Newmont Tanami Pty Ltd v Secretary for Mineral Royalties (NT) (No. 2)
[2022] NTSC 93
•22 December 2022
CITATION:Newmont Tanami Pty Ltd v Secretary for Mineral Royalties (NT) (No. 2) [2022] NTSC 93
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: 22 December 2022
HEARING DATE: On the papers
JUDGMENT OF: Kelly J
REPRESENTATION:
Counsel:
Appellant: M Baker
Respondent: S Kaur-Bains
Solicitors:
Appellant:KPMG Law
Respondent: Solicitor for the Northern Territory
Judgment category classification: C
Judgment ID Number: Kel2224
Number of pages: 11
IN THE SUPREME COURT
OF THE NORTHERN TERRITORY
OF AUSTRALIA
AT DARWINNewmont Tanami Pty Ltd v Secretary for Mineral Royalties (NT)
(No. 2) [2022] NTSC 93No. LA 8 of 2015 (21552636)
BETWEEN:
NEWMONT TANAMI PTY LTD
(ACN 007 688 093)
Appellant
v
SECRETARY APPOINTED PURSUANT TO SECTION 49AA OF THE MINERAL ROYALTY ACT (NT)
Respondent
CORAM: KELLY J
REASONS FOR DECISION
(Delivered 22 December 2022)
In a judgment handed down on 20 May 2020 (“the principal judgment”), I determined that Newmont Tanami Pty Ltd (‘Newmont’) was entitled to deduct the following expenditure as operating costs in the 2012 royalty year, being eligible research and development expenditure:[1]
(a)the cost of the TWSP Report referred to in paragraph [41] of the principal judgment[2], the Dempers & Seymour Reports referred to in paragraph [42] of the principal judgment, the email exchange referred to in paragraph [43] of the principal judgment, the risk analyses referred to in paragraph [45] of the principal judgment and the Coffey Mining Report referred to in paragraph [47] of the principal judgment;
(b)any incidental expenditure associated with the decision referred to in paragraph [44] of the principal judgment and the Project Execution Plan for Stage 5 referred to in paragraph [50] of the principal judgment;
(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.
As I did not have sufficient information to determine the dollar value of those deductions, I gave directions for the filing of further submissions directed to that issue.
Both parties have filed submissions directed to the evidence filed in the proceeding from which they say the dollar value of the various categories of eligible research and development expenditure can be ascertained.
The parties have agreed:
•that the cost of the Dempers & Seymour 2012 Report referred to in [189](a) and [42] is $37,000;
•that the cost of the CCTV inspection of the fault zone in January 2012 referred to in [189](d) is $12,700; and
•that the cost of one of the TWSP Reports referred to in [189](a) and [41] is $68,045.
Newmont contends, first, that the sum of $68,045 for the TWSP Report should be allowed twice. Newmont concedes that the costs relating to the two TWSP Reports are not separately identified in either the invoices or the breakdown of the costs in the TWSP Invoice Reconciliation (2011 and 2012), but contends that there is an alternative basis for quantifying the costs associated with the two reports by reference to various documents. It is not necessary to set out the reasoning in detail because the respondent accepts the figure arrived at by this method ($68,045).
Newmont contends that the sum of $68,045 should be allowed twice because there were two reports; Project Change Notice 092 (“PCN 092”) refers to both the Shaft Access Options Study and the Raise Boring Position Paper; both were allocated 17 hours in the “Budget Hours” column in PCN 092; and the final column in PCN 092 headed “Hrs Delta” shows 9 for the Raise Bore Positioning Paper and 11 for the Shaft Access Options Study. Newmont contends that it is reasonable for the Court to infer that:
(a)the two reports would have commanded a separate fee; and
(b)the costs associated with both reports would have been the same.
I do not accept that the amount of $68,045 should be allowed twice. The onus is on Newmont to establish an entitlement to deduct the additional $68,045 claimed and it has not done so. Newmont has not explained the significance of the various entries in PCN 092. There is nothing in the entries referred to by Newmont in its written submissions that would make it more likely that TWSP invoiced Newmont separately for each of the two reports rather than globally. Indeed, it would seem unlikely that they were invoiced separately or Newmont would simply have produced the relevant invoices, and there is no evidence from which one could conclude that each report “commanded a separate fee”. Nor is there anything in the material produced by Newmont which would lead one to suppose that the cost of the two reports would have been identical. (The budgeted time of 17 hours may have referred to each report or to both reports; there is no way on the material relied on by Newmont to tell. Further, although the figures in the “Budget Hours” column are the same, the figures in the “Delta Hrs” column (whatever that may mean) are different).
