November 26, 2001, ECB Control No.: 24/95/215, 04/99/215

* Julian Greenwood was a member of the panel that heard this matter. He has not
   participated in the final deliberations leading to these reasons for decision.

REASONS FOR DECISION

1.  INTRODUCTION

[1]  The claimants had interests in three placer gold mining leases on a tributary of the Tatshenshini River, in the north-west corner of British Columbia, close to the Yukon border. The claimant, Heinz Eckervogt, was the owner of all three leases. They were referred to in the hearing as the Upper Lease, Middle Lease and Lower Lease. Eckervogt operates a highway lodge in Haines Junction in the Yukon, about 115 kilometres (72 miles) from the leases. Eckervogt had granted a right to mine over one lease and a portion of a second lease to D. & B. Oilfield Contracting Ltd. This agreement was set out in writing. The principal of this company was Douglas Busat who had extensive experience with his company in the oilfield and heavy equipment business, as well as some prior placer mine experience. This claimant is based in Fort Nelson, British Columbia, very approximately 1,600 kilometres (1,000 miles) from the leases. D. & B. Oilfield Contracting Ltd mined part of the Middle Lease during the summer of 1993. Subsequent to the events leading to this hearing, D & B Oilfield Contracting Ltd. was amalgamated into the present claimant T.D. Oilfield Services Ltd. ("TD"). Thus any right to compensation earned by D & B Oilfield Contracting Ltd is now properly directed to TD, and for simplicity, both companies will be referred to in this decision as TD. Eckervogt had also granted a similar right to mine over the third lease to the claimant Walter Yates. Yates is a real estate developer and equipment operator who lives in Cedar Park, Texas. He had spent a number of summers mining in northern British Columbia, including mining on the Upper Lease in 1982, as well as the mining on the Lower Lease in the summers of 1992 and 1993.

[2]  On October 15, 1993 the respondent (the "Crown") established the Tatshenshini-Alsek Provincial Park as a Class A park. The new park included the area of the three mining leases. Since no mining is permitted in a Class A park, the Crown eventually admitted that it had, by this action, expropriated the claimants' interests in land. Compensation to be paid is under the Expropriation Act, R.S.B.C. 1996, c. 125 ("the Act").

[3]  The question of compensation for the claimants Eckervogt and TD was at first taken by agreement to a private arbitrator, Douglas Campbell. Mr. Campbell issued a decision in which he awarded some compensation to Eckervogt and TD. The Crown applied for a judicial review of that decision and succeeded in having the decision quashed by the Supreme Court for arbitral error. The claimants subsequently came to this board for determination of compensation. Yates' application, although separate from that of Eckervogt and TD, was heard at the same time by consent. At the commencement of the hearing, Yates' lawyer indicated that, other than leading evidence from Yates himself, he would take little part in the hearing and rely simply on the evidence presented by Eckervogt and TD.

[4]  The three claimants say that as a result of the expropriation they have together lost property in excess of $2,000,000. They have valued the three leases using the discounted cash flow ("DCF") approach. A mining engineer has mapped the leases and, extrapolating from TD's mining experience on the Middle Lease in the summer of 1993, has estimated the volume of gold that could have been extracted from all three lease areas. Based on TD's records from 1993, the mining engineer has estimated that it would have taken some seven seasons to mine that amount. Mining or operating costs, again derived from TD, were deducted from the price obtainable for the estimated gold in each season and the resulting income was discounted back to the date of taking and reduced for taxes. The total compensation sought was allocated between the claimants based on the amount of gold that was estimated on each claimant's interest in the relevant lease(s) plus Eckervogt's royalty payments, less each claimant's share of the mining costs, each discounted to present value separately. There were some minor differences in how the claimants' experts apportioned the compensation between the three claimants but both attributed between 30 and 40% of the total valuation of approximately $2,000,000 to each of Eckervogt and TD and a somewhat smaller percentage to Yates.

[5]  It took some time before the Crown made any advance payment but finally on September 26, 1997 the following payments and allocations were made:

Heinz Eckervogt
	market value for PL 1762 - the Lower Lease:	$ 25,000
	market value for PL 1271 - the Middle Lease:	$ 70,000
	market value for PL 1287 - the Upper Lease:	$ 5,000
TD Oilfield Services
	market value for PL 1271 and 1287:	$200,000
	disturbance damages:	$  50,000
TOTAL		$350,000

The Crown made no advance payment to Yates, perhaps because it understood that Yates had given up mining on the Lower Lease before the expropriation in October, 1993. On November 3, 1997, the claimant Eckervogt returned the advance payment of $25,000 made to him for the market value of the Lower Lease to the Crown because he and Yates could not agree on the disposition of the funds. The overall advance payments are considerably higher than the amounts that the Crown now argues should be paid as compensation.

[6]  The Crown submits that in the circumstances of this case the DCF method of valuing the three leases is not appropriate. Instead it says that the Direct Comparison Approach should be used to value each claimant's interest independently. There are no examples of placer mining leases changing hands at anything close to a sum within the range of $500,000 to $900,000. The Crown points to the actual terms on which the leases themselves, or interests in the leases, had been acquired, and at market evidence of the transfer of other placer leases, and it argues for a total market value for the three leases of $13,500. This, it says, is the value of Eckervogt's interest as the owner of the three leases. The Crown states that neither of the agreements granting a right to mine to TD and Yates have any market value.

[7]  Both TD and Yates also claim disturbance damages. As a result of the expropriation TD incurred prospecting expenses to find a new mining property earlier than it otherwise would have done. If there had been no expropriation and TD had continued to mine on the subject leases, assuming that it mined all three, TD says that it would have been mining on the subject leases for another six years. Therefore, TD claims damages for incurring the prospecting expenses six years prematurely. The present value of the claimed prospecting expenses discounted for six years is approximately $97,000. In the alternative, assuming TD mined only that area of the leases set out in its written agreement to mine, it says that the mining would have been for another three years. The present value discounted for three years is approximately $53,000. The Crown concedes that TD is entitled to some disturbance damages, but says that since TD only had the right to mine the Upper Lease and a portion of the Middle Lease, it is restricted to a maximum claim based on the discount for only three years or $53,000. Further, the Crown says that TD would in fact have only mined one further year on the subject leases and therefore the exploration costs were only advanced by one year. Finally, according to the Crown, the costs include some items that are inappropriate and need to be reduced accordingly.

