PLACER DOME INC (NOW AN AMALGAMATED ENTITY NAMED BARRICK GOLD CORPORATION) and COMMISSIONER OF STATE REVENUE
[2015] WASAT 141
•11 DECEMBER 2015
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
ACT: STAMP ACT 1921 (WA)
TAXATION ADMINISTRATION ACT 2003 (WA)
CITATION: PLACER DOME INC (NOW AN AMALGAMATED ENTITY NAMED BARRICK GOLD CORPORATION) and COMMISSIONER OF STATE REVENUE [2015] WASAT 141
MEMBER: JUDGE T SHARP (DEPUTY PRESIDENT)
HEARD: 8 TO 16 JUNE 2015
WRITTEN SUBMISSIONS
10 AND 24 JULY AND 10 AUGUST 2015
DELIVERED : 11 DECEMBER 2015
FILE NO/S: CC 871 of 2014
BETWEEN: PLACER DOME INC (NOW AN AMALGAMATED ENTITY NAMED BARRICK GOLD CORPORATION)
Applicant
AND
COMMISSIONER OF STATE REVENUE
Respondent
Catchwords:
Stamp duty Assessment Acquisition of shares in company Relevant acquisition Controlling interest Whether company a listed landholder corporation Valuation of mining tenements Ordinary principles of valuation Valuation methodologies - Future value of gold Mining information - Restoration costs Highest and best use Goodwill
Legislation:
First Home Owner Grant Act 2000 (WA)
Income Tax Assessment Act 1997 (Cth), s 85530
Stamp Act 1921 (WA), s 33, s 33(1)(c), s 76, s 76AB, s 76AI(2), s 76ATG, s 76ATH, s 76ATH(1), s 76ATI, s 76ATK(2), Pt IIIBA, Div 3
Stamp Act 1984 (Qld)
State Administrative Tribunal Act 2004 (WA), s 17, s 27, s 27(2)
Taxation Administration Act 2003 (WA), s 34, s 34(1), s 37, s 37(2), s 40
Result:
Decision of the Commissioner of State Revenue is affirmed. The applicant's application is dismissed.
Summary of Tribunal's decision:
In 2006, Barrick Gold Corporation acquired a controlling interest in Placer Dome Inc within the meaning of s 76ATK(2) of the Stamp Act 1921 (WA). The Commissioner of State Revenue considered that the acquisition was one which attracted duty under Pt IIIBA of the Stamp Act. Barrick was required to lodge a statement in respect of its acquisition of the shares in Placer Dome and the Commissioner assessed stamp duty in the sum of approximately $54 million.
The applicant objected to the Commissioner's assessment, and that objection was disallowed by the Commissioner. The applicant then applied to the Tribunal for a review of the Commissioner's decision.
The issue before the Tribunal was, in essence, whether or not 60% or more of the value of Placer Dome's property at the time of the acquisition comprised land, which for the purposes of the Stamp Act includes mining tenements. If that were the case, the applicant would be liable for stamp duty on the value of Placer Dome's Western Australian land and chattels.
The applicant argued that, when applying the ordinary principles of valuation, the land owned by Placer Dome at the time of the acquisition was valued at considerably less than 60% of the value of the total property of Placer Dome. The applicant arrived at this conclusion by valuing its land by a method of valuation known as 'discounted cash flow'. This method requires an assessment by the valuer concerned of such matters as the future price of gold and the estimated life of the mines concerned.
The value of the land which the applicant arrived at was substantially less than the acquisition price of the shares in Placer Dome. The applicant attributed a significant part of the difference between the two figures to 'goodwill'.
The Commissioner approached the valuation from a different standpoint. The Commissioner assessed the total value of the property of Placer Dome, the amount of which was not disputed by the applicant, and discounted from that figure all of the 'nonland assets' which it could identify. The Commissioner took the view that the resulting amount was the value of the land. The Commissioner then adopted the same discounted cash flow methodology as a check valuation and concluded that the value of the land was considerably more than 60% of the value of the total property.
The Commissioner's valuation was reached by including in its valuation higher future gold prices than the applicant had used. The Commissioner also included more optimistic estimates of the life of the mines concerned.
The Tribunal concluded that the Commissioner's estimates of future gold prices and the life of the relevant mines were to be preferred over those used by the applicant. The Tribunal also considered that it could not be satisfied on the evidence that Placer Dome's goodwill at the date of the acquisition was materially significant.
The Tribunal considered that the Commissioner's assessment of stamp duty was correct and dismissed the applicant's application.
Category: A
Representation:
Counsel:
Applicant: Mr D Williams QC and Mr A Willinge
Respondent: Mr AH Slater QC and Mr B Jones
Solicitors:
Applicant: Ernst & Young Law Pty Ltd
Respondent: State Solicitor's Office
Case(s) referred to in decision(s):
Abrahams v Federal Commissioner of Taxation (Cth) (1944) 70 CLR 23
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27
Certain Lloyd's Underwriters v Cross (2012) 248 CLR 378
Cheng & Anor and Commissioner of State Revenue [2008] WASAT 52 (S)
Commissioner of State Revenue v Hazel Holdings Pty Ltd [2014] WASCA 203
Commissioner of State Revenue v OZ Minerals Ltd [2013] WASCA 239
Commissioner of State Taxation v Nischu Pty Ltd (1991) 4 WAR 437
Commissioner of Succession Duties (SA) v Executor Trustee and Agency Co (SA) Ltd (1974) 74 CLR 358
EIE Ocean BV v Commissioner of Stamp Duties [1998] 1 Qd R 36
Executors of Estate of Crane v Commissioner of Taxation (Cth) (1975) 49 ALJR 1
Federal Commissioner of Taxation v Murry (1998) 193 CLR 605
Federal Commissioner of Taxation v Resource Capital Fund III LP [2014] FCAFC 37
Pancontinental Mining Limited v Commissioner of Stamp Duties [1989] 1 Qd R 310
PekoWallsend Operations Ltd v Commissioner of State Taxation (1989) 89 ATC 4569
Perpetual Trustee Co Ltd v Commissioner of Taxation (1942) 65 CLR 572
Spencer v Commonwealth (1907) 5 CLR 418
REASONS FOR DECISION OF THE TRIBUNAL:
Introduction
This matter comes before the Tribunal by way of an application made by the applicant, Placer Dome Inc (now an amalgamated entity named Barrick Gold Corporation), filed with the Tribunal on 27 June 2014. The application is for a review of a determination made by the Commissioner of State Revenue (Commissioner) under s 76AB(7) of the Stamp Act 1921 (WA) (Stamp Act) and an assessment of stamp duty which followed that determination.
Background
Placer Dome Inc (Placer Dome) in 2005 was a substantial Canadian incorporated goldmining enterprise and one of Canada's oldest companies.
