October 4, 2000, E.C.B. No. 23/94/189 (71 L.C.R. 6)


Between: Premanco Industries Ltd.
And: Ministry Of Environment,
Lands And Parks
Before: Robert W. Shorthouse, Chair
Julian K. Greenwood, Board Member
Art Guthrie, Board Member*
Appearances: Stuart S. Moir
F. Andrew Schroeder, Counsel For The Claimant
Alan V.W. Hincks, Counsel For The Respondent

* Dr. Guthrie resigned his appointment on the board during the course of the compensation hearing but continued with the hearing of this matter to its conclusion and fully participated in the reasons for decision pursuant to section 53(7) of the Expropriation Act, R.S.B.C. 1996, c. 125.




[1] The claimant is the registered owner of six Crown-granted mineral claims on what is commonly referred to as the "Scranton mine property", located within the boundaries of a provincial park known as Kokanee Glacier Park in southeastern British Columbia. Its claim for compensation arises from a change in the classification of the park which had the effect of expropriating the claimant's mineral claims.

[2] Although the effective date of expropriation is in dispute, it is at least clear that the taking occurred soon after the claimant acquired these mineral claims on February 1, 1988.

[3] On or about April 25, 1988, the claimant sought a permit from the Ministry of Energy, Mines and Petroleum Resources to undertake some reclamation and exploration work on the Scranton mine property. The local mine inspector refused to issue a permit at that time because he understood that legislation dealing with mining in Kokanee Glacier Park might soon be passed. The claimant says the date of that refusal should be considered to be the date of expropriation for the purpose of valuing the claims.

[4] On December 21, 1988, the Minister of Energy, Mines and Petroleum Resources and the Minister Responsible for Parks jointly announced in a press release that no further exploration of mineral claims would be permitted within four specified provincial parks, including Kokanee Glacier Park.

[5] On March 21, 1989, the Lieutenant Governor in Council approved Order in Council number 394. It reclassified Kokanee Glacier Park from a Class "B" to a Class "A" park, which had the effect of prohibiting mining activity. The respondent says it was the passage of O.I.C. 394/89 which effectively expropriated the claimant's mineral claims and that the claims should be valued as of that date.

[6] The history of this compensation claim has been troubled and protracted. The circumstances surrounding it bear further scrutiny later in this decision. At this point it will suffice to say that the compensation which the claimant now seeks with respect to its expropriated mineral claims is between $5.25 million and $5.75 million for the undersurface mineral rights including any special economic advantage enjoyed by the claimant, between $200,000 and $350,000 for what it says is the residual real estate value of the surface rights, interest and costs. The respondent says the measure of compensation for the undersurface rights taken is between $50,000 and $100,000 and that no separate or additional compensation is payable for the surface rights.



[7] Based upon its assessment of the oral and documentary evidence and its review of these proceedings generally, the board makes the following background findings and observations.

2.1 The Claimant

[8] The claimant is an incorporated British Columbia company. Its president, Gerard van Halderen, described it as a family-owned and operated company in which he and his wife and their two sons all hold shares. Prior to 1985 the claimant company was a general contractor involved mainly in logging and construction. The van Halderens also owned another company, Canadian Roundwood Company Limited ("Canadian Roundwood"), which was described as being primarily a holding company that acquired the rights to harvest timber on properties owned by others. Canadian Roundwood also undertook some research and development work on logging and mining equipment.

[9] Mr. van Halderen had been involved in various mining ventures since 1976, including both hardrock and placer properties. He bought various mines and mills and negotiated the purchase of claims. According to his elder son, Jerry van Halderen, who also became actively involved in family mining as well as logging ventures, the object was to acquire these properties and to purchase equipment cheaply through "distress sales" and try to turn them into something of value. He testified that his father had a specific agenda to amass long-term mining and timber investments as a family legacy for future generations.

[10] Through his involvements in the mining industry, Mr. van Halderen had come into contact with a mining promoter, Orval Gillespie, a principal of David Minerals Ltd. (N.P.L.) ("David Minerals") which at the time owned the Crown-granted mineral claims on the Scranton mine property. For a period beginning in 1985, Mr. van Halderen worked as a consultant to Mr. Gillespie, assisting in restructuring the latter's extensive, but evidently over-extended, property holdings through the selling off of assets and the raising of funds from financial institutions. Canadian Roundwood also loaned $200,000 to Mr. Gillespie in consideration for which the company obtained the right to do logging on the mineral properties owned by various of Gillespie's companies.

[11] On July 11, 1985, David Minerals filed a "Statement of Material Facts" with the Superintendent of Brokers in support of an offering of shares to raise about $1.5 million. That statement included a description of the Scranton mine property as having "no known ore reserves" and upon which no further exploration was contemplated at the time. It appears that the offering was unsuccessful, and David Minerals was put into receivership in May, 1986 by its banker in a debenture holder's action.

[12] Mr. van Halderen testified that he now became interested in acquiring some of the assets of David Minerals from the receiver. Furthermore, he became aware that both Mr. Gillespie and, subsequently, the receiver had logged some of the timber covered under the agreements with Canadian Roundwood. Negotiations to resolve the ensuing dispute eventually led to an omnibus settlement in late 1987 by which the claimant agreed to purchase a number of the assets of David Minerals, including timber rights on several of its properties, a mill at Rossland, B.C. with some associated facilities and equipment, some other Rossland-area properties, and the mineral rights to the Scranton mine property. The agreement received Court approval on February 1, 1988.

[13] At the Court-approved date of purchase, the van Halderens evidently knew very little about the mineral potential of the Scranton mine property or what if any mining infrastructure remained in place. They had not read any geological reports or seen the annual reports of David Minerals. Mr. van Halderen said he had visited the property only once briefly while working for Mr. Gillespie in order to assess the timber resources. He also had no definite plan for its development; rather, he thought the claimant would simply take its time, explore slowly, and satisfy itself as to what was there. At the same time, the claimant through its other mining ventures had amassed a great deal of equipment which Mr. van Halderen said could have been moved on site and would have been suitable to explore and develop the Scranton claims. He claimed he had enough equipment to "put three Scranton mines together".

2.2 The Mineral Claims

[14] The subject Crown-granted mineral claims, generally referred to as the Scranton group of claims, are located within the Slocan mining district of the West Kootenay region. Viewed along a line extending from southwest to northeast, the six individual claims, together with the dates of their original grants, are as follows:

Claim Name   Date of Grant   Crown Grant No.   Lot
Granite 1907 4253/199 6278
Sunrise 1904 3249/154 5991
Grandview 1907 4254/199 6279
Scranton 1906 4056/191 7452
Pontiac 1899 1083/108 2265
Tecumsie 1899  082/108 2261

Granite, Sunrise and Grandview to the southwest form three contiguous claims while Pontiac and Tecumsie to the northeast are also contiguous. The Scranton claim in the middle is separated from the other two groupings. The total area of the claims is approximately 83 hectares or 205 acres.

[15] The two gaps in the line had been filled in the past by claims which were staked and recorded but not Crown-granted known as "Charley" (or "Charlie"), between Grandview and Scranton, and "Bob", between Scranton and Pontiac. The receiver of David Minerals was under the impression that these two mineral claims had reverted to the Crown. As a result they were expressly excluded from the list of claims comprising the Scranton mine property that was sold by the receiver to the claimant. In the early stages of the compensation hearing, the claimant accepted that it had no interest in Charley and Bob. However, later on, the claimant reversed its position and put into evidence some documents which, it said, indicated that the government records were wrong and that the receiver had been misled. The claimant now argued that it could, as a matter of law, have called upon the receiver to transfer ownership of those two recorded mineral claims. It asked therefore to be treated in this hearing as if it also owned them. The effect would be to enlarge or, in any case, make more secure the claimant's estimate of the amount of ore which could be taken from the Scranton mine property.

[16] The mineral claims lie in a rugged mountainous area some 18 km. southwest of Kaslo and 21 km. northwest of Ainsworth, both small communities situated on Kootenay Lake. Access is by a private road known as the Woodbury Creek road, which extends for 18 km. off the highway and is difficult and sometimes impassable in winter. Because of the altitude (elevations between 5,600 and 6,800 feet above sea level), snow covers the area from October to mid-June. The closest mill capable of concentrating the ore from the claims is located at Ainsworth. Concentrates from the mill could then be sent on to the Cominco smelter at Trail, some 135 km. distant by paved highway.

2.3 Mining History of the Claims

[17] The Scranton claims had been mined intermittently since the turn of the century. Thus, there was in fact a history of small-scale mineral production, although in the decade or so preceding the expropriation there had been inactivity. According to the report of two government geologists, D.A. Brown and J.M. Logan, in 1989, the combined historical totals produced from the Scranton mine property were 25,900 tonnes (28,500 tons) of ore containing gold, silver, copper, lead, zinc and cadmium.

[18] The heyday of the Scranton mine property was in the period 1967 to 1979, during which roughly three-quarters of its total historical production was mined. For a time the Scranton mine was the second largest producer in the park, although it was considerably smaller than the largest producer — the Molly Gibson mine near the south boundary of the park.

[19] In 1967 the Scranton mine property was purchased by a company known as Silver Star Mines Ltd. (N.P.L.) ("Silver Star Mines"), which began acting on the recommendations for exploration and development of its consulting geologist, William M. Sharp, P.Eng. Mr. Sharp had directed exploratory work on the claims and geologically examined the results from the early 1950s. In a report prepared in May, 1967, he estimated 27,000 tons of "probable" ore in veins with widths from 2 to 7 feet in the Grandview-Sunrise sections of the lode. From what he found to be "substantial indications of mineralization" in certain locations, he inferred that there was a potential for 50,000 tons of milling ore. Work proceeded over the next three years, during which approximately 4,200 tons of low grade ore was produced. The work ceased for a period thereafter when the funds available for that purpose dried up.

[20] In 1975 there was renewed interest in exploration, fuelled perhaps in part by a further report by Mr. Sharp. Mr. Sharp reported that the 1967-'70 work had resulted in the discovery of new ore bodies in an area that lay between the Grandview and Scranton claims, identified as the "West Sunset" area. These discoveries had given him some confidence that more yet would be found, and he now estimated roughly 55,000 tons of "indicated ore" and 335,000 tons of "geologically-inferred ore reserve". He targeted 28,000 tons in the West Sunset area for immediate development.

[21] In April, 1977, David Minerals purchased the Scranton mine property from Silver Star Mines and, in a separate transaction, also acquired the mill at Ainsworth. Although formal regulatory approval of the purchase did not take place until the spring of 1978, mining proceeded in the interim in the West Sunset area. The company retained Walter E. Clarke, P.Eng., a consulting engineer and geologist, to put in place and monitor a proposed exploration and development program. In October, 1977, Mr. Clarke recommended a two-phased program of work to prove up ore between the current mining levels of the West Sunset workings and the surface. He said "some ore" must undoubtedly lie lower, but that for the time being it would not be economic to search for it. Mr. Clarke generally described the vein structure as being a multiple-stranded shear structure which strikes southwesterly and dips steeply to the southeast, and which had been traced intermittently for at least 7,000 feet, with seven sectors showing appreciable gold, silver, lead and zinc mineralization.

[22] From approximately June, 1977 to February, 1978, the mining work for David Minerals was performed under a lease arrangement with an experienced small-scale miner by the name of Donald Leslie, who operated through a company known as Hem Mines Ltd. Mr. Leslie, who was called as a witness, testified that with the help of a crew of two other miners, he mined the Sunset ore block between the 5,700 ft. and 5,900 ft. levels, enlarging an existing "stope". He described the vein as narrow — 1 to 7 feet wide. It was a quartz-calcite vein containing lead, zinc, and some gold. The vein, he said, was quite visible against the granite walls of the stope.

[23] Over the roughly eight month period, with some breaks for weather and holidays, Mr. Leslie and his men mined about 4,000 tons of material. When the crew had accumulated about 50 tons of ore, they would truck it for concentration to the Ainsworth mill. The mill had separate zinc and lead concentrating cells. The resulting concentrates would then be trucked to the Trail smelter, which paid under a fixed schedule known as a "net smelter return". Overall, Mr. Leslie recalled that they had mined some $300,000 worth of ore, which after expenses earned a net profit in the neighbourhood of $128,000. Hem Mines Ltd. reported to David Minerals that this profit was entirely earned in the period June to December, 1977, and that no profit was made from the work done in early 1978. Although the agreement was that David Minerals would be paid an amount equalling 15% of the operating profit, David Minerals later agreed to let Hem Mines Ltd. keep this amount and use it to carry out improvements to the mill and the property.

[24] During this period Mr. Clarke visited the Scranton mine periodically and prepared progress reports for David Minerals. His initial cautious optimism dampened, he considered that the results of exploration work done beyond the immediate area being mined by Hem Mines Ltd. were not encouraging. Less than two years after formulating his exploration and development plan, Mr. Clarke on August 6, 1979 reported to his client that he could give no firm estimates of the tonnages available for mining at Scranton and recommended that David Minerals look to other sources of ore to feed their Ainsworth concentrating mill.

[25] Mr. Clarke's negative opinion evidently fed into the decision by David Minerals, as noted in its 1979 annual report, to suspend exploration and development operations at the Scranton mine. The company's attention moved to another mine at Keen Creek as a replacement source for its mill. In 1980 David Minerals acquired a variety of other mineral assets, including an active mining property known as the Utica Mine. Scranton never recovered. In subsequent financial statements the only mention of the property is as a small asset of the company held on the books at $6,000 to which was allocated deferred costs of over $1.4 million.

[26] Mr. Leslie confirmed that after 1979 no further mining took place at Scranton. In 1981 he was employed to help dismantle the property and remove the camp. He recalled "everything" being taken out, including rails and other equipment from inside the "adits" (tunnels), after which the entrances were blocked off. Mr. Leslie's observations went basically uncontradicted. This, then, appears to have been the condition of the mine when it was acquired in 1988 by the claimant.

2.4 The Expropriation

[27] When the claimant purchased the Scranton mine property, there were already significant restrictions in place on mining exploration and development in Kokanee Glacier Park. Originally created in 1922, the park was an area recognized to have both high recreational value and economically significant mining potential. The conflict between these values resulted in a history of regulation of permitted uses within the area.

[28] The principal statutory restrictions in force on Feburary 1, 1988, the date of the claimant's purchase, were found in section 7 of the Mineral Act, R.S.B.C. 1979, c. 259, and in sections 9 and 18 of the Park Act, R.S.B.C. 1979, c. 309.

[29] Section 7 of the Mineral Act provided:

7. Notwithstanding an Act, agreement, free miner certificate, mineral claim, mining lease or licence, no person shall locate, prospect or explore for, mine or produce minerals in a park created under an Act unless authorized by the Lieutenant Governor in Council on the recommendation of the person, corporation or government that is responsible for the park.

[30] The Park Act and its predecessor statutes authorized the Lieutenant Governor in Council to establish areas of Crown land as Class "A", Class "B" or Class "C" parks. The relevant portions of section 9 of the Park Act provided:

9. (1) No natural resource (. . .) in a
(a) park of Class A or Class C shall be granted, sold, removed, destroyed, damaged, distributed or exploited except as authorized by a valid and subsisting park use permit, which shall not be issued unless, in the opinion of the minister, issuance is necessary to the preservation or maintenance of the recreational values of the park involved;
(b) park of Class B shall be granted, sold, removed, destroyed, damaged, disturbed or exploited except as authorized by a valid and subsisting park use permit, the issuance of which is not, in the opinion of the minister, detrimental to the recreational values of the park involved.
[Emphasis added]

The relevant portions of section 18 of the Park Act provided:

18. Except as may be authorized by a valid and subsisting park use permit, no person shall:
(a) use or occupy any land in a park for a log storage area, mill site, road, right of way, disposal area for tailings or waste or any other industrial purpose;
(b) obtain any surface right or right to the use or occupancy of the surface of any land in a park;
(c) exercise in a park any right under the Mineral Act, the Mining (Placer) Act, the Coal Act or the Petroleum and Natural Gas Act; (...)

[31] While the boundaries, description and classification of Kokanee Glacier Park changed from time to time, a succession of orders in council during 1987 made clear that it had been redefined and established as a Class "B" park. Accordingly, the claimant on and after February 1, 1988 was in the position of being able to apply for a park use permit to undertake exploration and development work on its mineral claims provided that, pursuant to subsection 9(1)(b) of the Park Act, it could satisfy the issuer of the permit that the intended work would not be "detrimental to the recreational values of the park".

[32] The claimant's initial difficulty lay in obtaining a permit of any kind to do work on its property during the spring of 1988 at a time when reclassification of the park from Class "B" to Class "A" was under active consideration by government. Indeed, in contemplation of the change, the then Ministry of Environment and Parks commissioned a report intended to provide it with an "order of magnitude" estimate of the costs to acquire titles to the mineral claims situated within the boundaries of Kokanee Glacier Park, including those which comprised the Scranton mine property. The report was authored by Stuart A.S. Croft, P.Eng., of the consulting firm Nevin Sadlier-Brown Goodbrand Ltd. (the "Croft report").

[33] The final difficulty for the claimant came with the actual reclassification of the park to Class "A" by O.I.C. 394/89 on March 21, 1989. Now, the availability of a park use permit depended upon the issuer being satisfied, pursuant to subsection 9(1)(a) of the Park Act, that such a permit was actually "necessary to the preservation or maintenance of the recreational values of the park" rather than simply not being detrimental to them. The practical effect of this requirement was a prohibition on mining in Kokanee Glacier Park. The parties ultimately recognized and agreed that the claimant's mineral claims had been rendered essentially worthless by the park reclassification which amounted to a de facto expropriation of the claims.

2.5 The Compensation Proceedings

[34] The fact that the compensation proceedings in this matter have extended over a period well exceeding a decade since the time of the taking warrants some detailed examination.

[35] After the claimant learned that it would not be able to explore or develop its newly-acquired mineral claims, there followed several years of intermittent negotiations regarding compensation. These discussions were not at first framed in the language of expropriation, pursuant to the then newly-created Expropriation Act, S.B.C. 1987, c. 23 (now R.S.B.C. 1996, c. 125) (the "Act"). The claimant sought to have the Crown buy its interests in the Scranton mine property. The Crown insisted that it be presented with an offer. The claimant marshalled such documentary evidence concerning the property as it was able to obtain, made its own estimate of market value in the amount of $750,000, and requested a realistic offer in return. However, the discussions foundered on the Crown's contention that it continued to lack sufficient supporting information from the claimant upon which to base any payment. Despite an informal agreement to co-operate on the exchange of information, it does not appear that the Crown provided to the claimant any potentially useful information in its own possession, including the 1988 Croft report valuing the mineral claims within Kokanee Glacier Park.

[36] In August, 1992, the claimant issued a writ of summons in the Supreme Court of British Columbia, which was followed a year later by a statement of claim, seeking among other things a declaration that the claimant's interest in the six Crown-granted mineral claims had been expropriated and a declaration that the claimant was entitled to compensation pursuant to the Act. The claimant obtained default judgment. Eventually, in January, 1994, the Crown formally acknowledged that it had expropriated the claims. It now suggested that the claimant should be referring its claim for compensation to this board for determination. At this point, it should be noted, none of the formalities prescribed by the Act had been observed, such as the delivery of a notice of intention to expropriate or an approval of expropriation, the making of an advance payment or the service of an appraisal or other report in support of any such payment. Neither had the Crown vested title to the mineral claims in its own name. They remained, and still remain, registered on title to the claimant.

[37] The claimant through its legal counsel at the time, Stuart S. Moir, filed with the board an application for determination of compensation (the "Form A") on July 11, 1994, naming as the respondent the Ministry of Environment, Lands and Parks. The respondent did not file its reply to the claimant's Form A with the board until February 25, 1997. The claimant initially sought and obtained hearing dates for February, then October, then December, all in 1997. In each case the scheduled compensation hearing was adjourned, as the board's files reflect, primarily at the request of the respondent. Under cover of a letter dated December 17, 1997, and evidently received by the claimant on or about December 24, 1997, the respondent made an advance payment in the amount of $125,420.45. The parties are agreed that of this amount, $100,000 was the respondent's estimate of the compensation to which the claimant was entitled for the market value of the mineral rights taken and the balance was on account of the claimant's costs in pursuing its claim before the board.

