or increase production and the costs associated with them would therefore be eligible research and development expenditure.
It is true, as the respondent contends, that in one sense the investigations and reports and activities referred to in para [128] above concern methods of carrying out the drilling to enable the shaft to be built, but they are not simply investigations into how to carry out “the Method” settled on in 2011, as the respondent contends. The purpose of these reports is more strategic, involving looking at different drilling and construction techniques and the associated risks and costs of each, such that they can reasonably be characterised as research into methods designed to reduce costs and increase production as much as the work done to arrive at “the Method” originally fixed upon in 2011 could properly be so categorised. (More than one such method of constructing a shaft to achieve that end was under active consideration.)
The investigations referred to in para [128] led to the decision recorded in para [44] and the Project Execution Plan for Stage 5 referred to in para [50] which, insofar as they involved expenditure, would likewise be categorised as eligible research and development expenditure.
The activity referred to in para [38] is an internal report. It appears to be a power point presentation to management. It is headed “Tanami Shaft Update – APAC Leadership Presentation” and the options in it have presumably been taken from other sources including the reports referred to elsewhere in the NCF. Likewise, the matters referred to in para [37] (the report to management), para [53] (the internal memorandum summarising the current status of the TSP) and para [54] (the decision to suspend work on the TSP) are all internal matters. It seems to me that, unlike the matters referred to in para [44] and para [50], any expenditure on these could not fairly be regarded as research into methods designed to reduce costs or increase production. Rather these are management costs.
There may have been other internal costs incurred by Newmont in relation to the kind of strategic investigations and activities referred to in para [128] and para [130]. I do not have sufficient information to quantify those or separate them out from the other internal project planning and management costs referred to by Mr Young.[91]
As explained above,[92] the work described in para [36] (recording conditions in the fault zone by CCTV) was done for the purpose of these investigations and should also be characterised as eligible research and development expenditure.
·Does the engineering design proportion of the work undertaken by TWSP fall within the definition of Eligible Research?
Newmont contends that even if the other ancillary work referred to in para [93] and para [102](c) above is found not to be eligible research and development, the engineering design work should be so categorised.
On the other hand, the respondent contends that even if the investigatory part of the work done by TWSP is considered to be eligible research and development, the engineering design work done by that company is not. The respondent submits that, although the Joint Expert Report accepts that this work was investigatory, the Court should not find, on the evidence, that the engineering design work was done to investigate methods of saving costs or increasing product. The respondent contends that design work does not fall within the ambit of research into methods; its purpose was to specify the technical requirements for construction methodology and it was therefore was a step in construction.
In his affidavit sworn on 17 August 2017, Andre Pretorius, Newmont’s engineering manager for the TSP, gives an explanation of the different phases of engineering design work and how these stages progressed on the TSP.
Mr Pretorius refers in his affidavit to conceptual design, preliminary design and detailed design. Preliminary design refers to high level conceptual design work that bridges the gap between design concept and detailed design.[93]
Concept design for the TSP was completed in 2010.[94] The preliminary design for the hoisting and ore handling systems had been completed by AECO Australia Pty Ltd by October 2011.[95] The preliminary design drawings are marked “issued for study only and not for construction”. (Drawings are marked “issued for study”, “issued for review”, “issued for approval” or “issued for construction/ use” depending on what stage of the engineering design process has been reached.)[96]
From late 2011 to October 2012, Mr Pretorius and his team of engineers developed the detailed engineering design for the TSP.[97] When TWSP were engaged as external engineering, procurement and construction management contractors, they changed aspects of AECOM’s preliminary design and Mr Pretorius prepared reports on the changes.[98] Those reports often led to discussions and further changes to aspects of the design.[99] From the titles of the reports given by Mr Pretorius,[100] it appears that the changes made by TWSP to the preliminary design were not related to geotechnical issues. They would appear to have been part of the normal design development process.[101]
Andrew Young, Newmont’s project manager for the TSM swore two affidavits (dated 18 August 2017 and 27 June 2018) detailing the costs expended by Newmont on various aspects of the TSP. He listed the following categories of activities as having been conducted on the TSP in 2012:[102]
(a)pilot hole reaming 4 inches to 8 inches;
(b)upper pilot hole reaming from 8 inches to 15 inches;
(c)crusher ventilation rise;
(d)various earthworks and site preparation;
(e)geotechnical investigations;
(f)shaft access at the 411 level, 432 level and the 0 level;
(g)external engineering, procurement and construction management services;
(h)the construction camp; and
(i)project planning and project management.
Based on the analysis above, of these categories, only (e), (g) and (i) potentially contain work which might fit within the definition of eligible research and development. Mr Young gives a brief description of the work undertaken in each category.
Geotechnical investigations
The majority of the geotechnical investigation work on the TSP was performed in 2011. In 2012 Newmont engaged Ausurv Pty Ltd to do survey work for the crusher ventilation rise hole and in relation to drill rods which has been left in the pilot hole by Major Drilling before their contract was terminated.[103] I do not think that a reasonable person would categorise either of those activities as an investigation into methods of saving costs or increasing production. Rather, they should be regarded as work done, to progress the works.
Newmont also engaged Alice Materials testing to do some work in relation to the access road.[104] I do not think that a reasonable person would categorise this activity either as an investigation into methods of saving costs or increasing production.
External engineering, procurement and construction management services
In 2012, TWSP performed a number of services relating to the TSP.
(a)It prepared an engineering design management plan.[105] From the affidavit of Mr Pretorius we know that this involved identifying all the relevant documents that need to be addressed and processes to be followed, as well as outlining the different stages involved in the engineering design work required to be performed by TWSP to develop “final”[106] designs for the hoisting and ore handling systems.[107]
(b)TWSP and its associated South African company were engaged to provide options analysis in relation to the options being considered for raise boring the shaft following the geotechnical difficulties encountered using the initial proposed methodology. In March 2012 TWSP provided the “Shaft Access Options Study for the Tanami Shaft Project” and the “Raise Boring Position Paper”.[108] (These are the reports referred to in paras [41] and [128].)
(c)TWSP finalised engineering designs for the crusher station, conveyors, sub-brace and collar, friction hoist and headframe.[109]
(d)It began the procurement process in relation to the friction winder, collar and sub-brace construction and sink and line shaft construction.[110]
(e)It issued Project Execution Plans for Stages 4 and 5 of the TSP.[111]
(The work described in (d) and (e) are plainly not investigations into methods of reducing costs or increasing production (or into anything else). I have already found that the cost of the reports referred to in (b) comes within the definition of eligible research and development expenditure.)
Given the nature of the engineering design process as described by Mr Pretorius, I do not think that any of the engineering design work performed by TWSM in 2012 could properly be described as investigations into methods of reducing costs or increasing production.[112]
·Conclusion re electrical design work
The cost of the engineering design work performed by TWSM in 2012 is not eligible research and development expenditure.
·Summary of conclusions re eligible research and development expenditure
In summary, subject to the respondent’s submission about the meaning of the word “expended” below, the following expenditure should be characterised as eligible research and development expenditure:
(a)the cost of the TWSP Report referred to in para [41], the Dempers & Seymour Reports referred to in para [42], the email exchange referred to in para [43], the risk analyses referred to in para [45] and the Coffey Mining report referred to in para [47];
(b)any incidental expenditure associated with the decision referred to in para [40] and the Project Execution Plan for Stage 5 referred to in para [50];
(c)any other internal expenses associated with obtaining the reports referred to in (a); and
(d)the cost of the CCTV inspection of the fault zone referred to in para [36].