In October 2005, Barrick Gold Corporation (Barrick), also a Canadian incorporated company, made a share and cash offer to acquire all of the outstanding common shares of Placer Dome. After some time, during which Barrick's offer was varied and amended, Barrick in February 2006 had received acceptances for more than 90% of the Placer Dome shares. In March 2006, Barrick became the sole shareholder of Placer Dome. Placer Dome and Barrick were amalgamated in May 2006.
In April 2006, the applicant under s 76AB of the Stamp Act, requested the Commissioner to determine whether a dutiable statement was required to be lodged in respect of Barrick's acquisition. After issuing a number of requisitions, the Commissioner in April 2013 determined that the applicant was required to lodge a dutiable statement and issued a notice of assessment. The applicant objected to that assessment.
The Commissioner disallowed the objection and, in June 2014, the applicant applied to the Tribunal for a review of that decision.
Facts
There is little, if any, dispute about the relevant facts of this matter.
On 4 February 2006 (acquisition date), Barrick acquired a controlling interest in Placer Dome within the meaning of s 76ATK(2) of the Stamp Act upon receiving acceptances of its offer to acquire common shares of Placer Dome, in relation to at least 90% of the common shares of Placer Dome.
On 8 March 2006, Barrick became the sole shareholder of Placer Dome by acquiring the remaining common shares of Placer Dome.
On 4 April 2006, the applicant lodged a request for the Commissioner to determine pursuant to s 76AB of the Stamp Act whether a dutiable statement was required to be lodged by it in relation to Barrick's acquisition.
On 8 April 2013, the Commissioner determined:
a)pursuant to s 76AB(7) of the Stamp Act that Placer Dome was a listed landholder corporation within the meaning of s 76ATI(2) of the Stamp Act and that the applicant was therefore required to lodge a dutiable statement under s 76ATG of the Stamp Act; and
b)that the amount of duty payable by the applicant pursuant to s 76ATG(10) and s 76ATH of the Stamp Act was A$54,852,300, based on a value of land and chattels in Western Australia to which Placer Dome was entitled at the acquisition date of A$1,015,900,000.
(collectively 'Assessment').
On 7 June 2013, the applicant objected to the Assessment and on 30 April 2014, the Commissioner disallowed that objection.
Placer Dome (directly, or by reason of the holdings of subsidiaries or trustees and the operation of s 76ATI(6) of the Stamp Act) was at the acquisition date entitled to land (as defined in s 76 of the Stamp Act) as set out below:
a)Mining interests (including near mine exploration interests):
Country
Name of project
Australia Granny Smith
Kalgoorlie (Kanowna Belle and Kalgoorlie West)
Henty
Osborne
Canada Campbell
Musselwhite
Porcupine
Chile Zaldivar and La Coipa Papua New Guinea Porgera South Africa South Deep Tanzania North Mara United States Cortez
Turquoise Ridge
Bald Mountain
Golden Sunlight
b)Development interests:
Country
Name of project
Canada Mount Milligan Chile Cerro Casale Dominion Republic Pueblo Viejo South Africa Sedibelo United States Donlin Creek
c)Specified exploration interests (other than exploration projects discontinued by Barrick upon the acquisition):
Country
Name of project
Chile
Zaldivar Norte
Papua New Guinea
Salty Dawg
United States Pete Hanson Creek
Red Hills
Indian Ranch
Turquoise Ridge NonJV
Beluga Coal
d)Water rights in Chile;
e)Property, plant and equipment that comprise land.
Placer Dome (directly, or by reason of the holdings of subsidiaries or trustees and the operation of s 76ATI(6) of the Stamp Act) was at the acquisition date entitled to land and chattels (as defined in s 76 of the Stamp Act) in Western Australia as set out below:
a)mining interests at Granny Smith and Kalgoorlie (Kanowna Bell and Kalgoorlie West); and
b)property, plant and equipment.
The statutory scheme
Stamp Act 1921 (WA)
The Stamp Act relevantly provides:
33. Valuation of land or other property
(1)When determining the value of any land or other property for the purpose of [the Stamp Act or the Taxation Administration Act 2003 (WA)]
(a)the existence of any overriding power of revocation or reconveyance is to be disregarded;
(b)the value of an undivided share in the land or other property, whether held jointly or in common, is to be ascertained by multiplying the total value of the land or other property by the share expressed as a fraction; and
(c)when applying the ordinary principles of valuation
(i)it is to be assumed that a hypothetical purchaser would, when negotiating the price of the land or other property, have knowledge of all existing information relating to the land or other property; and
(ii)no account is to be taken of any amount that a hypothetical purchaser would have to expend to reproduce, or otherwise acquire a permanent right of access to and use of, existing information relating to the land or other property.
…
76. Terms used in this Part [IIIBA]
(1)In this Part, unless the contrary intention appears
acquire, in relation to an interest in a WA company or a corporation, means to acquire beneficially in any manner or by any means …
chattels means goods, wares or merchandise other than
…
and includes an estate or interest in them;
…
entitled means beneficially entitled, and entitlement has a corresponding meaning;
land includes a mining tenement, and also includes
(a)any estate or interest in land; and
(b)anything fixed to the land including anything that is, or purports to be, the subject of an entitlement separate from the ownership of the land;
minerals means naturally occurring substances obtained or obtainable from the earth;
mining tenement means
(a)a mining tenement held under the Mining Act 1978 being a mining tenement within the meaning of that Act or the Mining Act 1904 2;
(b)a mining tenement or right of occupancy continued in force by section 5 of the Mining Act 1978; and
(c)a tenement, right or interest that is
(i)similar to a tenement or right referred to in paragraph (a) or (b); and
(ii)held under the law of another State, a Territory, the Commonwealth or another jurisdiction;
…
76AB. Request that Commissioner determine whether dutiable statement is required to be lodged
(1)A person may, within 2 months after the making of an acquisition, request the Commissioner to determine whether a dutiable statement is required to be lodged by that person under section 76AG, 76AN, 76AT or 76ATG in respect of the acquisition.
…
(3)If a request is made by a person under subsection (1) as to whether a dutiable statement is required to be lodged by that person and that request complies with subsection (2)
(a)the Commissioner shall make the requested determination; and
(b)any requirement to lodge a dutiable statement under section 76AG, 76AN, 76AT or 76ATG in respect of the acquisition does not apply in relation to that person.
…
(7)If the Commissioner determines that the person making the request is required to lodge a dutiable statement under section 76AG, 76AN, 76AT or 76ATG, the request under subsection (1) and any information and evidence provided with the request or under subsection (4) are taken to be the dutiable statement lodged by the person.