Second, Newmont contends that expenditure on any other internal expenses associated with obtaining the reports referred to in [1](a) above (ie the TWSP Report, the Dempers & Seymour Reports, the email exchange, the risk analyses and the Coffey Mining Report) should be allowed in the sum of $322,980. This is the total amount of salary paid to Newmont employees who worked on Mining Projects and the TSP during Stage 4. I do not accept that this is a reasonable estimate of the internal cost associated with obtaining the reports in question – or even remotely approaches it. For one thing it assumes that none of those employees did any work on anything else other than commissioning those reports during that period. That is not even asserted by Newmont to be the case and it is inherently improbable. This sum is not allowed and, as Newmont has not produced any other method of calculating those internal costs, no allowance will made for those costs.
Finally, Newmont contends that it should be permitted to deduct an amount of $1,073,443 paid to the drilling contractor, Major Drilling, under the rubric of “incidental expenditure associated with the decision made on 23 March 2012”. That was a decision to move forward by:
(a)developing the 411 level 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 metre to 427 metre 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 metre level; and
(e)raise boring from the 427 metre level to the surface starting with a 2.4 metre diameter raise bore and reducing it to 1.8 metres if necessary.[3]
Newmont submits that the costs associated with Major Drilling’s demobilization from the TSP site referred to at paragraph [40] of the principal judgment, are costs of a type contemplated in paragraph [189](b) of the principal judgment as “incidental expenditure associated with” the decision made on 23 March 2012. Paragraph [40] of the principal judgment reads:
[40] 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.
Newmont relies on the following inferences which Newmont contends can be drawn from email correspondence to substantiate this claim:
(a) The email sent by Michael Porteous to Andrew Young dated 14 February 2012[4] indicates that Mr Porteous was considering terminating Major Drilling’s engagement at around the same time they were meeting with Raisebore Australia Pty Ltd (“RBA”) about the possibility of RBA mobilizing to site.
(b) Michael Porteous’ email of 16 February 2012 records that the decision to demobilize Major Drilling was taken because of “the failure of the second up-hole hammer, and their lack of suitable options to develop the hole beyond the current point”.[5] That email also records that RBA was to provide a cost and schedule proposal for one of the options for developing the pilot hole then being investigated as part of the options study, as well as mobilizing to site.
(c) The email sent by Michael Porteous to Andrew Young on 4 March 2012 indicates that Major Drilling was required to demobilize in a way that could facilitate any subsequent work to be performed by RBA.[6]
Newmont submits that these documents demonstrate that the expenditure associated with the decision to demobilize Major Drilling was incidental expenditure associated with the decision referred to at paragraph [44] of the principal judgment. Newmont submits that, in particular, terminating the contract with Major Drilling “occurred in subordinate conjunction with the decision made on 23 March 2012” for the following reasons:
(a) The decision reached on 23 March 2012 involved a change to the existing methodology, which had been until February 2012 undertaken by Major Drilling, and the decision to terminate Major Drilling’s contract was necessary to enable a different methodology to be adopted.
b) Major Drilling was demobilized in February 2012 which means that by the time Major Drilling’s contract was terminated, work relating to investigating alternative options was already underway.
(c) As part of demobilising, Major Drilling was required to take steps to secure the site while the new methodology was being investigated.
Newmont also relies on the circumstances in which Major Drilling were asked to demobilise from the TSP site deposed to by Andrew Young. [7]
On 18 February 2012 Michael Porteous sent me a further presentation outlining the delays on the TSP, which I intended to provide to Guy Lansdown, the EVP of Discovery and Development. [copy annexed] By then we had revised the path forward, although this presentation assumed a decision to implement an option using a Micon tool. However, we had, by this time, decided to ask Major Drilling to demobilise and to instead investigate options with Raisebore Australia. [copies of Michael Porteous’ emails of 14 and 16 February 2012 and 4 March 2012 annexed.]
Newmont has given details of how the figure of $1.073M has been calculated.
