Federal Court explains valuation of mining projects and "real property" for Division 855 tax purposes in the Newmont case

The recent decision in Newmont Canada FN Holdings ULC v Commissioner of Taxation (No 2) [2025] FCA 1356 represents a pivotal development in the valuation of mining projects for tax purposes, particularly for foreign investors. Tax managers and advisors should:

• Review your assumptions on what is "real property" for tax purposes, especially in the case of plant and equipment.

• Ask your valuers to carefully review the Court's commentary on key valuation inputs such as long-term commodity prices, discount rate, mining information, discounts for lack of control/marketability, and the NAV multiple.

Clayton Utz acted for the Newmont entities in these proceedings who won the vast majority of issues in dispute.

The Newmont mining activities and transactions

In 2011, Newmont Australia Pty Ltd (NAPL) conducted four major gold mining activities in Australia for the Newmont group (and other ancillary activities).

As part of a corporate restructure in 2011, two of NAPL's non-resident owners (Newmont Canada FN Holdings ULC and Newmont Capital Limited (together, the Newmont Vendors) sold their shareholdings in NAPL to a related entity.

The case concerned whether these capital gains on those sales should be disregarded under Division 855 of the Income Tax Assessment Act 1997 (Cth). This in turn required an application of the "principal asset test", which examines whether the market value of NAPL's "taxable Australian real property" (TARP) assets exceeded the value of its non-TARP assets at the relevant time. 

The determination of the principal asset test therefore required consideration of:

1. the characterisation of NAPL's assets as either TARP or non-TARP; and

2. the value of NAPL's TARP assets relative to the value of its non-TARP assets.

On the question of characterisation, the central issue was whether NAPL's plant and equipment assets (P&E), especially its P&E at the Boddington Gold Mine, were TARP or non-TARP. The unusual feature of this case was that the Boddington plant was recently built and (on any view) a large part of NAPL's asset value.

On the question of value, there were significant differences between the valuers, including:

Valuation issues

Gold price

The market value of NAPL's mining tenements depended heavily on assumptions about the long-term gold price.

In running the DCF:

1. the ATO's valuation expert, Mr Lonergan, adopted a long-term gold price assumption of US$1,667/oz;

2. the Newmont Vendors' valuation experts, Mr Wilson and Ms Ivory, adopted long-term gold price assumptions of US$1,100/oz and US$1,293/oz respectively.

The Newmont Vendors also adduced separate expert evidence of a commodities economist, Dr Brady, who said that the long-term gold price assumption should be US$1,230/oz.

Whereas the Newmont Vendors' experts all relied to some degree on consensus third-party broker and analyst forecasts, Mr Lonergan's long-term gold price assumption was substantially derived from gold forward and futures prices, which were obtained by Mr Lonergan from the Bloomberg website (and referred to during the proceedings as the "Bloomberg forward/futures curve").

The Court rejected Mr Lonergan's approach including because:

• Bloomberg’s published curves were a mix of indicative and executable prices, not actual transaction prices, and were generated using proprietary algorithms from a limited set of contributors.

• Beyond the near term, there was little to no trading activity in gold forwards or futures. The Bloomberg curve for longer-dated contracts was not based on a deep or liquid market, and thus could not reliably indicate market expectations for long-term gold prices.

• For valuation purposes, gold mining companies do not rely solely on gold forwards and futures. Instead, they typically rely on consensus broker/analyst forecasts and internal economic analysis, using futures and forwards as a "sense check". This conclusion was supported by lay evidence given by investment banker and gold mining executive, Mr Bacchus.

• The value of gold forwards and futures contracts, especially in the longer term, were primarily driven by financing and credit considerations (such as interest rate differentials and the gold leasing rate), not by genuine expectations of future spot prices.

The court ultimately preferred Dr Brady’s approach, which was based on a combination of broker/analyst forecasts in the short term, and Dr Brady's own qualitative assessment of the long-term gold price which drew on Dr Brady's expertise in that area, and which was supported by Dr Brady's own econometric model.