…
Division 3b Listed corporations incorporated, or taken to be registered, outside Western Australia, and certain other companies not within Division 3a
76ATG. Preparation of dutiable statement
(1)Where by a relevant acquisition a person acquires a controlling interest in
(a)a listed landholder corporation; or
(b)…
the corporation shall, within 2 months after the acquisition, lodge a statement with the Commissioner in respect of that acquisition.
…
(6)A dutiable statement must be prepared in an approved form.
…
(10)A dutiable statement lodged under this section is taken to be an instrument evidencing the relevant acquisition or relevant acquisitions and is chargeable with duty accordingly.
…
76ATH.Statement chargeable with duty
(1)A section 76ATG statement is chargeable, in accordance with section 76ATL, with duty at the rate provided for in item 4(1) of the Second Schedule calculated as follows
(a)where the section 76ATG statement relates to a relevant acquisition within section 76ATJ(1)(a)(i), the duty shall be calculated on the dutiable value determined under section 76ATL(3); …
76ATI.Meaning of 'listed landholder corporation'
(1)In this Division a corporation is a listed landholder corporation if
(a)it is
(i)a body corporate that is taken to be registered outside Western Australia (for the purposes of the Corporations Act) or that is otherwise formed or incorporated outside Western Australia, …
and
(b)it is a landholder within the meaning in subsection (2) and is listed on a recognised financial market.
(2)A corporation is a landholder for the purposes of this Division if at the time of an acquisition of a controlling interest
(a)it is entitled to land situated in Western Australia and the unencumbered value of the land is not less than $1 000 000, or it is entitled to land situated in Western Australia as a coowner of the freehold or of a lesser estate in the land and the value of the whole of the freehold or lesser estate is not less than $1 000 000; and
(b)the value of all land to which the corporation is entitled, whether situated in Western Australia or elsewhere, is 60% or more of the value of all property to which it is entitled, other than property directed to be excluded by subsection (4),
…
(4)The following property of a corporation, or of a trustee or another corporation referred to in subsection (6), shall not be included for the purpose of calculating the value of property under subsection (2)(b)
(a)cash or money in an account at call;
(b)negotiable instruments, and money on deposit with any person;
(c)property consisting of rights or interests under a sales contract (including a forward sales contract) relating to minerals, primary products or other commodities;
(ca)an amount paid or payable to the corporation or the trustee or other corporation referred to in subsection (6) under a contract or agreement referred to in subsection (7)(b);
(d)money lent by the corporation or a trustee or a related corporation referred to in subsection (6) to
(i)any person who in relation to the corporation is an associated person; or
(ii)any person at call or in terms that require or allow full repayment to the corporation within 12 months after the money is lent;
(e)in the case of the corporation, property consisting of a shareholding in another corporation referred to in subsection (6) or of a share or interest or entitlement under a trust referred to in that subsection;
(f)a licence or patent or other intellectual property (including knowledge or information that has a commercial value) relating to any process, technique, method, design or apparatus to
(i)locate, extract, process, transport or market minerals; or
(ii)grow, rear, breed, maintain, produce, harvest, collect, process, transport or market primary products;
(g)stores, stockpiles or holdings of minerals or primary products (whether processed or unprocessed) produced by the corporation or a related person;
(h)future tax benefits (whether in the nature of tax losses, capital losses, foreign losses or foreign tax credits) under the Income Tax Assessment Act 1997 or Income Tax Assessment Act 1936 of the Commonwealth or similar benefits under the laws of another jurisdiction;
(i)any property prescribed for the purposes of this subsection; and
(j)any other property, whether of the same nature as or a different nature from the foregoing, in respect of which it is not shown to the Commissioner’s satisfaction that a reason for ownership by the corporation or the trustee or other corporation referred to in subsection (6) is not for the purpose of defeating the object of this Division.
76ATJ.Meaning of 'relevant acquisition'
(1)An acquisition is a relevant acquisition for the purposes of this Division
(a)if by that acquisition a person acquires a controlling interest in a corporation by acquiring an interest
(i)that is itself a controlling interest in the corporation; or
…
76ATL.How dutiable value is determined
(1)Where section 76ATH(1) applies, duty is chargeable in accordance with this section on the basis of the value free of encumbrances (the dutiable value) of the land and chattels situated in Western Australia to which the corporation is entitled.
(2)The method of determining the dutiable value depends on the nature of a relevant acquisition by which a person acquires an interest in a corporation.
(3)Where the relevant acquisition is within section 76ATJ(1)(a)(i) the dutiable value is the same proportion of the value of the land and chattels situated in Western Australia to which the corporation is entitled, as provided by subsection (7), at the time of the acquisition, as the proportion of the property of the corporation to which the person, or the person and any related person, would be entitled, as provided in subsection (8), after the acquisition.
…
(7)For the purposes of subsections (3), (4), (5) and (6) the unencumbered value of the land and chattels to which a corporation is entitled at any time is the sum of
(a)in the case of land and chattels to which the corporation is entitled without reference to subsection (6) of section 76ATI, the unencumbered value of the land and chattels at that time; and
(b)in the case of land and chattels to which a trustee or a corporation is entitled as mentioned in that subsection, the amount to which, if the property of a trust or corporation referred to in that subsection or all such trusts and corporations in the chain of relationships were to be distributed at that time (in the case of a corporation, on the basis of a winding up), without having regard to any liabilities of the same, the corporation would be entitled in respect of the unencumbered value at that time of land and chattels to which all such trusts and corporations are entitled.
(8)For the purposes of subsections (3), (4), (5) and (6), the property of a corporation to which a person, or the person and any related person, would be entitled is the property to which the person, or the person and any related person, would be entitled if the property of the corporation and all holding corporations, as defined in section 76ATK(4), in the chain of relationships were to be distributed after the acquisition (in the case of a corporation, on the basis of a winding up), without having regard to any liabilities of the same.
(9)If the day of the acquisition of the controlling interest is 30 June 2007 or earlier, the reference in subsection (4)(b) to the day that is 3 years before the day of the acquisition of the controlling interest is taken to be a reference to 1 July 2004.
Taxation Administration Act 2003 (WA)
Section 34 of the Taxation Administration Act 2003 (WA) (TA Act) allows a taxpayer the right to object to an assessment or other decision made by the Commissioner under, relevantly, the Stamp Act that affects the taxpayer's liability to taxation.
Section 37(2) of the TA Act provides that the onus of establishing that an assessment or decision to which an objection relates is invalid or incorrect lies on the taxpayer.
The Commissioner submits that under s 37 of the TA Act, Placer Dome has the onus before the Tribunal of establishing that the assessment is 'invalid or incorrect', and that the observations on this point of Barker J in Cheng & Anor and Commissioner of State Revenue [2008] WASAT 52 (S) (Cheng) at [57] [59] are wrong. I disagree and I will explain this later in these reasons.
Under s 40 of the TA Act, a person dissatisfied with the Commissioner's decision on an objection may apply to the Tribunal for a review of that decision.