[8]  Yates makes alternative claims for disturbance damages. If the DCF approach for market valuation of Yates interest is accepted then Yates claims $30,000 for early demobilization of his mining operation including losses on some of the equipment. If the DCF approach is not accepted then Yates claims either:

i	the loss of the cash flow projected by the DCF approach as disturbance damages, or, at a minimum,
ii	all of his expenses spent on the mining operation in 1992 and 1993 since the expropriation truncated the mining operation before any income was received. The expenses claimed totalled approximately $87,000 after allowing a set off for the sale of some of the equipment.

The Crown denies all of these claims for disturbance damages on a number of grounds including the fact that Yates had not actually incurred any losses that arose out of the expropriation.

[9]  Thus the main issue in this hearing was the appropriate approach to market valuation, as well as the actual valuation, of the three claimant's interests in the expropriated leases given the circumstances that existed at the date of expropriation. A secondary issue was the amount of disturbance damages to which TD and Yates were entitled.

2.  BACKGROUND

2.1  Leases and Agreements to Mine

[10]  Two of the leases, the Lower, or most downstream lease, and the Middle Lease were on Squaw Creek which is a tributary of the Tatshenshini River. These two leases on Squaw Creek were contiguous. The Upper Lease was on the North Fork or Paddy Creek, which was a tributary of Squaw Creek. The Upper Lease was contiguous with the side boundary of the Middle Lease just above where the North Fork flowed into Squaw Creek. The Middle Lease extended further up Squaw Creek above the junction or confluence with the North Fork. There was some uncertainty as to the exact size and location of the three leases as they are defined by staking under the Mineral Tenure Act, S.B.C. 1988, c. 5 (and the predecessor legislation) and some of the original posts have disappeared. According to the original placer leases filed with the Gold Commissioner, the Lower and Upper Lease were approximately 805 metres (2,640 feet) long with 201 metres (660 feet) on either bank of the creek for a total of width of 402 metres (1,320 feet). This means that the leases appear to be very approximately 32.36 hectares (80 acres) in size.

[11]  The claimant Eckervogt staked the Upper Lease on the North Fork and the Crown granted the placer lease PL 1287 on December 29, 1978 for a term of ten years. On December 9, 1987 Eckervogt applied to extend the lease for five years until December 29, 1993. On September 23, 1992, as a result of legislative changes to the provisions governing placer leases, the Crown rescinded and replaced the five-year extension of the lease with a ten-year extension to December 29, 1998.

[12]  The Middle Lease, PL 1271, was originally granted in December 29, 1978 for a ten-year term. On July 27, 1980 Kevin Schropfer sold the lease to Eckervogt for $32,000. On December 9, 1987 Eckervogt applied to extend the lease for five years until December 29, 1993. On September 23, 1992, as a result of legislative changes to the provisions governing placer leases, the Crown rescinded and replaced the five-year extension of the lease with a ten-year extension to December 29, 1998.

[13]  The most downstream or Lower Lease, PL 1762, was originally granted for a term of 20 years commencing on December 15, 1972. On December 12, 1977, records in the Gold Commissioner's office indicated that the lease was sold from Phyllis Ross of Vancouver to Karl Gruber of Whitehorse for $2,500. On July 21, 1987 Karl Gruber sold this lease to the claimant Eckervogt for $30,000. On December 15, 1992 the Crown extended the term for 10 years until December 15, 2002.

[14]  On June 1, 1992, the claimant Eckervogt entered into a written mining lease agreement with the claimant Yates. We note that Yates was born in 1924 and thus was 68 in 1992. This agreement, which was drafted and typed by Yates, replaced a hand written agreement made in 1991. Under this 1992 agreement, Yates could mine the Lower Lease in return for a royalty of 15% of the gold recovered, payable at the end of each mining season. The agreement was for five years to June 1, 1997 with an option to renew for an additional three years to June 1, 2000. Yates paid no monies up front for this right to mine the Lower Lease; his only obligation was to start testing in the 1992 season and to have a wash plant and related equipment on the claim in the 1993 season, provided the test results were positive. There was some suggestion that Yates had in fact given up mining on this lease in July 1993 prior to the expropriation, but Yates denied this. There was evidence that supported Yates' testimony that he intended to keep mining during the summer of 1993 and we accept that his agreement to mine was in place in October 1993. But for the expropriation he may have attempted further mining in 1994.

[15]  The claimant Eckervogt and the principal of the claimant TD, Douglas Busat, began discussion in 1992 with respect to TD mining the Upper Lease and part of the Middle Lease. TD did some testing on the claims in 1992 and in May 1993. On June 9, 1993, Eckervogt and TD recorded their oral agreement in writing. TD was given the right to mine the Upper Lease and the portion of the Middle Lease downstream from the mouth of the North Fork (approximately two thirds of the Middle Lease), on payment of a royalty to Eckervogt. TD would pay Eckervogt 10% of the first 15 ounces of gold recovered on each "clean-up", or recovery of gold from the wash plant, and 20% of any gold over that amount. The agreement was for three years to June 9, 1996 with an option for a further three years to June 9, 1999. Payment was actually to be made in gold. As with the Yates agreement, TD paid nothing to enter into this agreement. TD was not obligated to do any mining unless it decided after testing to do so. If it did decide to mine it agreed to mine a minimum of 25,000 cubic yards per year. TD also agreed to comply with all regulations including the restoration of the mining area to the state required and to keep the property free from any liens. Failure to comply with any of these provision rendered the lease agreement void.

[16]  Thus at the time of expropriation in October 1993 there were agreements in place to mine the three leases. The only area that was not subject to an agreement to mine was the upper end of the Middle Lease on Squaw Creek above the confluence with the North Fork. Eckervogt had retained the right to mine this area thinking that he or his family might want to do some more mining in the future.

[17]  The three leases were difficult to reach. Access was from the Haines Road, which runs from Haines Junction on the Alaska Highway in the Yukon to Haines, Alaska. Some 90 kilometres south of Haines Junction, a rough dirt road approximately 25 kilometres long ran from the highway to the leases. Four wheel drive vehicles were required to access the claims. Various streams had to be forded, including at one point the Tatshenshini River. The route crossed the Yukon-British Columbia border a short distance before the most downstream or Lower Lease. The trip in from Haines Junction (the nearest community of any size) took an average of six hours. Depending on the conditions and what was being carried or towed, it could take anywhere between three and twelve hours.

