IN THE SUPREME COURT 
OF THE NORTHERN TERRITORY
OF AUSTRALIA
AT DARWIN

No 111 of 1992
(9209002) 

						
	BETWEEN:
	NORTH FLINDERS MINES LIMITED
	Plaintiff

	AND:
	NEIL CONN as under-treasurer of
	NORTHERN TERRITORY TREASURY
						
	Defendant

CORAM:   MILDREN J

	REASONS FOR JUDGMENT
	(Delivered 30 January 1995)

This action concerns the proper interpretation to be given to the provisions of the Mineral Royalty Act. 

The defendant is the under-treasurer of the Northern Territory Treasury, the department primarily responsible under the treasurer of the Northern Territory for the administration of the Mineral Royalty Act 1982 as amended, and is sued in his capacity as such. 

The plaintiff owns and operates a mine situated in the Tanami Desert in the Northern Territory, approximately 550km north west of Alice Springs, known as the "Granites Mine". Ore containing gold and other minerals at varying grades is mined by open-cut and underground methods from ore bodies situated within mineral lease MLS8 granted to the plaintiff in 1984 and Gold Mining Leases 60 to 70G granted to the plaintiff in 1983. Further ore is mined within mineral lease ML154, known as the "Dead Bullock Soak", located approximately 40km west of the "Granites Mine". ML154 was granted to the plaintiff in 1991. Ore mined from ML154 is conveyed by truck to the Granites Mine for processing.
 
At the Granites Mine the plaintiff has constructed a metallurgical process plant within the boundaries of MLS8 which was commissioned in 1986.  All ore mined from within   ML154, MLS8 and Gold Mining Leases 60 to 70G is processed through this plant. 

The ore is processed by crushing followed by wet grinding to a fine powder.  Concentrates containing approximately 92% gold are then produced by a gravity process. The concentrate is in the form of fine grained sand containing gold, silver and other metals and heavy mineral particles. A further concentrate is produced by means of cyanide leaching followed by a carbon-in-pulp process. This concentrate is recovered through electrolytic cells and is in the form of a fine grained residue containing approximately 90% gold together with silver and other metal particles. 

Both of these concentrates are then oven dried and smelted separately in batches within a gas fired furnace. The molten metal consisting of gold silver and other metals such as iron is poured into bars known as "dore" having an average weight of approximately 20 kilograms. The metal content of these dore bars is typically but not invariably 93% gold, 6% silver and 1% other metals and impurities.  These bars of dore are the final product of production at the mine site.  The bars are then removed by air to the Perth Mint in Western Australia for refining into gold and silver metals. 

The plaintiff has a contractual arrangement with TNT Security to remove the bars of dore from the mine site to the Perth Mint.  TNT Security take possession of the dore only for the purposes of delivery to the Mint. The dore remains the property of the plaintiff.  On the day bars of dore are poured at the mine site production unit, a security officer from TNT Security travels from Alice Springs to the Granites Mine by air.  In his presence the numbered bars of dore are weighed and drill samples are taken from each. The shipment weight of dore is recorded and a copy given to the Security Officer. The drill samples are weighed and sealed in an envelope for retention at the mine site.  The security officer then locks and seals the dore bars into containers and takes possession of them.  He travels to Alice Springs on the plaintiff's normal chartered aircraft with the boxes of dore bars which are briefly stored in Alice Springs by TNT before being loaded onto an aircraft carrying TNT Freight to Perth where they are delivered by TNT to the Perth Mint. 

Refining of dore bars is carried out by the Perth Mint normally within 3 days of shipment from the mine site. The Perth Mint provides the plaintiff by facsimile to the mine site and to the head office of the plaintiff in Adelaide a "memorandum of out-turn" detailing the dore bar number, its total weight, its melted weight, the weight of gold, the weight of silver and the weight of other metals which it has produced. This information is checked at the mine site. It is then recorded in the metal accounts of the plaintiff showing the net ounces of fine gold and silver contained in the dore bars removed from the mine site. If the out-turn is consistent with the expectation of the plaintiff derived from the drill samples obtained at the mine site, the drill samples from the bars of dore in question are remelted. If there is any departure from those exceptions and occasionally in any event, drill samples are sent for a confirmation assay by an independent laboratory. 

The mint receives on an approximately weekly basis, shipments of dore from the gold mining operations of the plaintiff as well as dore for assay and refining from many other producers in Australia and South-East Asia (as well as from private prospectors) in varying quantities ranging from very large amounts from some of the world's largest mines, to very small amounts from individual prospectors. 

