ATO Interpretative Decision

ATO ID 2005/325 (Withdrawn)

Excise

• This ATO ID is withdrawn from 1 July 2012, the date the Energy Grants (Credits) Scheme Act 2003 was repealed.
  Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of the period the Act was in force, 1 July 2003 up to and including 30 June 2012.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does the exfoliation of perlite constitute the beneficiation of minerals for the purposes of paragraph 11(1)(b) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?

Decision

No. The exfoliation of perlite does not constitute the beneficiation of minerals for the purposes of paragraph 11(1)(b) of the EGCSA.

Facts

An entity recovers perlite from a mine site.

Perlite is a mineral for the purposes of the EGCSA.

The entity is planning to exfoliate the raw perlite. The exfoliation process involves introduction of raw perlite into a furnace operating at approximately 1,000 degrees C.

Perlite is a volcanic rock containing up to 6% of its weight as water in crystal within the ore. On introduction to temperature above the plastic limit of the perlite (around 600 degrees) the water in crystal is able to undergo a change in state and in the process minute air passages are created within the altered particles.

Reasons for Decision

Section 53 of the EGCSA provides that an entity is entitled to an off-road credit if it purchases off-road diesel fuel for a use by the entity that qualifies. Use in 'mining operations', otherwise than for the purpose of propelling any vehicle on a public road, is a use that qualifies.

The term 'mining operations' is relevantly defined in subsection 11(1) of the EGCSA and includes:

(b)

operations for the recovery of minerals, being:

(i)

mining for those minerals including the recovery of salts by evaporation; or

(ii)

the beneficiation of those minerals, or of ores bearing those minerals;

The nature of 'beneficiation' is discussed in Product Grants and Benefits Ruling PGBR 2005/2 Energy grants: off-road credits for mining operations. Paragraph 172 of the PGBR 2005/2 describes the general nature of beneficiation processes.

172. Beneficiation is not a term in ordinary English usage. It is a technical term applicable to a range of processes undertaken in the mining or metallurgical industries. It is used to describe a treatment to improve, upgrade or concentrate the quality of mineral bearing ore up to, but not including, the refining or final pyrometallurgical or hydrometallurgical process whereby metal is produced.

Paragraph 182 of the PGBR 2005/2 distinguishes a beneficiation activity from an activity undertaken to manufacture a particular product or improve the marketability of a product.

182. Whether or not a mineral or an ore is beneficiated is a question of fact, and will need to be determined on a case-by-case basis in light of technical evidence in the relevant mining industry. However, it is clear that 'beneficiation' is distinct from refining to produce metal, or the process of manufacturing, or a process, which results in the destruction of a recovered mineral.

Based on the rationale in these paragraphs, the exfoliation of perlite will constitute beneficiation if it is undertaken to improve, upgrade or concentrate the quality of mineral bearing ore. However, the exfoliation of perlite will not constitute beneficiation if it is more properly regarded as a manufacturing process, or a process that destroys the perlite.

The website of the Incon Corporation, a perlite manufacturer in the USA contains an article entitled 'Water Content in Raw (Unexpanded) Perlite' by Arthur D. Anderson which states:

Water in raw (unexpanded) perlite occurs in two main forms, free water and combined water.

Free water is simply wetness on the surface of the rock. It does little to effect the expansion process except to make handling more difficult and to consume energy otherwise needed for expansion.

The existence of the combined water gives the perlite its ability to expand and become what some have termed "the most versatile mineral in the world". The water has two effects: it lowers the softening point of the mineral, and it acts as the blowing agent which causes the molten rock to expand.

It is clear that the combined water in perlite, unlike free water, is an important and integral part of the ore. It is not unwanted water. If it was not for the combined water, the perlite in plastic form would not expand. Combined water also lowers the softening point of the mineral. This is an added benefit as it reduces the amount of energy required to soften the ore.

The website of the New South Wales Department of Mineral Resources states;

Industrial perlite is produced in two stages. Firstly, natural perlite is mined, beneficiated and graded near the mine site to yield crude perlite. In the second stage, which usually takes place near to centres of consumption, perlite is rapidly heated for a short time to temperatures between 800oC and 1000oC to yield expanded perlite, a sterile, ultra lightweight aggregate.

This indicates that the exfoliation of perlite is more properly regarded as a process undertaken in the manufacture of expanded perlite. It is not undertaken to improve, upgrade or concentrate the quality of the perlite.

In addition, the United States Census Bureau and the U.S. Bureau of Economic Analysis use the North American Industry Classification System (NAICS) to classify industries for various government statistical purposes. The NAICS classification is a standard adopted by the U.S., Canada and Mexico. The NAICS includes the classification;

"327992 Ground or Treated Mineral and Earth Manufacturing

This U.S. industry comprises establishments primarily engaged in calcining, dead burning, or otherwise processing beyond beneficiation, clays, ceramics and refectory minerals, barite and miscellaneous nonmetallic minerals."

Specifically included under this heading is 'Perlite, expanded, manufacturing'

In contrast, the NAICS classification system details a number of processes which 'are' considered to be beneficiation. The relevant extract appears below.

Establishments primarily engaged in crushing, grinding, pulverizing, washing, screening, sizing, or otherwise beneficiating mined clays, ceramics and refectory minerals, barite and miscellaneous nonmetalic minerals are classified in Industry Group 2123 Nonmetallic Mineral Mining and Quarrying."

Hence the NAICS has drawn a distinction between those activities that are more properly regarded as beneficiation and those that are deemed to occur beyond beneficiation.

Given the general acceptance, both within Australia and overseas of the line between beneficiation and manufacture, we conclude that the exfoliation of perlite is a manufacturing process beyond beneficiation.

Therefore, the exfoliation of perlite does not constitute the beneficiation of minerals for the purposes of paragraph 11(1)(b) of the EGCSA.

Legislative References:
Energy Grants (Credits) Scheme Act 2003
   paragraph 11(1)(b)

Related Public Rulings (including Determinations)
Product Grants and Benefits Ruling PGBR 2005/2

Keywords
EGCS beneficiation
EGCS mining operation

Business Line:  Indirect Tax

Date of publication:  25 November 2005

ISSN: 1445-2782