State Administrative Tribunal Act 2004 (WA)
These proceedings fall within the Tribunal's review jurisdiction in accordance with s 17 of the State Administrative Tribunal Act 2004 (WA) (SAT Act).
The Tribunal, in making its decision, has all the functions and discretions corresponding to those exercisable by the Commissioner in making the reviewable decision. The review is to be by way of a hearing de novo; s 27 of the SAT Act. It is not confined to matters that were before the Commissioner, but may involve the consideration of new material whether or not it existed at the time the Commissioner's decision was made. The Commissioner's reason for his decision does not limit the Tribunal in conducting its review.
The role of the Tribunal is to make the correct and preferable decision at the time of the decision under review; (s 27(2) of the SAT Act).
The objection and the decision under review
The applicant in its objection stated that it considered that the Assessment is incorrect, is dissatisfied with the Assessment and objects to the Assessment pursuant to s 34(1) of the TA Act.
The applicant in its objection set out its grounds of objection, including:
1.The Commissioner incorrectly determined pursuant to s 76AB(3) that a dutiable statement was required to be lodged.
Value of Land
2.In undertaking the analysis required by s 76ATI(2), in particular when determining the value of land to which Placer Dome was entitled, the Commissioner did not properly consider the value of land held by PDI and overstated the value attributed to land.
3.In undertaking the analysis required by s 76ATI(2), in particular when determining the value of land to which Placer Dome was entitled, the Commissioner incorrectly relied on the use of gold futures prices to determine gold price assumptions to be used in the discounted cash flow analysis.
4.In undertaking the analysis required by s 76ATI(2), in particular when determining the value of land to which Placer Dome was entitled, the Commissioner incorrectly relied on the use of unrealistic assumptions regarding resource to reserve conversion.
Value of Total Property
5.The Commissioner incorrectly determined the value of all property to which Placer Dome was entitled at the relevant time as required by s 76ATI(2)(b).
Value of NonLand Property
6.In undertaking the analysis required by s 76ATI(2), the Commissioner incorrectly sought to determine a value for 'nonland property'.
7.In undertaking the analysis required by s 76ATI(2), the Commissioner incorrectly adopted the view that (a) excess returns are relevant and Placer Dome's activities would not generate sufficient 'excess returns' to support the values which Placer Dome attributed to goodwill and (b) goodwill was highly unlikely to exist in an accounting, valuation or legal sense.
Value of WA Land and Chattels
8.If the Commissioner was correct in determining that there was a s 76ATG statement chargeable with duty, the Commissioner erred in determining the duty chargeable in accordance with s 76ATH(1).
Other Grounds
9.The Assessment is invalid because it is beyond the power of both the Commissioner to issue an Assessment and the Western Australian legislature to impose a liability to taxation dependent upon the inclusion and characterisation of property that has no territorial connection with the State of Western Australia.
10.In particular, the Commissioner was not authorised, required or entitled by any provision(s) of the Stamp Act to issue the Assessment.
On 30 April 2014, the Commissioner issued its decision on the applicant's objection and it is this decision which is the subject of the review.
The Commissioner's determination contained detailed reasons which need not be reproduced here. It is sufficient to say that the Commissioner affirmed the decision that the value of all land to which Placer Dome was entitled was 60% or more of the value of all property to which it was entitled. Accordingly, the Commissioner considered that Placer Dome was a listed landholder corporation as defined in s 76ATI(1) of the Stamp Act, and that the determination that s 76ATG(1) and s 76ATG(2) operate to require the applicant to lodge dutiable statements in relation to the 90% acquisition and subsequent acquisition respectively was also correct. The Commissioner said that the applicant had not established that the value of land and chattels situated in Western Australia to which Placer Dome was entitled, upon which the assessment that is the subject of the objection was based, was incorrect. The Commissioner therefore disallowed the objection in full.
Issues
The Tribunal is required to determine whether the applicant was required to lodge with the Commissioner a dutiable statement under s 76ATG of the Stamp Act.
That requires a determination of whether, on the acquisition date, Placer Dome was, within the meaning given by s 76ATI of the Stamp Act, a 'listed landholder corporation'.
Whether Placer Dome was a listed landholder corporation on the acquisition date depends on whether at that date:
a)Placer Dome was entitled to land in Western Australia with an unencumbered value of not less than $1,000,000; and
b)the value of all land to which Placer Dome was entitled was 60% or more of the value of all property to which it was entitled, other than property directed to be excluded by s 76ATI(4) of the Stamp Act.
It is not in dispute that Placer Dome was entitled to land in Western Australia with an unencumbered value of not less than $1,000,000.
If the answer to the second question is also in the affirmative, the Tribunal then must determine the dutiable value of the land and chattels situated in Western Australia to which Placer Dome was entitled on the acquisition date.
References to dollars are references to US dollars
During the course of the hearing of this matter, the parties agreed that all references to 'dollars' should be understood to be references to US dollars. In keeping with that, unless otherwise specified, references to dollars or $ from this point on in these reasons are references to US dollars.
Evidence before the Tribunal
Witnesses
Both parties tendered witness statements from a number of expert witnesses and witnesses of fact at the hearing.
The applicant tendered expert witness statements from:
a)Mr Jay Patel;
b)Mr Edward Gerald Lee;
c)Mr Jeffrey Mark Christian;
d)Mr Jeffrey Lewis Hall;
e)Professor Tyrone Carlin; and
f)Mr David Tutton.
The Commissioner tendered expert witness statements from:
a)Mr Marvin Schneider of Romar Valuation Services (Romar);
b)Mr Robert Allison of Romar;
c)Mr Joseph McKibben (known as Jeames McKibben); and
d)Mr Wayne Richard Lonergan.
The applicant also tendered witness statements from:
a)Mr Jamie Sokalsky;
b)Mr John Giakoumis;
c)Mr Mark Fisher; and
d)Ms Julie Robertson.
Witnesses of fact
The evidence of these witnesses is largely uncontradicted. I will include a summary of their evidence at this point in these reasons because it provides some useful background in respect of the issues dealt with later.
Mr Jamie Sokalsky
Mr Jamie Sokalsky's witness statement in this proceeding is dated 12 December 2014 and marked Exhibit 35. Mr Sokalsky was crossexamined at the final hearing of this matter.
During the period from 5 June 2012 to 15 September 2014, Mr Sokalsky was the Chief Executive Officer and President of Barrick Gold Corporation. In 1993, he commenced employment with Barrick in the role of Vice President and Treasurer. In 1999, he was appointed to the role of Senior Vice President and Chief Financial Officer of Barrick and held this position until April 2004 at which time he was appointed as Executive Vice President and Chief Financial Officer. He remained in the role of Executive Vice President and Chief Financial Officer until June 2012 when he was appointed Chief Executive Officer and President.