Discount rate

The primary point of difference between the parties' valuation experts was the size of the beta adopted (that is – the figure which quantifies the volatility of specific shares relative to the broader market). The three valuation experts offered competing figures.

For the Appellants:

• Mr Wilson adopted a levered beta of 0.70, derived from five-year weekly data;

• Ms Ivory adopted a levered beta range of between 1.06–1.29, based on two-year weekly data.

For the ATO, Mr Lonergan adopted a levered beta of range of 0.50–0.60, using four-year monthly data).

The Court held that Mr Lonergan’s beta was an outlier, and produced a discount rate that was too low compared to market practice. The Court ultimately ruled in favour of Mr Wilson's beta of 0.70, and in so doing, observed that:

• weekly data was preferrable to monthly data, as it is widely accepted by the industry and provides more observations, reducing statistical error;

• a longer data set of five years as used by Mr Wilson provided a more robust and representative estimate for a long-term mining operation;

• a confined data set of two years as used by Ms Ivory risked missing the impact of market shocks that could occur over a mine’s life; and

• the four year data set as used by Mr Lonergan was disproportionately influenced by the global financial crisis, which would result in an artificially lower the beta for gold mining companies (such as NAPL) given their “safe haven” status in times of economic uncertainty.

NAV multiple / gold premium

The “gold premium” refers to the phenomenon that the market value of listed gold mining companies often exceeds the value implied by a standard DCF. This premium is typically expressed as a net asset value (NAV) multiple greater than 1.0, applied to the DCF-derived value.

Both of the Newmont Vendors' experts said that it was appropriate to apply a NAV multiple to the DCF Analysis to reflect the gold premium. They attributed the premium to factors such as “optionality” (the value of future opportunities if gold prices rise), the potential for additional mineralisation (finding more gold than currently modelled), and management flexibility to respond to changing circumstances.

Mr Lonergan said that no gold premium should be applied on the basis that the DCF Analysis, if properly conducted with appropriate gold prices and discount rates, already captures the fair market value.

The Court found that the preferable approach is to identify appropriate values for each of the three main DCF inputs (gold price, discount rate, and NAV multiple) based on available evidence, rather than adjusting one to compensate for another. The Court held that a separate NAV multiple should be determined in respect of each mine based on both quantitative (broker reports) and qualitative (mine-specific prospectivity) factors.

Mining information

The ATO said that mining information should be given a nil value for the purposes of valuing NAPL where:

• the relevant mining information would be disclosed to any hypothetical purchaser during the due diligence period, and would not be paid for separately; and

• a hypothetical purchaser would not require all of NAPL's mining information at once. Some mining information for example would not be used until years into the mine’s life, so its present value should be discounted or considered negligible.

The Court disagreed, finding that:

• to the extent that mining information would be disclosed during due diligence to a hypothetical purchaser, such disclosure would typically occur in a data room which would be subject to confidentiality agreements. Ownership in the mining information, or the right to use that information, would only pass to the buyer upon the sale of the shares;

• it is not correct that a hypothetical purchaser would not require all of the mining information at once. Any hypothetical purchaser would require the totality of mining information to allow them to conduct their own mine planning and comply with their statutory reporting obligations.

Inter-company loans

At the transaction date, NAPL and its subsidiaries held substantial intragroup receivables and long-term intercompany notes.

The ATO's primary submission was that these loans should not be classified as "assets" for the purposes of the Principal Asset Test. The ATO submitted that the object of Division 855 is to identify the “underlying value” of the entity, and that the intercompany loans did not add to the group’s underlying value because they were offset by corresponding liabilities within the group. The ATO made an alternative submission that, if intercompany loans were to be included as assets, they should be given a nil value in the context of a hypothetical sale of the entire group as a going concern since a purchaser of the whole group would not pay extra for a receivable that is matched by a liability elsewhere in the group.

While the Court held that intercompany loans were "assets" for the purposes of the Principal Asset Test (and in this case – non-TARP assets), the Court accepted the ATO's submission that NAPL's intercompany receivables should be ascribed a nil value for the purposes of the valuation because a buyer of the whole enterprise would not place any value on those receivables.