On arrival at the mint, the dore is weighed and given a description and a number on the mint's computer system which includes a "deposits receipt" register. Each batch of dore is given a "lodgement number" and a computerised receipt is printed on that basis. The weight and lodgement number is also recorded by hand in a register book. A ticket with a lodgement number on it is then placed with the dore and remains with it for the whole of its processing time through the Perth Mint until the assay results are known. 

Each batch of separately identified dore bars is then melted in an electric induction furnace and stirred in that furnace to homogenise their content. Samples are taken. The melted dore is then poured into moulds to create ingots which are numbered prior to final weighing. This process is known as the "rough gold circuit". The ingots are then locked away into a strong room until the assay results are known. This normally occurs and the customer is notified within two days of lodgement of the dore. The assay results together with the date of lodgement, the original bar number, the lodgement number, the receipt weight, the weight after melting and the gold and silver content together with deductions and charges are recorded in a document known as the "memorandum of out-turn" to which I have previously referred. After receipt of the memorandum of out-turn, the plaintiff has the right to trade the gold and silver content recorded in that document because the mint knows that it has that amount of gold and silver in hand even though it is not yet in a finally refined state. 

After production of the memorandum of out-turn, all of the ingots produced in the rough gold circuit are consolidated into half tonne batches for the final refining process. Gold from all sources is used to create these half tonne batches which are melted in a furnace and by virtue of a process known as "Miller Chlorination" the material in the furnace is steadily refined into pure gold by the injection of chlorine gas which turns the silver and base metal contents into chloride which are then removed from the molten product. As the chlorides are produced and removed the gold gains in purity and when the desired purity level has been achieved the gold is poured into "London Good Delivery Bars" which then can be traded throughout the world. At this stage the identity of the individual parcels of gold is lost and neither the plaintiff nor any other gold producer has any right to its "own" gold. The gold producer simply has a right as against the mint to the amounts of gold and silver described in the memorandum of out-turn documentation and credited to an account in accordance with their instructions. 

In the case of the plaintiff the gold and silver content is credited to an account held by the plaintiff with the Macquarie Bank. The mint is not privy to the arrangements between Macquarie Bank and the plaintiff but simply notifies the bank of the amount of gold which has gone into the account for the credit of the plaintiff and an invoice is created and dispatched to the mine for the mint's refining fees. 

Prior to the time of final refinery, the credit which the plaintiff receives to its account with the Perth Mint is what is known as "unallocated". After the gold has been fully refined the credit is called "allocated".  The word "allocated" indicates that there is a physical bar or bars in support of the plaintiff's metal account balance. Essentially this means that the plaintiff or any other person to whom that bar or bars may have been sold can physically remove the bar or bars of pure gold from the Macquarie Bank.  In the case of unallocated metal there are no physical bars which can be removed. The individual bars of gold held by the Perth Mint are not numbered. 

The arrangements between the Macquarie Bank and the plaintiff are of long standing. The plaintiff's metal account with the Perth Mint is in fact in the name of the Macquarie Bank with a sub-account name being in the name of the plaintiff, so that when the gold is processed and a memorandum of out-turn is given, the credit is given to the bank's account rather than to an account held directly in the plaintiff's name. The account which the plaintiff has with the bank is in the nature of a bank account. The account at the Perth Mint between the plaintiff and the mint and the bank is established in that manner for convenience. 

The account which the plaintiff has with the Perth Mint in the name of the Macquarie Bank records that the plaintiff has allocated or unallocated gold, as the case may be, in terms of ounces of gold.  This credit is not represented by a money figure. In order for the plaintiff to convert its gold into money the plaintiff must sell the gold.  This the plaintiff does through the Macquarie Bank in a variety of ways.  During the financial years 1986-1991 the plaintiff entered into a variety of contracts for the forward sales of gold and a variety of other gold-related transactions such as the entry into and closing out of options.  Gold prices are particularly volatile and there can be quite marked fluctuations in the price of gold even during the course of a single day.  Gold producers such as the plaintiff have a variety of options available to them to sell their gold in the market place.  These options include selling their gold at what is called the "spot price", by forward sales contracts which usually guarantee a minimum price often with a right of election to the seller to sell at a minimum price or the spot price whichever is the higher, and on occasions forward sales contracts were entered into where payment was made in advance of delivery.  As part of the plaintiff's financial arrangements it also had a gold loan facility with Mase Westpac which, as I understand it, enabled it to trade in gold up to the limit of its facility. The plaintiff also sold gold to Mase Westpac as well as to Macquarie Bank and a number of another institutions. 

