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Ad Valorem Taxation of Mining Properties

Thomas P. Brightwell, Proceedings of 15th Annual Rocky Mountain Mineral Law Institute (1969)

The mineral resources of the earth's crust are essentially unlimited. The mine operator, however, can mine and sell at a profit only where an ore deposit occurs. An ore deposit has been defined as a concentration of minerals or metals in or on the earth's crust that can be mined and sold at a profit.1

There are three basic types of taxes affecting the mining industry. These are (1) the income tax, (2) the ad valorem tax, and (3) the severance tax, including in this last type a variety of taxes which are imposed under the labels of sales, excise, license and privilege taxes. Each type of tax has its own unique effect on the mining cut-off point or break-even grade of ore that can be mined at a profit.

The classic problem is posed by the case of a bulk-low-grade deposit operating on a low profit margin with a high capital investment. This type of deposit is highly sensitive to cost changes such as taxation. When the state property tax is added to the fixed costs of the mining operation, the mine owner may not be able to operate at a profit even when operating technologically at full [282] capacity. When this situation occurs, the mine operator has two choices.2 He can close down the mine, writing off his costs as a lossanother unprofitable venture. In the alternative, the mine operator may raise the cut-off grade of ore, selectively mining only higher grade ore