2.2 Geology

[18]  The board received extensive geological evidence from a number of witnesses. Michael Milner and Stephen Morison testified for the claimants; Dr. Victor Levson appeared for the Crown.

[19]  Placers are formed when eroding rivers cut through gold-bearing rocks. Lighter materials get washed downstream, while gold, being heavy, tends to fall downward and to become concentrated in the bottom gravels at the bedrock layer. Placer gold therefore refers to gold that has been washed from its original bedrock sources to find its way into river gravels. Because rivers and streams are not static, but can take a variety of routes over the centuries, placer gold can be found, not simply in the present-day creek bottom gravels, but also in older stream channels which may lie elsewhere in the valley, including under terraces or benches some distance above the valley floor. The experts differed sharply as to how much evidence there was for gold bearing older stream channels in Squaw Creek.

[20]  Placers are also affected by glaciation. Glaciers can be quite erosive and may erode older placer deposits. Also, glaciers leave behind material known as till as they retreat, and the till can bury older placers and make them harder to find. Finally there was some evidence that glaciers sometimes may concentrate the gold. The Squaw Creek area was once entirely glaciated, although again there were differing views among the experts on how much effect the glaciation may have had on the placer deposits in Squaw Creek.

[21]  There were differences of opinion between the geologists on the likelihood of placer gold being found on the North Fork in the Upper Lease. This creek passed through a narrow gorge with a waterfall not far above its confluence with Squaw Creek. Above that point it lay in a different geological zone or terrain than did Squaw Creek. Levson, who testified for the Crown, theorized that the North Fork, lying generally in a different terrain, and in a wider valley above the falls, was less promising as a bedrock source for gold than Squaw Creek. The claimants' witnesses thought otherwise, but there was little evidence of gold, or the lack of it, from the Upper Lease to support either opinion. We did have evidence from the claimant Walter Yates as to the gold that he recovered on the Upper Lease (see section 2.3.2 below). There was also evidence from the miner Alan Dendys as to poor results from his testing further up the North Fork. Finally, TD's test done on the North Fork near the confluence with Squaw Creek recovered the lowest concentration or grade of gold of the six tests that were done.

[22]  The claimants also suggested that gold might be found in the glacial till deposits and glaciofluvial deposits found further up the hillsides. In practice, the only mining history on Squaw Creek had been in the valley bottom. But since the leases were wide enough, at approximately 400 metres, to include a substantial amount of the valley benches and hillsides, the possibility of placer gold in these unexplored areas was of some importance to the claimants. Morison, a geologist for the claimants, gave some support for gold being found in the glacial tills; however he appeared to be speaking largely theoretically. There was a British Columbia Minister of Mines Report with respect to Squaw Creek that Morison interpreted as supportive as well as publications that indicated gold had been found in these types of deposits elsewhere in British Columbia. The only actual evidence of gold in Squaw Valley tills was a single grain of gold found several kilometres downstream in what were assumed by Morison to be similar material. At this location the miner, Jerry Reid, had reportedly found some gold in tills present as overburden (the soil overlying the gravels that is normally stripped before the gravels are put through the wash plant) as well as in the stream bed gravels underneath, but we were not given any detailed evidence. By contrast, the likelihood of till containing any economic quantity of gold was strongly contested by the Crown's expert Levson. The board learned that Morison had co-authored, with Levson, a chapter in a geological text on placer deposits in areas of glaciation which stated that "gold concentrates in till … are too low to mine … but may locally be worth processing with improved recovery systems" and "economic gold concentrations are also rare in glaciofluvial deposits and are usually restricted to areas where meltwaters have reworked older placers".

[23]  It appeared that the only issue on which the geologists (and miners) were in agreement was that the concentration of gold in placer deposits tends to be very variable. The gold is not fixed in the rock but has been carried by water flowing in streams and rivers and then by gravity migrated down through layers of gravel. As a result it is unwise to assume that a grade (weight of gold per unit volume of gravel) found at one test site will be repeated at other places. This is to be contrasted with hard rock mining of gold where the deposits or reserves that have intruded into the rock can be mapped in all three dimensions with sufficient drilling.

2.3  Mining History on Squaw Creek

2.3.1  Generally

[24]  We heard evidence from a number of people who had mined on Squaw Creek including the claimant, Heinz Eckervogt; his son, Martin Eckervogt; the principal of the claimant TD, Douglas Busat; the claimant, Walter Yates; and two other miners, Daniel Johnson and Alan Dendys. There were also a number of reports referring to the history of mining on Squaw Creek.

[25]  Placer gold has been recovered from Squaw Creek for many years, with the first staking in 1927. By 1928 the entire creek was staked, although mining was initially haphazard and only on a few claims. However, mining activity increased, and during the 1930's there were up to 45 miners at a time. Mining dwindled with the beginning of the war in 1939. A British Columbia Department of Mines Bulletin in 1948 reported that although the records showed 3,500 ounces of gold had been removed, it was likely that up to 5,000 ounces of gold had already been recovered from Squaw Creek.

[26]  In these early years access was by wagon road and pack trails. The mining would have been hand mining with relatively crude wash plants. Gravel would have been shovelled into pans or sluice boxes through which water from the creek was run, washing away the gravel and leaving the heavier gold behind. In 1943 the Haines Road was built so that there was better access to within approximately 25 kilometres of the claims.

[27]  In the 1960's the Minister of Mines' reports indicate that a mining company carried out some mining on Squaw Creek using a bulldozer and a hydraulic sluicing system. In the 1970's a rise in the price of gold led to renewed interest, and the area was restaked. Although some hand mining continued, more miners brought in equipment such as excavators, backhoes, and loaders to excavate and move the gravel. Since placer gold concentrates at the bedrock level, the ability of the equipment to dig down to bedrock is important. We heard evidence of variable depths of gravel encountered on Squaw Creek: from as low as three feet, to a high of 60 feet, with an average of about 12 feet. The wash plants also became more sophisticated with pumps and more efficient recovery systems, although from the evidence we heard there was considerable variation in the wash plants used on Squaw Creek, most of which were self-designed.