In each of the years 1986-1987, 1987-1988, 1988-1989, 1989-1990 and 1991-1992 the plaintiff's total gold sales was less than its total production. It had steadily built up a significant credit balance. In the years 1990 to 1991 sales exceeded production. 

The issues in this case relate to the construction of the provisions of the Mineral Royalty Act which imposes a liability for the payment of a royalty upon the plaintiff.  S9(1) provides:

"9. ROYALTY

(1) There is payable under this Act to the Crown in the right of the Territory a royalty in respect of all minerals vested in the Crown in the right of the Territory obtained from a production unit in a royalty year." 

The words "production unit" are defined by s.4 to mean:

"(a)A mining tenement; or
(b)	where 2 or more mining tenements are being
operated as part of an integrated operation, 
those mining tenements, together with such 
facilities, if any, within the Territory and 
whether adjacent to the mining tenement or 
tenements or not as are essential for the 
production of a saleable mineral commodity from 
a mineral obtained from the mining tenement or 
tenements.” 

It is not in dispute that the plaintiff's tenements together constituted a production unit for the purposes of the Act. 

S.4 defines "saleable mineral commodity" to mean:

" ... a mineral treated to an extent that is, in the opinion of the Minister, the minimum treatment necessary to enable that mineral to be sold commercially, having regard to the nature and location of the mineral, the mining tenement or tenements of the production unit and the market." 

It was not contended that the dore was a "saleable mineral commodity". The evidence is that there is no market for dore. 

The word "mineral" is defined to mean by s.4 to mean:

"(a) a naturally occurring -

(i) 	inorganic element or compound, including an inorganic carbonate compound; or
     (ii) 	organic carbonate compound,

obtained or obtainable from land by mining, whether carried out under or on the surface of the land." 

The first question to be determined is whether the mineral in this case is dore, as the plaintiff contends, or whether it is gold and silver as the defendant contends. I will return to that question later. 

S.10 of the Act provides for the rate of the royalty to be paid and is in the following      terms:

"10. 	RATE OF ROYALTY

(1) 	The royalty payable under s.9 is 18% of the net value of a mineral commodity sold or removed without sale from a production unit in a royalty year, but where that net value is -

(a) 	$50,000 or less, the royalty payable is nil; or
(b) 	more than $50,000, the royalty otherwise payable is reduced by $9,000.

(2) 	For the purposes of subsection (1), the net value in a royalty year is calculated in accordance with the following formula:

GR - (OC+CRD+EEE)
where -
GR is the gross realisation from the production unit in the royalty year;
OC is the operating costs of the production unit for the royalty year;
CRD is the capital recognition deduction; and
EEE is any eligible exploration expenditure." 

The second question which arises in this case is whether the mineral commodity, whether it is dore, gold or silver, was sold or removed without sale from a production unit in a royalty year. The plaintiff contends that the mineral commodity was removed without sale. The defendant contends that it was not or that even if it was it was nevertheless sold in a royalty year and that therefore the royalty is to be calculated upon the basis that is applicable to a mineral commodity sold rather than on the basis of mineral commodity removed without sale. I will return to this problem in due course. 

S.4 defines "royalty year" as follows:

""royalty year", in relation to a production unit, means the fiscal period, not exceeding 12 months, for which the accounts of a royalty payer have been, or are, ordinarily made up by the royalty payer, or such other fiscal period that may be approved for purposes of this Act, in either case being a fiscal period commencing on or after the date on which this Act first applied to or in relation to the production unit." 

In the present case the fiscal period used is the financial year. 

S.4A of the Act provides an interpretation of the words "gross realisation". That section is as follows:

"(1) 	In this Act, "gross realisation", in relation to a production unit, means -

(a)	the sum of -

(i)	the gross values of mineral commodities produced by the production unit in a royalty year that have been sold or removed without sale from that production unit;
(ii)	any amount received by way of insurance, indemnity or guarantee for or in respect of the loss of a mineral commodity from the production unit the value of which, if the loss had not occurred, would have been taken into account in calculating gross realisations;
(iii)	where, pursuant to a law in force in the Territory, the sale or disposition of a mineral commodity from a production unit is prohibited except to such persons or subject to conditions as may be specified, any amount received as the price or compensation for the mineral commodity; and
(iv)	any gain realised on the sale of assets of the production unit;
(b)	less -
(i) 	any loss incurred on the sale of assets of the production unit; and
(ii)	any negative net value under section 10 brought forward from previous royalty years that has been approved.

