Energy, Mines, and Resources

Subsection 102(4) Revenue – Inventories

Quartz Mining Act, Section 102 – Annual Royalty
Interpretation Bulletin: Subsection 102(4) Revenue – Inventories    
January 26, 2007

Reference
Subsection 102(4) deals with the value of the mine’s output in order to calculate the annual profits of a mine so as to determine its royalties. Specifically it states:

In order to ascertain and fix the annual profits of a mine,

the gross receipts from the year’s output of the mine, or

in case the ore, mineral, or mineral-bearing substance, or any part of them, is not sold but is treated by or for the owner, holder, tenant, lessee, occupier or operator of the mine, on the premises or elsewhere, the actual market value of the output at the pit’s mouth, or

if there is no means of ascertaining the market value or if there is no established market price or value, its value as appraised by a person to be named by the Minister,

shall be ascertained, …and from the amount so ascertained the expenses, payments, allowances, or deductions described in subsection (5) …and no other shall be deducted and made.

Interpretation
Inventories will be valued for the purposes of calculating the output of the mine.

Discussion
Most mines will have ore and concentrate stockpiles at the minesite, and may have concentrate stockpiles at the shipping port. Inventories may include: 

  • an ore stockpile at the minesite, initially to hold mine production before start-up of the mill and later as a surge buffer between mine and mill production cycles;
  • ore in transit through the mill;
  • concentrate stockpiles at the minesite, for balancing of mill production and offsite transportation, including additional onsite stockpiles accumulated while product transportation is shut down; and
  • concentrate in transit to the shipping or transportation port or hub;
  • concentrate stockpiles at the shipping or transportation port or hub, while amounts sufficient for shipping are accumulated.

The Quartz Mining Act  578 KB is based on valuing the product at pit’s mouth. The required valuation of mine output at the pit’s mouth has a time element as well as spatial. Mine output becomes royaltiable when it leaves the pit’s mouth, even if it remains in inventory. This requires inventorying of stockpile quantities and assay grades at year end to ensure that the full year’s output of the mine is quantified and valued for royalty purposes.