In his witness statement, Mr Sokalsky gives evidence on the background to the decision to acquire Placer Dome, the announcement of the takeover offer for Placer Dome, Placer Dome's response to the takeover offer, goodwill, custom and gold pricing.
Mr Sokalsky says that during the period between 1994 and 2006, Barrick evolved into one of the world's largest gold mining companies by following a strategy of increasing its gold production market share through the acquisition of operating gold mines and development projects from its competitors. During the period between 2001 and 2005, Barrick was looking to further develop its market share of global gold production by pursuing that strategy. There were discussions between Barrick and a number of companies, including Newmont Mining Corporation (Newmont) regarding possible mergers.
Mr Sokalsky's evidence is that during the course of 2005, Placer Dome came under contemplation by Barrick as a potential acquisition target. In the months up to October 2005, the senior leadership team at Barrick had become aware that Placer Dome was under pressure from its shareholders regarding its share price performance. Mr Sokalsky held a number of discussions with large shareholders in Placer Dome who expressed disappointment with Placer Dome's performance because:
a)Placer Dome's Board of Directors and executive management team were held in lower regard by its institutional shareholders when compared to Barrick's senior leadership; and
b)there was a perception that Placer Dome's executive management had made a number of strategic errors and that Placer Dome's financial and share price performance were disappointing in comparison to its competitor gold mining companies.
The senior leadership team was also aware that Placer Dome's market capitalisation had diminished in comparison to Barrick's and that the share price ratio of Placer Dome compared to Barrick was at near historic lows. Accordingly, there was a sense among the leadership team that it was an opportune time to consider a takeover of Placer Dome.
In August and September 2005, Barrick undertook a detailed analysis and evaluation of Placer Dome's current global operations, its existing and forecast gold production capability and its financial performance based on publically available information. This analysis focused on:
a)the extent to which the acquisition of Placer Dome would ultimately lead to the growth in size of Barrick's global reserves, resources and production as well as being similarly accretive to the financial metrics of the transaction;
b)the expected synergies (including intellectual property synergies) and other benefits which could be realised upon the integration of the Placer Dome business into Barrick; and
c)the size of the combined global gold mining operations of Barrick and Placer Dome and the advantages that would accrue as a result.
If the acquisition succeeded, then Barrick would, Mr Sokalsky says, overtake Newmont as the market leader by market capitalisation, gold production and gold reserves.
Mr Sokalsky commented that there were aspects of Placer Dome's business which in his mind, were very attractive to Barrick and which underpinned the economic rationale for the takeover bid including:
a)Placer Dome's strong capability to immediately generate earnings from its operating mines;
b)the underlying financial strength of Placer Dome's balance sheet;
c)Placer Dome's two new developments in Nevada and the Dominican Republic, which were in close geographic proximity to Barrick's existing projects; and
d)Placer Dome's copper production, which provided Placer Dome with the advantage of a diversified risk profile and the ability to offset any decrease in the gold mine operating earnings against increases in copper earnings.
Mr Sokalsky's finance team conducted valuation and financial modelling exercises to evaluate the prospective merger and determine an appropriate value for Placer Dome which would form the basis of a takeover offer. In the course of preparing these financial models, Mr Sokalsky says that he was aware that the acquisition of Placer Dome was likely to result in a significant goodwill asset in the combined balance sheet. Mr Sokalsky gives evidence on the views of the Audit Committee of the Barrick Board of Directors in October 2005. Significantly, Mr Sokalsky notes their view, based on the publically available information at the time, that the size of goodwill would depend on the ultimate purchase price and the valuation of other identifiable assets and liabilities.
Mr Sokalsky says that the recommendation to the Board of Barrick to pursue a takeover offer of Placer Dome was made at a meeting on 28 October 2005. On 30 October 2005, there was a further meeting of the Board, at which time the Board resolved to make a share and cash offer for all of the outstanding common shares of Placer Dome at a price of $20.50 per share or 0.7518 of a Barrick share and $0.05 cash for each Placer Dome common share. It also resolved that Barrick would announce its intention to acquire Placer Dome the following day, on 31 October 2005. The Board also resolved to enter into a Bid Support and Purchase Agreement between Barrick and Goldcorp Inc.
There was also a separate investor briefing on 31 October 2015, the presentation at that briefing highlighted the rationale which underpinned the hostile takeover offer for Placer Dome.
Mr Sokalsky says that in the months leading up to, and after the announcement of the hostile takeover bid, Barrick was fully cognisant that the synergies and other benefits which were identified as arising from the acquisition could also be realised by Barrick's competitors. In other words, he says that these synergies and other benefits were not unique to Barrick. By way of example, Mr Sokalsky notes that the global footprint of Newmont's operating mines were also very similar to Placer Dome's. Therefore, Mr Sokalsky says that Barrick was alive to the risk that a competitive bid for Placer Dome could emerge from an 'interloper'. Goldcorp was an entity that had grown quickly and could have been a contender to acquire Placer Dome. Barrick entered into the Bid Support and Purchase Agreement as an attempt to reduce the number of interlopers and strengthen Barrick's position. Under the agreement, if the takeover of Placer Dome was successful, Goldcorp would acquire Placer Dome's interests in a number of mines.
On 23 November 2005, the Board of Placer Dome voted unanimously to recommend that its shareholders reject the hostile takeover offer.
Mr Sokalsky says Placer Dome's Board considered that Barrick had undervalued their assets for a number of reasons, including that:
a)Placer Dome had 16 operating gold mines in seven different countries and was a truly global gold mining company;
b)Placer Dome's operating mines and development projects were located in 'some of the world's most prolific gold producing areas' across North America, South America, Australia and Africa;
c)Placer Dome had significantly contributed to reserve growth by adopting a strategy of building significant land positions around all of its mines, such that Placer Dome was the only large global gold mining company which had replaced reserves from operating mines in each of the years between 2001 and 2005; and
d)Placer Dome expected significant growth from its development projects including Cortez Hills and Pueblo Viejo.
Mr Sokalsky also says that, in the view of Placer Dome's leadership team, the acquisition of Placer Dome would be equally attractive to the likes of Newmont or a consortium of other large gold mining companies, as there would be 'synergies' available to other gold mining companies.
On 22 December 2005, Barrick resolved to increase the price offered for the outstanding common shares in Placer Dome to a share and cash offer of $22.50 in cash or 0.8269 of a Barrick share plus $0.05 in cash. Mr Sokalsky notes that even at this point, there was a concern in relation to the possibility of a competitive bid emerging.
On 3 February 2006, Barrick received acceptances for more than 90% of the outstanding common shares in Placer Dome and on 8 March 2006, Barrick became the sole shareholder of Placer Dome having acquired 100% of the outstanding common shares in Placer Dome.