(2)	Where the sale price for mineral commodities has been fully or partly paid more than 180 days before the purchaser takes physical delivery of the mineral commodities then, for the purposes of this section, the value of those mineral commodities shall be the sale price or part-paid increased by such sum as would represent interest on the sale price or part-paid at a rate equivalent to the arithmetic mean of the published daily yields on Australian Federal Securities most closely approximating 10 years to maturity plus 2% for the period commencing with the receipt of the sale price or part-paid and ending with the delivery of the mineral commodity.

(3) 	Where mineral commodities are removed from a production unit without sale (whether on consignment or otherwise) then, for the purposes of this section, the mineral commodities shall be valued - 

(a)	where guidelines have been promulgated pursuant 
to s.4E - in accordance with those guidelines;

(b)	where the Secretary has given an opinion pursuant to s.4F - in conformity with that opinion; or

(c)	in any other case -

(i)	At an amount equivalent to the price which 
would be received for the mineral commodities on the open market; or
     			
(ii)	at such other amount as the royalty payer 
may establish andsubstantiate as being the value.

(4)	No interest earned which is referable to the 
operations of a production unit shall be taken into 
account in calculating gross realisation." 

It is common ground that no guidelines or opinion had been given pursuant to s.4A(3)(a) or (b). S.4B contains a definition of the expression "operating costs". I will not set out that section in full, which is rather lengthy, but essentially it means "expenditure which was reasonable in amount and which is directly attributable to, the production, or maintenance for the purposes of production, or the sale or marketing of the mineral commodity of a production unit" and it includes various office expenses, rentals, legal fees and accounting and auditing fees necessary for the proper administration of the production unit. 

The plaintiff contends that the gross values of the mineral commodities are to be calculated on the base of the spot price of gold and silver on the date of receipt of a memorandum of out-turn less the refining and transport costs, (relying upon s.4A(3)(c)(i)), or alternately, if the mineral commodity has been produced by the production unit and sold then the basis for valuing the gold is the spot price on about the date on which the plaintiff receives the memorandum of out-turn most approximately to the date on which the forward sale occurs. The defendant contends that the gross values of the mineral commodities is prima facie the price paid for the gold sold in a royalty year. 

What is the relevant mineral commodity? 

The first thing to be observed about the Mineral Royalty Act is that the Act applies to all minerals except soil, sand, gravel, clay and stone. In particular it is not an Act which specifically deals with mineral royalties solely on gold. There are a wide ranging number of minerals in the Northern Territory to which the Act may apply other than gold, including silver, wolfrem, bauxite, tin, copper, manganese, uranium and iron. 

The second observation is that s.10 contemplates that a royalty is to be paid on the net value of the mineral commodity sold or removed without sale with the consequence that the meaning to be given to what is the relevant mineral commodity may depend upon the precise time at which the gross valuation of the mineral commodity is to be fixed. Further the definitions of "mineral commodity" and "saleable mineral commodity" recognise that naturally occurring minerals may go through several processes to treat those minerals before they are able to be sold commercially. 

Clearly gold, and for that matter, silver, are both minerals as they are naturally occurring inorganic elements. Neither of those elements easily form compounds. Gold in its naturally occurring state is not found as a compound. A number of other metals are usually found, in their naturally occurring states, as compounds. The definition of "mineral" specifically refers to compounds whereas the definition of "mineral commodity" refers to "a mineral or substance derived from a mineral at any stage of treatment of that mineral up to the time it first becomes a saleable mineral commodity". The definition of "mineral commodity" therefore includes, (because the definition uses the word "mineral"), naturally occurring inorganic elements and compounds and it includes substances derived from naturally occurring minerals or compounds. 

The defendant submitted that dore could never be a mineral commodity because it was neither a mineral nor a substance derived from a mineral. 

Clearly dore is not a compound. It is an alloy, amalgam or mixture of gold and silver as well as other impurities. Mr Hemmings QC, who appeared for the defendant, submitted that it was a scientific absurdity to call dore a substance derived from a mineral. He conceded that dore was a substance but his point was that the substance was not derived from a mineral or for that matter from minerals. His submission was that dore was a substance comprised of minerals but it was incorrect to describe it as a substance derived from minerals. In support of his submission Mr Hemmings referred to the definition of the word "derived" from the Oxford English Dictionary: "Drawn, obtained, descended, or deduced from a source". The dictionary definition of "derive" includes, in chemistry, "to obtain (a compound) from another, as by partial replacement". The Macquarie dictionary defines "derive": "to receive or obtain from a source or origin". It also gives a chemical definition: "to produce (a compound) from another compound by replacement of elements or radicals." 

