ATO Interpretative Decision

ATO ID 2012/28 (Withdrawn)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• This ATO ID is withdrawn from 1 July 2012, the date the Energy Grants (Credits) Scheme Act 2003 was repealed.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

Is the concentration and separation of minerals being ilmenite, leucoxene, rutile and zircon from mineral sands considered to be beneficiation for the purposes of subparagraph 11(1)(b)(ii) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?

Decision

Yes, the concentration and separation of minerals being ilmenite, leucoxene, rutile and zircon from mineral sands by magnetic separation and electrostatic processes is considered to be beneficiation for the purposes of subparagraph 11(1)(b)(ii) of the EGCSA.

Facts

An entity engages in mineral sands mining in Australia. The entity produces ilmenite, leucoxene, rutile and zircon.

The mining process involves removing mineral sands from an open cut mine and running them through a washing process. The wet sludge produced during the washing process is then transferred through a pipeline to a processing plant.

At the processing plant the sand heavy mineral concentrates (HMC) are separated from the mud and organic substances through a series of spiralling wash facilities which create a centrifugal force. The HMC consists of ilmenite, leucoxene, rutile and zircon.

The HMCs are then dried and stockpiled prior to being moved to another facility by road transport.

At the second facility the HMCs undergo a magnetic extraction process whereby the ilmenite is extracted. The rutile and zircon are then further separated using a different type of magnetic separation, whilst the leucoxene goes through an electrostatic process. During these processes, no chemicals are added, and the chemical compound of the minerals remains the same.

After the separation processes the ilmenite, leucoxene, rutile and zircon is individually stockpiled prior to export.

Ilmenite, leucoxene, rutile and zircon are minerals for the purposes of the EGCSA.

Reasons for Decision

Subparagraph 11(1)(b)(ii) of the EGCSA states that the expression 'mining operations' means:

(b)

operations for the recovery of minerals, being:

(ii)

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

Therefore, mining operations are operations for the recovery of minerals and include the beneficiation of those minerals.

In this case it is necessary to determine whether the entity's processing activities are considered to be the beneficiation of minerals, being the beneficiation of ilmenite, zircon, rutile and leucoxene, for the purposes of the EGCSA.

Subsection 11(2) of the EGCSA provides for a number of exclusions in relation to the meaning of mining operations, however the exclusions do not apply in this instance.

To determine whether the particular processes applied by the entity constitute beneficiation it is necessary to consider the meaning of the term.

Beneficiation is not defined in the EGCSA; however the Commissioner's view on the meaning of beneficiation is discussed in Fuel Tax Ruling FTR 2006/2 (FTR 2006/2). Paragraph 67 of FTR 2006/2 provides that 'beneficiation' is a technical term applicable to a range of processes undertaken in the mining or metallurgical industries. The term 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.

The meaning of the term 'beneficiation' was discussed in Abbott Point Bulk Coal Pty Ltd v. Collector of Customs (1992) 35 FCR 371 (Abbot Point) in the context of the previous diesel fuel rebate scheme. This case is of relevance as it provides guidance on the meaning of the term.

In Abbott Point, Ryan and Cooper JJ said:

It is clear, in our view, that 'beneficiation' is not a term in ordinary English usage. It is a technical term applicable to a range of processes in the mining and metallurgical industries. Accordingly, its meaning is to be determined as a question of fact. ... Here, the Tribunal found, ..."beneficiation" denotes the processing of minerals or ore bearing minerals to improve their physical and chemical properties.

Ryan and Cooper JJ continued on to state:

The process of recovery includes, in our view, those steps which are taken by a miner before sale, by whatever process, to remove the mineral from that in which it is embedded or with which it is intermixed. Such a process comprehends the refining of minerals or ore to remove impurities naturally occurring in the material as it has been mined. Once the process of separation or refining has been completed, to subject the mineral product to a process or procedure designed purely to facilitate its better use as so separated or refined or to render it more readily or advantageously marketable, is not in our view part of the recovery process.

Therefore, beneficiation, which is a process of recovery, involves treatment to improve, upgrade or concentrate the quality of mineral bearing ore, including steps taken before sale to remove the mineral from that in which it is embedded or intermixed with. However, a point is reached when recovery of the mineral is complete, normally once the process of separation has been completed, and what is done thereafter is the application of a process or procedure to facilitate its better use, normally for market purposes. It is considered that such processes are not part of operations for the recovery of minerals and therefore fall outside the meaning of beneficiation.

In this case the entity engages in mineral sands mining to extract ilmenite, leucoxene, rutile and zircon. These are separately identifiable minerals.

The entity applies two separate and distinct processing phases - a wet concentration process and a dry concentration process.

Phase one of processing

In this case mineral sands are removed from the mine and subjected to wet concentration; this entails a washing process. The wet sludge, resulting from the washing process, is then transferred by pipeline to another processing plant where the HMC is separated from the mud and organic substances through a series of spiralling wash facilities. The HMCs are then dried and stockpiled prior to being moved by road transport to another facility.

The wet concentration phase can be described as a process of concentrating or separating the minerals as other substances are separated from the minerals during the process. Hence, this process enables the minerals to be removed from that with which they are embedded or intermixed with.

The Commissioner considers that these activities fit within the meaning of beneficiation for the purposes of the EGCSA.

Phase two of processing

At this stage the ilmenite, leucoxene, rutile and zircon are still intermingled. At the second facility the HMCs undergo a magnetic extraction process to separate out the ilmenite. The rutile and zircon are subsequently extracted using a different type of magnetic separation. An electrostatic process is then applied to separate out the leucoxene. After the application of these processes the minerals can be individually identified and are stockpiled separately.

As such the primary purpose of the second phase of processing is the separation or concentration of each mineral from the other substances with which they are intermingled. The substances that each mineral is being separated or concentrated from include the other minerals which make up the HMC.

The Commissioner does not consider that the further separation or concentration phase prevents the processing activities from being beneficiation, as the process is merely concentrating each separate type of mineral. Further, the minerals are not fully extracted until they are separated into mineral types, as they are not individually identifiable until this second phase is applied.

Further, in the context of the specific industry, being mineral sands mining, it is not uncommon for an entity to use multiple processes in the recovery of minerals. As mineral sands mining involves the recovery of HMC, which can consist of various minerals (as opposed to one mineral) it is reasonable that recovery may involve extraction or separation of a specific type of mineral from the other substances with which it is mixed or embedded, i.e. other minerals.

Subsection 11(5) of the ECGSA provides that in determining whether a particular process to which a mineral or ores bearing a mineral are subjected constitutes beneficiation of that mineral or those ores, regard has to be had to the nature of the technical process involved, rather than any market considerations.

The Commissioner considers having regard to the technical process to which the mineral sands are subjected that those processes constitute beneficiation for the purposes of the EGCSA.

Legislative References:
Energy Grants (Credits) Scheme Act 2003
   subparagraph 11(1)(b)(ii)
   subsection 11(2)
   subsection 11(5)

Case References:
Abbott Point Bulk Coal Pty Ltd v Collector of Customs
   (1992) 35 FCR 371

Related Public Rulings (including Determinations)
Fuel Tax Ruling FTR 2006/2

Related ATO Interpretative Decisions
ATO ID 2005/325

Keywords
Mining operations
Recovery of minerals
Beneficiation

Business Line:  Indirect Tax

Date of publication:  5 April 2012

ISSN: 1445-2782