[38] The compensation hearing finally commenced in June, 1998 in Vancouver and was scheduled for two consecutive weeks. By this time the claimant had considerably revised its original claim and its legal counsel, Mr. Moir, filed an amended Form A claiming damages and loss of rights to land under numerous heads potentially totalling nearly $2.7 million. The first sitting ran four days from June 8 to June 11, 1998, during which the board heard lay evidence from Gerard van Halderen, his son Jerry van Halderen, and the miner Donald Leslie as well as expert evidence from George Addie, P.Eng., who was qualified as a structural geologist and gave evidence concerning, among other things, the resource potential of the Scranton mine property. Mr. Addie was tendered but not accepted as an expert in valuation. The board also heard briefly from Mr. Addie's son, Gordon Addie, P.Eng., a geologist who gave evidence concerning his researches into certain comparable properties utilized by the respondent's valuation expert, but who was also not qualified to give expert valuation evidence. By the end of this first week, it was becoming apparent to the board that the claimant had not marshalled any experts who could be qualified to give opinion evidence on the value of its claims. Moreover, the claimant said it was taken by surprise by the respondent's late production earlier in the week of the 1988 Croft report valuing mineral claims within Kokanee Glacier Park. After some urging by the board, the claimant sought and was granted an adjournment, primarily to obtain qualified expert valuation evidence but also to consider what use it might wish to make of the Croft report.

[39] Over the ensuing summer, the claimant retained Ross D. Lawrence, P.Eng., the vice-chairman of Watts, Griffis and McOuat Limited, a firm of consulting geologists and engineers in Toronto. When the hearing resumed on September 21, 1998, Mr. Lawrence was qualified as an expert in valuing mineral claims. His valuation report, dated August 20, 1998, estimated the market value of the Scranton mine property within a range of between $0.9 million and $l.4 million depending, to some extent, upon whether the expropriation was determined to have occurred in April, 1988 or March, 1989. The claimant on September 15, 1998 also filed a further amended Form A which incorporated the estimates of Mr. Lawrence in its claim for loss of market value but which went on to claim additional amounts of $2,855,000 for past exploration expenses on the property and $347,200 for loss of use of the surface rights.

[40] Three days into his evidence, on September 23, 1998, Mr. Lawrence advised the board that he had made (or been given) an erroneous assumption concerning the ore concentration process available at the Ainsworth mill. He had assumed that the mill had only one concentrating line but now learned that it was capable of producing separate zinc and lead concentrates. The original assumption, he said, resulted in a significantly understated conclusion of value in the discounted cash flow approach upon which he was chiefly relying. The claimant sought a further adjournment to allow Mr. Lawrence the opportunity to reconsider his conclusions in light of the corrected assumption. The board granted this second adjournment with considerable reluctance and, in the circumstances, imposed an interest penalty on the claimant for what it viewed as an unreasonable delay in proceedings. Although the hearing continued for a short time thereafter with another witness, on the morning of September 24, 1998, Mr. Moir rose to advise that he had been dismissed as claimant's counsel and that a longer adjournment would now be needed to find and instruct new counsel.

[41] In due course F. Andrew (Drew) Schroeder was retained as the claimant's new counsel. In October, 1999, Mr. Schroeder brought an application before the board for an order that the claimant be permitted to undertake a limited program of further exploration of its mineral claims in Kokanee Glacier Park in order to improve the quality of the data available to estimate the mineral resource. The chair of the board heard and dismissed the application. He held that the board had no jurisdiction to make such an order. He further observed that, even if the board had jurisdiction, the results of such an exploration program would be irrelevant to the compensation proceedings in light of the requirements of the Act, since any hindsight information it might reveal would not have been available to a knowledgeable purchaser so as to affect the market value on the expropriation date.

[42] When the hearing resumed again on January 10, 2000, the claimant re-called Mr. Lawrence to testify with respect to his corrected conclusions. Mr. Lawrence in fact produced a wholly revised report dated November 10, 1999, which took into account his new understanding of the processing available at the Ainsworth mill and made other significant adjustments particularly in regard to capital costs and federal and provincial taxes. The result was an astonishing increase in his estimate of the market value of the Scranton mineral claims, which now ranged from between $5.0 and $5.5 million if the expropriation was said to have occurred in April, 1988, and between $5.5 and $6.0 million if in March, 1989. The claimant filed at the resumed hearing a further amended Form A asserting claims for compensation of between $5.25 and $5.75 million for the mineral resources and between $200,000 and $350,000 for the surface rights.

[43] The hearing of evidence was completed during the week of January 10, 2000 with the presentation of the respondent's case, including the testimony of its valuation expert, Dr. William E. Roscoe, a consulting geologist with Roscoe Postle Associates Inc. of Toronto. Dr. Roscoe in his report dated October 30, 1997, estimated the market value of the Scranton mine property in March, 1989 to be in the range of $50,000 to $100,000. He continued to adhere to that opinion in giving his testimony. Two further days of hearing were convened for final argument on February 21 and 22, 2000. At that time, leave was also granted by the board for further written submissions on the issue of the claimant's claim for additional compensation with respect to surface rights, concerning which some evidence and argument had been heard the previous month. The last of these written submissions was received by the board on March 3, 2000.



[44] The principal issues which the board must determine are as follows:
(1) What was the effective date of expropriation for the purpose of valuing the claimant's mineral claims?
(2) What is the appropriate methodology for valuing the undersurface mineral rights and what was their market value as of the date of expropriation, pursuant to section 32 of the Act?
(3) As a subsidiary issue (argued but not pleaded), is the claimant entitled to the value of any special economic advantage not included in market value, pursuant to subsection 31(2)(a) of the Act?
(4) Is the claimant entitled to an additional amount of compensation with respect to surface rights, and if so, what was their market value as of the date of expropriation?



[45] Because this was a de facto expropriation, rather than one which followed the prescribed procedures under the Act, the actual date of expropriation is open to question. The issue is not an academic one since market conditions frequently change, and the choice of date could therefore affect the amount of compensation payable as well as the amount of any interest accruing on an award of compensation from that date. Curiously, in this instance, the claimant argues that the taking occurred at an earlier date than what the respondent says was the case, but the claimant's estimate of the value of its mineral claims is higher based on the later date.

[46] On April 25, 1988, the claimant completed a form entitled "Notice of Work and Reclamation Program on a Mineral Property" and submitted it to the local office of the Ministry of Energy, Mines and Petroleum Resources in Nelson. The form served as an application for a reclamation permit under the Mines Act. If granted it would have permitted the claimant, within the scope of the detailed program set out, to undertake some initial rehabilitation of the Scranton mine and the access road as well as to do surface exploration on the property. Mr. van Halderen described his understanding of the application process as being in the nature of a "one-window policy" whereby the local mines office would send the application out to various referral agencies for comment, including presumably those responsible for the administration of the Park Act.

[47] The bottom of the first page of the application bears a handwritten note, dated at Nelson on April 26, 1988, which reads as follows:

"Inspector says can't give permit now because legislation dealing with park use is being passed soon. If parks gives OK, he'll OK it too. Otherwise come back in fall."

[48] The claimant construes this initial refusal to grant a permit as tantamount to the taking of its mineral rights by the Crown and therefore asserts that the board should determine the value of those rights as of April 26, 1988.

[49] The leading cases on the issue of de facto expropriation in the context of mining claims are R. (B.C.) v. Tener [1985], 1 S.C.R. 533, 17 D.L.R. (4th) 1, 28 B.C.L.R. (2d) 241, 3 W.W.R. 663 (S.C.C.), and Casamiro Resource Corp. v. British Columbia (Attorney General) (1991), 45 L.C.R. 161 (B.C.C.A.).

[50] Tener involved Crown-granted mineral claims in Wells Gray Provincial Park. As in the present case, the park was upgraded from Class "B" to Class "A", which had the effect of making it virtually impossible to obtain permission to continue mining or exploring for minerals in the park. For some four years after that reclassification took place in 1973, the claim owners continued to request park use permits under the Park Act but each application was refused. In 1978 they received a letter from the director of the Parks Branch saying that "no new exploration or development work may be authorized within a Provincial Park". They were invited to suggest a price, based on their expenditures on the claims, upon which any claims for compensation might be settled.

[51] The Supreme Court of Canada decided that this final refusal had the effect of preventing the claim holders from exercising their rights to take the minerals and constituted an expropriation. On the question of why the 1978 letter, rather than any of the earlier denials, became the triggering event, the majority decision is not as helpful as a concurring minority decision of Dickson C.J.C. and Wilson J. The reasons of the minority make it clear that the expropriation arose from absolute and permanent action. The 1978 letter was an absolute denial of access which deprived the claim holders of their property interest. Thus, the expropriation took place once the government advised that it would no longer grant any permits, making further applications pointless.

[52] Casamiro involved similar claims in Strathcona Provincial Park. The action which was found to constitute an expropriation of those claims was an order in council of November, 1988, which instructed the Minister Responsible for Parks not to issue any more resource use permits for mineral exploration in that park. On the assumption that the Lieutenant Governor in Council had the statutory power to make such an order, the Court of Appeal held that the exercise of that power had the same effect as the absolute refusal to grant park use permits in Tener. It reduced the Crown grants to "meaningless pieces of paper".

[53] Applying similar logic to the present case, the board finds that the refusal of the mine inspector to issue a reclamation permit to the claimant in April, 1988, was not sufficiently unequivocal or in any sense permanently binding to constitute the expropriation.

[54] An argument could be made that the expropriation was effected through the joint press release in December, 1988, by the Minister of Energy, Mines and Petroleum Resources and the Minister Responsible for Parks, indicating a prohibition on further exploration of mineral claims in Kokanee Glacier Park. However, the board notes that at that date there was still no legislation or orders in council in place which effectively precluded the issuance of a park use permit under the Park Act or a reclamation permit under the Mines Act.

[55] Rather, the board is persuaded by the respondent's argument that the date of expropriation for the purpose of valuing the claimant's interest was the change in classification of Kokanee Glacier Park to Class "A", by O.I.C. 394/89 on March 21, 1989, thereby effectively prohibiting the claimant, on any sensible interpretation of the requirements under subsection 9(1)(a) of the Park Act, from undertaking exploration and development of its mineral claims.



5.1 Scope of the Valuation Problem

[56] In determining the value of the claimant's undersurface mineral rights on the Scranton mine property, the board is governed by the statutory definition set out in section 32 of the Act as follows:

32. The market value of an estate or interest in land is the amount that would have been paid for it if it had been sold at the date of expropriation in the open market by a willing seller to a willing buyer.

[57] The difficulties confronting the board in making that notional market determination in this instance are really two-fold. First, the problem is to arrive at a reasonably knowable estimate of the mineral resource at the date of expropriation in March, 1989, on claims mined periodicially for over 80 years but where no exploration has taken place since 1979 nor been permitted since 1988. Second, the problem is to decide upon the appropriate approach to valuation of the mineral claims where numerous methodologies are suggested, each fraught with its own uncertainties. There are evidently few agreed uniform standards in the mining industry which point clearly to how these problems ought to be resolved. There is disagreement between the parties as to how the mineral resource on the Scranton mine property should be estimated and valued, and very large disagreement on what the result should be.

[58] The problem is essentially one of uncertainty. When a property is relatively unexplored, and the participants in the market for such properties have to guess about the volume and quality of the resource, there can be a wide range of opinions. Property owners and speculators may express enthusiastic predictions which would support high values, but actual transactions are likely to be at a more cautious level.

[59] The mining industry has developed stock terminology to express different degrees of certainty about ore bodies. Since the valuation experts for both parties used these terms, it is useful to define them at the outset of this discussion.

[60] As indicated at pages 11 and 12 of Mr. Lawrence's first report, the term "reserve" is used to express the highest degree of certainty. The Canadian Institute of Mining and Metallurgy, which is in the process of reformulating a national policy on standards, defines it as follows:

"reserve — that part of a resource which can be legally mined at a profit under specified economic conditions that are generally accepted by the mining industry as reasonable under current economic conditions, demonstrated by at least a preliminary feasibility study based on measured resources and indicated resources only."

[61] There is reference throughout that definition to the term "resource". Mr. Lawrence went on to indicate that three categories of "resource" are recognized in the industry, ranked according to the degree of certainty with which the deposit has been identified and the grade defined, as follows:

"measured resource — the estimated quantity and grade of that part of the deposit for which the size, configuration and grade have been well established by observation and sampling of outcrops, drillholes, trenches and mine workings".

"indicated resource — the estimated quantity and grade of that part of a deposit for which the continuity of grade, together with the extent and shape are so established that a reliable estimate of grade and tonnage can be made."

"inferred resource — the estimated quantity and grade of a deposit, or a part thereof, that is determined on the basis of limited sampling, but for which there is sufficient geological information and a reasonable understanding of the continuity and distribution of metal values to outline a deposit of potential economic merit."

[62] It follows from the foregoing definitions that a "reserve" is established on a mineral property if sufficient sampling has occurred to be able to identify either "measured resources" or "indicated resources" (with "measured resources" clearly representing the higher level of knowledge) and if, in addition, a study of economic feasibility has been carried out. "Inferred resources", believed to exist on geological grounds, nevertheless lack any degree of certainty sufficient to be included within the meaning of a mineral "reserve".

[63] In the course of the hearing, the board was also introduced to other terminology used to describe mineral deposits. In particular, Mr. George Addie, the claimant's initial expert witness, began by identifying the term "ore" as any mineral which could be mined at a profit. It was, he indicated, a flexible concept which depended on metal prices from time to time. Mr. Addie then provided his own classification of defined terms, ranged on a descending scale of certainty, as follows at page 19 of his report:

"proven ore" — When an ore shoot has been defined by detailed sampling and mapping on at least four sides, the material in between is considered proven ore.

"probable ore" — When two or more levels intercept an ore shoot and there is a high level of confidence in projecting between them, this has been classified as probable ore.

"projected reserves" — When one level indicates an ore shoot and there is supporting evidence from a drill hole, but the level of confidence is less, it is called a "reserve".

"diamond-drill indicated reserves" — These reserves are based solely on diamond drilling.

"possible reserves" — Where there is a logical extrapolation of an ore shoot, but no other information is yet available.

[64] Mr. Addie's use of the terms "ore" and "reserve", together with the various adjectives related to them, to classify mineral deposits does not conform with what the board has come to accept from subsequent evidence as the classifications currently in use in the mining industry. Some of the earlier geological reports referred to by Mr. Addie and other expert witnesses also tended to use the term "reserve" in a more expansive way. In order to attempt to correlate Mr. Addie's observations with modern usage, the board considers that his use of the terms "probable ore", "projected reserves", and "diamond-drill indicated reserves" would likely correspond most closely with what are now described as "indicated resources" and his term "possible reserves" with "inferred resources".

[65] A further general distinction in the categorization of mineral properties was offered by the respondent's geological expert, Dr. Roscoe. Referring to a valuation article which he presented to a mineral economics society in October, 1994, and which was appended to his expert report for these proceedings, Dr. Roscoe distinguished between what he termed "development properties" and "exploration properties". The former term would be properly restricted, he suggested, to those properties on which it could be said that "reserves" existed, including both producing mines as well as properties on which development of an economically viable operation was planned. At page 2 of the valuation article, he wrote:

"Development properties are those on which an economically viable mineral deposit has been demonstrated to exist. Such properties are at a sufficiently advanced stage that enough reliable information exists to value the property by discounted cash flow analysis, with a reasonable degree of confidence. In general, such information includes reasonably assured mineable ore reserves, workable mining plan and rate, metallurgical test results and process recoveries, capital and operating cost estimates, environmental and reclamation cost estimates, and commodity price projections or sales contracts."

By contrast, Dr. Roscoe defined "exploration properties" as being:

"...those on which an economically viable mineral deposit has not yet been demonstrated to exist, and its real value lies in its potential for the existence and discovery of an economically viable mineral deposit. Only a very small number of exploration properties will ultimately become development properties, but until exploration potential is reasonably well tested, they have value. Exploration properties can be further subdivided into those with and without quantifiable mineral resources or reserves."

[66] Dr. Roscoe further explained his view that exploration and development properties are really situated on a spectrum, and that some properties fall into a "grey area" between the two. These marginal properties, he said, contain well-defined mineral resources which would become economically viable at higher commodity prices or lower production cost, and have enough reliable data to show that the economics are marginal at prevailing commodity prices at the time of valuation. However, one matter of significance in the general distinction made is that exploration properties cannot, in his opinion, properly be valued by reference to any approach which assumes detailed knowledge of the ore body and the costs of mining. Other approaches must be chosen.

[67] Dr. Roscoe's foregoing observation leads logically to a preliminary consideration of valuation methodology. It appears that, at the present time, uniform standards governing the valuation of mineral properties do not exist to the degree that such standards have evolved, to the board's knowledge, for example, in the appraisal of real estate or through the application of generally accepted valuation principles in the valuing of businesses. Nevertheless, the expert witnesses for both parties were in general agreement about the approaches that are normally considered, but not necessarily applied, in valuing a mineral property. Three main approaches were identified: first, an income approach involving a discounted cash flow analysis (the "DCF Approach"); second, a cost approach known as the Appraised Value Method; and third, a market approach involving the analysis of what are identified to be comparable sales transactions (the "Comparable Transaction Approach").

[68] The DCF Approach is commonly accepted in the mining industry when valuing mines in production or mineral properties on which proven or probable reserves have been outlined. As described by Mr. Lawrence at page 19 of his first report, the use of the approach

"...assumes that the mineral resources will be mined and processed to recover saleable products. Estimates of capital and operating costs are made and cash flows projected after taxes and capital repayment. The resulting cash flows are discounted at a rate appropriate to their risk to arrive at a net present value."

[69] Dr. Roscoe, who has written extensively on the subject of the Appraised Value Method, explained its rationale both in the body of his report and as follows at page 4 of his appended valuation article:

"The basic philosophy of this approach is that an exploration property is worth the meaningful past exploration expenditures plus warranted future costs. An important element of this method...is that only those past expenditures which are considered reasonable and productive are retained as value. Productive means that the results of the work give sufficient encouragement to warrant further work by identifying potential for the existence and discovery of an economic mineral deposit. Warranted future costs comprise a reasonable exploration budget to test the identified potential...[I]f exploration work downgrades potential, it is not productive and should not be retained as value. Obviously, if the property is considered to have negligible exploration potential, it has little or no value."

[70] The Comparable Transaction Approach is analogous to the market method used in real estate appraisal usually referred to as the "direct comparison approach". It uses the transaction price of a property with comparable characteristics to establish a value for the subject property. As Mr. Lawrence explained at page 17 of his first report, factors that need to be taken into account when considering whether properties are comparable include the date of the transaction, location, site characteristics, environmental restrictions, type, quality and quantity of work completed, financing, market conditions at the date of sale, and special considerations relating to either or both of the parties to the sale. According to Dr. Roscoe, at page 5 of his valuation article:

"The difficulty of this approach in the mining industry is that there are no true comparables (unlike real estate or oil and gas), since each property is unique with regard to key factors such as geology, mineralization, costs, stage of exploration, and infrastructure. In addition, there are relatively few transactions for mineral properties compared to the frequency of real estate transactions in general. When transactions do occur they rarely involve strictly cash, leaving the valuer the task of converting blocks of shares, royalties or option terms into present day money equivalent."

Nevertheless, the experts are agreed that the transaction prices of similar properties can indicate a range of values for a particular property and Mr. Lawrence goes so far as to say, at page 17 of his first report, that

"... by seeking comparable transactions, we come closest to finding the informed investor working in the free and unfettered market and so come closest to meeting all of the requirements of the definition of Market Value."

[71] In the present case, with reference to the foregoing discussion, the parties are in fact agreed that there were no "reserves" on the Scranton mine property within the meaning currently employed by the mining industry. However, they part company firstly over how the resources should be estimated and classified, given the available historical data, and secondly over the appropriate approach or approaches by which to value the property.

[72] The claimant says that the available data suggest a large quantity of potentially mineable resources, although all of them in the "indicated" and "inferred" categories where a medium to high degree of uncertainty exists. It then argues that all of these resources, after appropriate discounts for uncertainty, should be inputs to a DCF calculation in which a hypothetical mining operation is assumed and costed.

[73] The respondent says that the state of knowledge of the resources on the Scranton mine property is so inadequate, and the results of the most recent exploration activity in the late 1970s so discouraging, that little mineable ore can be assumed to exist with any certainty. Therefore, the respondent asserts, in the absence of true "reserves" and a proper feasibility study, it is fruitless to attempt to construct a hypothetical mining operation for the property and value it through the DCF Approach. Rather, the property should be seen as an "exploration" property in the sense defined by Dr. Roscoe, and valued preferably by reference to the Appraised Value Method and the Comparable Transaction Approach.