Newmont Tanami Annual Reports

Newmont Tanami Pty Ltd annual report for the year ended 31 December 2010 is at AB Tab 25.
Newmont Tanami Pty Ltd annual report for the year ended 31 December 2011 is at AB Tab 68.
Newmont Tanami Pty Ltd annual report for the year ended 31 December 2012 is at AB Tab 145.
Newmont Tanami Pty Ltd annual report for the year ended 31 December 2013 is at AB Tab 148.

Dated: 20 March 2019

APPENDIX 2 (PART A)

APPENDIX 2 (PART B)

[1] The primary saleable mineral commodity removed from Granites is gold. Silver is an ancillary product.

[2] The background material has been taken in part from the respondent’s determination of 26 August 2015 (“the Determination”) in which the Secretary partially allowed the appellant’s objection to the 2012 royalty assessment, and in part from the joint report of the geotechnical experts dated 29 April 2019. The facts in the Determination (which are uncontentious) were in turn summarised from information provided by the appellant in its objection to the original assessment (dated 14 April 2014) and further information provided at the respondent’s request, in a letter from the appellant dated 20 February 2015.

[3] ‘Letter Newmont Tanami Pty Ltd to Territory Revenue Office re Further Information to substantiate claim’: Appeal Documents, Tab 7, p 3-5

[4] ‘Mining Management Plan – Part B 2013 Mining Operations Plan’: Appeal Documents, Tab 28, p 31

[5] ‘Letter Newmont Tanami Pty Ltd to Territory Revenue Office re Further Information to substantiate claim’: Appeal Documents, Tab 7, p 4 I presume that the costs associated with the part of the TSP which is being used for mining has been allowed as a capital recognition deduction. Those costs do not form part of the present dispute.

[6] ‘Mining Management Plan – Part B 2013 Mining Operations Plan’: Appeal Documents, Tab 28, p 33

[7] ‘Non Contested Facts Chronology’ (‘NCF’) [3]

[8] NCF [6]-[12]

[9] Raise boring is a technique which involves drilling an initial small diameter pilot shaft (usually about 230mm - 445mm in diameter) from the top down to the level required. This pilot hole contains the drill string. Once the drill has broken into the opening on the target level, the bit is removed and a different kind of drill bit called a reamer head, is attached to the drill string and raised back towards the machine. This process drills a wider hole from bottom to top, and the drill cuttings from the reamer head fall to the floor of the lower level.

