Opinion ID: 493685
Heading Depth: 2
Heading Rank: 2

Heading: Is Electrowinning Mining?

Text: 15 Prior to 1960, the tax code defined mining broadly as the ordinary treatment processes normally applied by mine owners or operators in order to obtain the commercially marketable mineral product or products. United States v. Cannelton Sewer Pipe Co., 364 U.S. 76, 84, 80 S.Ct. 1581, 1585, 4 L.Ed.2d 1581 (1960) (Cannelton ). This definition had a major shortcoming: mining was defined in terms of the vague notion of a commercially marketable mineral product. In Cannelton, the parties could not agree about what the taxpayer's product was. The taxpayer, a clay and shale mine which marketed finished articles made from fired clay, claimed that all processes applied to obtain these commercially marketable mineral products should be recognized as mining. The Supreme Court disagreed, noting that the taxpayer could have sold its clay and shale in an unfinished state (though perhaps not at a profit). Accordingly, the Court held that mining ended when the clay and shale were extracted from the ground. Cannelton, 364 U.S. at 86, 80 S.Ct. at 1586. 16 The commercially marketable test and its difficulties were eliminated when Congress amended the depletion allowance statute in 1960, replacing the general definition of mining with a specific designation of those processes that would be considered as mining. Barton Mines Corp. v. C.I.R., 446 F.2d 981, 996 (2d Cir.1971). This specific designation of mining processes appears at Sec. 613(c)(4)(D); as explained above, electrolytic deposition is specifically excluded. 17 Sunshine tries to revive the pre-1960 general definition of mining by pointing to a current regulation which provides: 18 [T]reatment processes considered as mining, and the processes ... which are substantially equivalent thereto, will be recognized as mining only to the extent that they are applied to the taxpayer's ore or mineral for the purpose of separation or extraction of the valuable mineral product or products from the ore. Treas.Reg. 1.613-4(f)(4). 19 Sunshine argues from this passage that the depletion deduction statute must be given a functional analysis, that any process which separates valuable minerals from valueless ore should count as mining. Sunshine misunderstands the passage from the regulations. The regulations do not say that any process which separates valuable minerals from ore is mining; they say only that, even if a process is substantially equivalent to a listed mining process, it will not be considered as mining unless it separates minerals from ore. Since electrowinning is not substantially equivalent to precipitation, the passage quoted from the regulations is inapplicable. 20 Moreover, Sunshine's definition of mining is overbroad and self-defeating. It is overbroad because smelting and refining separate valuable minerals from ore, yet no one would argue that smelting and refining are mining processes. It is self-defeating if Sunshine insists that mining (including electrowinning) separates minerals from valueless ore. If the raw ore (or the leachate used in electrowinning) has no value, then no capital stock of ore is depleted and there is no reason to grant a depletion deduction. See Cannelton, 364 U.S. at 88, 80 S.Ct. at 1587. 21