Mr Finklestein QC for the plaintiff submitted that dore was a mineral commodity either because it was a mineral as defined or because it was a substance derived from minerals at a stage of treatment of those minerals prior to the time they first become saleable mineral commodities. 
I do not accept that dore is a mineral. The dore is produced as a result of a process. It is not a naturally occurring inorganic element or compound obtained or obtainable from land by mining. Mr Finklestein drew attention to the fact that in the definition of "mineral" there is specific reference to compounds whereas in the definition of "mineral commodity" there is no reference to compounds but there is instead reference to "substance derived from a mineral". He submitted that the change in language indicated that the legislature intended to include substances which were amalgams or alloys. 

If one has regard to the definition of "saleable mineral commodity" it is my opinion that only a "mineral" as defined (and that would include a compound of that mineral) is contemplated by the definition. Further, on the facts of this case, the dore was not a saleable mineral commodity because there is no commercial market for dore for the simple reason that the amount of gold and silver in each bar of dore is never the same. The end product of the refining process is effectively pure gold and pure silver not an amalgam or alloy of the two metals. Therefore the saleable mineral commodity would be gold or silver once it had been fully refined. Consequently, in the definition of "mineral", the substance referred to in this case must be gold or silver, not dore. 

Further I think that the defendant's submission is correct. Dore is not a "substance derived from a mineral". It is a substance comprised of minerals but it is not derived from them. 

I therefore find that the "mineral commodities" with which we are concerned in this case are the base elements gold and silver. 

Were the mineral commodities removed without sale? 

Mr Finklestein QC's argument was that the dore was removed from the production unit and sent to the Perth Mint, and was never sold either to the Perth Mint or to anybody else. Insofar as the mineral commodities were the base metals of gold and silver it was his submission likewise that the actual gold and silver removed from the production unit when the dore was sent to the Perth Mint had not at that stage been sold to anybody and nor was that precise gold and silver sold by the plaintiff to anybody any later time after it had been refined. Essentially his argument was that the facts showed that the plaintiff's gold contracts did not relate to the gold that had been removed from the production unit but related to gold or gold credits otherwise acquired or to be acquired from the Perth Mint or the market place. Further it was his submission that even if the gold and silver that had been removed from the production unit had been sold after removal the royalty was to be based upon the net value of the mineral commodity at the time it was removed without sale and not at the time that it was sold. The defendant on the other hand submitted that gold disposed of under a forward sales contract in a royalty year was sold rather than removed without sale within the meaning of s.10. 

The defendant further contended that even if the gold had been removed without sale in a particular royalty year, if it was later sold in the same royalty year the royalty was to be paid on the basis that it had been sold rather than on the basis that it had been removed without sale. The defendant further contended that the word "sold" in s.10 did not have the same meaning as it has under the Sale of Goods Act. The defendant contended that it had a broader meaning than this and it included an agreement to sell. 

It is my view that the language of the Mineral Royalty Act does not support the defendant's contentions. The rate of the royalty depends upon the net value of a mineral commodity sold or removed without sale in a royalty year (see S.10(2)) which in turn depends upon the definition of "gross realisation". S.4A(3) provides that

"where the mineral commodities are removed from a production unit without sale (whether on consignment or otherwise) then, for the purposes of this section, the mineral commodity shall be valued ..." 