In relation to the goodwill of the transaction, Mr Sokalsky says that he realised during the evaluation and analysis process that a significant amount of any consideration ultimately agreed would be allocated to goodwill. He reached this conclusion because, in his experience, gold mining companies had historically almost always been valued at an amount higher than net asset value. He notes that the key components of goodwill in a gold mining company are likely to be the going concern value and the operational synergies that can be captured from acquiring the entity. He says that the value to Barrick of those synergies was significant.
In February 2006, Barrick confirmed that estimated synergies of $200 million would be captured as a result of the integration and that annual synergies of approximately $200 million would be recognised in the future. Mr Sokalsky notes that annual synergies in the amount of at least $200 million were achieved during the years following the acquisition of Placer Dome.
Mr Sokalsky initially estimated the existence of some $4 billion of goodwill in Placer Dome (as at October 2005). He says that this was based on publically available information as well as analysis by Barrick's Corporate Development Team and external financial advisors. This illustrated to Mr Sokalsky that a significantly greater value was likely to exist in Placer Dome than could be reflected in the value of its mining tenements. He was also aware of other transactions in the marketplace where Barrick's competitors had allocated a significant proportion of the purchase price to goodwill. From October 2005 to February 2007, Mr Sokalsky notes that further valuation analysis was undertaken by Barrick and its advisers.
The ultimate purchase price paid by Barrick for Placer Dome was $10.054 billion, of which an amount of $6.506 billion was allocated to goodwill. Mr Sokalsky says that this amount was carefully considered by EY, PricewaterhouseCoopers (PwC) and Barrick and was also the subject of extensive discussion between Barrick and the United States Securities and Exchange Commission (SEC). He says that this amount represented:
a)the fair value of the going concern element of Placer Dome's business including the value attributable to the ability of management to integrate the business and ensure that existing revenue streams and the value of the assets working together were maintained, sustained and grown by locating attractive investment opportunities in the future at either its existing mineral properties or by locating additional mineral reserves; and
b)the fair value of the expected synergies and other benefits which could be realised upon the integration of Placer Dome's business into Barrick's.
PwC prepared an independent auditor's report of Barrick's consolidated financial statements for the years ending 31 December 2005 and 2006, which included a detailed review of the amount of the purchase price allocated to goodwill. Mr Sokalsky says Barrick was conscious of the fact that the SEC would review the purchase price allocation. The SEC had recently scrutinised the allocation of significant value to goodwill in another gold mining acquisition and required the company to restate its financial statements, which he described as a serious matter. During the period between November 2006 and June 2007, there was extensive engagement between Barrick and the SEC regarding the goodwill associated with the purchase price allocation for accounting purposes. In Mr Sokalsky's experience of dealing with the SEC, a corporation will not receive a formal 'signoff' from the SEC that its goodwill allocation is correct. However, a corporation will effectively receive a negative assurance from the SEC that it is otherwise satisfied with the amount of the purchase price allocated to goodwill to the extent that it decides not to pursue any further enquiries. Mr Sokalsky notes the SEC did not raise any concerns or issue a comment letter in relation to the value allocated to goodwill in the amount of $6.506 billion.
Mr Sokalsky further says that in the years following the acquisition of Placer Dome, the value allocated to goodwill was consistently substantiated by Barrick.
In relation to custom, Mr Sokalsky says that at the time of the Placer Dome acquisition, all of Barrick's gold mining operations produced gold in doré form, with the exception of two mines which produced a concentrate product. Mr Sokalsky explains that doré is a product containing approximately 90% gold that is delivered to a refinery where it is comingled with other doré bars to produce gold bullion. Concentrate is a product with considerably lower purity rates that requires more processing. Typically, with doré, Barrick retains title to the gold through the refining process whereas concentrate is sold to smelters for cash. After a refinery refines Barrick's doré into bullion, Barrick's bullion account at the refinery is credited with the applicable amounts. Barrick then sells its bullion to gold trading banks. The sale is for cash with the transfers being recorded in electronic accounts. Though the physical forms of doré and concentrate are different, from the producer's perspective they are similar because they have the same end customer once processing occurs. The prices for either product is closely derived from the spot price of pure gold.
In relation to gold pricing, Mr Sokalsky says that when Barrick was determining the viability of its pursuit of Placer Dome, it prepared a number of valuation estimates of the Placer Dome business. The inputs in those estimates included a forecast gold price based upon the consensus forecasts of a number of leading gold mining analysts. For example, a report prepared by the Royal Bank of Canada (RBC) included a consensus pricing forecast that ranged between the amounts of $375 and $450 per ounce. The simple average of these prices was adopted. In Mr Sokalsky's experience of the acquisition of gold mining companies, Barrick always arrived at a forecast gold price derived from an average or consensus of the forecast gold price as determined by leading gold mining analysts. Mr Sokalsky is not aware of Barrick or any other gold mining company using gold futures for this purpose. He says that gold futures prices are not a forecast of the gold price and are of no use in a discounted cash flow analysis.
Mr John Giakoumakis
Mr Giakoumakis' witness statement, dated 27 November 2014, is Exhibit 34 in these proceedings. Mr Giakoumakis was not required to appear for crossexamination at the final hearing of this matter.
Mr Giakoumakis is the Vice President, Corporate Tax of Barrick.
In his evidence, Mr Giakoumakis was asked to comment on the following suggestions:
a)That Barrick, in taking steps to increase the tax cost base of certain shares in a subsidiary of Placer Dome to appropriately prevent an inadvertent tax liability arising and thereby availing itself of what is known as the Canadian tax cost 'bump', was paying consideration for Placer Dome that constituted value that was unique or special to Placer Dome.
b)That there were certain tax benefits that would accrue to Barrick (or other potential purchasers of Placer Dome) in the form of increased tax amortisation or similar deductions, that could be gained by Barrick resetting, or pushing down, the price paid for the shares of Placer Dome, into the underlying assets of Placer Dome in various jurisdictions that should be included when valuing land.
In Mr Giakoumakis' statement, he explains the following:
a)In relation to the bump, there was no material advantage or benefit to Barrick, beyond ensuring that the tax consequences of the sale of assets followed the economic substance of the transaction and no inadvertent tax liability arose.
b)The tax amortisation benefit was not a benefit that accrues to Barrick in relation to Placer Dome assets after the acquisition of the shares of Placer Dome. Further, to Mr Giakoumakis' knowledge, no other purchaser of the shares in Placer Dome could have received a benefit in this form. There were particular reasons why the accounting treatment required the inclusion of accounting amortisation for the purposes of recording asset values for financial reporting purposes and relevantly, there was a corresponding liability recognising that a tax benefit would not in fact accrue to Barrick in the accounts.
Mr Mark Fisher
Mr Mark Fisher's witness statement for these proceedings is dated 27 November 2014 and is marked Exhibit 1. Mr Fisher was not crossexamined at the final hearing of this matter.