[74] It is these fundamental differences in outlook and approach between the parties, resulting in a huge disparity in estimates of value of the undersurface rights on the Scranton mine property, which the board must struggle to address.

5.2 The Claimant's Case

5.2.1 Estimate of the Mineral Resource

[75] The claimant drew on evidence from two principal witnesses in order to arrive at its estimate of the mineral resources at the Scranton mine. Initially, it looked to the work of Mr. George Addie, a consulting geologist from Nelson, who prepared a report dated May 23, 1997. Mr. Addie was qualified at the hearing as an expert in resource estimation. He testified as to his personal knowledge of the local area and stated that he had visited the Scranton mine property in 1975 in his capacity as district geologist for the Province. However, in preparing his report, he necessarily relied entirely on historical data drawn from earlier reports, including those of the two consulting geologists Sharp and Clarke, the 1989 report on mineral resources in Kokanee Glacier Park of the two government geologists Brown and Logan, and a 1991 study by the Geological Survey of Canada.

[76] Mr. Addie's review of the available sources led him to place the most weight on the reports of Mr. Sharp and to focus his conclusions almost entirely on the mineral potential of the ore shoot in what has been described as the Southwest Sunrise zone lying mainly within the Crown-granted Sunrise claim. Identifying five blocks labelled "A" through "E" within or in the plane of the ore shoot, Mr. Addie estimated some 28,737 tons of "probable reserves" and another 43,614 tons of "indicated reserves". As discussed earlier, the board construes these numbers as representing in currently accepted terminology a total of 72,351 tons of "indicated resources". Additionally, through extrapolation, Mr. Addie estimated another 146,674 tons of "possible reserves" or, in current parlance, "inferred resources".

[77] Mr. Addie was critical of the methodology employed by Brown and Logan in reaching their conclusion that only small deposits of mineralization were likely to be found in the area encompassing the Scranton mine property within Kokanee Glacier Park and that much of what could be mined had already been found.

[78] He was even more vocal in his criticism of the negative opinions expressed by Mr. Clarke to David Minerals in his later reports. Mr. Clarke, he asserted, had wrongly interpreted some of the results of the exploration work performed in the late 1970s. According to Mr. Addie, Mr. Clarke had assumed a 69 foot mineralized shoot at the 5,700 ft. level to be the downward extension of surface claims directly above, known as the Grandview-Sunrise Basin vein system. However a vertical "raise" dug from this level soon ran out of the vein, from which Mr. Clarke presumed the deposit was small and not worth exploring. With the benefit of hindsight, Mr. Addie said that the 69 foot shoot should have been recognized as the continuation of a sloping vein surfacing further west in the Southwest Sunrise area, and therefore as an indication of a major and profitable deposit.

[79] Mr. Lawrence, the claimant's second geological expert, had not visited the Scranton mine property prior to completing his first report dated August 20, 1998. However, prior to completion of Mr. Lawrence's second report dated November 10, 1999, Chris Turek, P.Eng., a geologist from his consulting firm, had undertaken a site visit in the company of Mr. Gordon Addie and his brother. Mr. Turek's "trip report" dated December 23, 1999 was entered in evidence. The stated purpose of the visit was to verify the location of one or more of the original claim posts for the Scranton mine property and to locate as many of the old workings and exploration trenches as possible. Mr. Turek also sought to gain an appreciation of the general topography and ground cover, the result of which later factored into Mr. Lawrence's criticism of the report prepared for the respondent by Dr. Roscoe. The trip report included numerous photographs depicting the property as it now appears.

[80] Mr. Lawrence in his second report said that, following Mr. Turek's visit, he had obtained additional information including some new drill hole and underground sampling data, from which he concluded that a revised presentation on how he had estimated the mineral resources would likely be helpful. Unlike in the first report, he also now assumed that the Charley and Bob recorded claims formed part of the claimant's claims. However, neither the tonnage nor grade of the mineral resources at the Scranton mine property as estimated in the first report was actually revised.

[81] Like Mr. Addie's, Mr. Lawrence's investigations were (apart from any new information produced by the site visit) necessarily confined to a review of previously published reports and discussions with individuals familiar with the area. In addition, it appears that Mr. Addie's earlier work provided an important source upon which Mr. Lawrence drew in making certain of his assumptions although, in his first report, he emphasized that he had made his own independent estimate of the resource. Where Mr. Addie had concluded that sloping rather than vertical veins of ore should have been recognized to be present, Mr. Lawrence at page 9 of his second report joined in the criticism of Mr. Clarke who, he surmised, "did not seem to understand the structural geology of the mine" in reaching his ultimately pessimistic conclusions. Mr. Lawrence said his review of the technical information available led him to reach "quite positive conclusions concerning mineralization underlying the Scranton claims" (page 14).

[82] Mr. Lawrence inferred the presence of extensive vein structures connecting known surface deposits with some of the underground findings at the 5,700 ft. level and below. For the purpose of providing his estimate of the resource, he identified ore shoots well to the east of and parallel to the ore shoot identified by Mr. Addie, including those contained within or straddling the Crown-granted Sunrise and Grandview claims, the Grandview claim with the recorded Charley claim, and the Charley claim with the Crown-granted Scranton claim.

[83] Within the 13 ore blocks which he labelled "A" through "M", Mr. Lawrence estimated 165,600 tons of indicated resources, nearly half of which lay within the Grandview-Sunset shoot labelled blocks "I" and "J", and a further 136,200 tons of inferred resources, which resulted primarily from downward projections of the shoots, resulting in total resources of 301,800 tons. To allow for uncertainty in these downward projections, Mr. Lawrence discounted the inferred resources by half before including them in his DCF analysis. It is this estimate of the resources on the Scranton mine property upon which the claimant ultimately relies.

5.2.2 Approaches to Valuation

[84] In his first report, Mr. Lawrence made use of all three valuation approaches discussed earlier. Turning first to the Appraised Value Method, where value is determined by adding together meaningful past exploration expenditures and warranted future costs, Mr. Lawrence first noted David Mineral's acquisition of the Scranton mine property and the Ainsworth mill for the sum of $357,000 in 1977. He then estimated the exploration and development work performed by David Minerals and former owners, including drilling, drifting, cross-cuts and raises, together with track, piping and hose which he assumed had been left underground when the property was abandoned, to have a replacement value in excess of $1.0 million. It was Mr. Lawrence's opinion that all of the expenditures by David Minerals had enhanced the value of the property and, since they were made some eight to nine years before the valuation date, he considered them to have a higher present value at the valuation date than as shown on the books. After allocating part of David Minerals' purchase cost to the Ainsworth mill, which the claimant did not subsequently acquire, Mr. Lawrence estimated the value of the Scranton mine property through the Appraised Value Method at between $1.5 and $2.5 million.

[85] Mr. Lawrence turned next to the Comparable Transaction Approach through which he identified eight mineral properties showing, he said, a range in value from $85,000 to $6.0 million. After excluding the $6.0 million transaction as "anomalous", and correcting his calculations of value for three of the other transactions forming part of his analysis, he concluded a value for the Scranton mine property through the Comparable Transaction Approach in the range of $600,000 to $900,000.

[86] Finally, Mr. Lawrence constructed a financial model, using the DCF Approach, in order to analyze the possibility of mining over a projected period of six years what he calculated to be the available mineral resources, comprising all 165,600 tons of indicated resources and half the 136,200 tons of inferred resources, or 68,100 tons. He assumed that all necessary equipment for this purpose was already on site or could be made readily available from the claimant's own inventory and that pre-production costs on the order of $1.0 million would be incurred. He assumed that the ore would be mined by a small entrepreneurial group with modest operating costs of some $65.00 per ton, trucked to the Ainsworth mill where the ore would be concentrated at a production rate of 130 tons per day, and the concentrates then trucked to the Cominco smelter at Trail. The smelter would pay according to the usual net smelter return for such material based on current market prices for the various metals extracted. Mr. Lawrence calculated net present values using several discount rates, ranging between 5% and 15%, which were intended to incorporate the time value of money as well as the risk of investment. Using the DCF analysis, he derived ranges of values which varied depending upon whether the valuation date was determined to be April, 1988 or March, 1989. Since the board has already determined the date of expropriation for the purpose of valuing the claimant's undersurface mineral rights to be March 21, 1989, the alternative numbers which Mr. Lawrence derived for the earlier date need not be considered. At March, 1989, the DCF Approach yielded a range of values for the Scranton mine property of between $500,000 and $1.1 million, to which Mr. Lawrence suggested an additional $500,000 should be added to account for potential additional mineralization on the property.

[87] Despite his use of the three distinct approaches to valuation in his first report, Mr. Lawrence concluded that the DCF Approach should be given the greatest weight. The Appraised Value Method at $1.5 to $2.5 million gave what he felt was "a good measure of the value, although it could be argued that it is on the high side" (page 48). The Comparable Transaction Approach at $600,000 to $900,000 he considered to be the most subjective of the three and, for this reason, he was inclined to place the least weight upon this value range. Consequently, Mr. Lawrence's first report concluded a value for the undersurface rights on the Scranton mine property at March 21, 1989 in the range of between $0.9 million and $1.3 million.

5.2.3 Final Estimate of Value

[88] Mr. Lawrence's revised second report focused entirely on the DCF Approach to derive his value conclusions. His assumptions concerning a small-scale, limited overhead operation which underlay the initial model continued to apply. However, his new recognition of the fact that the Ainsworth mill was capable of producing separate lead and zinc concentrates resulted in efficiencies which he indicated would increase total revenue over the projected life of the project from approximately $19.8 million in his first report to $27.3 million in the second report. Meanwhile, operating costs increased only slightly from $65 per ton to $69.47 per ton, while federal and provincial taxes and duties were reduced from roughly $2.07 million in the first report to about $1.81 million in the second report. The resulting net cash profit after taxes under the revised hypothetical model rose dramatically from $2.51 million to $9.28 million. Pre-production cost or capital investment was reduced from $l.0 million to $850,000. Applying discount rates of between 10.5% and 14% which he considered gave due recognition to the risks of mineral resource estimation and other factors, Mr. Lawrence concluded that the market value of the undersurface mineral rights on the Scranton mine property on March 21, 1989 was within the range of $5.5 to $6.0 million.

5.3 The Respondent's Case

5.3.1 Estimate of the Mineral Resource

[89] The respondent relied upon Dr. Roscoe, the consulting geologist it had retained, to provide estimates of the mineral resource and to value the claimant's mineral claims. Dr. Roscoe was qualified before the board as an expert entitled to give opinion evidence on structural and economic geology, including the determination of mineral reserves and the valuation of mineral properties. He had not visited the Scranton mine property and, like the claimant's experts, looked to archival data and past reports, including those of Sharp, Clarke, and Brown and Logan as well as the reports and statements filed by David Minerals to assist in reaching his conclusions.

[90] Because Dr. Roscoe viewed the Scranton mine property as an "exploration" rather than a "development" property, he did not embark on a DCF analysis which would have required, at the outset, clear quantification of the potential mineral resources available for production. Consequently, his report dated October 30, 1997, provided no actual estimate of the resource beyond indicating an "order of magnitude" based on his interpretation of the work of the earlier consulting geologists. He concluded that the exploration potential for economic vein mineralization was "relatively low, based on the data reviewed". At pages 13 and 14 of his report, he listed a number of indicators which, he said, supported this low exploration potential. These included Brown and Logan's initial conclusions in 1988 that new discoveries in Kokanee Glacier Park were likely to be small - less than 10,000 tonnes - since much of the park had almost complete rock exposure and the best and largest shoots within the vein system that reached the surface should therefore have already been discovered after all the years of intermittent mining and exploration. Other indicators were the comparatively small size of the claim area (given as 84 ha.), the narrowness of the ore veins which, when diluted to a normal mining width, decreased the grades to uneconomic levels, the lack of success experienced by David Minerals' exploration program in 1978-'79, and that company's own assessment in 1985 that the "identified areas of mineralization...were too small to warrant additional exploration."

[91] After Mr. Lawrence for the claimant had produced his conclusions as to resources, Dr. Roscoe in rebuttal prepared his own resource estimate in a memorandum to respondent's counsel dated January 10, 2000, which was entered as an exhibit in the proceedings. His methodology was, firstly, to select the four mineralized shoots or zones, all located on the Sunrise and Grandview claims, which had been identified through the exploration work undertaken or reviewed by Mr. Sharp and Mr. Clarke and, in some cases, clarified through the evidence of Mr. Leslie. Secondly, Dr. Roscoe applied to his estimate of measured and indicated resources the criteria he understood had been used for that purpose on a past producing property, the Silvana Mine, located northwest of Kokanee Glacier Park. These criteria involved projecting measured resources for a distance of 25 ft. from mine openings with sampled ore shoots and projecting indicated resources for a further distance of 25 ft. beyond the measured resources. Dr. Roscoe further based his inclusion of inferred resources on drill hole intersections which inferred that a mineralized shoot may exist and, where such was the case, projecting these inferred resources for an additional 50 ft., ie. from between 50 ft. to 100 ft. from sampled mine openings. His resource estimates assumed a 4 ft. minimum horizontal mining width and were undiluted.

[92] In the result, Dr. Roscoe estimated that there were 6,850 tons of measured resources, 18,550 tons of indicated resources, and 14,600 tons of inferred resources on the Scranton mine property, making in all a total of 40,000 tons.

[93] Dr. Roscoe took considerable exception to the resource volume estimates provided by Mr. Lawrence, arguing that they were unreasonable extrapolations of the sparse available data. There was, he pointed out, no sampling evidence at all for the inferred resources included in Mr. Lawrence's estimate and, in his view, far too little information in the areas of indicated resources to be able to make what the mining industry regards as a "reliable estimate". To make matters worse, Dr. Roscoe in another memorandum in rebuttal dated January 5, 2000, endeavoured to show that much of the supposed area of inferred resources actually fell outside the boundaries of the claimant's Crown-granted mineral claims.

5.3.2 Approaches to Valuation

[94] Dr. Roscoe's categorization of the Scranton mine property as an "exploration property", where the most recent exploration results had been described as "disappointing", led him to reject as completely unreliable any use of the DCF Approach to its valuation. Instead, he relied upon the two other approaches described earlier: the Appraised Value Method and the Comparable Transaction Approach.

[95] It was Dr. Roscoe's assessment that the Appraised Value Method provides reasonably objective and consistent results if applied by experienced, knowledgeable exploration geologists possessing a good understanding of the principles of valuation. He pointed out that he had assembled an extensive database of properties valued over the past several years which he said could be used for internal consistency by comparing values of exploration properties at the same stage of exploration with similar perceived potential. However, he continued, the value derived by that method was not necessarily the same as the cash value for which an exploration property such as Scranton could be sold. Such exploration properties, he said, would generally trade on an option rather than a cash sale basis. Therefore, to determine market value through the use of this approach, he found it necessary to apply his independent judgment to adjust the appraised values based on his perception of exploration potential and marketability of exploration properties in British Columbia as of the valuation date.

[96] In applying the Appraised Value Method to the Scranton mine property, Dr. Roscoe from his review of the reports of Mr. Clarke and David Minerals, concluded that it was reasonable to assume expenditures in the order of $1.0 million for the acquisition of the property in 1977 and for the amount of exploration work carried out on the property in the late 1970s. However, the Appraised Value Method takes into account only "meaningful past expenditures and warranted future costs". Because of what he viewed as the negative results of the most recent exploration work, Dr. Roscoe felt that only 10% of the past expenditures were meaningful and should be retained. Moreover, consistent with what David Minerals itself had reported, no future work appeared to be warranted. Finally, Dr. Roscoe considered that of the retained past expenditures amounting to $100,000, only 50% should form the appraised value of the property because of its low potential and the fact that no further work had been done from 1980 to 1989, "highlighting the low marketability of the property" (page 15). Accordingly, in Dr. Roscoe's opinion, the market value of the Scranton mine property derived from the Appraised Value Method was only $50,000.

[97] In undertaking the Comparable Transaction Approach, Dr. Roscoe explained that he had compiled information on transactions which occurred during 1989 and the last quarter of 1988 involving mining companies listed on the Vancouver Stock Exchange. From a review of close to 200 such transactions, he had identified 12 which he considered suitable for comparison with the Scranton mine property, six of which he advised the board at the hearing were the most comparable. Four of these selected six comparables were also used by Mr. Lawrence in his first report. Dr. Roscoe's reported methodology was to estimate the value of each property from published information in industry sources such as Stockwatch, the George Cross Newsletter, The Northern Miner, and the Canadian Mines Handbook. He evaluated the cash, stock and work commitment components of each transaction.

[98] Because, as Dr. Roscoe acknowledged, published details of the transactions were commonly sparse, estimation of the transaction values was not a precise exercise but involved the use of professional judgment. His methodology in valuing the comparable transactions was to include 100% of the initial cash payments, stock payments and work commitments required to take the property to the next point of decision, normally the next year, and then to include declining percentages for optional cash payments, stock payments and work commitments in subsequent years. At the hearing, Dr. Roscoe revealed that these "discounts" had been applied generally on a straight-line basis, that is to say, by 25% per each subsequent year.

[99] In his report, Dr. Roscoe stated that half of the estimated property values of the 12 comparable transactions ranged between $43,000 and $111,000. Despite some corrections for calculation errors to a couple of these transactions, and his further refinement in reducing the number of better comparables to six, he held to the conclusion at page 17 of his report that the Comparable Transaction Approach suggested the same value range for the Scranton mine property, that is, between $43,000 and $111,000.

[100] It should perhaps be noted at this point that, although Dr. Roscoe did not support the use of a DCF Approach, he was asked by the respondent to comment on some of the assumptions and conclusions found in Mr. Lawrence's DCF analysis. His comments were the subject of two further rebuttal documents in memorandum form, dated January 4 and 5, 2000, respectively. It was Dr. Roscoe's opinion that Mr. Lawrence had seriously understated the capital and operating costs. He also felt that the capital and development costs were far too low to re-establish a mine capable of producing the tonnage of ore which Mr. Lawrence had assumed. Dr. Roscoe's view, first expressed in his memorandum of January 5, 2000 but later refined in the course of his testimony, was that development and capital costs together were likely to exceed $8 million rather than the approximately $3.2 million assumed by Mr. Lawrence. Operating costs experienced at other narrow vein mines, Dr. Roscoe reported, were well over $100 per ton, often over $200 per ton, considerably higher than the roughly $70 per ton which Mr. Lawrence applied. If Mr. Lawrence had used the numbers suggested by Dr. Roscoe, the effect would be to produce a negative value for the property.

5.3.3 Final Estimate of Value

[101] After weighing the results of the two approaches to valuation which he used - the Appraised Value Method which gave a value conclusion of $50,000, and the Comparable Transaction Approach which yielded values in the range of between $43,000 and $111,000 - it was Dr. Roscoe's opinion that the market value of the undersurface rights to the six Crown-granted claims on the Scranton mine property should be in the range of $50,000 to $100,000. The respondent adopted this opinion and evidently made its advance payment to the claimant in December, 1997, for an amount at the top end of the range.

5.4 The Board's Analysis and Conclusion

5.4.1 Evidence as to the Mineral Resource Considered

[102] The evidence before the board as to the mineral resources on the Scranton mine property presents a rather bewildering array of numbers. The two geological experts who testified on behalf of the claimant, Mr. Addie and Mr. Lawrence, calculated mineral tonnages which were roughly five to seven times greater than those calculated by the respondent's geological expert, Dr. Roscoe. This was the case even though all three experts were working essentially from the same historical data and utilizing, for the most part, the same earlier reports.

[103] Part of the reason for these wide variances would appear to be the preferences expressed by Mr. Addie and Mr. Lawrence for the optimistic assessments of the consulting geologist, Mr. Sharp, on the one hand, and Dr. Roscoe's reliance on the ultimately pessimistic assessment of the consulting geologist, Mr. Clarke, as well as the modest estimates of the two government geologists, Brown and Logan, on the other.

[104] Another reason was the differing degree to which the expert witnesses were prepared to project vein structures extending upward, downward or laterally from known surface deposits or mine openings with sampled ore shoots. Whereas Dr. Roscoe had limited such projections to a maximum of 100 ft., Mr. Lawrence, for example, had made projections of up to 500 ft. The absence of uniform standards which might reduce the latitude for subjectivity of this kind makes it difficult for the board to reach definitive conclusions concerning the resource.