[10]‘Newmont Tanami Optimisation Project Stage 2 – Hoisting Shaft Engineering Design’: Agreed Bundle of Documents (‘AB’), Vol 2, Tab 9, p 650

[11]ibid 668

[12] ibid 668, 691

[13]NCF [14]

[14] NCF [19]

[15] ‘Newmont Authorisation for Expenditure (AFE) Business Case’: AB Vol 3, Tab 19, p 1156–1157

[16] ibid 1157

[17] NCF [28]-[29]

[18]NCF [30], [32], [36]

[19] mRL (metres Reduced Level) indicates the distance from a commonly assumed site datum, here the bottom of the shaft.

[20] NCF [38]-[39]

[21] ‘TOOP – Stage ¾ Report, Section 4.4 Mine Planning, Section 4.5 - Production Shaft Infrastructure’: AB, Vol 6, Tab 39, p 2304

[22] ibid 2359-2374

[23]‘TOOP Stage 3/4 Report – Project Execution Plan’: AB, Vol 6, Tab 40, p 2388

[24] These steps are set out in the 4 May 2011 ‘TOOP Stage 3/4 Report Project Execution Plan’. This step appears to be contrary to the recommendations in the reported of April 2011 Dempers & Seymour set out in para [18].

[25] NCF [44]-[45]

[26] NCF [47]

[27] NCF [50]

[28] NCF [51]

[29] NCF [69]

[30] NCF [54]

[31]NCF [55]-[56]

[32]‘Level’ indicates the point of access or development below the surface.

[33] ‘Email from Mr Wuff together with attachments, including ‘Tanami Shaft Project – Pressure Grouting of the Meegat Fault Zone in the Pilot Hole’: AB, Vol 8, Tab 58, pp 3049-3054; ‘E-mail from Mr Wulff’: AB, Vol 8, Tab 60, pp. 3058-3061

[34]NCF [60]. The report noted that only major geotechnical difference between the pilot hole and the previous investigative geotechnical holes was that the Meegat Fault was about 20m deeper at the site of the pilot hole. This appears contrary to the comments in the March 2012, Dempers & Seymour report referred to at [42] below.

[35]NCF [58]

[36]NCF [65]

[37]NCF [72]

[38] NCF [73]

[39] NCF [74]-[76]

[40] NCF [75]

[41]NCF [79]

[42] NCF [78]-[79]

[43]NCF [77]

[44]NCF [84]

[45] Representatives of TWSP visited the site in December and prepared a short report, see ibid 498 [83]. The purpose of the visit was to collect information from the Tanami site to assist and direct planning for mobilisation and conduct of the works, see ‘TWSP EPCM Construction Site Visit, Report’: AB, Vol 8, Tab 66, p 3082.

[46] NCF [81]-[83]

[47]NCF [85]-[87]. The report noted that the problem with the fault zone was the presence of graphite, which has a low coefficient of friction. Various suggestions were made as to how the fault zone could be stabilised.

[48]NCF [88]-[93]

[49]NCF [96]

[50] This refers to extending a horizontal shaft from the existing mine workings at the 411 level below ground to meet the pilot shaft (presumably at the 427 level) so that raise boring could take place from that level to the surface.

[51]NCF [97]

[52] NCF [99] In August 2012 it was discovered that during drilling by Major Drilling, two sections of drill pipe had in fact been lost in the hole along with other bits and pieces and the new contractor, DGS proposed several actions to rectify the problem, see NCF [118]-[123].

[53]NCF [98]

[54]NCF [100]-[105]

[55]NCF [112], [115]

[56]NCF [116]

[57] NCF [117]

[58] NCF [124]

[59]NCF [126]

[60] NCF [137]

[61]NCF [138]-[139]

[62]Taxation Administration Act2007 (NT) s 116

[63]Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614, 624, Lend Lease Development Pty Ltd v Commissioner of State Revenue (Vic) [2012] VSC 108 at [51], Conder Tower Pty Ltd v Commissioner of State Revenue [2012] VSC 107 at [46], Westfarmers General Insurance Ltd v Commissioner of State Revenue [2009] VSC 599 at [14]

[64]Taxation Administration Act2007 (NT) s 125(1)

[65] ibid s 125(2)

[66] ibid s 127

[67]‘Second affidavit of Andrew Steven Young (reproduced without exhibits and annotated with Agreed Bundle and Non-Contentious Facts Chronology references’: Court Book, Vol 1, Tab 13, pp 684, 724-730. These amounts are not fully agreed between the parties.

[68]A “production unit” is a mining tenement or, where two or more mining tenements are being operated as part of an integrated operation, those mining tenements, together with such facilities, if any, within the Territory and whether adjacent to the mining tenement or tenements or not as are essential for the production of a saleable mineral commodity from a mineral obtained from the mining tenement or tenements. See s 4 of the Act.