Mr Fisher is currently the President of the Global Copper Unit at Barrick and has held this position since November 2012. In 1985, he commenced employment with Placer Dome. He has held numerous positions at Placer Dome during his 23 consecutive years of employment with Placer Dome and now Barrick. In his role as a mine general manager at various mines, he was responsible for the overall management of the mine including strategic business planning, budgeting, staffing, health and safety.
Mr Fisher provides evidence on Placer Dome's operations and financial performance. Mr Fisher notes that as at September 2005, Placer Dome had interests in 17 gold and copper mining operations across seven countries. For the nine month period ending 30 September 2005, Placer Dome had increased sales of its gold and copper production to $1,439 million with net earnings of $58 million. As at September 2005, Placer Dome remained a profitable gold mining company with a strong expectation of future profit. During the third quarter of 2005, Placer Dome's Board of Directors had approved new projects in Nevada and the Dominican Republic. Placer Dome's profitability was further reflected in its audited financial statements for the year ended 31 December 2005, which shows total sales of $1,978 million for the financial year and net earnings of $80 million. Placer Dome had a corporate history spanning almost 100 years based on an amalgamation of businesses. By 2005, Place Dome had grown to one of the world's largest gold mining companies with over 13,000 employees. Placer Dome's success in expanding its global footprint from 1991 to 2006 was based on Placer Dome's exploration program, the technical capability of its personnel, and Placer Dome's global operating structure.
In relation to Placer Dome's exploration program, Mr Fisher notes that this had the two following components:
a)Mine site exploration (Minex) which was a program pursuant to which Placer Dome sought to expand its current ore bodies and locate new deposits in an economic radius of existing mines. Mr Fisher notes that from 1996 to December 2004, Placer Dome produced 26.7 million ounces of gold, and the Minex program undertaken by Placer Dome during the corresponding period added a further 26.4 million ounces of proven and probable gold reserves.
b)New mine exploration which focused upon a global search for promising earlytoadvanced stage projects. Mr Fisher notes that Placer Dome made a number of strategic acquisitions of competitor gold mining companies.
In Mr Fisher's experience as a mine general manager at numerous Placer Dome gold mines, the success of the Minex programme was based on the strong culture of technical mining skill and expertise which existed at Placer Dome and was a focus area of Placer Dome management. Mr Fisher said that this had earned Placer Dome a reputation amongst the global gold industry. Mr Fisher says that this cultural focus within Placer Dome on technical capability directly translated to a willingness by Placer Dome to invest in the technical mining and production processes which lead to the creation of the Placer Dome research and development laboratory located in Vancouver. This resulted in the development of a number of innovative mining techniques which were developed for implementation at its various global gold mines. As a consequence of these innovations, Mr Fisher says that Placer Dome developed a capability to viably extract lower grade ores from certain mine sites which gave it a competitive advantage over other gold miners who could not avail themselves of this technology. Mr Fisher says that possibly a more determinative factor of their competitive advantage was their strong experienced project group that were able to design and construct mines, and mine site managers that took a lean, focused approach to operations performance.
In relation to Placer Dome's global operating structure, Mr Fisher says that at the time of the acquisition, he was the general manager of the Kanowna Belle mine in Kalgoorlie. Up until the time of its acquisition by Barrick, Placer Dome had structured its global operations with a head office located in Vancouver and with a series of regional offices across each of the geographical areas in which it operated. The head office in Vancouver included a number of key strategic and operational functions, including the Office of the President and CEO. At a regional level, the Placer Dome Asia Pacific Region Head Office to which Mr Fisher reported was located in Brisbane and included the Office of the Executive General Manager in Australia. At a mine site level, Mr Fisher was the 'business manager' with responsibility for unlocking the potential of the mine including efficiently extracting reserves and resources that had been identified and locating additional mineable ore. He had access to and understood the geology of the mine and surrounding properties, as well as having access to large databases, core samples, logs and records at the mine site. In addition, at the Kalgoorlie operations there were people employed in the core mine business and support functions.
Each operating mine developed its Strategic Business Plan (SBP) which was compiled with the assistance of the Treasury function at the Vancouver head office. The SBP comprised a longterm forecast of the mine and corporate performance and contained detailed mine data, and a discussion of the base, target and optimistic case scenarios. What he refers to as the optimistic case has the lowest degree of geological confidence. It has a confidence level of 33% for years two and beyond of the life of the mine, compared to a confidence level of 50% for years two and beyond for the target case. His base case has the highest level of confidence with 90% for years two and beyond for the life of the mine. The general manager at each of the mine sites was responsible for reporting on the state of the mine and preparing the SBPs. The Vancouver head office was responsible for compiling the SBPs from each mine and would provide instructions to the general managers regarding the basic guidelines and general terms that were to be used in the SBPs.
During the course of 2005, Placer Dome also attempted to implement a redesign of its business processes through what became known as 'A Mine Standard' (AMS). The aim of AMS was to enable Placer Dome to standardise its production planning, purchasing, project management, strategic planning, information technology, geological reporting and business performance management which would be expected to be achieved in a large global business with large, capital intensive operating mines and development projects to drive further efficiencies across the business.
In relation to the acquisition of Placer Dome by Barrick, Mr Fisher notes that while he considered that Placer Dome was a 'great business', Placer Dome's share market performance in 2005 was not as strong as some of its peers. Mr Fisher attributes this in part to the significant costs incurred in implementing the AMS program. There were doubts both internally and externally about whether costs were being adequately controlled, which was reflected in the appointment of a new President and CEO. Mr Fisher says that at the time of the acquisition, Placer Dome comprised a large, established and profitable going concern business. Mr Fisher opines that any purchaser of Placer Dome was going to reap the immediate benefits of the portfolio of operating mines, development projects, personnel, functions, systems and technological innovations which had been developed. In Mr Fisher's view, Placer Dome had attractive gold and copper assets as well as the technical capability to profitably mine those assets. For over 100 years, Placer Dome had established itself as a reliable gold and copper producer.
Mr Fisher says that Placer Dome's going concern business produced numerous exploration and operational synergies within the existing portfolio and further synergies would be available if Placer Dome's portfolio was combined with that of other major mining companies. Mr Fisher notes that Placer Dome had a strong portfolio of mines which were in close proximity to one another and to the operating mines owned by Barrick. He also notes that there were other companies that had mines near Placer Dome's and could have taken advantage of those synergies.
Mr Fisher also says that in addition to the exploration and operational synergies described above, there were a number of specific practices in existence at Placer Dome mines which were incorporated by Barrick into its operations post the acquisition. This included the SBP process and the innovative mining techniques referred to above.
Ms Julie Robertson
Ms Julie Robertson's witness statement in these proceedings is dated 27 November 2014 and is marked Exhibit 33. She was not crossexamined.