[28]  We heard considerable evidence from Daniel Johnson with respect to his mining of the two claims on Squaw Creek that were immediately downstream of the Lower Lease. This mining occurred in 1988 and 1989 as a joint venture between Johnson, Black Cliff Mines, and Menora Resources. It was a relatively large-scale operation with $700,000 of equipment and machinery and a work force that for a short time near the end of the 1989 season employed 12 people, running two shifts. The area was extensively tested in 1988, and the valley floor was completely mined over that year and the next. Johnson told the board that there had been many miners on these two claims, the most recent of whom, Terry Thompson, had mined the area for several years in the 1980's. As a result Johnson thought that less than 5% of this area was truly virgin ground. He reported that the average grade on these two leases, expressed in value, was $5.50 per cubic yard (measured by bucket volumes). A total of 1,130 ounces of gold was recovered. At the reported grade this suggests something over 100,000 cubic yards mined in the two years, although Johnson reported mining more than twice that.

[29]  It is of some significance to note that the Black Cliff-Menora-Johnson venture never reported a profit. There was no further mining after 1989, and the corporate partners took their equipment out in 1990. Johnson stayed for a while, trying to mine other leases upstream of the Middle Lease on Squaw Creek, but gave up when he experienced greater depths of overburden which made the operation too risky. He eventually moved to carry on placer mining in an area near Atlin.

2.3.2  PL 1287 - the Upper Lease

[30]  This lease on the North Fork was the one that was originally staked by the claimant Eckervogt. The lease extended from the side of the Middle Lease to a point on the North Fork above the waterfall. The falls presented a barrier to mining. This lease had more boulders than the other two leases. Boulders generally cannot be processed in the sluice box with the gravel. If they are large the equipment has to mine around them. If they are smaller the loaders may move them aside. Aside from these practical difficulties, the presence of boulders affects the recovery rate or grade for the gold since they are part of the ground that is not mined.

[31]  Eckervogt carried out some testing and mining on this lease shortly after acquiring it. Records filed in the Gold Commissioner's office by Eckervogt describe his gold recovery as "poor" and "very poor".

[32]  In 1982 the claimant Yates entered into an agreement to mine this lease with Eckervogt. The payment to Eckervogt was in the form of a royalty or percentage of the gold that was found, although we were not provided with evidence on the amount of the royalty. Yates worked the lower end of this lease, near the confluence with Squaw Creek. Given the uncertainty of the exact location of the leases, it appears that some of this mining on the North Fork near the confluence may have been in fact on the Middle Lease since the Middle Lease extended on both banks of Squaw Creek including the lower reaches of the North Fork. Yates, who at the time had no placer experience, worked with two partners. They had an old loader and bulldozer. Using a collection of ideas obtained from other miners, they built a single-run wash plant of their own design at the site. Working upstream toward the falls they fairly soon found themselves facing a number of difficulties: excessively deep gravels, water seepage from the creek, and, near the base of the falls, very large boulders making up about half the total volume of gravel in places. Yates found that the size and quantity of the boulders in this location, some of them reportedly as large as a small car, made any mining very difficult, especially given the calibre of equipment they were using. They kept no records. Yates estimated, in hindsight, that his operation was probably less than 50% efficient (in other words it would have only caught about half of the gold). Over the 1982 summer he and his partners recovered some 90 to 100 ounces of gold, including one 13-ounce nugget. Yates did not continue to mine the Upper Lease in 1983, considering that the conditions were too difficult for his methods and equipment. He agreed that it was easier to mine the gravels on Squaw Creek than the conditions he encountered on the North Fork on the Upper Lease.

[33]  We heard some evidence about further testing on the North Fork by the miner, Alan Dendys. He testified that the concentration of gold decreased the further he went up the North Fork. As mentioned above, the right to mine this Upper Lease was later assigned to TD's predecessor in 1993. However it appears that no further mining took place after 1982 on the Upper Lease before the right to do so was foreclosed by the creation of the park.

2.3.3  PL 1762 - the Lower Lease

[34]  This lease was the last one acquired by Eckervogt in 1987. Records in the Gold Commissioner's office indicate that in 1981 there was an application to record work on the lease by Karl Gruber, the cost of which work was well over $150,000. In 1983 Gruber filed an application to record work which indicated that some hand sluicing had occurred over two weeks in August of 1982. The miner, Daniel Johnson, also testified that in 1982 he did some hand mining on the Lower Lease. It appears from records in the Gold Commissioner's office that in 1983 and 1984 the miner, Terry Thompson, mined this lease, or a portion of it, at the same time that he mined the two leases immediately below the Lower Lease. However, the mining of this lease was apparently not authorised by Gruber.

[35]  In 1987 Eckervogt entered into an agreement with Dendys to supervise mining of the Lower Lease in return for a percentage of 6% of the gold recovered. Eckervogt was in the process of acquiring the lease from Gruber during that season. The gold price in 1987 was $592 an ounce; it was significantly higher than the price of $511 per ounce in 1986 or the price of $484 per ounce on October 15, 1993, the date of expropriation. There was some talk of a partnership involving Dendys but in the end Dendys did not sign the documents and he left Squaw Creek with his equipment after the 1987 season. Dendys told the board that he and his four person team (which included Martin Eckervogt, the son of the owner) worked the Lower Lease from May 30 to October 14, 1987, during which time he estimated they sluiced for about 108 days. They used a simple single-run wash plant. Dendys estimated (without records) that they sluiced on average about 1,200 cubic yards a day, in two shifts, for a seasonal total of some 130,000 cubic yards (loose volume). His records indicated that 1,395 ounces of gold were recovered, including the largest nugget ever found in North America (74.5 ounces.). Some of the wages for the six employees, including the cook, were paid as a percentage in gold. Martin Eckervogt stated that the operating costs were high in that year and company records indicate that $206,469 was paid in total wages (including those paid in gold) while the cost of mining, including wages, was $321,173. Mining revenue was reported at $486,224 but after deduction of mining expenses, exploration expenses, administration expenses, and taxes the net income was reported to be $60,190. The valley bottom was completely mined over that summer, although Dendys agreed that they had bypassed some portions when the results were poor. By the end of the 1987 mining season, Dendys felt there was little gold left, unless there was more under the hillsides themselves.