[105] The earlier geological reports to which the expert witnesses referred offer varying degrees of assistance to the board's analysis. Except for Mr. Croft, whose report and his testimony concerning it will be considered in the valuation section of this decision, none of the professionals who produced these earlier reports gave evidence at the hearing. It was the board's understanding that Mr. Sharp is deceased and Mr. Clarke too advanced in years to be able to testify.

[106] At the outset it should be noted that, at least before applying a dilution factor to the materials being mined to account for the narrowness of the veins, the expert witnesses seemed in general agreement that the grades of the various resources comprising gold, silver, lead and zinc had been reliably calculated by the consulting geologists Sharp and Clarke.

[107] There is no question that Mr. Sharp was well acquainted with the geological characteristics of the Scranton mine property, having been present on site periodically since the early 1950s. His report dated May, 1967, was prepared for a mining group which owned the Ainsworth mill and was looking for economic resources to feed the mill. It appears this group organized itself that year as Silver Star Mines. His report dated August, 1975, was prepared for a client who evidently was considering purchasing or at least buying into the Scranton mine property, although no actual transaction appears to have been concluded. A principal thrust of both these reports was to assess for his clients the profit potential of a program of exploration and development. The board will consider what weight to attach to this aspect of Mr. Sharp's work when dealing with the valuation of the claims.

[108] Mr. Sharp maintained an enthusiastic tone throughout both of his reports. However, it must be borne in mind that he was simply identifying targets for exploration. The work which subsequently proceeded in the late 1960s on his recommendation, and which resulted in discovery of the "West Sunset" area, yielded no dramatic results, albeit the work was cut short through lack of funding. The workings in the West Sunset area during 1969 and 1970 produced 4,200 tons of low grade ore which, according to Mr. Sharp's later report, resulted in approximately 218 tons of lead concentrates and 238 tons of zinc concentrates.

[109] By 1975 Mr. Sharp reported that six separate zones of economic mineralization on the property were "more or less indicated" and that there were possibly significantly larger ore bodies over little explored intervals between these zones which might be discovered through the further program of exploration and development he was recommending. These projections must be viewed in light of the subsequent program of exploration actually undertaken by David Minerals in the late 1970s.

[110] The five reports prepared by Mr. Clarke for David Minerals during those years represent the last knowledgeable statements about the state of the resource on the Scranton mine property before the mine was closed for good. Although he does not appear to have had any involvement with the property prior to being retained by the new mine owners, Mr. Clarke had been a consulting geologist for nearly forty years.

[111] A review of Mr. Clarke's reports leads to the observation that he was more cautious from the outset than Mr. Sharp had been about the mineral potential of the property. Even in his first report dated October, 1977, outlining his recommended exploration program, a tone of tentativeness prevailed, although he concluded that, "with careful mining practice, an economically feasible operation may result from the proposed exploration and development program." Each subsequent report provided some basis for continued hope but also registered what must be taken to be disappointing results. In his August, 1978 progress report, for example, Mr. Clarke advised that exploration above the 5,900 ft. level through to the surface, originally proposed in his first report, had been deleted in view of the latter stages of mining production in January and February, 1978, which "showed a weakening and change of attitude of the West Sunset structure", lessening tonnage potential to the point where further exploration was not considered advisable. This was in obvious reference to the mining carried out by Mr. Leslie and his crew. In his last report dated August, 1979, as previously described, Mr. Clarke in effect recommended abandonment of the exploration program.

[112] The question arises whether Mr. Clarke's negative conclusions were founded, as the claimants' experts maintain, on his failure to appreciate the true angle and rake of the vein structure on the Scranton mine property. In particular, they argued that Mr Clarke should have recognized that the 69 foot mineralized shoot where Mr. Leslie and his crew were working was really a continuation of a sloping vein surfacing further west in the Southwest Sunrise zone. It is interesting to observe that Dr. Roscoe, the respondent's expert, concluded from reading the same reports that Mr. Clarke, in fact, well understood the geological structure of the claims and reached a sound conclusion. In the board's view, Mr. Clarke's understanding of the vein structure was similar to that of Mr. Sharp. His successive reports indicate that adjustments were made to the exploration program based on the results of both mining and geological sampling. At least by the time of his last report in August, 1979, Mr. Clarke had clearly recognized the possibility of a northeasterly rake to the 69 foot mineralized shoot, but he nevertheless concluded that the prospects of further exploration were not economically promising. The board finds no reason to assume that Mr. Clarke was working under a fundamental misunderstanding.

[113] The evidence of Mr. Leslie's on-site mining experience provides some support for the position taken by Mr. Clarke and, in turn, by David Minerals with respect to the future prospects of the mine. Although Mr. Leslie in his testimony said there was still more mineralization observable when he ceased mining in early 1978, it appears that the profitability of the work done by his company, Hem Mines Ltd., had run its course by the end of 1977, most of the economically available ore had been mined out, and no new reserves had been established.

[114] In a minor way the testimony on behalf of the respondent of David Rennie, a geologist currently employed by the firm of Roscoe Postle & Associates, also tended to confirm the generally negative results of the exploration program overseen by Mr. Clarke. In the summer of 1979, Mr. Rennie was a newly graduated geological engineer who was employed by David Minerals on the Scranton mine property intermittently for a period of three to four months. It was his impression that, although the principals of David Minerals were accomplished stock promoters, they were also seriously engaged at the time in trying to find resources to feed their Ainsworth mill. Mr. Rennie assisted with sampling and surveying underground at the Scranton site. It was his recollection that "drifting" (tunneling) in a leftward direction along the 5,700 ft. level in the Grandview-Sunrise basin had resulted only in the location of a vein that was "weakly mineralized" and that the existing vein "pinched out" a short distance above the drifting which had taken place at the 5,900 ft. level.

[115] Apart from the geological reports of Sharp and Clarke, the expert witnesses made varying use of two reports on the geology and mineral evaluation of Kokanee Glacier Park prepared by D.A. Brown and J.M. Logan of the mineral resources division of the geological survey branch within the Ministry of Energy, Mines and Petroleum Resources. The reports were geologically technical and reviewed over 50 mineral claims within the park. They had evidently been commissioned at the time when the government was preparing to shut down further mining activity within the park.

[116] The first report, published in 1988, was a review of the 1987 field season and was preliminary in nature. It understated the production history of the Scranton mine property. According to the authors, about 40% of the park was alpine meadow or felsenmeer with almost complete rock exposure so that, in their view, few if any surface mineral showings would have escaped detection over the years. Based on past production, they concluded that new discoveries in the park were "likely to be small, in the order of 10,000 tonnes."

[117] The second report, published in 1989, provided a more comprehensive history and analysis of the various mining claims, ranking them in order of attractiveness as exploration targets. Now the authors concluded that past production records indicated the likelihood of new discoveries to be "in the 50,000-tonne range or less" but with the potential for discovery of larger tonnage deposits. Significantly, they ranked the Scranton mine property as being "the most attractive exploration target because of its past gold production record, high gold values, well-defined structure and vein continuity". They now identified Scranton as having produced 25,902 tonnes of ore in the past, nearly three times the original estimate, with a dollar value of past production stated to be in excess of $6.0 million.

[118] While these reports are geologically significant, the board notes that the authors described their evaluation of mineral potential as "subjective" and went on to say, with respect to their findings of "high mineral potential", that this was a relative term meant to be applied within the park area only. It did not imply that new deposits exceeding 50,000 tonnes were likely to be discovered. Their upgraded evaluation of the attractiveness of the Scranton mine property as an exploration target, together with their overall upwardly revised assessment of the potential for new discoveries in the park, still cannot be taken as supporting resource estimates of the magnitude projected by the claimant's experts.

[119] Turning, then, to the reports of the claimant's expert witnesses, perhaps the most significant observation is the marked difference between the resource estimates of Mr. Addie and those of Mr. Lawrence. Mr. Addie placed all of his resources in the Southwest Sunrise section of the claims, whereas Mr. Lawrence estimated most of the resources to be in other areas of the claims, particularly in what he identified as the Grandview and Sunset shoots. Although the total resource estimates of the two experts appear similar at first glance (Mr. Addie at 219,025 tons, Mr. Lawrence at 233,700 tons after discounting for uncertainty), they are in fact very different in detail. It is impossible for the board to accept that they are both correct and, indeed, the differences between them, based on the same data, disclose the real uncertainty that is at the heart of this litigation. In the board's view, neither of these estimates of resource volume is reliably predicted by the data. The board concurs in the observation made by Dr. Roscoe that there is no sampling evidence to support the inferred resources included in Mr. Lawrence's estimate, and far too little information in the areas of indicated resources to support the large projections and extrapolations made by both Mr. Lawrence and Mr. Addie, who were each focusing on a different area of the Scranton mine property. Both of these experts' estimates must be viewed as highly speculative.

[120] Furthermore, Mr. Lawrence's estimates of inferred resources in his reports take no express account of whether some of those resources may be located outside the six Crown-granted mineral claims. Mr. Lawrence in his testimony suggested that approximately 15,000 tons of inferred resource may lie on the Charley claim. The receiver of David Minerals expressly excluded both the Bob and Charley mineral claims on the grounds that they had reverted to the Crown. The evidence provided by the claimant at a later stage of these proceedings puts in some doubt whether those claims had, in fact, reverted, but in any case, they were not among the assets purchased by the claimant in March, 1988, and no steps were taken by the claimant either before or after the date of expropriation to assert a right to their ownership. Perhaps more significantly, Mr. Lawrence in giving evidence calculated that a total of 67,000 tons of inferred resource might run off the property. His explanation for making no express adjustment for this possibility was that the risk of loss of that resource was already incorporated into the 50% reduction he had made to the tonnage of inferred resources before including them in his DCF analysis. The board finds this explanation after the fact as rather too convenient and, in net effect, it appears simply to add to the degree of speculation inherent in his analysis.

[121] Dr. Roscoe's own estimates on behalf of the respondent suffer somewhat from a too ready willingness to accept the most pessimistic assessments available to him and to overlook other evidence. One identified source for his opinion that the Scranton mine property possessed relatively low exploration potential, for example, was the brief comment in David Minerals' Statement of Material Facts in July, 1985 to the effect that identified areas of mineralization were "too small to warrant additional exploration". Dr. Roscoe failed to note the additional words "at this time". More importantly, the claimant succeeded, in the board's view, in showing that Dr. Roscoe had relied on the preliminary conclusions reached by Brown and Logan in their 1988 report and totally ignored the upgraded estimates contained in their more complete report of the following year. Dr. Roscoe accepted, as further indication of low exploration potential, Brown and Logan's description of much of the park as having almost complete rock exposure so that earlier exploration should, he said, already have discovered the best and largest shoots within the vein system that reached the surface or other vein systems. The claimant, through the introduction of Mr. Turek's "trip report" to the Scranton mine property in the fall of 1999, cast in considerable doubt the accuracy of Brown and Logan's description of rock exposure at least insofar as it applied to the Scranton mine property. Dr. Roscoe, faced with the new evidence, was nevertheless unwilling to resile from his earlier expressed opinion.

[122] In the final analysis, however, the preponderance of evidence, such as it is, leads the board to conclude that Dr. Roscoe's estimate of total resources on the Scranton mine property at 40,000 tons, although probably somewhat low, is far more reasonable and supportable than either that of Mr. Lawrence at close to 302,000 tons or Mr. Addie at over 219,000 tons. A chart prepared by the board, showing the distribution within the claims of their respective estimates of the resource, is included as an appendix to these reasons.

5.4.2 The Approaches to Valuation Considered The DCF Approach

[123] The claimant asks the board to accept as appropriate the DCF Approach to valuation of its undersurface mineral rights, leading to a value conclusion well in excess of $5.0 million. The difficulties inherent in this submission require detailed analysis.

[124] The board accepts that the DCF Approach is a recognized method of valuation of land and businesses. In the context of valuing a mineral property, it is a method which both Mr. Lawrence and Dr. Roscoe say is appropriate under certain conditions. Respondent's counsel in his written submissions refers to the text by Ian R. Campbell, The Valuation & Pricing of Privately Held Business Interests (1990), at pp. 213-215, wherein the author points out that the method involves the notion that value is prospective and is equivalent to the present value of all future benefits anticipated to accrue from ownership. The asset being bought and sold is the present value of a future income stream.

[125] In the case of a mining operation, the income stream is determined by predictions and assumptions regarding reserves, grades, and metal prices on the gross revenue side and the costs of getting the minerals on the expense side. Since not all the income is earned at once, the time value of money must be taken into account and the income stream discounted accordingly. Additionally, the future income stream is always subject to some uncertainties and risks regarding available reserves, ore grades, the costs of production, metal prices, and tax policy. The income stream must be further discounted for these risks.

[126] Professor Eric C.E. Todd, in The Law of Expropriation and Compensation in Canada, 2nd Edition (Carswell: Toronto, 1992), at page 219, has noted that courts and tribunals are usually reluctant to rely on what is normally referred to in the context of land appraisal as the "development approach" (in effect, another name for the DCF Approach) where other methods such as direct comparison are available. This is so for two principal reasons: first, the uncertainty surrounding the assumptions and predictions necessary to derive the net income stream, and second, the volatility of this mathematical approach in that a comparatively minor change in one component of the analysis can produce a significant effect on the residual or end value.

[127] This board has rejected the real estate appraisal equivalent of the DCF Approach where it has considered that the requisite conditions for its use were lacking (see McKinnon v. School District No. 36 (Surrey) (1994), 54 L.C.R. 223, and Sutherland v. Langley (Township) (1999), 68 L.C.R. 49), and in other cases has accepted its use only reluctantly because it had no other evidence (see Double Alpha Holdings Corp. v. Centra Gas British Columbia Inc. (1998), 68 L.C.R. 99, and Sequoia Springs West Development Corp. v. British Columbia (Minister of Transportation and Highways) (2000), 69 L.C.R. 1). In the Sequoia Springs decision, the board at page 15 stated that "the volatility inherent in the Development Approach means that the Direct Comparison Approach is to be preferred except where there is insufficient evidence to support a comparative approach."

[128] In Re Cyprus Anvil Mining Corp. and Dickson (1986), 33 D.L.R. (4th) 641, the British Columbia Court of Appeal accepted in principle the use by the learned judge in the court below of the DCF Approach on an integrated basis with other methods to determine the value of the mining shares at issue. However, at page 657 of the majority judgment, Lambert J.A. made the following cautionary comments regarding the uncertainties and volatility inherent in the approach:

But the discounted net cash flow method must always be viewed with care where there is no historical cash flow to use as the basis of the calculation, and the cash flow itself must be derived from a series of assumptions about gross receipts in a projected market for the product and hypothetical costs of production. A minor variation in assumptions about future metal prices, tonnage, metallurgy, mining plans or discount rates becomes magnified through the calculation into a gross distortion of the fair value.

[129] The problems associated with the DCF Approach become particularly acute in an arbitration setting such as this where the claim for compensation for market value arising out of an expropriation necessarily rests on the notional concept of the willing buyer and willing seller in the open market. A member of the English Lands Tribunal, in Clinker & Ash v. Southern Gas Board (1967), Digest of Cases 533, has described the difficulty in this way at p. 542:

...although there may be a deemed open market there are no external sanctions acting as an incentive to the achievement of the delicate balance which I have described, because there is in effect a captive purchaser and a captive vendor; thus there is no risk on the vendor's part of losing a sale by reason of the price advised by his expert being too high, nor is there any risk on the purchaser's part of missing a buy because the price advised by his expert is too low.

In the absence of these market constraints, the Lands Tribunal suggests from its own experience that valuers using what it refers to as the "residual method" (in effect, yet another way to describe the DCF Approach) have a natural tendency to put forward opinions of value that are either undependably high or undependably low. Citing another of its decisions, the Lands Tribunal observes at p. 543: "...once valuers are let loose upon residual valuations, however honest the valuers and reasoned their arguments, they can prove almost anything".

[130] Such skepticism, it appears, lay at the heart of this board's rejection of the DCF Approach in Casamiro Resource Corp. v. British Columbia (1993), 50 L.C.R. 99, the only other case thus far in which the board has had to determine the market value of expropriated Crown-granted mineral claims. The claim for compensation in Casamiro arose from the expropriation of a gold-bearing mineral property known as the "Sherwood mine", located within Strathcona Provincial Park, through reclassification of the park in 1988. The Sherwood mine had been actively explored in the 1940s and early fifties, but for the next three decades there had been no apparent effort to continue exploration. Apart from a preliminary site investigation, attempts to revive exploration work by the new owners in the mid-1980s had been frustrated by a government-imposed moratorium on mining in the park which ultimately led to the Court-declared expropriation. Over all the years of its existence the Sherwood mine had shipped only 22 tons of ore for smelting, which the board found insufficient to constitute evidence of a "producing mine".

[131] At the compensation hearing in Casamiro, the claimants relied on the expert evidence of Mr. Ross O. Glanville, a professional mining engineer and financial analyst. Mr. Glanville prepared what he termed an "adjusted discounted cash flow calculation" from which he estimated the market value of the subject property to be $15.8 million, adding, however, that "because of the normal risks inherent in exploration and mining, as well as the variability of external factors such as the price of gold . . . a reasonable range of value is between $10.0 million and $20.0 million." At the same time Mr. Glanville in his report asserted that

"...one must reject an artificially low value that can be constructed by using unrealistic assumptions as to ore grade, ore tonnage (both existing and projected), gold price, metallurgical recovery, capital costs, treatment charges, transportation costs, and discount rate."

[132] The board concluded that Mr. Glanville's "adjusted discounted cash flow" was, in fact, a modification of the DCF Approach. The "adjustment" he made incorporated a factor to reflect his anticipation of achieving a targeted grade and tonnage eight times greater than that estimated by a geologist upon whose much earlier work he had relied. To illustrate what the board said was the "speculation inherent in Mr. Glanville's approach to market value", it quoted from what he referred to as his "judgment" about the potential ore reserves on the property as follows:

"I would agree that there is the potential for at least 800,000 tonnes or more of ore in total, including the existing ore, on the Sherwood Mine Property. However, I have reduced the expected tonnage considerably. It is my opinion that there is at least a 50% chance of finding enough ore to mine for three years at a 200 tonne per day production rate (or 210,000 tonnes in total) on the Sherwood Mine Property and at least a 25% chance of finding double that amount (420,000 tonnes in total). For purposes of this valuation, I have reduced the calculated value for the 210,000 tonne case by 50% and I have reduced the calculated incremental value (value of the 420,000 tonne case minus the value of the 210,000 tonne case) by 75%."

[133] At page 123 of its decision, the board concluded as follows:

We can find no authority for Mr. Glanville's reliance on his adjusted discounted cash flow, and we reject this method of valuation as being entirely unsuitable under the circumstances.

The board is therefore satisfied that the claimants' method and approach to establish market value of the Sherwood mine is far too speculative to be accepted as reliable evidence of loss of profits or of market value.

In the end the board determined the market value of the Sherwood mine property to be $375,000, using as the principal basis of its conclusion the price paid for purchase of the mine a few years earlier, adjusted for inflation, together with consideration of several comparable mine transactions.

[134] The claimants in Casamiro appealed from the board's decision to the British Columbia Court of Appeal. One of the grounds of appeal was that the board had erred by improperly disregarding the evidence of Mr. Glanville as to market value. The Court of Appeal's judgment was rendered after final submissions in this matter had been completed: Casamiro Resource Corporation v. British Columbia, 2000 BCCA 407, June 28, 2000. At paragraphs 29 and 30 of the judgment, Southin J.A., writing for the Court, concluded with respect to the board's alleged error as follows:

In my opinion, not only was the Board entitled to reject Mr. Glanville's evidence on the ground it was "speculative", but also it was entitled to reject it on the ground that the discounted cash flow method is wholly unsuitable to property which is not, and has never shown any real prospect of being, in commercial production.

Not only was no reversible error demonstrated in the Board's approach to Mr. Glanville's evidence, but also it was right.

[135] During the compensation hearing in this matter, the claimant sought to distinguish the Scranton mine property from the Sherwood mine on factual grounds. According to the claimant, the Scranton mine had been the subject of far more intensive and prolonged exploration work and, unlike the Sherwood mine, did have a history of commercial production, albeit on a modest scale.