The respondent submits that this cost is not incidental expenditure associated with the decision reached on 23 March 2012. To fall within such a description, the respondent contends that the expenditure must be truly incidental – that is to say, a minor accompaniment by its intrinsic nature.
The respondent refers to paragraph [192] of the primary judgment:
[192] I do not have sufficient information to enable me to ascertain what internal costs Newmont incurred that would fit the description in [189](b) and (c) above.
The respondent submits that this indicates that the primary judgment envisaged that incidental expenditure referred to in paragraph [189](b) and (c) is intended to be internal costs Newmont incurred that would fit the description in paragraphs [189](b) and (c), summarised at [1] above.
The respondent contends that section 4 of the Mineral Royalty Act 1982, which defines what is ERDE, requires a nexus between the cost expended and the activity, being 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 respondent refers to [100] of the primary judgment in which I found as follows:
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.
The respondent then refers to paragraph 84 of the jointly prepared Non-Contentious Facts Chronology which states:
From 4 February 2012, Major Drilling back reamed up from the bottom of the hole to 15" from the last attempt. Major Drilling's equipment failed again and Newmont terminated the contract with Major Drilling. By 4 March 2012, arrangements were being made for Major Drilling to demobilise from the site.[8]
The respondent concludes that that agreed fact makes it clear that Newmont terminated the contract with Major Drilling because Major Drilling’s equipment kept failing and did so before Newmont reached the decision on 23 March 2012 referred to in paragraph [44] of the primary judgment.[9] Further, the respondent points to an email chain at AB 81 page 3448 which suggests that Newmont viewed Major Drilling as lacking competence.
The respondent contends that, in light of these matters, a reasonable person, applying his or her common sense, would not fairly regard the cost of terminating Major Drilling's contract and the subsequent compensation payout as research into methods designed to reduce costs or increase production or incidental expenditure.
I agree. Apart from the above considerations, the document that notes that the amount paid to Major Drilling was $1,073m (Document 23), notes the amount was paid in settlement of claims and the project being closed out. Newmont has pointed to no evidence which details what the $1,073m was compensation for or how the amount is comprised (as distinct from how it was arrived at for the purpose of this application). It may be that some part of that expenditure could have been claimable as expenses incidental to the decision of 23 March 2012, falling within the definition of research into methods designed to reduce costs or increase production. However, it is plain that the whole of the amount paid to Major Drilling cannot properly be shoehorned into that definition and Newmont has not attempted to identify any discrete amounts which might be so classified. The onus is on Newmont to establish what amount it expended that was incidental to the decision made on 23 March 2012 referred to in paragraph [44] of the primary judgment and it has failed to do so. No amount will therefore be allowed under this heading.
I find the amounts deductable to be as follows:
Paragraph in reasons
Item
Paragraph in these submissions
Expenditure
1
[189](a)
TWSP Report: “Shaft Access Options Study for the Tanami Shaft Project”
TWSP Report: “Raise Boring Position Paper”
4-17
$68,045
2
[189](a)
Dempers & Seymour 2012 Report
18
$37,000
3
[189](b) and [189](c)
Internal Expenses
19-33
NIL
4
[189](d)
The cost of the CCTV inspection of the fault zone in January 2012
34
$12,700
TOTAL
AUD $117,745
-----------------------------
[1] Newmont Tanami Pty Ltd v Secretary for Mineral Royalties (NT) [2020] NTSC 22 (“the principal judgment”) [189].
[2] In fact there were two such reports referred to in paragraph [41] of the Decision.
[3] Paragraph [44] of the principal judgment.
[4] Exhibit AY-1 to the affidavit of Andrew Young sworn on 18 August 2017 (“AY 2017”), Vol 4, Tab 35, Document 20.
[5] Exhibit AY-1 to AY 2017, Vol 4, Tab 36, Document 21.
[6] AB Tab 80, Document 22.
[7] These are set out in paragraph 57 of AY 2017 and paragraphs 108 and 109 of AY 2018.
[8] This is the source of paragraph [40] of the primary judgment.
[9]The paragraph of the affidavit of Andrew Young relied on by Newmont (set out at [13] above) also makes it clear that the decision to terminate Major Drilling’s Contract was made before the decision of 23 March 2012.
0
0
4