[69] the Act s 9

[70]the Act s 4

[71] Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [78] (McHugh, Gummow, Kirby and Hayne JJ); and Lacey v Attorney-General (Qld) (2011) 242 CLR 573 at [43]-[44] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ

[72] Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503 at [39] (French CJ and Hayne, Crennan, Bell and Gageler JJ

[73]Independent Commission Against Corruption v Cunneen (2015) 256 CLR 1 at [57] (French CJ, Hayne, Kiefel and Nettle JJ); CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408 (Brennan CJ, Dawson, Toohey and Gummow JJ); and, s 62B of the Interpretation Act 1978 (NT)

[74]See also s 4B(2) of the Act, which ensures that pre-production operating costs incurred in the 4 year period before production commences are deductible in the first year after the production unit commences producing a commercial quantity of a saleable mineral commodity.

[75] the Act, s 4

[76] ibid s 4B

[77] See, for example, the definition of “operating costs” in s 4B(1)(a) of the Act in which the legislature imposed two separate requirements:
(a)first, that the expenditure was “reasonable in amount”; and
(b)second, that the expenditure was “directly attributable to, the production, or maintenance for the purposes of production, or the sale or marketing of the saleable mineral commodity of a production unit”.

[78]the Act s 4B(1)(h)

[79] The expression “reasonably expended” is also used in paragraph (b) of the definition of “eligible exploration expenditure” in s 4 of the Act presumably for the same reason: there is a requirement that it be reasonable to spend that amount on that method of exploration.

[80] This is a shorthand phrase for “methods designed to reduce the eligible capital assets expenditure and the operating costs of, or to improve the rate and amount of recovery of a saleable mineral commodity from the production unit.”

[81]It must also be objectively reasonable to have spent the amount in question on the means of research adopted but no issue of reasonableness in either sense arises in this case.

[82] ‘Dempers & Seymour – Newmont Tanami Operations Specification of Permanent Concrete Lining for Tanami Shaft – Final Report’: AB, Vol 8, Tab 67

[83] ‘Newmont Tanami Pty Ltd, Annual Report for the year ended 31 December 2011’: AB, Vol 8, Tab 68

[84]at [128]-[129]

[85] In commenting that an activity characterised as construction can also be characterised as inquiries and investigation into the method by which construction is undertaken, the experts noted that in many cases it is possible to identify when construction, at least temporarily, ceases and inquiries and investigations begin. They also noted that during the suspension of construction activity for that purpose, the overhead costs are attributed to the daily enquiry and investigation activity.

[86] ‘Joint Expert Report of Daniel O’Toole and John Braybrooke’: Court Book, Vol 1, Tab 6, 459 [16](i)-(iv)

[87] ibid

[88] Also listed in [116](a), (b) and (d)

[89] at [128]-[129]

[90]Newmont’s contention that expenditure on the “other works” should be categorised as eligible research and development expenditure as ancillary to the work on the pilot hole depends on acceptance of Newmont’s construction of the phrase “reasonably expended for”, which has been rejected at [97] to [100] above, and the contention that expenditure on drilling the pilot hole was eligible research and development expenditure, which has been rejected at [123] above.

[91] ‘Second affidavit of Andrew Steven Young’ above n 67, 706, 722 [99], [139]

[92] at [119]

[93] ‘Affidavit of Andre Pretorius (reproduced without exhibits and annotated with Agreed Bundle and Non-Contentious Facts Chronology References’: Court Book, Vol 1, Tab 9, 539[25]

[94] ‘Second affidavit of Andrew Steven Young’ above n 67, 692 [34]

[95] ‘Affidavit of Andre Pretorius’ above n 93, 539 [24]. At least some of the preliminary design work had been done and paid for in 2010, see ‘Second affidavit of Andrew Steven Young’ above n 67, 692-693 [35]-[43]

[96] ibid 540 [27]

[97] ibid 543 [32]

[98] ibid 545 [33]

[99] ibid 545 [34]

[100]For example, ‘Value Engineering Report on Surface Conveyors for the Tanami Shaft Project’: AB Vol 12, Tab 121, ‘Value Engineering Report on the Winder House for the Tanami Shaft Project’: AB, Vol 12, Tab 127, ‘Value Engineering Report on Position of Sinker’s Equipment for the Tanami Shaft Project’: AB, Vol 12, Tab 128, ‘Value Engineering Report on the Shaft Collar for the Tanami Shaft Project’: AB, Vol 13, Tab 134

[101] ‘Affidavit of Andre Pretorius’ above n 93, 545 [33]

[102] ‘Second affidavit of Andrew Steven Young’ above n 67, 709 [105]

[103] ‘Second affidavit of Andrew Steven Young’ above n 67, 716 [127]

[104]ibid

[105]ibid 717 [133](a)

[106] “Final” designs refers to designs that are sufficiently detailed to provide the information required for construction.

[107] ‘Affidavit of Andre Pretorius’ above n 93, 537 [18].

[108] ‘Second affidavit of Andrew Steven Young’ above n 67, 719 [133](b)

[109] ibid 719 [133](c)

[110] ibid

[111]ibid 719 [133](d)-(e)

[112]Nor, for the reasons outlined at [150]-[153] below, is the engineering design work “maintenance” within the meaning of the general definition of “operating costs” in s 4B of the Act.