[136] The board is prepared to accept that the Scranton mine was somewhat further developed than the Sherwood mine. Even Dr. Roscoe for the respondent, while he considered Scranton an exploration property, conceded that it was close to the edge of the "grey area" on his spectrum from exploration to development properties. Nevertheless, it fell far short of meeting the basic criteria necessary to demonstrate the existence of an economically viable mineral deposit. In the board's opinion, the Scranton mine property, with no established ore reserves, a history of only sporadic small-scale production, and an exploration program which terminated with disappointing results a full decade prior to the valuation date, must properly be viewed as an exploration property unsuitable to be valued by the DCF Approach.

[137] The board's conclusion is supported, not only by its review of the authorities cited above, but also by a detailed analysis of the assumptions and estimates which underlie the claimant's use of the DCF Approach and by subjecting this notional valuation process to the test of reasonableness.

[138] Mr. Lawrence in his DCF Approach estimated cash in-flows as the net smelter returns from the Cominco smelter at Trail. Net smelter returns are a function of the tonnage mined and milled, the grade of the ore, metal recoveries and metal prices. He estimated cash out-flows as development, operating, trucking and milling costs, taxes, duties and capital outlays. He then calculated the net present values of net cash flows from a six-year operating period using different discount rates. The board will consider each of these components in turn.


[139] A critical component in the DCF analysis was the quantity of resources available to be mined at Scranton. For the purposes of his model, Mr. Lawrence utilized all 165,000 tons of the indicated resources he had projected but only 50% of the 136,200 tons of inferred resources to take into account the risk that they may not, in reality, exist. Even so, the board has concluded on the evidence before it that Mr. Lawrence's projected figures for tonnage are highly speculative, and that Dr. Roscoe's estimate of 40,000 tons of measured, indicated and referred resources seems closer to the mark. This casts in serious doubt, at the outset, the economic viability of an operation said to generate revenues which would result in a discounted net cash flow value of between $5.5 million and $6.0 million. The claimant itself suggested that, with regard to resources, the "break point" was approximately 50,000 tons. This meant that, below that level of resource, the mining program projected by Mr. Lawrence could not profitably be undertaken.

[140] Of course, no one knows with any degree of certainty how much resource exists on the Scranton mine property, and attempts to prove up the resource, both at the time of expropriation and by way of a modest program of further exploration work a decade later, have not been permitted. One result of this situation is that the expert evidence before the board shows such wide differences of opinion on the quantity of the resource that its usefulness as a critical input into a DCF calculation must be seen as seriously flawed. The degree of uncertainty which exists with respect to this initial component is, in itself, a major reason for concluding that the DCF Approach cannot produce a safe guide to market value in this case.

[141] The board pauses in its analysis at this point to make a further observation. During the hearing the claimant argued that it should be entitled to the benefit of any uncertainty concerning the resource and, for that matter, any other aspect of the claim in dispute since it had been denied the opportunity of further exploration. The claimant based this assertion on what the board had said in Casamiro. Expressing regret that the Crown had allowed no further sampling and drilling work to take place at the Sherwood mine after the expropriation, the board remarked, at p. 143 of its decision:

If we err in valuing the subject property, we will err on the side of the claimants whose interest has been taken, and who have been denied any free and open investigation of the value of their property.

Nevetheless, the board in Casamiro rejected both the claimants' estimates of the resource and the use of a DCF Approach as highly speculative and unreliable. The board reached a value conclusion amounting to only a tiny fraction of what the claimants' experts there had deduced.

[142] On appeal, the claimants alleged that the board failed to draw an adverse inference on common law principles from the Crown's refusal to allow them back on the property to do further sampling and drilling. The Court of Appeal noted that the common law principle relied upon by the claimants was in the nature of a presumption against a wrongdoer and concluded, at paragraph 44 of its judgment:

The Crown is not a wrongdoer. Having expropriated the property, it had a legal right to refuse entry to the appellant.

Similarly in this case the board is not prepared to draw an adverse inference from the respondent's conduct in denying the claimant entry to the Scranton mine.

Ore Grades

[143] Beyond tonnage, ore grade is a key determinant in the cash flows derived from net smelter returns. Grade refers to the quantities of metals in the ore mined. It is also affected by what is referred to in the mining industry as "dilution". Dilution occurs because, according to the experts, mining cannot be effectively carried out in adits of less than a 4 ft. width. Where, as at Scranton, it is generally acknowledged that the veins are narrower than this, the miners necessarily take out rock which has no value. Dilution is increased where rock falls in from the tunnel walls. As noted earlier, both Mr. Lawrence and Dr. Roscoe based their grade estimates on the Sharp and Clarke reports. However, Mr. Lawrence's grade estimates are higher than those of Dr. Roscoe, who makes use of all the assay results and employs weighted averages. In part the difference is also accounted for because the claimant's expert assumed only a 15% dilution rate while the respondent's expert assumed 25% dilution.

[144] It was instructive to the board to learn that Dr. Roscoe had obtained from Mr. Lawrence a copy of the DCF software used by the latter's firm and had, in turn, prepared four "sensitivity" tests related to ore grade. Dr. Roscoe used all of Mr. Lawrence's input components except those related to grades and ran a DCF analysis as at March 21, 1989, applying to the results a 10% discount rate. Using this discount rate, Mr. Lawrence had derived a final value of $6.1 million. Dr. Roscoe's results from his sensitivity test were as follows. First, if Mr. Lawrence's estimated grades were reduced by 10%, the DCF value dropped to $4.49 million. Second, if Dr. Roscoe's estimated grades were used, the DCF value became $1.14 million. Third, if only the dilution rate was changed from 15% to 25%, the DCF value was $4.7 million. Fourth, if Dr. Roscoe's estimated grades were used and the dilution rate increased to 25%, the DCF value fell to about $150,000. The claimant did not challenge these test results.

[145] What these tests well illustrate again, in the board's view, is the volatility inherent in the DCF Approach to even rather mundane changes in the variables. In order to be able to rely on this approach as a notional valuation method, the board would require something approaching expert agreement on, in this instance, ore grades.

Metal Prices

[146] Mr. Lawrence in his evidence stated that price forecasting is the most obvious difficulty in using the DCF Approach. The difficulty in this case was illustrated by the fact that Mr. Lawrence had provided different value conclusions depending upon which of two dates, April, 1988 or March, 1989, was ultimately determined to be the date of expropriation. From April, 1988 to March, 1989, gold and silver prices decreased while lead and zinc prices increased. In the calculations which appear in his first report, these price changes resulted in Mr. Lawrence estimating a higher market value for the earlier date than for the later one. Somewhat paradoxically, the calculations in his second report were in the opposite direction: that is, the market value for the later date is higher than for the earlier date.

[147] Mr. Lawrence further stated that the use of valuation date prices "implies that throughout the entire production period average prices at that level will be obtained." The board is uncomfortable with the use of valuation day prices in this way. As illustrated by Mr. Lawrence's results, the value depends on the day of valuation and will change over time in unpredictable ways since metal prices do not move in unison. In any case, the board was provided with no evidence regarding general pricing practices in the mining industry which might lend support to the methodology used by the claimant's valuation expert.

Net Smelter Returns

[148] Net smelter returns are the result not only of tonnage, grades and prices but also of metal recoveries in the concentrator mill. Mr. Lawrence relied on recoveries estimated by Mr. Sharp in his 1975 report and he initially assumed that one bulk concentrate would be produced at the Ainsworth mill. When he later learned that separate lead and zinc concentrates could be produced there, the effect on his calculations was dramatic. Separate concentrates result in higher metal recoveries. Additionally, the result is better concentrates for the smelter, so higher prices are paid. Mr. Lawrence used typical Cominco smelter schedules for the period to estimate the net smelter returns for the separate concentrates. In the result, the estimated net smelter return for the March 21, 1989 valuation date increased by 38% between his first and second reports. Since, he asserted, two concentrates are produced at little increase in costs over those to produce only one, the before tax net cash flow increased by 142% between his first and second reports.

[149] The respondent did not specifically contest the accuracy of Mr. Lawrence's revised description of the two-concentrate scenario, except to question the credibility of an expert opinion on value that swung from the $1.0 million to the $5.0 million range as a result. The board accepts that the Ainsworth mill was capable of producing separate lead and zinc concentrates, and further observes that there was ample evidence in the earlier reports to indicate that this was the case. It remains something of a mystery to the board as to why the claimant and its valuation expert initially overlooked so obvious a fact, particularly given its impact on the reliability which the board was asked to place on the DCF Approach. The volatility of the method was, in the board's view, further demonstrated by Mr. Lawrence's belated recognition, resulting in an adjustment within his model which for this one factor alone was largely responsible for a five-fold increase in the market value he derived.

Development and Operating Costs

[150] For the purposes of his DCF Approach the claimant's valuation expert envisioned the development of the Scranton mine property as a small, cost-conscious operation, not unlike that which Hem Mines Ltd. had undertaken in the late 1970s, although on a scale capable of producing three or four times the daily tonnage which Mr. Leslie and his crew had achieved. Mr. Lawrence defined operating costs to include both the costs of mining and development, since it was his assertion that both tasks would generally involve the same personnel and equipment. In his estimate of $41 per ton for mining costs, based on the overall production of 233,700 tons of indicated and inferred resources, he included an allowance of 25% for underground development. He also included under this heading the costs of trucking the ore to the mill, estimated at just over $3 per ton, the milling costs themselves at $22 per ton, and administration costs equivalent to $3.85 per ton. In total, development and operating costs were estimated at $69.47 per ton of ore produced.

[151] The evidence at the hearing casts in serious doubt the viability of the claimant's estimates. First, underground development costs which would include the rehabilitation of existing track drifts, the development of new track drifts, and the laying of new track itself appeared, on the basis of the costs actually incurred for such items by David Minerals and on the evidence of Mr. Leslie, to have been significantly understated. Dr. Roscoe's estimate of development costs using this evidence and adjusting for inflation was nearly twice that estimated by Mr. Lawrence. At one point the claimant conceded that perhaps another $4 per ton should be added to its estimate to allow for the costs of mining below the 5,700 ft. level. Second, the claimant conceded during final submissions that Mr. Lawrence had underestimated by perhaps $12 per ton the labour costs likely to be incurred to achieve the required rate of mineral production. This added cost component in itself had the effect of reducing the final DCF value by more than $1.0 million. Third, the estimate of $22 per ton for milling costs did not square with other evidence indicating, for example, that Mr. Leslie's milling costs in the late 1970s at the Ainsworth mill which David Minerals owned at the time were on the order of $16 per ton unadjusted for inflation, and that the actual toll charges extracted at the mill in 1989 were, according to a metallurgist with whom Dr. Roscoe spoke, on the order of $30 to $40 per ton and likely closer to $40 per ton.

[152] Parenthetical to the question of milling costs is one concerning the use of the Ainsworth mill itself. The claimant appears to have assumed that it was capable of utilizing 100% of the capacity of the mill for the projected six year period. At the hearing, however, the board was provided with no information as to the ownership, condition and availability of the mill at the date of expropriation. There was some evidence from the annual report of David Minerals in 1981 to the effect that the mill was operating three shifts per day to achieve the 130 ton capacity required to handle the ore from David Minerals' Utica mine. By 1982, David Minerals had reduced deliveries to the mill, so other ores were being treated on a custom milling basis. The lack of certainty regarding the Ainsworth mill in 1989, however, seems to the board to be a further weakness in the mining scenario constructed by Mr. Lawrence. Failing use, or full use, of the Ainsworth mill by the claimant, the board should have been made aware of alternative milling arrangements and their impact on costs.

[153] Other evidence of projected or actual operating costs at the Scranton mine further weakens the claimant's case. In his 1975 report, for example, Mr. Sharp went beyond the calculation of available resources to project a hypothetical mining operation in the West Sunset area intended to extract 28,000 tons of partly developed ore at a rate of 2,500 tons per month. Mr. Sharp suggested a gross mining and milling cost for this operation of $39.78 per ton which, converted into 1989 dollars, indicates an operating cost on the order of $80 per ton. This estimate did not include pre-production costs of approximately $10 per ton in 1975 dollars, and appears not to have made provision for the further cost of underground development. It was Mr. Leslie's recollection at the hearing, although he admitted that he kept no accurate records, that the operating costs for the modest-scale operation undertaken by Hem Mines Ltd. on the Scranton mine property in the late 1970s were on the order of $50 per ton which, again converted into 1989 dollars, indicates costs approaching $100 per ton. Even if, as the claimant asserts, some economies of scale might have been realized by a somewhat larger operation than those described above, the board has great difficulty in accepting that they would have reduced operating costs to the level projected in Mr. Lawrence's analysis.

[154] Dr. Roscoe at page 12 of his valuation report stated that operating costs at small underground gold mines in 1989 were in the order of $100 per ton or more. Later in rebuttal, he reviewed operating costs at two mining operations — the Blackdome Mine in southwestern British Columbia and the Silvana Mine in the Slocan mining camp just northwest of Kokanee Glacier Park �� during 1988 and 1989 which indicated average operating costs during those years of $267 per ton for the former and $140 per ton for the latter. While the board is not prepared to accept on the slim evidence offered by the respondent that these numbers were typical, it does not assist the claimant's case that it provided no evidence of its own to support the notion that small-scale mining operations, such as those projected for the Scranton mine property, could be carried out at operating costs as low as $70 per ton.

Capital Costs

[155] The capital costs said to be required to put the Scranton mine property into production, distinct from underground development, did not factor into Mr. Lawrence's pre-tax net cash flow analysis. However, in the board's view, they are best dealt with at this point since they do have a significant bearing on the sensitivity test which Mr. Lawrence demonstrated in his second report.

[156] In his first report Mr. Lawrence assumed that all necessary equipment was already on site or readily available from the claimant and that $1.0 million in capital investment would be required. As the evidence unfolded during the hearing, it became clear that no equipment and almost no infrastructure of any kind remained in place. Nevertheless, in his second report Mr. Lawrence reduced his estimate of the capital requirements to $850,000, which included $600,000 for used equipment and $250,000 for general rehabilitation. By contrast, Dr. Roscoe in rebuttal produced an itemized list comprising what he said would likely be the capital costs for other than underground mine development totalling some $3.73 million. As may be imagined, considerable argument between the parties ensued during the hearing over precisely the amount and kind of equipment and facilities needed.

[157] It is unnecessary for the board to fasten on a particular number in order to express that it has great difficulty in accepting the claimant's estimate of capital requirements for a mining operation on the scale envisaged by the claimant through his valuation expert. The claimant's capital costs appear to be significantly understated in that they make no allowance for the sort of equipment likely to be required to carry on mining below the 5,700 ft. level, make no provisions, for example, for a generator or a front end loader and in other ways seem to understate the quantity of equipment reasonably necessary. These inconsistencies and deficiencies further weaken any degree of confidence which the board feels it could place in the claimant's DCF Approach.

[158] It is somewhat curious but nevertheless revealing that operating and capital costs were the only items which the claimant subjected to a sensitivity test. At page 49 of Mr. Lawrence's second report appears a chart which graphs the present value of net cash flows for the hypothetical mining project, discounted at 10%, on variable assumptions regarding operating and capital costs. The graph demonstrates that, with a base capital cost of $850,000 and base operating costs of approximately $69.50 per ton as assumed, the DCF value shows at around $5.5 million. However, if the base capital cost remained the same and operating costs instead amounted to around $100 per ton, the DCF value falls to $1.0 million. Under cross-examination, Mr. Lawrence agreed that if operating costs were extended off the graph to a figure of roughly $110 per ton, then the DCF value would fall to zero. Assuming instead that capital costs were on the order of $3.0 million and operating costs remained fixed as projected at $69.50 per ton, the DCF value would drop from $5.5 million to $4.0 million, and would again fall to zero if operating costs reached about $90 per ton.

[159] The costs projected by the two valuation experts, Mr. Lawrence and Dr. Roscoe, are summarized in the following chart:

Costs per ton, based on 233,700 tons

   Lawrence Roscoe
Mining (and development) 40.61 63.00
Truck to mill 3.01 3.00
Milling 22.00 37.00
Administration 3.85 6.00
Subtotal 69.47 109.00
Capital Costs 3.64 16.00
Total 73.11 125.00

Taxes and Duties

[160] Mr. Lawrence's revised estimates with respect to taxes and duties payable on the hypothetical Scranton mining project represent the other most significant change in his second report. In fact, the estimated taxes and duties as a percentage of net cash flows dropped from approximately 45% in his first report to approximately 16% in his second report. Mr. Lawrence explained that this change resulted from a more detailed consideration of tax calculations than had initially been the case. The second report provides several pages of discussion regarding the calculation of tax. Federal and provincial taxes were applied to net cash flows, less exploration, development and depletion allowances applicable to Canadian mining operations. However, since Mr. Lawrence acknowledged that he was not a tax expert, he had relied on a staff member of his firm who was expert in mining company tax matters.

[161] The respondent did not challenge the claimant's revised estimates of taxes and duties. Nevertheless, the radically revised treatment which they receive in Mr. Lawrence's second report leaves the board wondering how someone expert in mining tax matters could arrive at such divergent tax estimates over the short period of less than a year and a half. Did the tax expert first omit the well-known mining allowances or simply miscalculate them? The board was provided with no information upon which to answer the question. The net result, in the board's view, is to cast an even deeper shadow over the credibility of the estimates or, in any case, the methodology for which they are being produced.

Discount Rates

[162] Another difficulty in using the DCF Approach, as Mr. Lawrence himself pointed out, is the determination of the appropriate discount rate to incorporate both the time value of money and the venture risk. At pages 18-19 of his second report, Mr. Lawrence observed:

"When we review the market for gold mining company securities, we find that mining analysts generally use discount rates ranging from 0% for producing mines to perhaps 10% or slightly higher for earlier stage projects. Similarly, discount rates for base metal mines and projects at this stage of development usually fall in the 10% to 20% range. We have concluded that a blended rate in the range of 5% to 15% would therefore be appropriate for Scranton."

The claimant's valuation expert then went on to point out that such a range is supported by reference to long term rates of return on investment realized by mining companies listed on the Toronto Stock Exchange. He moved to the mid-point of the range and concluded that a 10% mean discount rate was appropriate for the Scranton mine property although, in his final valuation conclusion of between $5.5 million and $6.0 million, he indicated that these values had been calculated using discount rates of about 10.5% to 14%. In his opinion, this showed that due consideration had been given to the risks of mineral resource estimation and other factors in arriving at his valuation conclusions.

[163] As is indicated from Mr. Lawrence's DCF calculations, the choice of the discount rate has a significant impact on the final result. In his first report, the move from 5% to 10% reduced the DCF value by $300,000, or 30%. The move from 10% to 15% reduced the DCF value by a further $200,000, or nearly 29%. In his second report, moving from a 5% to a 10% discount rate reduced the DCF value by $1.0 million, or 14%, while moving from 10% to 15% further reduced by the DCF value by $800,000, or 13%. As the board sees it, the volatility of the method is once again demonstrated.

[164] The respondent did not take particular issue with Mr. Lawrence's choice of discount rates. However, it does seem to the board that reference to returns on investment in publicly-traded Canadian mining companies as the basis for choosing an appropriate discount rate may have less relevance if the notional "willing buyer" of the Scranton mine property were a private company. The board would have found evidence on typical discount rates used in evaluating other such mining ventures to be useful. As it is, the board does not have sufficient information to be able to conclude with any confidence whether a discount rate of between 10.5% and 14% is reasonable for this mineral property.

Reasonableness Test

[165] The weight of case authority as well as the foregoing detailed review of the components comprising the claimant's DCF Approach both demonstrate its inappropriateness and unreliability in the present instance. Beyond even these considerations, when a market value opinion depends on a DCF calculation, it seems to the board that it is important, in a sense, to stand back and test whether the result could be reasonable. This is because the model is built on assumptions and estimates, not on interactions between willing buyers and sellers in the marketplace.

[166] Mr. Lawrence predicated his DCF Approach on a mining operation carried on by what he characterized at page 45 of his first report as "a small entrepreneurial group with limited overhead costs". In the general conclusions at page 22 of his second report, he opined: "Cash flow projections indicate that a robust project was well-defined at the time of expropriation and that an attractive mining operation could be forseen within the economic environment of the day." These prospects, in other words, should have been apparent to the prudent small-scale mining operator willing, in turn, to pay more than $5.0 million for the Scranton undersurface rights.