[36]  Little happened on the Lower Lease between 1987 and 1991 when Walter Yates did some testing on the lease and entered into a right to mine with Eckervogt. Yates testified that in 1991 he met Daniel Johnson, who had been mining immediately downstream of the Lower Lease with the Black Cliff-Menora venture. Yates had been encouraged by Johnson's results and he approached Eckervogt for the right to mine the Lower Lease. Early in the 1992 season Yates spent considerable time repairing the road, creating settlement ponds, and building a wash plant of his own design on site. He experienced difficulties with the equipment and only mined 100 -120 cubic yards of material in 1992, recovering about three ounces of gold. Then in the spring of 1993 he injured himself while repairing his backhoe. By the time he returned to the lease, it was general knowledge that the park would be established and his mining would have to stop. He did not do any further mining in 1993.

2.3.4  PL 1271 - the Middle Lease

[37]  The Middle Lease was the second lease to be acquired by Eckervogt in 1980. The gold price in 1980 was at an all time high at over $US600 per ounce. (The price for gold is traditionally quoted in US dollars per Troy ounce, as set in the London Metal Exchange PM fix and converted at London closing exchange rates. The expert witnesses provided us with the price in Canadian dollars in most circumstances using an appropriate exchange rate for the time in question. We were not given the conversion rate for 1980.) There were two cabins on the Middle Lease, situated on the right side of the creek facing downstream, which showed up in some photographs and were sometimes used as geographical references. Above the cabins, the North Fork entered the creek from the right side, approximately two thirds of the distance upstream from the lower boundary of the Middle Lease.

[38]  Eckervogt testified that he had sold his first highway lodge on the Haines Road in 1980. In 1981 and 1982 he brought some equipment onto the Middle Lease and with his sons mined what he estimated was 6,000 cubic yards in the first season and some 4,000 cubic yards in the second season. He was using two loaders and a sluice box of his own design to do the mining. There were no records of the amount of gold recovered nor were there any records of the number of days that were mined or the amount of material mined per day. Eckervogt suffered a heart attack in the spring of 1983 that forestalled any mining for 1983 and he also bought another motel that year. He did not return to Squaw Creek until 1989, when he and his sons mined an alluvial fan that descended into the valley bottom of the lease area, keeping no records and again getting relatively poor recoveries.

[39]  Then in 1992 Douglas Busat, the principal of TD, did some testing on a number of leases on Squaw Creek. Busat had been an oilfield contractor and heavy equipment operator for many years, and had considerable expertise in designing, maintaining, and operating machinery. He had started some placer mining in the early 1980's, first at Fourth of July Creek, north of Haines Junction in 1981 and second at McDame Creek, near Cassiar, in 1987 and 1988. In 1992 Busat did some testing on the Middle Lease, and, acting through the predecessor of his company TD, made an oral agreement with Eckervogt for the right to mine. Over the winter of 1993 Busat built what was described to the board as a "state of the art" wash plant, which cost him about $150,000 in materials. Near the end of May 1993 he went into the leases with his equipment to set up camp, and to dig test holes and choose the best mining location. This was a fairly major undertaking involving a number of trips to bring in equipment, some of it from Haines Junction and some of it from his base in Fort Nelson, about 1,600 kilometres (1,000 miles) away. The initial testing involved digging six trenches in various locations on the Middle Lease down to bedrock at an average of 12 feet below the surface. Busat recorded the results as price of gold per cubic yard based on a price of gold of $500 per ounce. The six holes tested between $7.50 per yard and $18.00 per yard. After he had carried out the tests, Busat, on behalf of TD, prepared the written agreement to mine that he and Eckervogt signed. Eckervogt inserted the exclusion clause for the area of the Middle Lease on Squaw Creek above the confluence with the North Fork. During the remainder of June, TD carried out preliminary work such as repairs to the road, construction of settling ponds, setting up the wash plant, and stripping the ground of overlying soil and vegetation. There were five workers in total: Douglas Busat, his wife Carol Busat, Martin Eckervogt, son of Heinz Eckervogt, and two other men who had worked for TD intermittently for eight years. Martin Eckervogt and the other two men operated the equipment, Carol Busat did the cooking and some of the record keeping, and Douglas Busat filled in on the equipment during meal breaks, serviced the equipment, and carried out the gold clean-ups.

2.3.5  The 1993 Mining Season on the Middle Lease

[40]  TD began some preliminary sluicing of gravel towards the end of June and, after taking a break for four or five days, began actual mining of the Middle Lease on July 3, 1993. TD kept daily time sheets for the hours worked by each employee and each piece of equipment. These time sheets also recorded a brief description of what was done each day including the number of cubic yards that were put through the wash plant, maintenance of the equipment, and trips out to Haines Junction and Fort Nelson. The number of cubic yards was estimated from the bucket counts on the back hoe used to feed the wash plant (the backhoe had a counter that could be clicked for each bucket). There were also records of the gold recovered at each clean-up and the amount paid to Martin Eckervogt as royalty payments for his father.

[41]  According to Martin Eckervogt, mining began near the bottom of the Middle Lease, just below the lower cabin, and followed a path upstream more or less to the level of the upper cabin, near the confluence of Squaw Creek with the North Fork. This first cut was close to the right edge of the valley looking downstream. The width of the cut was essentially the reach of the excavator used to excavate the gravel on either side, although it varied somewhat with the topography. The average depth of gravel to bed rock was reported to be 12 feet. The records show that on the first cut an average of about 340 cubic yards of gravel was put through the wash plant each day, except for another five or six day break around August 1. The gold recovered in each clean up during this cut varied between 250 and 700 grams. (While prices for gold are traditionally quoted per Troy ounce, TD recorded its gold recovery in grams and the claimants' mining valuation was expressed in metric units. One Troy ounce is equivalent to 31.10 grams.) The grades obtained in each clean up ranged between 0.24 and 3.09 grams per cubic metre, showing significant variation in the gold concentration. The average grade was 1.31 grams per cubic metre. The stream was then diverted to the area that had been mined and a second cut was made beside the first, more toward the centre. This second cut started about 20 metres further upstream than the first cut, and continued upstream until eventually fall weather made further work impossible. This second cut was similar in overall length to the first cut, but with the 20 metres offset. The records showed that on the second cut until September 16, an average of about 420 cubic yards of gravel was put through the wash plant every day but for a three-day break just before September 1. The gold recovered during this period on the second swath was higher than on the first cut with clean ups ranging between 303 and 914 grams. The grades obtained in this second cut again showed variation, ranging between 0.75 and 3.66 grams per cubic metre with an average grade of 2.13 grams per cubic metre. On September 17, Busat made a number of modifications to the wash plant that allowed him to increase the number of yards of gravel sluiced per day. From September 18 to September 24, the last day of mining, about 925 cubic yards of gravel were mined per day. Thus, in the last week more than twice as much gravel was processed per day as had been processed per day throughout the rest of the season. However, the gold recovery dropped significantly during this period, with individual clean ups varying between 167 and 557 grams. The average grade was only 0.45 grams per cubic metre for this final week. TD's financial statement for the year ended February 28, 1994 shows an income of $313,939 with expenses of $428,746 for a net loss of $115,000 which was reported on TD's income tax return. Not all of this income and expenses were related to the mining operation.