[113]See the definition of “specified accounting basis” in s 4 of the Act.

[114]Newmont engaged an expert accountant, Mr David Boymal AM, BCom. The respondent engaged an expert accountant, Mr Tony Samuel BCom, Dip. International Commercial Arbitration.

[115] Newmont advised that some TSP costs were expensed. In the 2012 royalty year, AUD$5,668,000 of TSP costs were expensed in Newmont’s statement of comprehensive income. I have not been given any information about what these costs relate to.

[116] ‘Newmont Tanami Pty Ltd, Annual Report for the year ended 31 December 2013’: AB, Vol 14, Tab 148, 5914, 5918

[117] McGraw-Hinds (Aust) Pty Ltd v Smith (1978) 144 CLR 633 per Gibbs ACJ at 643; Clyne v Deputy Commission of Taxation (1981) 150 CLR 1 per Gibbs J at 10; Murphy v Farmer (1988) 165 CLR 19 per Deane, Dawson and Gaudron JJ at 26-27.

[118][2018] NTSC 12

[119] ibid 35-36 [75]-[77]

[120]ibid 35 [74] (Grant CJ)

[121] ‘Appellant – Expert Report of David Boymal’: Court Book, Vol 2, Tab 21, 839 [39]

[122] ibid 839-840 [40]-[42]

[123] ibid 840 [45]

[124] ibid 840-841 [45]-[47], [52]

[125]ibid 841 [52]-[53]

[126] ibid 840 [49]

[127]ibid 842 [62]

[128] Newmont submits that the question raised by the use of the word “expended” in the Act relates only to this question of recognition in the accounts. Newmont contends that this does not mean that the expenditure should necessarily be treated as capital expenditure for royalty purposes and must therefore be brought to account only as “eligible capital assets expenditure” under the Act. The accounting treatment of an item of expenditure is not typically determinative of how that expenditure should be treated pursuant to a taxation or revenue law.

[129]Territory Resources (n 118) 17 [39] (Grant CJ)

[130]‘Second affidavit of Andrew Steven Young’ above n 67, 706 [97]

[131]TOOP Stage 2 Report, Section 3 – Introduction, dated 25 March 2010, Agreed Bundle (AB), Tab 13, p 3 [SW1, Tab 1.6].

[132]TOOP Stage 2 Report, Section 3 – Introduction, dated 25 March 2010, AB Tab 13, pp 10-11 [SW1, Tab 1.6].

[133] TOOP- Stage 2 Phase 1 – Business Case, AB, Tab 3, p 3, 4, 11 [AY1, Vol 2, Tab 9.1].

[134] AB Tab 5, p 1 [SW1, Tab 1.3].

[135]Newmont Capital Effectiveness Guidebook, July 2009, Rev 2, AB Tab 2 [AY3, Vol 6, Tab 22.1].

[136] Memorandum dated 24 February 2010 headed “Stage 2 Geotechnical Considerations For a Hoisting Shaft at Callie Mine, AB Tab 7, p 1, Chronology B, Fn 1 [SW4, Tab 1].

[137] AB Tab 7, p 1, Chronology B, Fn 1 [SW4, Tab 1].

[138]Of which, Mr Basson stated: “The McCracken and Stacey evaluation is not absolute, but indicates the compatibility of raise diameters to ground conditions”.

[139] AB Tab 7, p3, Chronology B, [SW4, Tab 1].

[140] AB Tab 7, p5, Chronology B, [SW4, Tab 1].

[141] AB Tab 8, Chronology B, Fn 2 [SW1, Tab 1.18].

[142]AB Tab 13, Chronological Timeline B, Fn 8 [SW1, Tab 1.6].

[143]AB Tab 10, Chronological Timeline B, Fn 8 [SW1, Tab 1.7].

[144]AB Tab 15, Chronological Timeline B, Fn 8 [SW1, Tab 1.12].

[145]AB Tab 12, Chronological Timeline B, Fn 8 [SW1, Tab 1.5].

[146] AB Tab 11, Chronological Timeline B, Fn 8 [SW1, Tab 1.4]

[147]See also AB Tab 14 at p 7 [SW1, Tab 1.8].

[148] AB Tab 12, Chronology B, [SW1, Tab 1.5].

[149] AB Tab 14, Chronology B, [SW1, Tab 1.8].

[150] AB Tab 15, Chronology B, [SW1, Tab 1.12].

[151] AB Tab 16, p10 Chronology B, [SW1, Tab 1.13].

[152] AB Tab 17, p 10, Chronology B, [SW1, Tab 1.17].

[153] AB Tab 19, Chronology B, Fn 7 [AY1, Vol 2, Tab 9.3].

[154] AB Tab 9, Chronology B, [AY3, Vol 1, Tab 7.1].

[155] AB Tab 9, p 43, Chronology B, [AY3, Vol 1, Tab 7.1].

[156] AB Tab 20, Chronology B, [AY3, Vol 2, Tab 7.2].

[157] AB Tab 22, pp47-50, Chronology B, Fn 7 [SW2, Vol 2, Tab 1.19].