Ms Robertson is the Director of Financial Controls & External Reporting at Barrick. She was appointed to that role in August 2013. She commenced her employment with Barrick in August 2006 in the role of Manager of Accounting. In this role she was principally focused on:
a)Barrick's external financial reporting obligations (which included the preparation of Barrick's financial statements) and compliance with the United States generally accepted accounting principles or US GAAP which Barrick, as a listed entity on the New York Stock Exchange and registrant, was required to comply with as a Canadian foreign filing entity;
b)Barrick's compliance with all of its financial reporting obligations to the SEC and Ontario Securities Commission (OSC); and
c)the purchase price allocation processes associated with all of Barrick's transactions and compliance with the US GAAP.
Ms Robertson gives evidence relating to the purchase price allocation in relation to the Placer Dome acquisition, including the allocation of a value to goodwill.
Ms Robertson's evidence is that by the time she commenced employment with Barrick, the purchase price allocation process was already well advanced. She was aware that Ernst & Young LLP (EY) had been engaged by Barrick to assist with the purchase price allocation and that the engagement was led by Mr Jay Patel.
As at August 2006, Barrick had already prepared a First Quarter Report and a Second Quarter Report both of which included a preliminary purchase price allocation in relation to the Placer Dome acquisition and which accounted for a total value of goodwill in the amount of approximately $7.6 billion. A Third Quarter Report for the period ending 30 September 2006 was subsequently prepared which also included a preliminary purchase price allocation in relation to the Placer Dome acquisition which included an allocation for the total value of goodwill in an amount of $7.7 billion. All three reports were filed with the SEC and OSC and released publicly.
EY's purchase price allocation valuation work culminated in EY's purchase price allocation report dated 19 February 2007 (EY PPA Report). Ms Robertson notes that the allocation of the purchase price included determining the total value for goodwill, and was performed in accordance with US GAAP. She says that the preparation of the EY PPA Report included a valuation analysis of certain identifiable tangible and intangible assets for the purpose of providing a recommendation as to the fair value of those assets. The EY PPA Report identified a total value for goodwill of around $6.5 billion which represented the residual amount of the purchase consideration after identification of the fair value of the acquired identifiable tangible and intangible assets. This was the basis for the value of goodwill reported in Barrick's 31 December 2006 financial statements, which were filed with the SEC. The Barrick 2006 Annual Report was also filed with the SEC and OSC and released publically.
Ms Robertson says that the decrease in the value of goodwill from $7.6 billion to $6.5 billion, was primarily due to an increase in the total value allocated to property, plant and equipment.
Ms Robertson also states that the preliminary purchase price allocations contained in the First, Second and Third Quarter Reports were reviewed by Barrick's independent auditors, PwC. PwC conducted a high level review of the First, Second and Third Quarter Reports. These included the unaudited quarterly interim consolidated financial statements and involved specific consideration of Barrick management's preliminary and final allocation of the purchase price, the determination of the fair value of acquired assets and liabilities, and the determination of the cost of acquisition including goodwill. She says that PwC did not require modification to the value of goodwill contained in the preliminary purchase price allocations.
The final purchase price allocation was also internally reviewed by Barrick and audited by PwC. The PwC audit included an analysis of the final purchase equation, including the residual of $6.5 billion allocated to goodwill and the basis for the allocation of value to the assets and liabilities.
Ms Robertson notes that the preparation of the financial statements and the process for determining the allocation of the purchase price, including the amount to be allocated to goodwill across Barrick's business for the purposes of impairment testing, required a significant investment of time and resources by Barrick, PwC and EY Toronto to ensure that the amounts were accurately reported and defensible. In particular, Ms Robertson notes the expectation of Barrick's shareholders and other stakeholders regarding the accuracy of published financial information.
Ms Robertson says that both the SEC and OSC had the right at any time to send Barrick what is known as a comment letter in which it could request information in relation to the amount allocated to the value of goodwill in respect of the Placer Dome acquisition. Ms Robertson notes that neither the SEC nor the OSC did so and the amount of the purchase price allocated to goodwill was not challenged by the SEC or OSC. In Ms Robertson's experience, each authority would have made it clear to Barrick if there was a concern regarding the purchase price allocation and the amount apportioned to the value of goodwill.
It may be that, following the acquisition, Barrick could subsequently show as goodwill amongst its own assets the 'synergies' which arose from the acquisition of Placer Dome, but that could not be regarded as an asset of Placer Dome at the date of acquisition.
Conclusion Placer Dome was a landholder at the time of the acquisition
In conclusion, I consider that the approach which Mr Lonergan has taken to the valuation of Placer Dome's assets is the correct and preferable one. In my opinion, he has identified all of the relevant assets and that his inputs into his discounted cash flow valuations, in particular future gold prices and production assumptions, are to be preferred.
It follows that I consider that the value of the land to which Placer Dome was entitled was greater than $7.68 billion and that therefore at the relevant date Placer Dome was a landholder for the purposes of Div 3b of Pt IIIBA of the Stamp Act.
Accordingly, I find that the Commissioner's determination that the applicant was required to lodge a dutiable statement under s 76ATG of the Stamp Act is correct.
Value of Western Australian land and chattels
Mr Lonergan calculated the value of all Western Australian land and chattels in which Placer Dome held an interest by reference to the discounted cash flow model and market analysis of Western Australian mining projects and properties. His valuation is as follows:
DCF value of Granny Smith
Low
$223 million
High
$225 million
DCF value of Kanowna
$538 million
$548 million
Less
Receivables
Inventory
$5 million
$47 million
$5 million
$47 million
Add
Intellectual property
Non-cash current liabilities
Market value of all Western Australian land and chattels (US dollars)
Market value of all Western Australian land and chattels (AUS dollars)
$4 million
$45 million
$758 million
$1,007 million
$4 million
$45 million
$770 million
$1,024 million
Commissioner's assessment
The Commissioner assessed stamp duty on Placer Dome's Western Australian land and chattels based on a value of A$1,015,900,000. This amount is within the range of Mr Lonergan's higher and lower valuations. Because I accept the valuation approach which has been taken by Mr Lonergan over those of the other valuers, I consider that the Commissioner's assessment of stamp duty was correct.
Orders
1.The respondent's decision dated 20 April 2014 to disallow the applicant's objection to stamp duty is affirmed.
2.The respondent's decision under s 76AB(7) of the Stamp Act 1921 (WA) that the applicant was required to lodge with the respondent a dutiable statement under s 76ATG of the Stamp Act 1921 (WA) is affirmed.
3.The respondent's assessment of stamp duty issued on 8 April 2013 is affirmed.
4.The applicant's application is dismissed.
I certify that this and the preceding [385] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
___________________________________
JUDGE T SHARP, DEPUTY PRESIDENT
2