The language of s.4A(3) is mandatory. The consequence of giving s.4A(3) a mandatory interpretation is that if the mineral commodities were subsequently later to be sold after having been removed without sale, for the purposes of the definition of "gross realisation" they are nevertheless to be valued in accordance with s.4A(3). Mr Finklestein argued that the expression "sold or removed without sale from a production unit in a royalty year", found in s.10 of the Act should be interpreted so that the words "from a production unit" qualified both the word "sold" and the words "removed without sale". Mr Finklestein submitted that if a mineral commodity had been sold from a production unit in a royalty year it could not also be removed without sale from the production unit in a royalty year so that then no question could then arise as to which was the proper basis of calculating the net value. I accept this submission. I think if Parliament had intended the words "from a production unit" to qualify only the expression "remove without sale", it would have drafted s.10 somewhat differently. The defendant's contention on the other hand was that the words "from a production unit" in s.10 qualified only the expression "remove without sale". The difficulty with that interpretation and with the defendant's argument as a whole is that it would leave the statute entirely unclear as to the basis for the valuation of the gross realisation from the production unit where the mineral commodity had been both removed from the production unit and later sold. In order to met this difficulty Mr Hemmings developed an argument that in such a case the proper method of valuation would be to give priority to the time of sale rather than to the time of removal. Mr Hemmings' submission was that this intention was to be discerned by reading the Act as a whole. He submitted that the Act as a whole and the Second Reading Speech discerned a clear intention for the royalties to be based not on production and revenue ad valorem but on a profits system based on actual revenues in the royalty year. His submission was that the intention of Parliament was that primarily royalties would be calculated on the actual amount produced from the production units i.e. actual revenues produced from the production units less actual expenditure. He submitted that what the legislature set out to do was to reject a taxing or rating approach and the reason for this was to encourage the production of gold by relating it to profits. He submitted that there needed to be an alternative method of valuation where the minerals had been removed without sale, for example, where the minerals had been stolen or were compulsory acquired. As part of this submission it was submitted that the expression "gross values" in s.4A(1)(a)(i) should be construed to include the prices actually obtained for the mineral commodities. It was submitted that the language of the Act as a whole indicated an intention that the royalty base was to be derived wherever possible from actual revenues and actual expenditures derived and incurred by a producer. For example, in s.4A(1)(a) and (b) there are a number of items which he submitted are examples of value to the producer and therefore refer to actual revenues, compensation and expenditures derived and incurred by a producer, none of which are hypothetical or market values. In s.4B(1) which deals with expenditure, my attention was drawn to the definition of "operating costs" which clearly dealt with actual expenditure directly attributable to the "production, or maintenance for the purposes of production, or the sale or marketing of the mineral commodity by a production unit". It was submitted that the inclusion of actual expenditure on sale or marketing was a strong indication of legislative intention that "gross values" in s.4A(1)(a)(i) meant actual proceeds of sale. Similarly it was submitted that s.4C(1) referred to actual expenditure as did "eligible exploration expenditure" (s.4) and that the royalty returns required by s.12(g) and (h) required details of all sales or shipments of a mineral commodity and details of all contracts and save or exchange agreements relating to a mineral commodity. Similarly s.17 required the producers books of account to show details of sales, shipments, transfers and other disposals of a mineral commodity. 

There are a number of difficulties with this contention. First s.4A(2) specifically refers to sale price and s.4A(3) specifically refers to an amount equivalent to the price whereas in s.4A(1)(a)(i) the language employed is "gross values". Even if "gross values" means the value to the owner as opposed to the market value it does not necessarily mean that the triggering event for the payment of the royalty becomes the sale where the sale has occurred after the mineral commodity has been removed without sale. So far as expenditures are concerned regardless of whether the royalty is based on actual receipts from production or on the hypothetical open market value, s.4A recognises that actual receipts are to be deducted in either case. Furthermore, s.4A(3)(c)(ii) provides the royalty payer with the opportunity, (although perhaps it is the obligation) of establishing and substantiating another amount other than the hypothetical open market price as being the value. It was submitted that this would only occur where the royalty payer believed that the "other amount" established and substantiated under that subsection would result in a lesser royalty than a royalty based upon the hypothetical open market price. Another problem which I find intractable in the defendant's submission is that if the goods had been removed without sale in one royalty year and sold in the next royalty year (and this could occur only in a matter of weeks apart), there is nothing which I can find in the Act which leads to the conclusion that in those circumstances the royalty is to be calculated upon the sale price. The defendant's submission as I understood it was that the actual sale price would be applied only where the sale occurred in the same royalty year as the mineral commodity had been removed without sale. That does not seem to be a very sensible distinction for the legislature to have made. Yet the Act does not provide any mechanism for making an adjustment for royalty purposes if, for example, the royalty has been calculated on basis of removal without sale in one royalty year and the mineral commodities have been sold in the next. 

I think that the intention of the legislature must have been that the royalty be fixed upon the triggering event which occurred first. This carries with it the consequence that unless the mineral commodity has been sold before it has been removed without sale the value will be calculated in accordance with s.4A(3). 