[158] AB Tab 9; also see paragraph 21 of this document as to CRE’s contract.

[159] AB Tab 20

[160] AY 2018 Affidavit at [43].

[161] AB Tab 19B [AY3, Vol 5, Tab 21.1].

[162] Drilling Contract between Newmont Tanami Pty Ltd and Major Drilling Pty Ltd, for the provision of Diamond Drilling Services, Contract No 2293, AB Tab 1 and the variations dated 16 December 2009 (AB Tab 6) and 31 March 2010, p 2 of Attachment A (AB Tab 18) [AY1, Vol 3, Tabs 19, 19.2, and 19.3].

[163] SW 2017 Affidavit at [37], Chronology B, .

[164] SW 2017 Affidavit at [38], Chronology B, Fn 3. The depth, coordinates and distance from the eventual pilot hole of each of these investigative drill holes is set out in Dempers & Seymour – Newmont Tanami Operations Optimisation Project
7m Raisebore Geotechnical Feasibility Investigation Final Report_rev 2, AB Tab 130, p 1 [SW3, Vol 1, Tab 4.10].

[165] AB Tabs 23 and 27 [DG2, Tabs 4.1 and 4.5].

[166] AY 2018 Affidavit at [33].

[167] AY 2018 Affidavit at [59].

[168] AB Tab 24 [AY1, Vol 3, Tab 19.7]. Other variations were also made to the original contract, see for instance AB Tab 21 [AY1, Vol 3, Tab 19.4.]

[169] AY 2018 Affidavit at [61] and AB Tab 21B [AY3, Vol 5, Tab 22.3].

[170] AY 2018 Affidavit at [62].

[171] AB Tab 33 [AY1, Vol 3, Tab 10.1].

[172] AB Tab 34 [AY1, Vol 3, Tab 10.2].

[173] AY 2018 Affidavit at [27].

[174] AB Tab 38B [AY1, Vol 3, Tab 12].

[175] AY 2018 Affidavit at [28].

[176] AY 2018 Affidavit at [125.c] and AB Tab 27B [AY-3, Vol 3, Tab 14.1].

[177] AY 2018 Affidavit at [30] and [33].

[178] SW 2017 Affidavit at [39], Chronology B, .

[179] AB Tab 38, Chronology B, [SW2, Vol 2, Tab 1.16].

[180] AB Tab 38, p33, Chronology B, [SW2, Vol 2, Tab 1.16].

[181]AY 2017 Affidavit at [29].

[182] AB Tab 33, 34 and 41, Chronology B, [AY1, Vol 3, Tabs 10.1 to 10.3 – note that 10.3 is incorrectly dated 2010, but AY identifies it as being part of the 2011 peer review].

[183] Memorandum prepared by Paul Gardner, ‘LOM Ventilation Review’, AB Tab 30 [SW2, Vol 2, Tab 1.20].

[184]AB Tab 45, Chronology, [SW2, Vol 1, Tab 1.1].

[185]AB Tab 36, Chronology, [SW2, Vol 1, Tab 1.9].

[186]AB Tab 37, Chronology, [SW2, Vol 1, Tab 1.5].

[187]AB Tab 46, Chronology, [SW2, Vol 2, Tab 1.15].

[188] AB Tab 39, p 33, Chronology B, [SW2, Vol 1, Tab 1.6].

[189] AB Tab 40, Chronology B, [SW2, Vol 2, Tab 1.17].

[190] AB Tab 43, Chronology B, [SW2, Vol 1, Tab 1.2].

[191] AB Tab 44, Chronology B, [SW2, Vol 2, Tab 1.13].

[192] See the Presentation to the Board of Directors, “Tanami Shaft Update and Funding Request”, AB Tab 47 [AY1, Vol 3, Tab 15.1] and the Authorization for Expenditure – APAC Tanami Shaft Stage 5 Construction, AB Tab 51, Chronology B, [AY1, Vol 3, Tab 18].

[193]AB Tab 32 [AY3, Vol 6, Tab 22.2].

[194]See the example process flow diagram at AB Tab 28 [AP1, Vol 2, Tab 2.4.7].

[195] AB Tab 42, Chronology B, [AP1, Vol 1, Tab 2.1].

[196] Invoice for 4 March 2011 to 15 March 2011 at AB Tab 29, [DG2, Vol 2, Tab 4.8]. As to the location of the proposed shaft, see the email from Mr Robinson dated 3 August 2011 and its attachments, AB Tab 48 [AY1, Vol 3, Tabs 13, 13.1 and 13.2].

[197] AB Tab 49, DG 2018 Affidavit, Ex DG2, Tab 4.17 (Invoice) AY 2017, Affidavit at [46]; SW 2017 Affidavit at [73], Chronology B, and 19.

[198]AB Tab 74, Chronology B, [AY1, Vol 4, Tab 27.1].

[199] AB Tab 74, p2 [AY1, Vol 4, Tab 27.1].

[200] Chronology B, ; SW 2017 Affidavit at [67(b)(i)].