P&E valuation

To value NAPL's P&E, the Newmont Vendors engaged specialist P&E valuer Mr Patrick Furey, whose valuation was then provided to Ms Ivory and Mr Wilson and incorporated into their own global valuation of NAPL's assets. In each of those valuations, P&E was by far the most valuable asset category of NAPL's mines.

Conversely, the ATO's valuation expert, Mr Lonergan, who (as explained below) adopted a different approach to Mr Furey, said that the value of NAPL's P&E was approximately 28% lower than that calculated by Mr Furey. The proportion of NAPL's total assets attributable to P&E was also considerably lower in Mr Lonergan's valuation (20%), as opposed to Mr Wilson's valuation (43%) and Ms Ivory's valuation (34%).

These differences were principally driven by differing approaches between Mr Lonergan and Mr Furey regarding the appropriate P&E valuation methodology.

• For Boddington, Mr Furey used a "reproduction cost" method, which assessed the amount it would cost to replicate the P&E in its current form. This method involved Mr Furey escalating historical acquisition costs to current values using Australian cost indices, and cross-checking his results with an independent engineering cost study.

• For the other mines, Mr Furey used a "replacement cost" method, which assessed the cost to construct or acquire a new asset of equivalent utility or function.

• Conversely, Mr Lonergan said that he adopted a “building block” or “notional lease” approach. That methodology posited a hypothetical scenario in which a third-party provider owns the P&E and provides processing services to the mine operator for a fee (a “tolling charge” or notional lease payment). The value of the P&E is then inferred from the present value of the income stream (tolling fees) that the third-party provider would expect to receive over the asset’s useful life.

• However, rather than constructing a detailed cash flow model for the hypothetical tolling arrangement, Mr Lonergan used the depreciated book value of the P&E as a proxy for its market value, and said that this reflected the amount a rational third-party provider would need to recover its investment, taking into account depreciation and the return of capital over the asset’s life.

The Court ultimately ruled in favour of Mr Furey's replacement cost / reproduction cost approach, finding that it was consistent with both industry practice, and met the requirements of the statutory language of Division 855.

On the other hand, the Court observed that the "building blocks approach" was not grounded in actual market practice for mining asset transactions, and in any event NAPL's P&E was not burdened by a tolling arrangement. In relation to Mr Lonergan's reliance on written-down book value as a proxy for its market value, the Court observed that written down values did not necessarily equate to market value, that this was therefore not an approach that could be applied to a Division 855 valuation.

Discounts for lack of control and marketability

The Newmont Vendors said each of their capital proceeds should incorporate discounts for a lack of control and a lack of marketability.

On the discount for a lack of control, the Newmont Vendors' expert, Mr Jason Hughes, said that a 15% discount should be applied, on the basis that:

• the Newmont Vendors' minority shareholdings would not provide the purchaser with an ability to direct or block key strategic, operational, or financial decisions;

• the purchaser would be exposed to a risk that the majority shareholder may act in its own interests; and

• empirical evidence consistently shows minority interests are valued at a discount.

Conversely, the ATO's expert, Mr Lonergan, said that a 3% discount should be applied on the basis that, inter alia:

• the likely buyers were sophisticated industry participants accustomed to minority positions;

• the minority shareholders still enjoyed certain rights such as board representation; and

• the commercial disadvantages of lacking control were minimal and not comparable to those faced by minority shareholders in less robust or less transparent private companies.

The Court acknowledged that while Mr Hughes' approach was orthodox and supported by empirical data, this needed to be balanced against the fact that any buyers would likely be sophisticated industry participants and would still acquire some valuable rights (such as board representation). The Court therefore adopted a middle ground position, determining that an appropriate discount was 7.5%.

On the discount for lack of marketability:

• Mr Hughes said that a 7% discount should be applied, in recognition that the NAPL shares were not listed or readily tradable, and that any sale would involve a limited pool of potential buyers, likely lengthy negotiations, and higher transaction costs;

• Mr Lonergan said that a 1-2% discount should be applied on the basis that, inter alia, there existed a ready and competitive market for the shares among sophisticated industry participants, and the principal impact of illiquidity was limited to modest transaction costs and the time required to complete a private sale.