[42]  In summary, the time sheets record that a total of 22,976 cubic metres (30,050 cubic yards) by bucket count were sluiced on 72 sluicing days and 26,023 grams (837 ounces) of gold were recovered. Busat reported a different volume mined, namely 50,000 cubic metres, on a Notice of Completion of Work filed with the Ministry of Energy, Mines and Petroleum Resources on October 26, 1993. He estimated the mined area to be 11,000 square metres. The gold price in October 1993 was about $484 per ounce ($15.57 per gram) and the average for 1993 at $464 per ounce was 12% higher than the price in 1991 and 1992 at $415 per ounce.

[43]  During July the news came that the park would be established, and that mining would not be able to continue the following year. TD did some required reclamation in the spring of 1994 and took its equipment out of Squaw Creek.

3.  MARKET VALUE

 3.1  Approaches to Valuation

[44]  The claimants take the position that as a result of TD's mining in the summer of 1993, the three subject leases made up an operating mine which, if it had been allowed to continue, would have produced 394 kilograms of gold, worth about $6,700,000, over the following seven years. The claimants then subtracted estimated mining costs each year, based on TD's experience, to get a net annual income, and discounted those net incomes back to the date of expropriation in October 1993 at a discount rate of 15%. This produced a present value in October 1993 by the DCF approach of about $2,000,000, after deducting an amount for income tax. That is what the claimants say has been taken from them, and that therefore is what they ask for, as a group, in compensation for the loss of the property.

[45]  The Crown says, in essence, that this estimate of future income was and is wildly optimistic. It is based on a number of assumptions taken from the 1993 mining season that are extremely unlikely, including the gold grade, the volume of mineable material, the rate of mining, and the mining costs. The discount rate is too low to adequately reflect the major risks involved in the analysis. In addition, there are several errors in the claimants' analysis, all of them favouring the claimants.

[46]  However the Crown objects to the use of a DCF approach for more fundamental reasons. Under section 32 of the Act, compensation for the market value of the interest in the property is based on what a willing purchaser and seller would agree as the sale price on the relevant date. In the market, buyers simply do not buy placer leases, or the rights to mine placer leases, on the basis of a DCF approach. They pay much smaller amounts. The Crown says that the Direct Comparison Approach using the prices actually paid for transfers of gold placer leases is a better method to estimate the market value of the claimant Eckervogt's interest. It also used the Income Approach on Eckervogt's royalty income assuming two different estimates of gold recovery and found that this approach supported the valuation by the Direct Comparison Approach when the relatively conservative estimate of gold was used.

3.2  Claimants' case

[47]  The claimants relied on two experts for valuation evidence. Randy Clarkson, a mining engineer, with New Era Engineering Corporation in Whitehorse was qualified by the board as an expert in placer mining, capable of expressing opinions on the average grade of the placer leases, the costs of this placer mining operation, the life expectancy of this mining operation, and the efficiency of placer mining operations. Toby Symes is an accountant and business valuator, operating Symes Valuation Services Ltd. in Vancouver. In addition, Michael McGillivray, a chartered accountant, provided evidence on TD's financial statements. Both Clarkson and Symes took the same approach to value, namely the DCF method. Symes adopted Clarkson's assumptions and estimates of volumes of mineable material, gold grades, mining rates and mining costs. The only difference between the two valuers was in the choice of gold prices to apply during the seven-year mining period. As a result, their final estimates of value were very similar. They also made somewhat different allocations of their final estimates of value between the three claimants.

3.2.1  Estimate of Amount of Gold

• Volume of mineable material

[48]  Clarkson had produced an initial report in 1995 based on a brief site visit in 1994. In 1998 he carried out extensive field work on the three subject leases that led him to revise his conclusions on the amount of mineable material. He determined as best he could the location of the claims, since some of the original claim posts were missing. He made 30 transects or cross-sections across the valley in order to map the valley in some detail and to estimate the area of mineable material. He described 17 different areas on the three claims in which he had formed the opinion that gold bearing material could be found and mined. Relying in part on the two geologists, Michael Milner and Stephen Morison, he decided that some of these areas of mineable material were not simply in valley-bottom alluvial gravels, but also in old stream beds and glacial tills extending 10 to 20 metres up the hillside on either side. He excluded the glacial tills that were further up the hillside. He applied a uniform depth of 3.3 metres (10.8 feet) to all the areas to which he attributed gold and estimated the volume of mineable material for each of the 17 areas that he had identified, which totalled together came to 688,375 cubic metres.

• Probability factor on volume of mineable material

[49]  Clarkson then assigned a "probability factor" of between 50% and 90% to each of the 17 areas that he had identified, with 50% probability being applied to those areas further up the hillsides that had not been tested or mined and 90% probability being applied to the gravels in the central channel. He multiplied the volume of material in each of the 17 areas by the assigned probability factor, which had the effect of reducing the volumes for each area, so that the overall total of estimated mineable material was now 504,156 cubic metres.