[201] AB Tab 74 and 77, p5 [AY1, Vol 4, Tab 34.1].

[202]SW 2017 Affidavit at [67(c)].

[203] AY 2018 Affidavit at [87] and [125.b]; AY 2017 Affidavit at [74]-[76].

[204]AB Tab 57 [AY1, Vol 4, Tab 24].

[205] AB Tab 74, p 3 [AY1, Vol 4, Tab 27.1].

[206] AB Tab 58 and 28, Chronology B, Fn 13 [SW3, Vol 1, Tabs 3.1, 3.2 and 3.3].

[207] Chronology B, Fn 12; SW 2017 Affidavit at [83].

[208] SW 2018 Affidavit at [78], AB Tab 59 [SW3, Vol 1, Tabs 3.5 and 3.6].

[209] AB Tab 59 [SW3, Vol 1, Tabs 3.5 and 3.6].

[210] AB Tab 74 and Tab 77, p5 and 6 [AY1, Vol 4, Tabs 27.1 and 34.1].

[211]AB Tabs 60 and 63 [SW3,Vol 1, Tabs 3.7 and 3.13].

[212] AY 2018 Affidavit at [89].

[213] AB Tab 63 [SW3, Vol 1, Tab 3.13].

[214]AB Tabs 61, 62 and 63 [SW3,Vol 1, Tabs 3.10, 3.11 and 3.13].

[215]AB Tab 77, p 6 [AY1, Vol 4, Tab 34.1].

[216] AB Tab 65 [SW3, Vol 1, Tab 3.15].

[217] AB Tab 62 [SW3, Vol 1, Tab 3.11].

[218] Chronology B, , AB Tab 74, p3 [AY1, Vol 4, Tab 27.1]. The progress of these underground works, including the 100 Level Shaft Access Development and the 380 VR2 Access Development, is set out in the Tanami Shaft Projects Weekly Reports, which are reproduced as a bundle at AB Tab 150 [AY1, Vol 1, Tabs 4.1 to 4.64].

[219] AB Tab 67 [SW3, Vol 1, Tab 4.5].

[220]AB, Tab 65 [SW3, Vol 1, Tab 3.15].

[221] AB, Tab 74, p6, Tab 77, p8 [AY1, Vol 4, Tab 27.1 and Tab 34.1].

[222]AB Tab 74, p 6 [AY1, Vol 4, Tab 27.1].

[223] AB Tab 73 [AY1, Vol 4, Tabs 28 and 28.1].

[224]AB Tab 74, p 6 [AY1, Vol 4, Tab 27.1]. Video from the down hole camera is in the file marked “Video” on the USB at AB Tab 70 [AY2].

[225]AY 2017 Affidavit at [52]; AB Tab 69 [AY1, Vol 4, Tabs 22 and 22.1].

[226] AB Tab 77, p 7 [AY1, Vol 4, Tab 34.1].

[227]AB Tab 74, p 6 [AY1, Vol 4, Tab 27.1].

[228]Email from Michael Dunn dated 25 January 2012, AB Tab 71 [AY1, Vol 5, Tab 39].

[229]See for instance, the email from Michael Porteous dated 8 February 2012 and its attachment, ‘Shaft Option Trade-off Rev 7 – Issue to Newmont’ at AB Tab 72 [AY1, Vol 4, Tabs 30 and 30.1].

[230] AB Tab 75 [AY1, Vol 4, Tab 32].

[231] AB Tab 77, p 1; note this document was attached to an email dated 18 February 2012 [AY1, Vol 4, Tabs 34 and 34.1].

[232] AY 2017 Affidavit at [57].

[233] See the email from Simon Wulff dated 2 March 2012 in the chain of emails at AB Tab 79 [SW3, Vol 1, Tab 4.14].

[234] See the email from Michael Porteous dated 20 February 2012 at AB Tab 78 [AY1, Vol 5, Tab 38].

[235]SW 2017 Affidavit at [55]-[57].

[236]Memorandum dated 23 September 2011, ‘Award Summary – Request for Proposal’, AB Tab 53 [AY1, Vol 8, Tab 81].

[237]AB Tab 56 [AY1, Vol 8, Tabs 83 and 84].

[238]AB Tab 76 [AP1, Vol 1, Tabs 1.1-1.7].

[239]AB Tab 66 [AP1, Vol 2, Tab 3.3].

[240] AB Tab 77, p 10 [AY1, Vol 4, Tab 34.1].

[241] Chronology B, and 37; AY 2017 Affidavit at [57].

[242] AB Tab 80 [AY1, Vol 4, Tab 37].

[243] AB Tab 82, Chronology B, [SW3, Vol 1, Tab 4.11].

[244] AB Tab 85, Chronology B [AP1, Vol 5, Tab 6.2].

[245] AB Tab 81 [AY1, Vol 5, Tabs 40 and 40.1].

[246] AB Tab 85, pp 20 and 23 [AP1, Vol 5, Tab 6.2].

[247] AB Tab 83 [AY1, Vol 5, Tab 44].

[248] SW 2017 Affidavit at [91]-[92].