The Court found that, despite the absence of a liquid market for the shares, there would be a "ready and competitive" group of potential buyers consisting primarily of large and sophisticated gold producers who would be accustomed to making such purchases. The Court also observed that many of the considerations identified by Mr Hughes had already been taken into account in determining the discount for lack of control. In those circumstances, the Court accepted the upper limit of Mr Lonergan's range – 2%.

Characterisation of plant and equipment as TARP / Non-TARP

The central legal question in dispute in the proceedings concerned whether NAPL's P&E (chiefly, the Boddington P&E) should be treated as TARP or as non-TARP for the purpose of the Principal Asset Test. This is because the value of the Boddington P&E (in particular) was so significant that it was the primary assets capable of tipping the scales between TARP and non-TARP in the proceedings.

Section 855-20 of the Income Tax Assessment Act 1997 (Cth) relevantly defines TARP as "real property situated in Australia (including a lease of land, if the land is situated in Australia)".

The ATO's primary case

The ATO's primary submission was that the meaning of "real property" should be given its ordinary meaning, and that, under this ordinary meaning, both land, and anything "erected on or attached to land" is real property, regardless if the underlying land is leasehold or freehold.

The Court rejected this primary submission, and ruled that the ordinary meaning of the words "real property" was not the construction which had been advanced by the ATO. This was because, in ordinary parlance, it is ownership of the land that is viewed as the source of the property interest in the things that are erected on or attached to the land, not the mere fact of erecting or attaching those things to the land. The Court observed in obiter that if, contrary to his ruling, the phrase "real property" in section 855-20 meant "anything erected on or attached to the land", all of NAPL's P&E (excluding mobile equipment) would have constituted "real property".

In any event, the Court found that the meaning of "real property" for the purpose of section 855-20 held a specific legal meaning, rather than a broader ordinary meaning as contended for by the ATO. In those circumstances, the Court found that the P&E could only be "real property" within the meaning of section 855-20 if it formed part of the land according to general law principles, or if it formed part of a lease of land at general law.

The ATO's alternative case

In the alternative to the "ordinary meaning" submission described above, the ATO submitted that, where P&E is a fixture at general law, and is affixed to land that is the freehold or leasehold land of the owner of the P&E, the P&E should be treated as "real property" for the purpose of section 855-20. This was only relevant for Boddington, being the only mine on which P&E was located NAPL's freehold land.

In considering this submission, the Court had regard to the High Court's decision in TEC Desert Pty Ltd v Commissioner of State Revenue (2010) 241 CLR 576 (TEC Desert). In that case, the High Court determined that the sale of mining P&E located on mining tenements, as well as the grant of a licence to operate a power station situated on freehold land, did not rise to dutiable transactions for duty purposes. The ATO sought to distinguish TEC Desert on the basis that the High Court had not dealt with the characterisation of items affixed to land where the same party was both the holder of a mining tenement and the holder of the freehold to the land (or held a leasehold interest).

The Newmont Vendors' submitted that it did not matter if the holder of the mining tenement also had a freehold or leasehold estate in the land where the P&E was located, because the freehold and leasehold alone did not confer the right to use the plant and equipment for mining; those rights were conferred by the mining tenements, which are personalty, not real property. The Newmont Vendors also submitted that none of the relevant P&E ever became a fixture at general law because, inter alia, the mining tenements mandated the removal of the P&E at the end of the term of the mining tenement.

Ultimately, the Court rejected the ATO's submission and held that, irrespective of whether the Boddington P&E were fixtures at general law, they could not fall within the meaning of "real property" for the purposes of section 855-20 in circumstances where the right to place them on the land for their intended mining purposes originated from the mining tenement, not from the freehold or leasehold.

The Court held in this regard that it was bound by the High Court's decision in TEC Desert, which:

"makes plain that the relevant legal character of the mining plant affixed to land pursuant to the statutory authority conferred upon the holder of a mining tenement depends upon whether the mining tenements were realty.

