B.C.'s largest mining company may have significantly more money to either reinvest or return to its shareholders in the form of dividends.
That's because Teck Metals Ltd., a subsidiary of Vancouver-based Teck Resources, has won a tax ruling against the B.C. Ministry of Finance in B.C. Supreme Court.
The provincial tax collector previously ruled that Teck could only write off 50 percent of its exploration costs on the Galore Creek Mine on its 2011 and 2012 tax returns.
Teck successfully argued that it was entitled to claim 100 percent of the exploration costs for the project, which is planned on Tahltan traditional territory.
That added up to more than $10 million in the 2010 and 2011 fiscal years.
The Mineral Tax Act requires taxes to be paid on a proportionate share of the profits, minus exploration costs incurred during that year.
"An operator of more than one mine in British Columbia in a year may elect to have exploration costs incurred in that year for one of the mines treated as exploration costs of one of the other mines for the purposes of determining its liability under the MTA for each mine," Justice Laura B. Gerow wrote in her decision.
As a result, Teck is able to claim 100 percent of the Galore Creek mine's exploration costs against its giant Highland Valley mine near Kamloops.
Gerow based her ruling on a partnership agreement with Teck Metals and NovaGold.
It stated that Teck was required to fund the entire $520.5 million to develop the Galore Creek mine in northwestern B.C. This is despite Teck only holding a 50 percent interest in the partnership.
To satisfy its initial funding commitment, Teck was required to contribute $77.6 million, according to the agreement.
Teck argued that the language in the agreement proved that it was obliged to pay all exploration costs.
The B.C. government countered in court that the partnership agreement only required it to make contributions to GC Corporation. GC would then incur costs on behalf of itself.
Gerow sided with the company.
"The fact the petitioner was required to pay those expenses is further acknowledged in article 9.10(b) of the GC Partnership Agreement which sets out the parties’ agreement that the petitioner was entitled to claim 100% of these costs for purposes of the MTA," she wrote.
Tax implications not clarified in ruling
Gerow's decision did not outline the impact of her ruling on B.C. government revenues.
Nor did it explicitly state that Teck could claim the entire $520.5 million exploration cost outlined in the original partnership agreement against the Highland Valley mine's operating costs.
In 2019, the Highland Valley mine produced 121,300 tonnes of copper and 6.6-million pounds of molybdenum.
The mine's operating costs were projected to be $543 million in 2020.
"The Highland Valley copper mine is subject to the B.C. Mineral Tax which is a two-tier tax with a minimum rate of 2% and a maximum rate of 13%," the company stated in its annual information form filed with the U.S. Securities and Exchange Commission.
"A minimum tax of 2% applies to operating cash flows, as defined by the regulations. A maximum tax rate of 13% applies to cash flows after taking available deductions for capital expenditures and other permitted deductions."
If Highland were to reduce its operating costs by the full $520.5 million over several years rather than by $262.25 million, that would add up to $34 million in reduced taxes, based on the maximum tax rate.
The B.C. government has 30 days to file a notice of appeal in the B.C. Court of Appeal.
Meanwhile in 2018, Newmont Corporation purchased NovaGold's 50 percent share in the Galore Creek Mining Corporation.
In 2019, the Tahltan Central Government staff organized a trip for more than 40 youths from the Talhtan, Kaska, and Tlingit nations to attend a mining conference in Vancouver.
But this year, due to COVID-19 and economic uncertainty in the mining industry, expenditures have been curtailed on the Galore Creek project.
"A core team and funding are in place to meet current permit, environment and community obligations," the company states on its website.