O'Connell v Tara Mines Ltd

CourtSupreme Court
Judgment Date10 October 2002
Neutral Citation[2002] IESC 67
Date10 October 2002
Docket Number[S.C. No. 147 of 2001]

[2002] IESC 67





Record No. 147/01







Corporation tax

Mining - Definition of "mining operation" - Statutory interpretation - Whether respondent entitled to export sales relief - Whether processing of ore constituted mining - Income Tax Act, 1967 section 428 - Corporation Tax Act, 1976 section 58 (147/2001 - Supreme Court - 10/10/2002)

O'Connell (Inspector of Taxes) v Tara Mines Ltd - [2002] 3 IR 438

Facts: The respondent ("Tara") carried out mining activities at its plant in County Meath. Tara contended that it was entitled to export sales relief in conjunction with its mining activities. Tara contended that the processing of the ore into concentrates was a separate and distinct process to the mining of ore. Tara contended that the processing operation did not constitute mining and thus it was entitled to the relevant tax relief. The Appeal Commissioners had found in favour of Tara and the Inspector of Taxes appealed. In the High Court Mr. Justice Roderick Murphy held that the decision of the Appeal Commissioners did not appear to be supported by the facts and allowed the appeal. Tara appealed the judgment to the Supreme Court.

Held by the Supreme Court (Murphy J delivering judgment; Denham J and Murray J agreeing) in dismissing the appeal. The object and purpose of Tara was to produce, on the site of the mine, concentrates for which there was a market, albeit an overseas market. In those circumstances a conclusion that the overground operations constituted "mining operations" was inescapable and a decision to the contrary on the findings of fact made would be unsustainable.




This is an appeal by Tara Mines Limited (Tara) from the judgment and order of the High Court (Mr. Justice R. Murphy) on the 4th April, 2001, whereby, for the reasons set out in that judgment, the learned judge allowed the appeal brought by the Inspector of Taxes (the Inspector) from the determination by the Appeal Commissioners of certain assessments to corporation tax for the years ended 31st December, 1978 to 31st December, 1988. The issue in these proceedings can be stated simply as follows:-

"Did any part of the monies received by Tara during the relevant years aforesaid constitute "income from any mining operations" within the meaning of subsection 9 of section 58 of the Corporation Tax Act 1976?"


The facts and the legal framework within which that question arises are complex: they are set out fully in the case stated by the Appeal Commissioners dated the 16th February, 2000, but may be summarised as follows: Tara extracts lead and zinc ores from the earth at its property situate near Navan, County Meath. These ores are then processed to produce finished products of zinc and lead concentrates. The major constituents (approximately 90%) of the concentrates are sphalerite and galena. Sphalerite is a naturally occurring substance containing zinc in the form of zinc sulphide. Galena is a naturally occurring substance containing lead in the form of lead sulphite. The company's ore body is set between 50 and 600 metres below the surface. It dips gently towards the south west at 15 degrees and varies in thickness from 10 to 80 metres. The current known area extent of the ore body is 1,300 metres in length and 900 metres in width. On average the ore contains 8% zinc and 2.5% lead.


The commercial activities of Tara are carried out in two divisions which are known as the mining division and the processing division respectively. The managers of these divisions, Mr. Pitkanen and Mr. Pocock gave evidence before the Appeal Commissioners. They explained that the work of the mining division includes a geology department which determines the location of the ore body: a research department which investigates new mining methods and a mine operations department which carries out the underground operations and a mobile equipment department which has charge of the maintenance of all mobile equipment both under and over ground. The process by which ores are extracted from the mine body were summarised in the findings of the Appeal Commissioners in the following terms:-


i "(i) Mining commences with prospecting for valuable materials. Diamond drilling is carried out above ground to establish the commercial viability of the ore body or an area of the ore body. Underground diamond drilling is also carried out and the results of this drilling are provided to the Mining Engineering Department to enable them to plan the mining operation.