• Grade of gold

[50]  Clarkson used two grades of gold for the 17 different areas he had described. For areas that Clarkson decided were previously unworked, he used the grade that he estimated TD had encountered in its mining on the Middle Lease in 1993. The one certainty on which everyone agreed was that TD had recovered 26,023 grams (approximately 837 ounces) of gold. Clarkson reviewed the assays for this gold from Engelhard Canada Ltd. where most of the gold had been refined. These assays showed that the fineness or purity of the gold was an average of 84.4% and that the payout by the refinery was 98.5% of the gold. TD reported that this gold had been recovered in 22,975 cubic metres (30,050 cubic yards) of gravel measured by bucket count. However, bucket counts record a larger volume than material in the ground because the loose material swells. Clarkson applied a "swell" factor of 20% to the "loose" volume recorded in bucket counts. In addition, he recognized that some boulders would be too large to be included in the buckets transferred to the wash plant. He estimated that this would have the effect of reducing the volume in the ground by 10%. Taking these two factors together, he calculated the bucket counts at a volume 8% higher than in ground or "bank" volume (1.2 x 0.9 = 1.08). Clarkson calculated the average grade encountered by TD as the grams of gold recovered per bank or in ground volume of gravel multiplied by 84.4% for fineness and by 98.5% for the percentage payout or 1.02 grams per cubic metre. This grade was applied to all those areas that Clarkson concluded had not been mined recently.

[51]  Clarkson compared this grade with the grade found by TD on the six test holes carried out in late May and early June 1993. He converted Busat's grades measured by value to grams per cubic metre at a price for gold that Busat used of $500.00 per ounce. Using this price he obtained an average grade of 0.95 grams per cubic metre which he concluded was relatively close to TD's average grade encountered in mining of 1.02 grams per cubic metre.

[52]  Clarkson visited the site after it had been reclaimed and smoothed over; therefore he could not tell directly how much area had been mined. He relied on the advice of Martin Eckervogt, who pointed out an area about 200 metres long by 39 metres wide. When Clarkson multiplied this by what he reports being told was an average depth of 3.3 metres (10.8 feet), and subtracted the old stream bed, he stated that the resulting volume of in place gravels of 22,700 cubic metres, was fairly consistent with the 22,975 cubic metres that TD had recorded by bucket count (or 21,273 cubic metres bank or in ground volume).

[53]  Clarkson decided that much of the previous mining of the leases was likely to have been inefficient, and that there should still be significant gold quantities in what were in effect tailings, or residual gravels, from those operations. For those areas that he thought had been previously mined he assigned a grade that the miner Daniel Johnson told him he had encountered on the two leases below the Lower Lease that he had mined with Black Cliff-Menora in 1988 and 1989. These two leases had been mined by Terry Thompson, amongst others. Johnson reported average results of $5.50 per cubic yard of gravels washed. Clarkson converted this figure, using gold prices of the period ($494.76 per ounce) and an assumption of 80% recovery, into an estimate that grades of 0.57 grams per cubic metre could be recovered even from tailings.

[54]  In estimating the total volume of pay materials, Clarkson included certain areas of glacial till. He justified this on the basis of a test on till materials at a mine several kilometres further down the river (the Jerry Reid mine). Clarkson's tests found one fleck of gold 0.3 millimetres in diameter from this material, which he assumed would be similar to the areas of till he identified on the subject leases.

• Amount of gold

[55]  Clarkson applied what he thought was the appropriate grade, either 1.02 grams per cubic metre for relatively undisturbed material, or 0.57 grams per cubic metre for previously mined material, to the estimated volumes of mineable material (bank or in ground volume) in each of the 17 areas. After adjusting for the probability factor, he estimated that a total of 394 kilograms of gold could be recovered in the three claims.

• Gold price

[56]  For gold prices, Clarkson chose to use US dollar gold future contract prices as at the date of taking (when the gold price was $C484 per ounce) for the amount of gold that he estimated would be mined each year, converted to Canadian dollars at the October 1993 exchange rate. This resulted in the price per ounce rising from $484 per ounce in 1994 to $567 per ounce for 1998 through 2000. Symes also used US dollar gold future contract prices, but he converted them to Canadian currency based on currency future contract rate. His estimates for the gold price ranged from $491 per ounce in 1994 to $611 per ounce for 1999 and 2000. Clarkson estimated a gross value of $6,730,000 while Symes estimated a gross value of $7,026,000.

3.2.2  Mining Rate

[57]  Once Clarkson had decided on the locations and volumes of pay gravel he would use, and the grades of gold he would assume to be present, he then inserted these numbers into a DCF model. He imagined a mining plan that would see all the practically mineable gravels being mined over the following seven annual seasons. This was based on an assumption that mining would have continued throughout the leases at a rate of 88,000 cubic metres (loose volume) or 81,450 cubic metres (bank or in ground volume) per year.

[58]  The source for the estimate was TD's 1993 mining records. However it was based on a daily volume of 710 cubic metres (about 925 cubic yards) of loose material that was only achieved by TD in the last seven days of mining that year. Prior to that date TD had mined a much smaller amount - an average of 340 cubic yards of gravel per day on the first cut and 425 cubic yards of gravel per day on the second cut. In his most recent report Clarkson accepted Busat's evidence that this increase was due to a change in the screening mechanism of the wash plant and that any future mining on any of the three leases would be able to maintain this high rate. Clarkson also assumed that these 710 cubic metres of loose material would be sluiced on every one of 124 sluicing dates per season, although in 1993 TD had only sluiced a total of 72 days.

3.2.3  Mining Costs

[59]  Mining costs were calculated by Clarkson on the basis of TD's records, which had been classified into various headings. First Clarkson identified $312,147 of mining expenses. He then attempted to isolate the operating costs by deducting what he regarded as capital costs ($121,734) and one-time mobilization costs ($28,622) primarily related to the transportation of equipment. This left him with operating costs of $161,793. He decided that because TD spent the month of June on such items as camp set-up, road repair, and settling ponds then the costs of that month should not be regarded as ongoing operating costs for following years. As a result he reduced the operating expenses 25% on the basis of one month's costs out of four. This gave him $121,343 for what he regarded as recurring operating costs, to which he added an allowance for five days of annual start up costs ($9,975) and an allowance for equipment depreciation during the three month mining period ($36,265). He converted this total mining cost of $167,583 into a unit cost of $3.50 per cubic metre of bank or in ground volume mined, assuming that all ongoing mining would be on the basis of 710 cubic metres of mining material per day (657 cubic metres bank or in ground volume), the high rate achieved in the final week of mining. He did not think that any allowance was necessary for any extra operating expenses to maintain this high rate of mining for 124 sluicing days. He calculated the mining costs for each season by applying his relatively low unit cost assumption to the estimated volumes to be mined each year with a 2% annual increase in the costs for inflation.