Consequently, in order to accept the ATO's contention that the relevant plant and equipment that has been affixed to the land in the present case forms part of the freehold or leasehold estate then that would require me to reach a conclusion that is fundamentally inconsistent with the logic of the reasoning of the High Court in TEC Desert. It would mean that the status of mining plant affixed to the land depends not upon the character of the mining tenements, but upon the general law as to fixtures."

The Court also observed that:

"when it came to the mining operations […] neither a freehold nor a leasehold interest in the land […] conferred the right to be able to use the plant and equipment to conduct those mining operations".

Despite this finding, the Court also held in obiter that, had the Boddington P&E been able to form part of the land if they were fixtures at common law, then it would have concluded that the P&E were fixtures on the basis that they were constructed on the land with a significant degree of permanence, integrated into the mining operations, and not intended to be removed or relocated as a mere chattel. The scale, function, and manner of installation of the equipment, as well as its limited value if removed, all indicated that it was affixed to the land to enhance its use for mining, rather than being a temporary or moveable improvement.

The YTL decision

The Court noted that its comments in relation to the meaning of real property and the issue of fixtures accorded with Justice Hespe's recent decision in YTL Power Investments Limited v Commissioner of Taxation [2025] FCA 1317. In that case, the Court held that, due to statutory severance provisions, leased transmission network assets were to be treated as personal property rather than real property for CGT purposes. The decision confirmed that the legal character of the rights conferred by the relevant legislation, rather than mere physical affixation, was determinative of whether assets constituted "real property" under Division 855.

Changes to Division 855 are coming

In August 2024, the Federal Government announced significant changes to Division 855 of the Income Tax Assessment Act 1997 (Cth). These proposed amendments (which as at the time of this article have not yet been tabled) include broadening the TARP definition, extending the Principal Asset Test to a 365-day testing period, and introducing a new notification requirement for foreign residents disposing of shares or interests exceeding $20 million in value.

Most relevantly in the context of the Newmont decision, Treasury has indicated that the changes will clarify the meaning of "real property" for the purpose of the Principal Asset Test, with the explicit intention of capturing "infrastructure and machinery installed on land situated in Australia, including land subject to a [mining tenement]" including for example "heavy machinery installed on land for use in mining operations, such as mining drills and ore crushers".

Notwithstanding these impending changes, the Newmont decision will remain highly relevant for several reasons:

• Application to existing transactions: The Newmont decision will continue to govern the characterisation and valuation of mining projects and related assets for Division 855 purposes in respect of transactions that occur before the new legislation comes into effect.

• Potential enduring value of judicial guidance: The Court’s detailed analysis on the meaning of “real property” and the application of general law principles to fixtures, mining tenements, and plant and equipment, could remain highly relevant. Even as the statutory definition of TARP is broadened, the Court’s reasoning on the legal characterisation of assets and the interaction with state and territory property law will continue to inform the interpretation.

• General valuation principles: For tax managers and valuers, the Newmont decision provides comprehensive guidance on key valuation inputs such as the selection of commodity prices, discount rates, NAV multiples, and the treatment of mining information and intercompany loans. The court's findings have relevance for all tax valuations, not just those under Division 855.

What should you do now

Tax managers and valuers should be proactive to ensure compliance with the findings of this decision in the context of Division 855. In particular:

• Review Division 855 assumptions: Carefully revisit and, where necessary, update your assumptions regarding what constitutes "real property" for Australian tax purposes, especially in relation to plant and equipment, mining tenements, and infrastructure.

• Engage with valuers: When instructing valuers to prepare valuations for tax purposes, ensure they are briefed with the Court’s findings in this decision (such as in relation to the selection of commodity prices, calculation of discount rates, treatment of mining information, and discounts for lack of relative control/marketability).

• Monitor legislative developments: Stay abreast of the proposed changes to Division 855, particularly the expected broadening of the TARP definition and the clarification of "real property". While the Newmont decision will continue to apply to pre-legislation transactions, the forthcoming amendments will have a material impact on future structuring and compliance.