[249] AB Tab 86, Chronology B, Fn 53 [AY1, Vol 5, Tab 42].

[250] AB Tab 88 [AY1, Vol 5, Tab 45].

[251] AB Tab 89 [AY1, Vol 5, Tab 46].

[252] AY 2017 Affidavit at [16(e)].

[253] AB Tab 90 [AY1, Vol 5, Tab 49]; Chronology .

[254] AB Tab 84 [SW3, Vol 2, Tabs 5.1 and 5.2].

[255]AY 2017 Affidavit at [71] and [73].

[256] AB Tab 93 [SW3, Vol 3, Tab 6.1].

[257] AB Tab 93 [SW3, Vol 3, Tab 6.3].

[258] AB Tab 93 [SW3, Vol 3, Tab 6.1].

[259] AB Tab 95 [AY1, Vol 5, Tab 47].

[260] AB Tab 96 [SW3, Vol 2, Tabs 6.6 and 6.7].

[261] AB Tab 99 [SW3, Vol 2, Tab 6.8].

[262] AB Tab 94 [AY1, Vol 6, Tab 68].

[263] Chronology B, ; AY 2018 Affidavit at [131(c)].

[264] AY 2018 Affidavit at [131(d)].

[265] AY 2018 Affidavit at [131(e)].

[266] AY 2018 Affidavit at [131(f)].

[267] AB Tab 100 [AY1, Vol 8, Tab 71].

[268] AY 2018 Affidavit at [125.d.] and AB Tab 21C and 65B [AY-3, Vol 3, Tabs 12.1 and 12.2].

[269] AY 2018 Affidavit at [127.b].

[270] AB Tab 103 [AY1, Vol 5, Tab 59].

[271] AB Tab 109 [AY1, Vol 5, Tab 60].

[272] AB Tab 105 [SW3, Vol 2, Tabs 7.5 to 7.6].

[273] SW 2017 Affidavit at [109].

[274] AB Tab 112 [SW3, Vol 2, Tabs 7.7 to 7.8].

[275] AB Tab 106 [AY1, Vol 7, Tab 70].

[276] AB Tab 111 [AY1, Vol 6, Tab 65].

[277] AB Tab 115 [SW3, Vol 2, Tab 8.7].

[278] AB Tab 116 [SW3, Vol 2, Tab 8.8].

[279] AB Tab 117 [SW3, Vol 2, Tab 8.9].

[280] AB Tab 118 [SW3, Vol 2, Tab 8.11]. The 7 inch casing was to be installed pursuant to a contract variation dated 30 August 2012: AB Tab 122 [AY3, Vol 3, Tab 9.2].

[281] AB Tab 115 [SW3, Vol 2, Tab 8.7].

[282] AB Tab 120 [SW3, Vol 2, Tab 8.12].

[283] SW 2017 Affidavit at [118].

[284] SW 2017 Affidavit at [118]-[119]; see also AB Tab 123, p 2 [AY1, Vol 2, Tab 7.5].

[285] AB Tab 126 [SW3, Vol 2, Tabs 8.18 and 8.19].

[286] AB Tab 125 [SW3, Vol 2, Tab 8.17 and the USB at SW5].

[287] SW 2017 Affidavit at [121].; see also AY 2017 Affidavit at [80] and AB Tab 129 [AY1, Vol 2, Tab 7.6].

[288] See the correspondence dated 20 August 2012 at AB Tabs 119 [SW3, Vol 2, Tabs 10.3 and 10.4].

[289] AY 2017 Affidavit at [77].

[290] AY 2017 Affidavit at [79].

[291] AB Tab 132 [AY1, Vol 4, Tab 24.1].

[292] AY 2018 Affidavit at [125.a] and AB Tab 4B , p 42 sets out the scope and specification of the services and 52B[AY-3, Vol 1, Tabs 11.1 and 11.2].

[293] AY 2018 Affidavit at [74] and AB Tab 45B [AY3, Vol 1 Tabs 4 and 4.2].

[294] AY 2018 Affidavit at [127.a].

[295] AY 2018 Affidavit at [53] and AB Tabs 5B and 24B [AY3, Vol 1, Tabs 3.2 and 3.3].

[296] AY 2018 Affidavit at [54] and AB Tabs 108B and 137B [AY3, Vol 1, Tabs 3.4 and 3.1].

[297] AY 2018 Affidavit at [125.e.]

[298] AY 2018 Affidavit at [125.f.]

[299] AY 2018 Affidavit at [126].

[300]AY 2018 Affidavit at [119] to [121]

[301] AB Tab 130 [SW3, Vol 1, Tab 4.10].

[302] AB Tab 136 [AY1, Vol 8, Tab 75].

[303] AB Tab 141 [AY1, Vol 8, Tab 76].

[304] AB Tab 144 [AY1, Vol 8, Tab 77].

[305] AB Tab 146 [AY1, Vol 8, Tab 79].

Royalty Year	Total Expenditure
2010 year	$3,590,235.09
2011 year	$23,627,996.00
2012 year	$42,841,337.00