[167] Under cross-examination, Mr. Lawrence stated that his notional market value calculation was an attempt to get at real market value. He conceded that, in the marketplace as he experienced it, purchase prices are not based on detailed DCF calculations so much as on "back-of-the-envelope" calculations. The DCF calculations would be something a seller or promoter would use if he or she were looking for a buyer to "do a deal". When questioned about willing buyers, he testified that he considered stock promoters and perhaps private investors to be the primary market for the purchase of mining properties such as Scranton. Mr. Lawrence added that he would not take the deal to major mining companies because they would "kill" the project with overheads. His concept, he reminded the board, was a low-overhead operation run by "practical men".

[168] In the board's view, this was a rather revealing comment. Mr. Lawrence apparently meant that major mining companies would have higher costs than what he was projecting. However, even if the market were to be led by stock promoters, other evidence before the board on comparable sales transactions provides no reason to believe that such promoters would pay anything like $5.0 million for the Scranton mine, much less in cash. The board would be left to speculate on the timing and forms of considerations the seller and buyer would negotiate. Such terms would have to be converted to a cash equivalent before any conclusions could be drawn about market value. An estimate such as that reached by Mr. Lawrence of the cash flows for a new mining operation at Scranton would, in the board's view, be viewed with skepticism in the market place and deeply discounted. A buyer, who always has the option of buying other properties about which similarly little is known, is unlikely to pay substantially more for this one simply because the owner expresses enthusiasm.

[169] There was no other evidence leading to any reasonable conclusion that the Scranton mine property could have been sold for anything like the market value ascribed to it by the claimant. At the time of expropriation there were no reserves on the property and no mining plan in place for its development. Referring to 178 sales which Dr. Roscoe said he examined in connection with his comparable transaction analysis, he noted that only 16 such transactions involved a price of $1.0 million or more. The respondent referred specifically to one such transaction, the 1989 sale of the Silvana Mine. This was a small operating mine, equipped, profitable and with reserves. It sold for $1.0 million plus $500,000 for certain working capital items.

[170] The reasonableness test should also consider the volatility of results under the DCF Approach as indicated by sensitivity analyses. The board has already, in some tortuous detail, compared the effect on Mr. Lawrence's revised second report from changes he made to his calculation of the net smelter return, taxes and duties, plus capital investment, while holding all other variables constant. The result was that the DCF value increased by 760%. Some further sensitivity testing by the claimant might have been useful to the board's analysis. However that may be, the board is drawn inexorably to the conclusion that the claimant's use of the DCF Approach cannot meet the test of reasonableness. The Appraised Value Method

[171] Having thus rejected the DCF Approach, the board turns to consider the other two approaches used in valuing the Scranton mine property. The first of these is the Appraised Value Method where, it will be recalled, a value is derived by adding together meaningful past exploration expenditures and warranted future costs.

[172] Both valuation experts considered it a fundamental requirement of the use of this method that the valuator must be an experienced exploration geologist thoroughly familiar with the exploration process. However, while both Mr. Lawrence and Dr. Roscoe meet this requirement, the different valuation conclusions which they reached using the Appraised Value Method are scarcely less astonishing than those which each either estimated or implied through examination of the DCF Approach.

[173] In the board's view, Mr. Lawrence's use of the Appraised Value Method in his first report suffers from some faulty assumptions concerning the state of the property and from incomplete methodology in that he valued past expenditures but appeared not to factor in anything for warranted future costs. As to the concept of meaningful past expenditure, the claimant's valuation expert made the following significant observation at page 16:

"Retained value is a judgement made by the geologist. Expenditures made on ground later abandoned due to negative results cannot be used."

[174] However, Mr. Lawrence held to the view that the cost of David Minerals' purchase of the Scranton mine property in 1977 (less the cost of its separate acquisition of the Ainsworth mill) should be factored into the category of meaningful past expenditures. In his further opinion, its program of exploration and development work thereafter enhanced the value of the property up to the date of expropriation and should be fully retained in the calculations as meaningful. Built into this conclusion was Mr. Lawrence's understanding that David Minerals had undertaken perhaps four times as much work in the form of drifting, cross cuts and raises as the evidence seems to support, and his evidently erroneous assumption that significant quantities of track, piping and hose were left underground when the property was abandoned.

[175] Ultimately, Mr. Lawrence's use of the Appraised Value Method in his first report gave a value in the range of $1.5 to $2.5 million, which he discarded in favour of the lower figures indicated at the time by his DCF Approach, noting simply that while the range offered a good measure of value, "it could be argued that it is on the high side." In his second report, the claimants' valuation expert made passing reference only to the conclusion reached earlier under the Appraised Value Method without observing that the measure of value it reflected was now far lower than that said to be supported by his revised DCF Approach.

[176] For his part, Dr. Roscoe was prepared to accept that expenditures in the order of $1.0 million were reasonable for acquisition of the mine property by David Minerals and for the amount of exploration work carried out by the company in the late 1970s. The major point of departure for the two valuation experts was in estimating that portion of past expenditures which ought to be retained as meaningful. Because the respondent's valuation expert viewed the results of that exploration work as almost entirely negative, he concluded that only 10% of expenditures associated with it, or $100,000, should be retained.

[177] Although the board from its review of the evidence is inclined to agree with Dr. Roscoe's negative assessment of the exploration work, his decision to retain only 10%, unsupported as it is by reference to any external valuation standards or quantifiable indicia, confirms the subjective nature of the exercise and necessarily causes the board to be cautious about the weight which can safely be placed on the Appraised Value Method for determining the market value of the Scranton mine property.

[178] Moreover, Dr. Roscoe's conclusion that no future work appeared to be warranted, and the fact that no further work was done from 1980 to 1989, resulted in his further discounting the value by 50% on account of what he termed "the low marketability of the property", leading to a final appraised value of $50,000.

[179] In large part, this further discount was based on Dr. Roscoe's more general perception of what he described as weak "exploration potential and marketability of exploration properties as of the valuation date in the general area of the property." Following this logic, it would be appropriate, in the board's view, to add a premium when the market for mineral properties could be said to be strong. Mr. Lawrence did not directly consider market factors in his use of the Appraised Value Method and, if he had, he likely would have adjusted his estimate upward. Certainly, Mr. Lawrence held a different view of market conditions from that of Dr. Roscoe. At page 21 of his second report, he assessed the market for mining properties at the time as "buoyant - especially for polymetallic deposits such as Scranton."

[180] There was no hard evidence before the board as to the state of the particular market for mineral properties in the vicinity of Scranton at the valuation date. Evidence concerning the state of the market generally was, on the whole, inconclusive. Most of it was to be found in Mr. Lawrence's two reports. What it appeared to demonstrate was that the general environment for exploration investment was highly favourable in the mid-1980s as the result of significant tax incentives in the form of flow-through share financing. As a result, annual expenditures on mineral exploration in Canada increased almost three-fold between 1983 and 1988. The peak years were 1987 and 1988. In 1989, perhaps as a result of further changes in the tax laws, share financing levels and exploration expenditures declined. However, while the decline in exploration expenditures on precious metals such as gold was precipitous in 1989, the annual expenditures on base metals such as zinc and lead remained essentially constant during 1988 and 1989. One possible explanation for the difference is to be found in the apparent fact that, for example, while gold prices were falling off in 1989, prices for zinc and some other base metals were rising.

[181] On the state of the evidence, the board considers that there is no firm ground for making a market adjustment in either direction. That being the case, in so far as the board is prepared to place weight on the Appraised Value Method, it considers that Dr. Roscoe's initial estimate of retained value should stand unadjusted at $100,000.

[182] One further factor enters into the analysis. The board considers that, consistent with other adjustments which have been made, it would be appropriate to double the retained value of exploration work carried out in the late 1970s to allow for inflation of costs up to the expropriation date in March, 1989. Applying this approach to Dr. Roscoe's estimate of retained value results in an estimated market value for the Scranton mine property by the Appraised Value Method of $200,000. The Comparable Transaction Approach

[183] The difficulties inherent in the use of the Comparable Transaction Approach for valuing mining properties as outlined by both Mr. Lawrence and Dr. Roscoe have already been discussed much earlier in this decision and need not be restated at length here. However, in light of what has been observed about the use of the DCF Approach and the Appraised Value Method, it is somewhat daunting to read in Mr. Lawrence's first report that he considered the Comparable Transaction Approach to be the most subjective of the three and, for that reason, chose to place the least weight upon the value range he derived by its use. In his second report, the approach received only passing mention. Claimant's counsel in final submissions cited Dr. Roscoe's own cautionary comments about using the Comparable Transaction Approach to value mineral properties. However, given the weight which the respondent's expert attached to the Comparable Transaction Approach in reaching his final value conclusion, it is somewhat remarkable that the claimant did not cross-examine him on his use of the approach or otherwise attempt to demonstrate its unreliability. The board is of the view that the approach warrants serious consideration in arriving at a determination of market value for the undersurface rights in question.

[184] In their respective reports, both valuation experts indicated that they could access a data base of transactions in order to select suitable comparables. Both had developed worksheet formats to convert purchase or option agreements into cash equivalents. However, given the experts' agreement on the concepts and mechanics of the Comparable Transaction Approach, there was a surprising difference in the comparables chosen and the market value opinions stated.

[185] At the compensation hearing the expert witnesses described negotiations between buyers and sellers of mineral properties in terms of the buyer putting "up front" as little cash, shares or work commitments as possible, and conversely, the seller attempting to secure as much as possible up front. Completion of future installment commitments by the buyer is contingent upon exploration and development success at each successive stage. If the results are positive, the buyer will probably continue making the required installments of cash, shares or work. If the results are negative, the buyer will not complete any conditional purchase requirements or will drop the option. Not infrequently, the seller may then attempt to negotiate a new agreement with another interested buyer.

[186] In calculating cash equivalents, both experts generally relied upon the share prices stated in the transaction summaries provided by the acquiring mining companies in various mining industry publications as the true indication of cash value. The board is somewhat uncomfortable with this calculation since share prices are volatile and the stated prices may not, in fact, be share market values. However, no other evidence of share market values was provided, and the board takes comfort at least in the fact that, where both parties' experts used the same comparable transactions, the share values they stated were the same.

[187] The major difference in the experts' calculations with respect to the comparable transactions chosen was in the valuation of future installments of cash, shares or work commitments. On the one hand, Mr. Lawrence considered future installments at the agreed values and made no allowance for the risk that the transaction may not fully complete nor for the time value of money. In the board's view, this simple summing of installments is inappropriate. It is in marked contrast with Mr. Lawrence's use of the DCF Approach which is founded on the concepts of the time value of money and on certain risks that future events may not occur. The possibility that a replacement transaction will take place if the comparable transaction actually being considered does not complete, which was Mr. Lawrence's explanation for not discounting future commitments, must be viewed as purely speculative.

[188] On the other hand, as noted earlier in the decision, Dr. Roscoe, in determining cash equivalents for the purpose of valuing comparable transactions, discounted all future commitments generally at a rate of 25% per year into the future. While his discounting procedure appears to the board to be logical and reasonable, the choice of discount percentage appears quite arbitrary. However, the board has no evidence upon which to choose alternative discount rates.

[189] Against these background observations and findings as to methodology, the board has reviewed the transactions upon which the experts to a greater or less degree relied - seven in the case of Mr. Lawrence and six in the case of Dr. Roscoe. Mr. Lawrence's seven transactions ranged in imputed value from between $117,000 and $1.7 million with an average imputed value of approximately $545,500. By his analysis Dr. Roscoe's six transactions ranged from between $23,000 and $160,000 with an average imputed value of just under $92,000. Faced with such a yawning gap between the experts, the board considers that the most promising use of the Comparable Transaction Approach lies in analysis of the four transactions commonly used by both valuation experts. These four will be reviewed in turn.

(1)  Cazador Explorations Limited

[190] This was a June 1, 1989 purchase of 200,000 Cazador shares for a 50% interest in the Arlington mine, some geophysical instruments and property files. Like Scranton, the Arlington mine was a gold, silver, lead and zinc exploration property, similarly located in the Slocan mining division. Both experts accept the $0.45 per share value, which was based on an expert valuation, and which equated to a purchase price of $90,000. Since the shares representing the 50% interest were fully issued at the transaction date, no discounting issue arises. The difference between Mr. Lawrence's value at $175,000 and Dr. Roscoe's at $160,000 lies in their respective allocation of the transaction price to the instruments and files. The board accepts Cazador transaction as a good comparable, given the geological nature and location of the Arlington mine property, the timing of the purchase, and the fact that both experts chose to use it and were not far apart on the value they ascribed to the transaction.

(2)  Chapleau Resources Ltd.

[191] This transaction was by way of an option agreement, dated October 10, 1988, whereby Chapleau acquired from the vendors, Donald Leslie and his mining partner, a right to earn a 100% interest, subject to a 3% net smelter return, in the Keen Creek property. The property consisted of nine mineral claims located north of Kokanee Glacier Park in the Slocan mining division, some 13 km. from the Scranton mine. The Keen Creek mine was a small former gold, silver, lead and zinc producer, said by George Addie to be geologically similar to the Scranton property although, according to the evidence of Mr. Leslie, it had less potential for gold and silver resource. It was clearly an exploration property which Mr. Leslie said had no known reserves at the time of the option. One of the terms of the option was that Chapleau had to expend $30,000 in exploration work within approximately the first two years. The company was also required to issue 30,000 additional shares which both experts valued at $0.38 each. The company had to remit 3% of its net smelter returns to the vendors.

[192] The valuation experts differed significantly in their treatment of this transaction. First, Dr. Roscoe discounted the work commitment while Mr. Lawrence did not. Second, Dr. Roscoe considered the 3% net smelter return to be the equivalent of a 6% working interest while Mr. Lawrence equated it to a 15% working interest. The greater the working interest retained by the vendor, the higher may be said to be the overall transaction price. Finally, and perhaps most significantly, Mr. Lawrence reported that Chapleau as purchaser had given actual work to the vendors that grossed them $117,000 in respect of which he assumed a 50% net value. Mr. Leslie in his testimony did in fact confirm that such an arrangement was in place, but he described it as a "make-work project" which had grossed something on the order of $70,000 resulting in perhaps a 25% profit.

[193] Dr. Roscoe placed a value of $35,000 on this transaction while Mr. Lawrence imputed the value as $117,000. It is unclear to the board what relationship the work provided to the vendors bears to Chapleau's work commitment under the option agreement or to what degree it reasonably ought to be factored into the estimate of final value. At best, although the Keen Creek property provides a useful comparable to Scranton, the board considers that the evidence regarding share value, discounted work commitment, and work provided to the vendors does not support a value for this transaction much in excess of $70,000.

(3)  Nexus Resource Corporation

[194] Under the terms of this transaction, dated April 19, 1989, Nexus obtained the option to acquire 100% of the vendors' rights to the Cariboo-Amelia gold mine property, located near Osoyoos in the Kettle River district in south central British Columbia. The property consisted of eight Crown-granted mineral claims and 38 claim units. The purchase agreement involved the payment of $45,000 in cash and the issuance of 200,000 shares which both experts valued at $0.29 each. Both the cash and the shares were to be paid by installment. Dr. Roscoe discounted future share issues and the cash due six months after the transaction date. He thereby derived a value for the property of $72,000. Mr. Lawrence simply summed the two components of the purchase without any discounting and arrived at a value of $103,000. Mr. Lawrence further reported that, one year later, a 50% interest in the same property was optioned to McKinney Mines Corp. in return for a commitment of $450,000 in expenditures. From this transaction he concluded a value of $900,000.

[195] There was little information to assist the board in determining the usefulness of this comparable, situated as it was far distant from the Scranton mine property and being essentially in the nature of a gold mine although, according to Dr. Roscoe, geologically comparable to Scranton. Dr. Roscoe also testified that the mine had a history of much greater past production but, evidently, it still fell within the classification of an exploration property. The board accepts the discounting principle used by Dr. Roscoe and therefore prefers the value of $72,000 for the property which he derived. Mr. Lawrence's report of a second, far more lucrative transaction, was unsupported by any documentation. It was also hindsight information which would not have been available to, or predictable by, parties bargaining with respect to the property at the date of expropriation. Accordingly, the board is not prepared to give any weight to Mr. Lawrence's second imputed value of $900,000.

(4)  Siscoe Callahan Mining Corporation

[196] Pursuant to this transaction, dated July 31, 1989, Siscoe Callahan was granted an option to purchase a 100% undivided interest, less a 3% net smelter return, in the Jumbo and Berisoff claims, located within the Slocan mining district. The Jumbo claim was situated 14 km. northeast of the community of Slocan. There had been previous exploration work on the property, indicating gold, silver, lead and zinc mineralization, but it would appear that primarily it was a gold-silver mine. The terms of purchase were for $8,000 cash to be payable over a 14-month period, 60,000 shares valued by the experts at $1.45 each and again payable over 14 months, and a work commitment to be completed within three years of a minimum of $100,000 in exploration and development.

[197] The difference in the values of the property imputed by Mr. Lawrence at $229,000 and by Dr. Roscoe at $111,000 lies entirely in Dr. Roscoe's discounting of future installments and the differing interpretation which the experts give to the value to the vendor of the 3% net smelter return payable if the property were placed into commercial production. For reasons which have previously been discussed, the board prefers the approach taken by Dr. Roscoe.

Conclusion as to the Comparable Transaction Approach

[198] The foregoing analysis underscores some of the complications involved in trying to assess comparable mining properties for the purpose of valuing the Scranton mine but does not, in the board's view, render the approach inapplicable. The range of values indicated by the claimant's valuation expert is from $103,000 to $229,000, with an average for the four transactions of $156,000, while the range indicated by the respondent's expert is from $35,000 to $160,000, with an average for the four of $94,500.

[199] However, in the board's view, the four comparables do not all merit equal weight. Based on the information provided, the board considers that the Cazador and Chapleau transactions, with some support from the Siscoe Callahan transaction, deal with mining properties the location and characteristics of which bear a closer resemblance to the Scranton mine property.

[200] While the board has accepted Dr. Roscoe's procedure of discounting future commitments in option or purchase agreements in order to determine the cash equivalents of the comparable transactions, it also has registered concern over the lack of justification for his general use of a 25% per year discount. Accordingly, the board also analyzed the transactions using a 10% discount rate, in essence the same rate which Mr. Lawrence in his DCF Approach considered appropriate to take into account the time value of money and the risk that the transaction might not complete. Because of the short period within which most deferred installments were to occur, this change in the discount rate did not result in truly major adjustments to the value of the comparable transactions. Using the 10% discount rate appeared to increase the average transaction price by only about $10,000 to $15,000 over Dr. Roscoe's estimates.

[201] Doing the best that it can with the evidence available, the board concludes that the market value of the Scranton mine property based on the Comparable Transaction Approach is on the order of $125,000.

5.4.3 Other Evidence of Value

[202] In the course of the compensation hearing, the board was provided with other evidence which one or other of the parties suggested had a bearing on the market value to be determined for the undersurface rights on the Scranton mine property. This evidence consisted of: first, the financial projections of Mr. Sharp in his 1975 report; second, the purchase of the property by David Minerals in 1977; third, the purchase of the property by the claimant in 1988; and fourth, the 1988 valuation of the mineral claims within Kokanee Glacier Park in the Croft report.

[203] It will be recalled that Mr. Sharp in his 1975 report had suggested to a potential purchaser that some 28,000 tons of ore in the West Sunset section of the mineral claims were ripe for immediate development. He provided detailed estimates of ore grades, mining widths, metal prices, and mining costs. At page 3 of his report, he wrote:

"After an estimated gross mining and milling cost of $39.78/ton, at a 2500 ton per month rate, is deducted a gross operating profit of $34.94/ton results. Mining and milling the currently most accessible West Sunset ore blocks, with due allowances for pre-production costs should result in a total net operating profit of about $690,000. Extraction of all of the West Sunset ore blocks could, quite probably, return a profit approaching $920,000."

From this estimate of profit potential within the West Sunset section of the mine alone, and in view of of what he described as "the magnitude of the geologically-inferred ore reserves", Mr. Sharp expressed his belief that the payment of $250,000 to acquire a 70% interest in the property was "justified".