(ii) Once the extent of the ore body has been determined, plans are drawn up setting out how access will be gained to each pocket of ore in the ore body. Underground access tunnels are then blasted with explosives in order to reach the pockets of ore.


(iii) Following exploration and location of the ore body, the mine is laid out in blocks for planning purposes. The blocks are divided into stopes and pillars. Stopes are areas from which ore is excavated leaving pillars.


(iv) Ore is dislodged from the earth's crust by blasting. Blasting produces "broken ore" which consists of large boulders as well as finer material. The boulders can be as large as 2 metres across.


(v) The broken ore resulting from the blasting is transferred to the underground crushing station where it is subjected to primary crushing. After the ore is extracted, the cavities formed are filled by piping in back-fill. This allows the adjoining pillars to be worked.


(vi) Following this primary crushing, the crushed ore is transferred by conveyor belt to the coarse ore bin situated 320 metres below the surface.


(vii) The ore from the underground coarse ore bin is transported to the surface by way of skips operated by a hoist. Each skip transports up to 16 tonnes of ore to the surface by conveyor belt. At the surface the ore is again transported by conveyor belt to the surface storage bin or tepee. At this point the responsibility of the mining division ends."


The Appeal Commissioners in their case stated then go on to deal with the work carried out by the processing division in the following terms:-


i "(i) The coarse ore is then subjected to a highly sophisticated process which is carried out at the Company's on site milling plant. The object of this process is to produce precisely calibrated lead and zinc concentrates suitable for sale to smelters in other European countries.


(ii) The operations beyond the tepee can be divided into sections; comminution, processing, back-fill preparation and product disposal. Comminution and processing essentially involve the extraction of galena and sphalerite in concentrate form from the crushed ore. The comminution and processing are carried out in the mill which had a capital cost on construction of approximately US$75m.


(iii) Comminution more particularly involves further dry crushing and wet grinding. The ore is transported by conveyor to the first overground crusher which reduces the size of the ore from 200mm to 16mm. From there it is conveyed to the grinding circuit which reduces it from 16mm rock to a fine size (0.1mm) rock. Water is added in the grinding process producing a slurry. The whole process is very energy intensive and is controlled by computers to ensure maximum efficiency.


(iv) At this size as slurry and water it is suitable for the flotation process which separates out galena (for lead) and sphalerite (for zinc). For reasons of commercial and technical efficiency and efficacy, galena is floated before sphalerite. As the name implies, the flotation process involves "floating off" of the lead and zinc bearing materials in the ore.


(v) The basis of the flotation process is the modification of the mineral surfaces using organic and inorganic chemicals. Firstly a small precisely measured amount of organic and inorganic chemicals is introduced to the slurry. These chemicals react with and change the surface characteristics of the lead mineral (galena) and it becomes hydrophobic (water repellent). Air is then passed through the slurry. As an air bubble progresses upwards through the slurry the water repellent particles become attached to it and the bubble becomes coated with galena particles. A floating agent is added so that when the bubbles reach the surface a stable froth is produced at the surface. The accumulated bubbles with their minerals flow off the surface onto a concentrate launder.


(vi) After the process described above is carried out the rougher concentrate is pumped to the cleaning circuit where the flotation process is repeated three further times to increase the lead content of the final lead concentrate to a level acceptable for smelting.


(vii) The tailings from the lead rougher circuit now contain very little lead mineral but most of the original zinc minerals and waste rock. This slurry is then conditioned with further organic and inorganic chemicals to make the zinc minerals hydrophobic. After conditioning, the zinc mineral (sphalerite) is floated as described for galena to produce rough zinc concentrate which is reground into a small ball mill prior to three stages of cleaning to produce a zinc flotation concentrate.


(viii) The zinc concentrate is further processed by acid leaching to reduce the magnesium oxide content of the zinc concentrate to a level acceptable to the smelters. The concentrate is leached in four rubber lined vessels with sulphuric acid. Magnesium goes into a solution as magnesium sulphate and calcium carbonate is dissolved and re precipitates as calcium sulphate. After leaching the concentrate is processed in a...

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