Whilst that might mean (assuming "sale" does not include agreement to sell) that in the case of gold, in practical terms the royalty will always be paid on the basis of a removal without sale because the Perth Mint is the only refiner of pure gold in Australia, it does not necessarily follow that the same would apply to all other minerals or even to the majority of all other mineral commodities. Clearly the Act contemplates that where the particular mineral needs to be refined before it becomes a saleable mineral commodity as defined and the refinery is in the Northern Territory, the appropriate calculation is less likely to be based on s.4A(3) for the purposes of determining the gross values. This follows from the definition of "production unit" and the definition of "saleable mineral commodity" because a production unit is defined to include "such facilities, if any, within the Territory and whether adjacent to the mining tenement or tenements or not as are essential for the production of a saleable mineral commodity" and s.4A(1)(a)(i) refers to "the sum of the gross values of mineral commodities produced by the production unit in a royalty year that have been sold etc." (emphasis mine). As a practical matter, mineral commodities which are refined into saleable mineral commodities at the production unit are likely to be sold from the production unit. But where the mineral commodity is not in fact a saleable mineral commodity because it needs to go through a final refining process and the refinery is not within the Territory, that refinery is not part of the production unit and consequently the prices received on the ultimate sale of the saleable mineral commodity is not the same as "the gross values of commodities produced by the production unit in a royalty year" for the simple reason that the final processing took place outside the Territory. Consequently s.4A(3) would appear to be the appropriate provision in any case where the mineral commodity is not a saleable mineral commodity. In such a case it is difficult to see, if the mineral commodity is not saleable, how it can have a gross value by reference to price although the mineral commodity no doubt has a value. Of course subsection 4A(3) might also apply to a saleable mineral commodity which is removed from a production unit without there being a sale should this in fact occur. These conclusions are reinforced by s.4B which limit the operating costs which may be deducted to expenditure "directly attributable to, the production, or maintenance for the purposes of production, or the sale or marketing of the mineral commodity of a production unit". (emphasis mine) In other words, in the case of refining costs needed to be incurred and which are incurred by a refinery outside of the boundaries of the Northern Territory and which are essential for the production of a saleable mineral commodity from the minerals obtained, there is no provision for the deduction of those costs. Consequently it would be inequitable if gross values were to be determined solely by reference to the prices obtained for the end product in its refined state so as to turn it into a saleable mineral commodity if part of the direct costs so incurred could not be deducted. I do not think that the legislature would have intended such a consequence. 

This also points to the proper meaning to be given to the word "sold" in s.10. In the case of a mineral commodity which is not a saleable mineral commodity it is difficult to see how there can be a sale of that commodity. If a producer enters into forward selling contracts in relation to his production what he is ultimately selling is almost certainly going to be the refined product. This is inevitable in the case of gold or silver. Therefore, even if the word "sale" or the word "sold" in s.10 could refer to agreements to sell, the mineral commodity that is being sold is not precisely the mineral commodity in the form that has been removed without sale. The definition of mineral commodity contemplates that the mineral may go through stages before it becomes a saleable mineral commodity. In reality however what is really being sold is not the same as that which was removed without sale. What the plaintiff sold in the loose sense of the term was refined gold, but what he removed from the production unit was gold in its own unrefined state. Further, I consider that the proper meaning to be given to the word "sold" or "sale" in s.10 and in s.4A is the meaning that those words have under the Sale of Goods Act. First, there is no definition of those words contained in the Act. There is nothing in the wording of the Act to indicate that the words include agreements to sell. It would have been relatively easy for the draftsman to have defined the words to include an agreement to sell if that was the intention. Secondly because the ultimate refining costs are not deductible where the refining has taken place outside the Northern Territory, it would be inequitable for the royalty rate to be based upon agreements to sell commodities which are to be refined elsewhere where the refining costs are not able to be deducted. Thirdly, the word "sale" appearing in a statute is usually interpreted as having the same meaning as it has in the Sale of Goods Act: see for example CEB Draper and Son Limited v Edward Turner and Son Limited and Others [1965] 1 QB 424 Mischeff v Springett [1942] 2 KB 331 and Jansz v GMB Imports Pty Ltd [1979] VR 581. On the facts as I understand them to be in this case, most if not all of the forward sales were at best agreements to sell and no concluded agreement was reached until after the relevant mineral commodity had been removed from the production unit. In one or two cases there appears to have been a pre-sale i.e. the consideration had been paid before the mineral commodity had left the production unit. In that case as I understand the facts (although it is not necessary for me to make any formal finding) the gold was not appropriated to the contract until after the mineral commodity had left the production unit. If that is so, then once again those mineral commodities were removed without sale. 