[204] The claimant refers to this aspect of the Sharp report as evidence that cash flow projections are indeed used by potential purchasers even of little explored mineral properties not yet in production and, perhaps more significantly, as an indication of the market potential for the Scranton mine property. A recommended price of $250,000 for a 70% interest translates to $357,000 for a 100% interest in 1975 which, when adjusted for inflation, the claimant says, is at least double that amount in 1989 dollars. This assertion, if accepted, would still peg the value of Scranton at only a small fraction of what the claimant now says it is worth.

[205] However, the assertion is in any case unacceptable for a number of reasons. It belies the fact that inflationary adjustments for costs must also be made and that a comparison of such other factors as metal prices and taxes in 1975 with those prevailing in 1989 would be required but were not undertaken. Moreover, as the respondent points out and the board has already agreed, the generally negative exploration and development results from David Minerals' program in the late 1970s do not bear out Mr. Sharp's optimism. It is true that Hem Mines Ltd. was evidently able to turn a profit from its modest mining operations for a time in the West Sunset area, but the evidence is that both resource and profitability "pinched out" after a few months. On that basis, a knowledgeable and prudent purchaser in 1989 would not be swayed by Mr. Sharp's 1975 report to invest anything like the amount that he considered justifiable at the time. It is noteworthy that his recommendations evidently did not lead to any transaction in 1975, whether by outright purchase or option deal, so that they offer no actual evidence from the market place. Although his report demonstrated detailed resource estimation procedures and price/cost estimates, there was also no evidence of Mr. Sharp's expertise in the determination of the market value of mineral claims. Accordingly, for all of the above reasons, the board can attach no weight to Mr. Sharp's price recommendation or the conclusions down the road which the claimant says can be drawn from it.

[206] The next piece of additional evidence concerning the value of the Scranton mine property was its purchase by David Minerals in 1977. The overall transaction involved the payment of $240,000 in cash and the issuance of 550,000 shares which David Minerals, in its 1978 annual report, valued at $0.25 each, making for a total acquisition price of $377,500. However, the purchase price included not only the mineral claims themselves but also the camp buildings, the considerable quantity of equipment on site, and the Ainsworth mill. In its financial statements, David Minerals allocated $100,000 to the mill and $6,000 to the mineral claims.

[207] The claimant pointed out that the 1978 and 1979 financial statements disclose two public share underwritings which netted David Minerals more than $0.5 million. Therefore, the claimant's position is that the $377,500 acquisition cost was understated and should not be used. In its submission, the real purchase price for Scranton was upwards of $750,000 which, translated into 1989 dollars, equated to a price in the neighbourhood of $1.5 million.

[208] Even without considering the allocations made by David Minerals among the assets it purchased, the board is disinclined to give any weight to this 1977 transaction for the purpose of determining the value of the Scranton mine property in 1989. This is for the same reason already set out when dealing with Mr. Sharp's recommendation, namely the negative results of the exploration and development program subsequently undertaken by David Minerals between 1977 and 1979. The subsequently acquired knowledge from that program would render the price paid in 1977 and the stock promotion which followed of no consequence in determining what a prudent purchaser would pay at a much later date.

[209] As previously described, the claimant acquired the undersurface rights to the Scranton mine property from the receiver of David Minerals. The agreement with the receiver was made in late 1987 and received Court approval on February 1, 1988. The circumstances in which this transaction took place have led the claimant to argue, on the one hand, that it cannot be used as an indicator of true market value and the respondent to argue, on the other hand, that it suggests a low market value for the property.

[210] In the year or so preceding the Court-approved sale to the claimant, the receiver, as evidenced in an affidavit provided to the Court, had solicited offers for the assets of David Minerals through advertising in local, regional and national newspapers and had distributed approximately 80 information packages to interested persons. The board notes that the advertised receivership sale listed several of the assets including the Ainsworth mill but made no reference to the Scranton claims. However, there was bare mention of the Scranton mine including the six Crown-granted mineral claims as well as the staked claims known as Bob and Charley in the information package.

[211] Only three offers were received in respect of the undersurface rights. One offer in the amount of $500, for both the mineral claims and surface rights at Scranton, came from Mike Hudock, who was identified at the hearing as a prospector and the then president of the Chamber of Mines of Eastern B.C. A second offer in the amount of $8,100, again for the undersurface and surface rights, was from Mr. van Halderen in his personal capacity. The third offer was from the claimant in the total amount of $52,500 which, on an unallocated basis, was for a variety of assets including the mill tailings, surface rights and equipment on various Rossland area properties as well as the mineral claims and surface rights at Scranton. The claimant made a separate offer of $80,000 in respect of timber rights on properties owned by David Minerals which, as the receiver noted, was in connection with the settlement of the dispute over timber rights that had arisen with the van Halderens' other company, Canadian Roundwood.

[212] Leaving aside the separate acquisition of timber rights, the final Court-approved sale to the claimant included the Rossland assets as well as the undersurface rights to the six Crown-granted mineral claims. The Bob and Charley claims were excluded for reasons previously described. The receiver was also unable to confirm David Minerals' title to the surface. Mr. van Halderen testified that, because the receiver could not convey surface title, it was ultimately agreed to reduce the overall price paid by the claimant for all these assets by $7,600, to $44,900. One inference that might be drawn from this reduction, in light of the separate offer of $8,100 made by Mr. van Halderen for both undersurface and surface rights, is that the undersurface rights to the Scranton mine property were actually acquired for only $500.

[213] The respondent points to the foregoing scenario as evidence of a low level of interest in the property within the market place even though, in 1987 and 1988, there were attractive tax advantages available to mining investors in the form of flow through shares and exploration expenditures on mining properties were dramatically increasing.

[214] The board recognizes that the price actually paid for a subject property near the date of expropriation can often serve as cogent evidence of its market value at that date. In this case, however, the fact that there was little useful information about Scranton made available to potential purchasers upon which they could make an informed and prudent decision, that the transaction arose out of a receivership sale involving numerous other assets, and that it formed part of an omnibus settlement involving other disputes, leads the board to conclude that no reliance can safely be placed on the claimant's purchase of the undersurface rights at Scranton as an indicator of market value.

[215] The final piece of additional evidence introduced during the hearing was the report authored by Stuart A.S. Croft, P.Eng., entitled "A Valuation of the Mineral Claims within the Kokanee Glacier Recreation Area", completed in October, 1988 for the Ministry of Environment and Parks. As described under the terms of reference, the Croft report was intended to provide the Ministry with an "order of magnitude" estimate of the costs to acquire titles to the mineral claims situated within the boundaries of Kokanee Glacier Park. Mr. Croft identified in total some 58 mineral claims, some of which appeared to him to be almost worthless while most he valued in the range of between $20,000 and $100,000.

[216] Mr. Croft made a singular exception for what he described as the "Scranton-Pontiac Group", in other words the Scranton mine property. This property, he stated at page 20 of his report,

"...represents the most significant, "actively" explored, mineral deposit within the Park. In addition to its proven ore reserves, the deposit remains a strong exploration target with the probability of developing further reserves considered to be very good. Unlike many prospects in the park, the Scranton system is characterized by relatively high gold values which further contribute to the merits of the property."

On page 21 he continued with the following valuation conclusion:

"The minimum value of the Scranton-Pontiac claim group has been estimated at $2 million. This figure represents the net value of proven ore reserves after reasonable development and operating costs are deducted. An upper estimate placing the value of the property at $4.5 million reflects the "speculative" value of the claims."

[217] Although the Croft report was listed in the respondent's list of documents at least a year prior to the start of the compensation hearing, its production was evidently not formally requested by the claimant and it was not voluntarily produced by the respondent until after the hearing had begun, contributing, as the board earlier described, to the first adjournment of these proceedings.

[218] Mr. Croft was called to testify by the claimant when the hearing next resumed. He described himself as having had, by the time he produced the report, approximately ten years of active involvement in mineral and geothermal exploration, as having prepared, conducted and reported on mineral exploration programs for various junior companies listed on the Vancouver Stock Exchange, and as being reasonably well acquainted with contemporary mineral exploration practice and evaluation of its results. He had been certified as a professional engineer in 1985. Mr. Croft was qualified by the board as an expert in the area of exploration geology enabled to express opinions, in this instance, regarding the relative desirability of mineral properties within Kokanee Glacier Park as exploration targets. He was not specifically qualified as an expert in valuation, nor did the claimant seek to rely on the foregoing opinions as to value of the Scranton mine property. Nevertheless, those opinions were on the record, and the assumptions upon which they were based therefore ought to be examined.

[219] Mr. Croft described his instructions as being essentially to prepare "a high level overview, a very rough ballpark estimate" and that the figures he had arrived at for the Scranton mine property were "a back of the envelope calculation". He had, sporadically over a three month period, reviewed historical geological data and publicly-available mining records as well as a Ministry mapping program. He had read the first report of Brown and Logan. He had spoken with David Rennie at the time about what the latter knew of the development plans of David Minerals. However, Mr. Croft testified that he did not know that the company had implemented an exploration and development program in the late 1970s and that some mining had been carried out. Neither, obviously, did he know about the results of that program or when and why it was abandoned. Mr. Croft in his report proceeded from the flawed assumptions that the Scranton mine was largely to be viewed as a gold property, that it had proven ore reserves and a reasonable prospect of finding additional reserves, and that a reasonable mine infrastructure was still in place. He agreed in giving evidence that possession of the additional and corrected information would have affected his valuation conclusions.

[220] The sparse information and faulty assumptions upon which the Croft report proceeded make it, in the board's opinion, wholly unreliable as evidence of market value. Mr. Croft offered no calculations to back up his startlingly wide range of values and, in any event, he was not qualified as an expert to express opinions of value. Accordingly, the board agrees with the respondent that the report should be given no weight.

5.4.4 The Board's Conclusion as to Market Value

[221] For all of the reasons stated above, the board has found itself unable to place any weight on the four pieces of additional evidence of value offered in the course of the hearing. It has also rejected as far too speculative and volatile in the circumstances the claimant's reliance on the DCF Approach, one of the three methods considered by the parties to estimate the market value of the Scranton mine property.

[222] This leaves for final consideration the other two methods employed. The board examined the parties' use of the Appraised Value Method and, while noting the subjective nature of the exercise, nevertheless was able to derive what it considers a reasonable value conclusion on the order of $200,000, resting largely on the analysis of the respondent's valuation expert with appropriate adjustments. The board also was prepared to attach considerable weight to the Comparable Transaction Approach insofar as both the claimant's and the respondent's valuation experts identified common comparables which could be usefully scrutinized. By this approach the board was able to derive a reasonable value conclusion on the order of $125,000, again finding that the respondent's valuation expert had provided in principle a more convincing analysis which included the discounting of future installment payments called for under the purchase or option agreements.

[223] Attaching what it considers to be the appropriate relative weight to these two methods in the circumstances, and doing the best that it can in overcoming the difficulties and uncertainties necessarily involved in assessing the Scranton mine as an exploration property, the board concludes that the appropriate measure of compensation for the claimant's undersurface rights taken is the sum of $150,000.



[224] Claimant's counsel referred in final argument to the concept of "special economic advantage" which is contained in section 31(2)(a) of the Act. That provision states:

31 (2) If not included in the market value of land determined in accordance with section 32, the following must be added to that market value:
(a) the value of a special economic advantage to the owner arising out of his or her occupation or use of the land; (...)

[225] The argument was that the van Halderens were miners with experience in acquiring and working small mine properties and with the equipment already available to them to work the Scranton mine. As such, they would have had a very different cost position than would some other owner who did not enjoy these advantages. Further, it was argued, they would not need to be under a financial compulsion to mine the property all at once. They could instead wait if necessary and take advantage of periods when metal prices were strong. Claimant's counsel in his submission put a value well in excess of $1.0 million on this alleged special advantage.

[226] As the board observed in the course of hearing this submission, no claim for special economic advantage was included in the claimants' finally amended Form A. On that ground alone, it could be disallowed. However, the claim was really put forward in the context of urging upon the board its adoption of the DCF Approach to valuing the claimant's undersurface rights. It was an alternative argument advanced in case the board should be inclined to discard as too optimistic the dollar figures which Mr. Lawrence used for costs and metal prices in performing his DCF calculations.

[227] The board first notes that this argument seems to "muddy the waters", since it presents a mining scenario quite different from that used in Mr. Lawrence's model, which assumed an operation which would proceed over six successive years from the valuation date, factoring into capital costs the purchase of used equipment. It was that model which formed the basis for the claimant's claim for compensation for its undersurface rights and which, of course, the board has been unable to accept.

[228] More importantly, however, the board does not consider that this argument really meets the meaning or intent of section 31(2)(a). The concept of special economic advantage is discussed by Professor Todd, The Law of Expropriation, at pp. 117-119. With reference to case authority, he observes that the advantage must be "special" in the sense that other owners, whoever they may be, and using the property in the same general way, would not enjoy such an advantage. He also cites authority for the proposition that the owner must actually be using the property for a purpose which yields that special economic advantage. The relatively few examples of successful claims under this heading tend to arise from the proximity of the property and its economic connection to other ventures of the same owner.

[229] In this case the claimant is obviously unable to show that it was actually using the property. Further, it has not satisfied the board that, if it had been engaged in mining there, it would have some advantage not enjoyed by a different owner of the same property. The claimant did not, for example, own the Ainsworth mill, which might have assisted the locational proximity argument. The board is also not prepared to accept that there would have been no other buyers in the marketplace of the late 1980s who had similar experience, equipment and facilities to run an efficient mining operation or who had flexibility in the timing of that operation. Without evidence that the claimant possessed unique characteristics which gave it an advantage in using the Scranton mine property, the board concludes that there can be no special economic advantage which is not already included in the market value measured by other methods. Accordingly, such a claim must be denied.



7.1 The Claimant's Case

[230] The claimant asserts a claim for the market value of the surface rights to the Scranton mine property, characterized as the value of the "sale of real estate including timber". In the further amended statement of claim filed with the board in the course of the hearing on January 14, 2000, the compensation claimed for loss of the surface rights is $200,000 on the assumption that the property has "substantial mining potential" and, alternatively, $350,000 assuming "limited mining potential". The thrust of this claim, as the board understands it, is that the claimant enjoyed possession and use of the surface, the market value of which lay in its potential as recreational property. No evidence was led nor submissions made with respect to timber.

[231] The claimant's case for asserting surface rights from which a distinct and separate market value can be derived rests on three alternative propositions. First, it says, the six Crown-granted mineral claims, in addition to granting undersurface rights, also convey the surface rights on those claims. Second, if the Crown grants themselves do not actually convey all the rights to the surface, the legislature has nevertheless provided for the right of the Crown grant holder to get in title to the surface. Third, even if the claimant as holder of the six Crown-granted claims has only restrictive rights to the surface, there is evidence to show that those surface rights could nevertheless have been put to profitable use for recreational purposes.

[232] The first proposition looks to the wording of the Crown grants themselves. The rights conveyed are stated to include:

"...the right to the use and possession of the surface of such mineral claims, including the use of all timber thereon for the purpose of winning and getting from and out of such claim the minerals contained therein, including all operations connected therewith or with the business of mining."

[233] The claimant contrasts this wording which appears in each of its six Crown-granted mineral claims with what it says is the more restrictive language of section 26 of the Mineral Act, R.S.B.C. 1897, c. 135, which was in force at the time the grants were issued. Section 26 provides in part:

26. Notwithstanding anything to the contrary contained in any Act, every Crown grant hereafter issued of a mineral claim shall convey, and be deemed to convey, only the right to the use and possession of the surface of such claim, including the use of all the timber thereon, for the purpose of winning and getting from and out of such claim the minerals contained therein, including all operations connected therewith or with the business of mining, ...

[234] The claimant refers to the placement of the comma after the words "timber thereon" in the text of section 26 and the absence of the comma from the text of the Crown grants. It submits that, while the statute considered on its own thereby restricts the right to use and possession of the surface, the Crown grants themselves are not restrictive. After conveying to the Crown grant holder the right to use and possession of the surface, they merely enumerate certain uses which the holder might make of the surface. The claimant argues that the words "deemed to convey" in section 26 merely create a rebuttable presumption, and proof is allowed to show in this instance that, because of the wording of the Crown grants, the restrictions on surface rights in the statute do not apply.

[235] The claimant's second proposition, argued in the alternative, is that if the Crown- granted mineral claims failed to convey all rights to the surface, subsequent legislation nevertheless added the right for the holder of the Crown grants to purchase title to the surface. The claimant cites section 7 of the Mineral Act Amendment Act, 1909, S.B.C. 1909, c. 32, which enacted the following provision:

128. The owner of a mineral claim (located on waste lands of the Crown, or on lands not already lawfully occupied for other than mining purposes) for which a Crown grant has issued or may hereafter issue, shall, so long as the surface rights thereof remain in the Crown unencumbered and unreserved, be entitled to receive a Crown grant of such surface rights on payment to the Government of British Columbia of the sum of five dollars per acre for such land, and a fee of ten dollars for the Crown grant.

The claimant says that subsequent amendments to the legislation did not alter this earlier granted right.

[236] In effect the claimant's third proposition in the alternative is that, even if its right to use and possession of the surface of the Crown-granted mineral claims was technically restricted to mining purposes, it would in fact have been able to make use of the surface for recreational purposes. Such use, the claimant asserts, was the highest and best use of the surface and had a market value.

[237] To support the argument that there was such a market for the surface of the Scranton mine property, the claimant retained as an expert a realtor by the name of Zane Bouvette of LandQuest Realty Corp. Since qualifying as a real estate agent in 1990, Mr. Bouvette has specialized in the marketing and sale of recreational properties including, he stated, many which were in the nature of Crown-granted mineral claims. He prepared a report, dated August 17, 1998, described as a "market evaluation" of the surface of the claimant's six Crown-granted mineral claims. Mr. Bouvette is not a qualified real estate appraiser and his report did not purport to be a full market valuation. However, based on his specialized real estate experience, he was qualified to express the opinions contained within his report as to the probable listing and selling prices for the surface of each of the six claims as recreational properties.

[238] It was Mr. Bouvette's opinion that, as at the date of his report, the six "properties" would probably have sold at prices ranging from $39,000 to $149,000. In total the indicated selling price for all six was $434,000 in 1998. To reach the probable price at the 1989 valuation date, Mr. Bouvette suggested a 20% downward adjustment, which results in a selling price of approximately $347,000. He had assumed for the purpose of making this evaluation that the claimant owned the surface rights. If, however, it turned out that the claimant owned only the undersurface rights, Mr. Bouvette said it would be necessary to discount the price further by approximately 40%. It was his evidence, nevertheless, that the surface of the Crown-granted claims would continue to be marketable for recreational use. He stated in his report:

"There are buyers who are prepared to buy Undersurface Crown Grants and they use them for mining/recreation. They build a cabin on the property and do what is necessary from a mining perspective to keep the title in good standing. This trend is increasing as more and more buyers are being introduced to creative real estate transactions such as syndications, limited partnerships, strata developments etc. Either way you have very saleable properties."

The claimant relied on Mr. Bouvette's evaluation in quantifying its claim for compensation for loss of surface rights.

7.2 The Respondent's Case

[239] The respondent maintains that the only surface rights enjoyed by the claimant under its Crown-granted mineral claims were those for mining purposes ancillary to its ownership of the undersurface rights. In the respondent's submission, the surface rights are integral to and inseparable from the undersurface rights and have no value independent from the value of the undersurface rights. Accordingly, the respondent says, this claim for compensation cannot be sustained. Its case can best be summarized by reference to each of the claimant's three alternative propositions.

[240] In response to the first proposition that the Crown grants conveyed unrestricted right to the use and possession of the surface, the respondent points out that fee simple title to the surface of the six lots comprising the claimant's mineral claims was vested in the Crown. The surface rights of the claimant were not equivalent to the interest of the registered owner in fee simple. Rather, they were limited to a right to use and possess the surface only for the purpose of winning and getting the minerals.

[241] The respondent rejects the construction put upon the wording of the Crown grants and section 26 of the Mineral Act by the claimant. With reference to Driedger on the Construction of Statutes, 3d ed. (1994), at p. 277, it says that Canadian courts are unwilling to place much reliance on punctuation as an aid to interpretation. Furthermore, the "deeming" provision of section 26 is not, according to the respondent, the type that may be rebutted by showing that the "true" facts are something other than the deemed facts. In support of that assertion, the respondent cites the decision of the British Columbia Court of Appeal in Skalbania (Trustee of) v. Wedgewood Village Estates Ltd. [Q.L. 1989 B.C.J. No. 965] at pp. 2-4.

