Energy, Mines, and Resources

Subsection 102(4) Revenue - Treatment Charges

Quartz Mining Act, Section 102 – Annual Royalty
Interpretation Bulletin: Subsection 102(4) Revenue – Treatment Charges
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
Virtually all ore mined today must be treated or processed to at least a mineral concentrate to be rendered marketable. Sales of metals, minerals or mineral concentrate are typically made on the basis of recoverable valuable metal or mineral content, and the sale value is typically established with reference to a market value related to the end product metal or mineral (to a defined purity). Valuation of mine output at the pit mouth for the royalty requires factoring out from such sales proceeds, any treatment charges for processing the mine output ores into saleable form and transportation charges from the point of sale to the place of treatment. 

For treatment of the output of a mine, including milling, mineral processing, smelting and/or refining, done on a commercial basis by parties unrelated to, and operating at arm’s length from, the owner or operator of the mine, and where the proceeds of sale are based on the value of the output after such treatment, receipted treatment charges shall be deducted from proceeds of sale to arrive at the pit mouth valuation. 

Product transportation charges for movement of mine output to the point of sale or the point of treatment, the costs of which are included as part of post-sales charges, are included with treatment charges as a reduction to gross proceeds where the proceeds of sale are based on the value of the output after such treatment. 

Note: this section relates only to product transportation charges for movement of mine output to the point of sale or the point of treatment, the costs of which are included as part of post-sales charges transportation; costs incurred within the mine operations, for product, materials and personnel are deductible under 102(5)(c)), and product transportation costs for movement of mine output to the point of sale, paid directly by the mine operator or owner, are eligible for deduction under 102(5)(a).
Where mined ore is processed by the mine owner or operator, such as at an on-site mill, and where the proceeds of sale are determined after such processing, there is need to calculate a processing charge for deduction from the proceeds of sale to determine the pit mouth valuation of mine output. The processing charge shall include:

  • operating costs of the processing facility; and
  • amortization of the capital cost of the processing assets over the projected processing plant life (or mine life, whichever is shorter) on a straight line basis, to a cumulative maximum amortization claim of 100% of the original capital cost of the processing assets, where the capital cost to be amortized includes initial capital investment in the processing assets, plus sustaining capital invested to maintain or enhance the productivity of the processing assets. 

The costs of any common facilities and infrastructure serving both the mine and the processing plant should be allocated proportionally on the basis of usage between the mine (as deductions from revenue) and the processing plant (as operating costs or amortization within the processing charge). It is recognized that as usage can vary over time, the proportional allocation of capital costs should reflect average expected usage over the operating life of the mine and the processing assets.

Interest on debt, carrying charges and other financing costs are not eligible for inclusion in processing charges.