What is the proper basis for arriving at the gross values? 

The plaintiff's contention that the gross values are to be calculated on the basis of the spot price for gold and silver on the date of the receipt of a "memorandum of out-turn" less the refining and transport costs is obviously incorrect. In my opinion the proper moment for establishing the value of the mineral commodities when they have been removed without sale is the moment when the commodities are removed from the production unit without sale. As, on the evidence, the spot price of gold and silver on the date of the receipt of the memorandum of out-turn is always some days after the date the mineral commodities have been removed from the production unit the plaintiff's contention cannot be correct. 

The relevant value, whichever method is used, must be fixed as at the date the commodities are removed from the production unit without sale. 
Section s.4A(3)(c)(i) is not applicable in the circumstances because there is no open market for the mineral commodities. The method of assessment must therefore depend upon s.4A(3)(c)(ii) - in other words there is a duty cast upon the royalty payer to establish and substantiate the value of the mineral commodities. In the circumstances of this case it is difficult to see how the forward selling contracts have any relevance to this value. The defendant's contention is that the existence of a contract showed that the mineral commodities had a value peculiar to the plaintiff, but I do not necessarily accept that contention. I think that might depend upon the circumstances. Gold is a freely tradeable commodity and if the plaintiff were in a position to get a better price than the spot price for gold by virtue of contractual arrangements which it had entered into, the plaintiff could take advantage of that contractual right irrespective of whether it was a gold producer or not. On the other hand, if under its forward selling arrangements the plaintiff was obligated to sell gold at a particular time at a price that which was less than the current market price of gold it would incur a liability irrespective of whether it produced anything. Either it purchased gold on the open market and sold at a loss in order to meet its contractual obligations or it produced its own gold for the purpose of enabling it to meet its contractual obligations in which case whether it made a loss would depend upon its costs of production and refining costs etc. In such a circumstance it may well get less than the market price, but still make a profit. Alternatively it may at least be able to limit the extent of its loss. In those circumstances it seems to me that the plaintiff would be able to establish that a mineral commodity in the state in which it existed at the time of removal had a peculiar value to it and in those circumstances it seems to me that it would be appropriate to have regard to that value. However it is not necessary for me to reach any firm conclusions about this matter. I accept the defendant's contention that the word "value" in s.4A(3)(c)(ii) is not necessarily the same as the spot price of gold on the relevant date. In my opinion the word "value" in the subsection must mean the value to the plaintiff in its actual condition at that time with all its existing advantages and its possibilities. This is the appropriate test where there is no market: see Abrahams v Federal Commissioner of Taxation (1944) 70 CLR 23 at 30-31. What that particular value may be depends upon the facts. The existence of forward selling contracts may or may not be relevant to that exercise, as I have attempted to demonstrate. 

CONCLUSIONS

The declarations which the plaintiff seeks in the statement of claim are as follows. 

First, the plaintiff seeks a declaration that the method adopted by the plaintiff in arriving at the gross values of the mineral commodities produced by the production unit set out in paragraphs 12 and 13 of the statement of claim is correct. Paragraph 13 shows that the plaintiff has adopted as the value and the basis of the valuation of the mineral commodities removed without sale from the production unit the value and basis set out in paragraph 12. Paragraph 12 provides:

"The spot price of gold (and silver) on the date of receipt of the said out-turn netted back by the costs of refining the mineral commodity (dore) and the removal by transport of the mineral commodity (dore) from the production unit is the amount equivalent to the price which would be received for the mineral commodity on the open market." 

For the reasons given I do not think that the plaintiff is entitled to a declaration in those terms. 

Alternatively the plaintiff seeks a declaration to the effect that the contention of the plaintiff in paragraph 15.2 of the statement of claim is correct. That contention is as follows:

"The plaintiff contends ... that upon the proper construction of the Mineral Royalty Act, and in the events that have happened, "the gross values" within the meaning of section 4A of the mineral commodities produced by the production unit in a royalty year that have been  delivered pursuant to forward sales are the respective spot prices on or about the dates on which the plaintiff receives the memoranda of out-turn from the Perth Mint referred to in paragraph 10 hereof, most proximate to the date upon which the forward sale contract matures." 

For the reasons I have given I do not think that the plaintiff is entitled to that declaration either. Accordingly the relief is refused. I will hear the parties on the question of costs.