[242] In the respondent's submission, section 26 of the Mineral Act in force at the time of the granting of the undersurface rights is mandatory. With emphasis on particular words, the respondent says that provision requires that "every Crown grant hereafter issued shall convey . . . only the right to the use and possession of the surface . . . for the purpose of winning and getting . . . the minerals . . . and the lawful holder by record of a claim shall . . . be entitled to the same surface rights and no others and all remaining surface rights shall be deemed to be vested in the Crown . . .".

[243] With respect to the claimant's second proposition - the statutory right of the Crown grant holder to get in title to the surface rights - the respondent points out that there is no evidence of any application having been made or money paid by the claimant for the surface title before the date of expropriation. The certificates of title showing the Crown as registered owner of the fee simple are evidence to the contrary. Furthermore, the respondent says that the statutory entitlement to a surface grant on payment provided is not absolute but instead conditional, as the wording of the 1909 amendment and subsequent revisions to the Mineral Act indicate. The respondent notes that the applicable provision in force at the date of expropriation with respect to getting in title to surface rights was section 13 of the Mineral Tenure Act, S.B.C. 1988, c. 5. It provided that a holder of Crown-granted undersurface rights was entitled to a surface grant on terms and conditions the Minister considered to be in the public interest and only if the Minister certified that the surface was required for mining activities. There was, the respondent again points out, no evidence as to whether any of the conditions for entitlement could have been met in the present instance.

[244] As to the third proposition that even restricted rights to possession and use of the surface would have enabled the claimant in reality to use the surface for recreational purposes, the respondent says that the claimant has no right in law to such use and a valuation based upon it would contravene section 33(b) of the Act, which provides:

33. In determining the market value of land, account must not be taken of (...)
(b) an increase in the value of the land resulting from a use that, at the date of expropriation, was capable of being restrained by a court, (...)

Furthermore, the respondent says, there was no ability in the claimant, not having title in fee simple to the surface, to be able to sell the surface rights it did possess separate and apart from the undersurface rights.

[245] The respondent levelled numerous criticisms at Mr. Bouvette's report which it described as "woefully inadequate" for the purpose of placing a value on the surface rights. First, it said, the selling prices assigned to the six properties were based on the incorrect assumption that the interest being sold was that of the registered owner in fee simple. The comparable sales referred to in the report but only provided on request to the respondent after the report was completed were, on the evidence presented, all sales of registered fee simple ownership to the surface of the lands. None was a sale of undersurface rights and none of the properties was located in a park. Second, the respondent argued, the report provided no analysis whatsoever to support the estimated selling prices. According to Mr. Bouvette's testimony, "gut feeling" was appropriate in determining the value of Crown-granted mineral claim properties. Third, no market evidence was offered to support Mr. Bouvette's 20% downward adjustment for market conditions in 1989 as opposed to 1998, and equally, there was no market evidence to support the further 40% adjustment or "discount" if it turned out that the claimant owned only the undersurface rights with limited right to use and possession of the surface.

7.3 Analysis and Conclusion

[246] The board considers that the claimant's claim for compensation for loss of surface rights is founded on highly strained interpretations of the applicable statutes and of the Crown grants themselves. In the board's view, the attempt to construe the language of the grants, conveying the right to use and possession of the surface, as an unrestricted right which is the equivalent of registered fee simple ownership is completely unconvincing. Notwithstanding the placement or absence of punctuation, the clear intent of the Crown grants was to limit the undersurface owner's rights to the surface to those purposes directly connected with the business of mining. The board agrees with the respondent that section 26 of the Mineral Act, in force when the Crown grants were issued, imposes a mandatory restriction on the claimant's use of the surface which, reasonably interpreted, is in no way inconsistent with the terms of the Crown grants. The provision's reference to "deemed" means, in the board's interpretation, conclusively deemed in this instance.

[247] The claimant's alternative proposition that as Crown grant holder of the undersurface rights it was, in any case, entitled to get in title to the surface is, to say the least, puzzling. Even assuming that the circumstances of this case were such that the claimant and the claimant's property might have qualified for what the board views as a restricted statutory entitlement to purchase the surface rights, it seems clear that the use of the surface would continue to be for mining purposes. In any case, the board agrees with the respondent that there is simply no evidence that the claimant exercised or attempted to exercise any such right to purchase surface rights at or before the date of expropriation.

[248] The board finds equally unconvincing the claimant's notion that, even if the surface rights attached to its grants of the undersurface were limited to purposes connected with mining, it could have sold those surface rights to buyers interested in acquiring recreational property. In the board's view, such "creative real estate transactions" (to use Mr. Bouvette's term) could not properly form the basis for a compensation award since they would run afoul of the provision in section 33(b) of the Act as previously cited. Furthermore, the board knows of no process by which it would be possible to sell or transfer such rights to the surface separate from the undersurface rights to which they are ancillary. As the evidence from the certificates of title make clear, it is the Crown which has registered fee simple ownership of the surface of the lands in question while the claimant has registered ownership only to the undersurface rights.

[249] The board agrees with the respondent's criticisms of Mr. Bouvette's report and his testimony concerning it. Mr. Bouvette demonstrated a surprising lack of understanding of the distinction between surface rights owned in fee simple and those which were incidental to a grant of undersurface rights. He proceeded on basic assumptions which were flawed, and derived evaluations of selling prices, adjustments and discounts in the complete absence of relevant market evidence, relying instead, he said, on "gut feeling". Although he stated in his report that recreational use was the "highest and best use" of the surface, Mr. Bouvette was unable to provide a definition of the term. The board is unable to give any weight to his evidence.

[250] Accordingly, for all of the foregoing reasons, the board concludes that no separate compensation can be awarded in respect of the claimant's right to use and possession of the surface of the six Crown-granted mineral claims, and this claim for compensation must be dismissed.



[251] Section 46 of the Act provides:

46   (1) The expropriating authority must pay interest on any amount awarded in excess of any amount paid by the expropriating authority under section 20(1) or (12) or otherwise, to be calculated annually,
(a) on the market value portion of compensation, from the date that the owner gave up possession, and
(b) on any other amount, from
(i)  the date the loss or damages were incurred, or
(ii)  any other date that the board considers reasonable.
(2) Interest is payable at an annual rate that is equal to the prime lending rate of the banker to the government.
(3) During the first 6 months of a year, interest must be calculated at the interest rate under subsection (2) as at January 1, and during the last 6 months, interest must be calculated at the interest rate under subsection (2) as at July 1.
(4) If the amount of the payment under section 20(1) or (12) or otherwise is less than 90% of the compensation awarded, excluding interest and business loss, the board must order the expropriating authority to pay additional interest, at an annual rate of 5%, on the amount of the difference, calculated from the date that the payment is made to the date of the determination of compensation.

[252] The board has determined compensation for the market value of the claimant's undersurface rights on the Scranton mine property at $150,000. The respondent made an advance payment to the claimant in the amount of $100,000 on account of compensation under section 20. The evidence before the board is that the payment was forwarded on December 18, 1997 and actually received on or about December 24, 1997. Therefore, subject to the imposition of any interest penalties, the claimant is entitled to be paid interest pursuant to section 46(1)(a) at the prescribed rates, compounded annually, from the date the claimant gave up possession of the property until paid, taking into account any amounts paid by the respondent pursuant to section 20 of the Act. For the purpose of making this interest calculation, the board considers that the claimant effectively gave up possession of the property at the date of expropriation, March 21, 1989, when Kokanee Glacier Park was reclassified. The board deems the advance payment to have been made on December 24, 1997.

[253] Section 46(4) provides that, where the advance payment is less than 90% of the compensation awarded, excluding interest and business loss, the claimant is entitled to be paid additional interest at an annual rate of 5% on the amount of the difference. In this instance the advance payment constitutes approximately 66.7% of the amount of compensation awarded. Therefore, again subject to the imposition of any interest penalties, the provision for additional interest applies.

[254] An issue arising out of the claimant's entitlement to an award of additional interest is from what date the award should run. Section 46(4) provides that additional interest is to be calculated "from the date the payment is made". The expropriation occurred on March 21,1989, but no advance payment was made until December 24, 1997. If the advance payment had been made at or close to the date of expropriation, it follows that additional interest would then be calculated from that earlier date.

[255] The claimant refers to the mandatory wording of section 20(1) of the Act, which requires the expropriating authority to make an advance payment within 30 days of the occurrence of certain alternative events. In normal circumstances the 30-day period would begin from the date the expropriation was approved by the approving authority or, alternatively, from the date upon which the parties entered into an agreement to transfer or dedicate land pursuant to section 3 of the Act. In this case, as the board observed much earlier in these reasons, none of these alternative events occurred and the taking itself was in the nature of a de facto expropriation. The claimant submits, with reference to the mandatory nature of section 20(1) and to the intent of this reform legislation as a whole, that the board should give a broad and liberal interpretation to these provisions and "deem" the advance payment to have been made at the time of expropriation for the purpose of determining additional interest.

[256] Although this argument is superficially attractive, given the length of time which passed after the expropriation before the claimant received an advance payment, it seems to the board to require a rewriting of the statutory provision for additional interest and to find that provision to read "from the date the advance payment is or ought to have been made". While the board has, as in the present instance, frequently "deemed" a particular date as being one on which an advance payment was made, this has occurred as a practical matter simply in order to resolve some uncertainty from the evidence as to the actual date of payment. To accede to the claimant's submission here would constitute a major extension of the board's discretionary authority with respect to a legislative provision in section 46(4) which seems clear on its face.

[257] The question might be posed: what would be the claimant's entitlement to additional interest if no advance payment had ever been made? In McPhail's Equipment Co. v. Surrey (City) (1995), 57 L.C.R. 57, involving an expropriation which had taken place in 1980, the board dealt with such a situation by finding that "the full rigour of s. 45(4)" [now s. 46(4)] was to be applied and that additional interest on the amount of compensation awarded ran from the date this provision of the Act became effective in December, 1987, to the date of the award some seven and a half years later. On appeal from the board's decision, the British Columbia Court of Appeal set aside the board's award of additional interest [6l L.C.R.104]. However, the Court also characterized the interest award as being one in relation to an award of compensation which was in the nature of "injurious affection". That is not the case in the present matter, where the board's award of compensation is entirely in regard to the market value of property rights fully taken.

[258] Although, in the board's view, the Court of Appeal's decision in McPhail's Equipment Co. is not determinative of the issue in this proceeding, the board nevertheless considers that it is bound by the clear language of section 46(4) and that it is enabled to award additional interest only from the date the advance payment was made on December 24, 1997, up to the date of this decision.

[259] In so deciding, the board observes that the Act as presently constituted does not appear to contemplate fully, at least with respect to entitlement to additional interest, the situation of a claimant whose interest in land has been taken de facto without the prescribed formalities having been observed. It is a situation which, in the board's view, can lead to unfairness and which perhaps warrants legislative intervention. On the other hand, the Act does contain a provision in section 47(b) for imposing interest penalties on an expropriating authority for an unreasonable delay in proceedings. Whether the respondent's delay in making an advance payment would fall within the scope of this provision is not a matter which was canvassed before the board. In this instance the claimant has not asserted any claim for penalty interest against the respondent arising out of these proceedings and the board was not provided with sufficient background evidence as to the circumstances surrounding the delay upon which it would be prepared to impose such a penalty on its own motion.



[260] In the course of the hearing on September 23, 1998, as previously described, the claimant sought an adjournment of the proceedings in order to allow its valuation expert, Mr. Lawrence, an opportunity to consider the effect of a corrected assumption concerning the concentration process available at the Ainsworth mill on his DCF analysis. This was the claimant's second request for an adjournment of the hearing, the first having occurred in June, 1998, when the claimant concluded that it had not marshalled any experts who could be qualified to provide proper valuation evidence. The board, in granting this second adjournment, said in part as follows:

We feel that the circumstances necessitating the adjournment are entirely within the responsibility of the claimant, could reasonably have been avoided, and will produce an unreasonable delay in the proceedings. (...)

We are. . .prepared to make an order with respect to interest under section 47 of the Act. If in the opinion of the Board an unreasonable delay in proceedings has been caused by, in this instance, an owner, the Board may penalize the owner in whole or in part of the interest to which he or she is entitled. The Board is of the view that no interest should be payable for the period from the date that this further adjournment takes effect until the reconvening of the compensation hearing.

[261] The claimant has requested the board to reconsider its order in light of the fact that the interest penalty under section 47(a) was imposed without any application having been made by the respondent and without the claimant having had an opportunity to make submissions on the issue. It further argues that an adjournment to allow an expert to correct a mistake is not unreasonable, and that, assuming the compensation awarded is large, the penalty imposed would be out of all proportion to any inconvenience suffered by reason of the delay. The delay, it points out, was lengthened by other factors, including the claimant's decision to change counsel and Mr. van Halderen's intervening illness.

[262] Upon reconsideration, the board is prepared to modify its earlier order imposing penalty interest. The board continues to hold to the view that the second adjournment could reasonably have been avoided if due diligence had been exercised by the claimant's valuation expert or those instructing him. At the same time, the board acknowledges that other factors as noted above undoubtedly prolonged the period of adjournment. Taking into account these additional factors, as well as the earlier review of these much protracted proceedings, the board concludes that the claimant should be deprived of 50% of the interest to which it would otherwise be entitled for the period from and including September 24, 1998 to and including January 9, 2000, pursuant to section 47(b) of the Act.


10.  COSTS

[263] At the conclusion of the compensation hearing, counsel for both parties requested the board, if it found that it had a discretion in the awarding of costs under section 45(5) of the Act, to defer making the award until after the compensation decision had been rendered and the parties had an opportunity to make submissions on costs.

[264] As it turns out, the compensation awarded to the claimant is greater than 115% of the amount paid in advance by the respondent and therefore, pursuant to section 45(4), the claimant is entitled to its costs. Those costs are the actual reasonable legal, appraisal and other costs incurred by the claimant for the purpose of asserting its claim for compensation or damages, pursuant to sections 45(3) and 45(7)(a), up to and including June 27, 1999. Thereafter, while other costs may continue to fall under section 45(7)(a), legal and appraisal costs are governed by the Tariff of Costs Regulation, B.C. Reg. 189/99 (the "Tariff"), as provided for under section 45(7)(b) of the Act.

[265] Under section 3(3) of the Tariff, the board may, when it makes an adjudication of compensation following a hearing, fix the scale, from Scale 1 to 3 in section 4(1), under which the costs will be assessed. The parties to this proceeding did not make any submissions with respect to the appropriate scale. That being the case, section 4(3) of the Tariff provides that costs must be assessed under Scale 2 unless a party, on application, obtains an order of the board that the costs be assessed under another scale. Either party will therefore be at liberty to make such an application to the board if it so desires.



[266] As a condition of payment of compensation, the respondent seeks an order from the board that the claimant's registered interest in the undersurface rights be conveyed to it. The board observes that, by expropriating the claimant's interest, the respondent has in all but name assumed ownership of the undersurface rights. If this expropriation had followed the usual formalities, the respondent would have filed a vesting notice in the land title office pursuant to section 23 of the Act. In the present instance, the claimant has now been awarded full compensation for its undersurface rights but continues to hold registered title to the undersurface.

[267] While a conveyance of such title seems to the board logical and appropriate, respondent's counsel did not cite any provision of the Act or other authority which would give the board jurisdiction to make an order to that effect. Claimant's counsel in response simply noted that the claimant has continued over the years since the time of expropriation to be liable for the payment of taxes with respect to its interest in the property, pursuant to section 52 of the Act, from which the board infers that an adjustment for taxes may be sought.

[268] In these circumstances, the board is not satisfied that its proper role includes the fixing of such formalities, perhaps best achieved by voluntary agreement of the parties themselves and by reference to the land title registration system, or that it has the jurisdiction to make the particular order sought.



(1) The respondent shall pay compensation to the claimant in the amount of $150,000 for the market value of its undersurface rights in the expropriated six Crown-granted mineral claims pursuant to section 31(1) of the Act.
(2) Subject to item (3) the respondent shall pay to the claimant:
(a) Interest on the amount in item (1) from and including March 21, 1989, until paid, pursuant to section 46(1) of the Act, taking into account the amount paid by the respondent under section 20(1) of the Act. Pursuant to section 46(2) of the Act, interest shall be calculated annually at the following rates:
(i) Twelve and one-quarter per cent (12.25%) from March 21, 1989 to June 30, 1989;
(ii) Thirteen and one-quarter per cent (13.25%) from July 1,1989 to December 31, 1989;
(iii) Thirteen and one-quarter per cent (13.25%) from January 1, 1990 to June 30, 1990;
(iv) Fourteen and three-quarters per cent (14.75%) from July 1, 1990 to December 31, 1990;
(v) Twelve and three-quarters per cent (12.75%) from January 1, 1991 to June 30, 1991;
(vi) Nine and three-quarters per cent (9.75%) from July 1, 1991 to December 31, 1991;
(vii) Eight per cent (8.00%) from January 1, 1992 to June 30, 1992;
(viii) Seven per cent (7.00%) from July 1, 1992 to December 31, 1992;
(ix) Seven and one-quarter per cent (7.25%) from January 1, 1993 to June 30, 1993;
(x) Six per cent (6.00%) from July 1, 1993 to December 31, 1993;
(xi) Five and one-half per cent (5.50%) from January 1, 1994 to June 30, 1994;
(xii) Eight per cent (8.00%) from July 1, 1994 to December 31, 1994;
(xiii) Eight per cent (8.00%) from January 1, 1995 to June 30, 1995;
(xiv) Eight and three-quarters per cent (8.75%) from July 1, 1995 to December 31, 1995;
(xv) Seven and one-half per cent (7.50%) from January 1, 1996 to June 30, 1996;
(xvi) Six and one-half per cent (6.50%) from July 1, 1996 to December 31, 1996;
(xvii) Four and three-quarters per cent (4.75%) from January 1, 1997 to June 30, 1997;
(xviii) Four and three-quarters per cent (4.75%) from July 1, 1997 to December 31, 1997;
(xix) Six per cent (6.00%) from January 1, 1998 to June 30, 1998;
(xx) Six and one-half per cent (6.50%) from July 1, 1998 to December 31, 1998;
(xxi) Six and three-quarters per cent (6.75%) from January 1, 1999 to June 30, 1999;
(xxii) Six and one-quarter per cent (6.25%) from July 1, 1999 to December 31, 1999;
(xxiii) Six and one-half per cent (6.50%) from January 1, 2000 to June 30, 2000;
(xxiv) Seven and one-half per cent (7.50%) from July 1, 2000 to December 31, 2000.
(b) Additional interest on the amount of $50,000 from and including December 14, 1997 to the date of determination of compensation at the annual rate of 5% pursuant to section 46(4) of the Act.
(3) The interest otherwise payable by the respondent to the claimant under item (2) shall be reduced by 50% for a period calculated to run from and including September 24, 1998 to and including January 9, 2000, pursuant to section 47(a) of the Act.
(4) The claimant's claims for compensation for loss of special economic advantage pursuant to section 31(2)(a) of the Act and for the market value of the surface rights attached to its six Crown-granted mineral claims pursuant to section 31(1) of the Act are hereby dismissed.
(5) The respondent shall pay to the claimant its actual reasonable legal, appraisal and other costs of, and incidental to, the application and hearing before the board pursuant to sections 45(3), (4) and (7)(a) of the Act. However, for the period after and including June 28, 1999, the legal and appraisal costs payable shall be those prescribed pursuant to section 45(7)(b) of the Act and the Tariff of Costs Regulation, B.C. Reg. 189/99. The costs shall be in such amount as may be agreed upon, and failing such agreement in such amount as may, upon application to the board, subsequently be determined and allowed by the chair.
(6) The respondent's application for an order that, as a condition of payment of compensation, the claimant convey its registered interest in the undersurface rights to the respondent is dismissed.



Resource Type Location Lawrence Addie Roscoe
  SW Sunrise      
  Total     6,850
  SW Sunrise 62,300 72,351  
  Sunrise Basin 16,600    
  Gdview-Sunset 81,800    
  Sunset 4,900    
  Total 165,600 72,351 18,550
  SW Sunrise 72,500 146,674  
  Sunrise Basin 8,200    
  Gdview-Sunset 24,500    
  Upper Pontiac 29,000    
  Dump 2,000    
  Subtotal 136,200    
  Total (adjusted) 68,100 146,674 14,600
All resources Grand Total 233,700 219,025 40,000



Government of British Columbia