3.2.4  Discount Rate and Taxes

[60]  Both Clarkson and Symes then discounted the net cash flows to 1993 at a discount rate of 15%. They explained this choice of discount factor somewhat differently. Clarkson expressed the rate in one report as being "8.5% plus a 6.5% risk factor", and in another as "10% plus a 5% risk factor". Symes preferred to say it was a matter of valuer's judgement, based on a variety of positive and negative factors that he identified, but did not attempt to quantify.

[61]  Symes provided the combined income and mining tax rate of 34%. Both Clarkson and Symes deducted 34% for taxes from the present value for each year.

3.2.5  Estimates of Market Value for each Claimant

[62]  Clarkson and Symes produced fairly similar valuations by the DCF approach. After corrections made during the hearing, Symes proposed approximately $2,150,000, with a range of $100,000 either way, and Clarkson proposed just over $2,000,000. Both Symes and Clarkson gave the opinion that a purchaser would pay these sums for the right to acquire this income stream at the end of 1993.

[63]  Clarkson allocated the total value among the three claimants by allocating the amount of mineable material and the associated mining costs on each claimant's interest in the relevant lease. The appropriate royalties are also attributed to Eckervogt. The income flow from each claimant's leasehold interest is discounted to the present value and reduced for taxes. This resulted in an approximate allocation of present value as follows:

Eckervogt		$ 732,000 (36%)
TD		$ 711,000 (35%)
Yates		$ 589,000 (29%)
Total		$2,032,000

Symes allocated the values similarly except that, instead of assuming all three interests were mined simultaneously, he assumed TD's interest was mined first, followed by Eckervogt's interest, and then Yates'. As a result of this assumption, discounting had an effect on the allocation of value as follows:

Eckervogt		$ 669,000 (31%)
TD		$ 891,000 (42%)
Yates		$ 586,000 (27%)
Total		$2,146,000

3.3  Crown's case

[64]  Valuation evidence for the Crown was provided by Ellen Hodos and James Hodos, both of Onstream Resource Managers, Inc. ("ORM") located in Carson City, Nevada. Ellen Hodos is a geologist and mining engineer, specializing in placer mines. In addition she has training and experience in mining appraisal, including placer mines. She contributed most of the technical opinion in the ORM report. James Hodos is also a geologist, with training and experience in mining appraisal. He was responsible for the collection and analysis of some comparable sales data used in the report. ORM has done a number of placer evaluations in Alaska for the National Parks Service. Richard Crosson, an accountant and business valuer, of Blair Crosson Voyer in Vancouver, provided rebuttal evidence with respect to the DCF analysis advanced by the claimants.

[65]  ORM provided some background information on the gold market and its inter-relation with gold mining. Gold is bought for both investment and industrial purposes. The price of gold is volatile, influenced by a large number of factors, including various investment factors such as the rate of inflation, interest rates, the strength of various currencies in relation to the US dollar, central bank sales, as well as such factors as mining costs (and the events that affect these in various parts of the world), and industrial demand. The timing of the fluctuations in the gold price cannot be predicted and thus anticipating gold prices creates a significant risk for gold miners. There is a general correlation between the price of gold and the number of placer mines held. The number of claims in British Columbia declined between 1990 and 1993 with the decrease in price of gold to $415 an ounce in 1991 and 1992, the lowest price in the period between 1986 and 1993. If gold prices fall below production costs, placer miners stop mining, or operate on a reduced scale.

[66]  Ellen Hodos considered a number of approaches to market value for the placer leases. The cost approach to value is not applicable as there is no mine plant to which it could be applied. In her opinion, the DCF approach or mine valuation approach, attempting to value future mine production, is not appropriate in this case because there are too many unknowns, including unknown reserves, to make a reasonably accurate forecast of income.

3.3.1 Income Approach

[67]  The Hodos attempted to value Heinz Eckervogt's interest in the leases with respect to his anticipated income stream from royalty. The income stream from royalty is somewhat less volatile than an income stream from mining since it is paid off the top whether the miner makes a profit or not.

[68]  The Hodos used two sets of assumptions. First (Case I) they used the assumptions for volume to be mined, grade, and price for gold that Clarkson had used in his first report in 1995, based on TD's experience. Secondly (Case II), they made the significantly more conservative assumption that the leases had only one more season of economic production, and that a similar volume and grade would have been achieved in that season as in 1993.

Case I

[69]  The Hodos started with Clarkson's estimate of volume of mineable material in his first report in 1995: 181,200 cubic metres. This was, of course, much lower than Clarkson's current estimate of volume of over 504,000 cubic metres. Using the grade that Clarkson reported in his 1995 report as to what TD had in fact obtained, a total production of 5,673.46 ounces of gold was estimated over the next five years. Assuming Clarkson's average gold price of $500 per ounce and an average royalty to the owner (from 1993 experience) of 11.62%, Ellen Hodos calculated the annual value of the royalty to the owner Eckervogt from TD at $65,926 per year.

[70]  The Hodos then calculated the net present value of Eckervogt's royalty income using their own customized Income Approach. This involved discounting the calculated royalty by 15% as well as assigning a declining probability to the income stream for each of the five years, reflecting the view that mining might stop any year. This calculation produced a net present value of the royalty income to Eckervogt of $144,905.

[71]  The Hodos then used the same assumptions and valued Eckervogt's interest in the royalty income by an income capitalization method that they said was found in the industry. Buyers of placer mines expect to recover the price within three years and will thus pay an amount based on a capitalization rate on net royalty income of one third or 33.3%. This yielded an estimate of market value of the royalty income to Eckervogt of $197,798.

[72]  The Hodos used the same assumptions and valued Eckervogt's interest as a percentage of the gross income from the estimated gold production by another method called the "Schmidt" valuation: an approach that was described to them by Stuart Schmidt, a Yukon miner with long experience in trading leases. Schmidt reported valuing leases at between 3 and 5% of the total estimated recoverable gold. Using the mid-point of 4% and assuming the same gold price of $500 an ounce, this yielded an estimate of market value to the owner based on the income from the estimated gold production of $113,469.

Case II.

[73]  The second set of assumptions was based on one more production year on the leases. The amount of mineable material was assumed to be 25,000 cubic yards (19,114 cubic metres) which is somewhat less than what TD reported that he mined in 1993, at 30,050 cubic yards (measured by bucket count). The same grade was used as in Case I and the gold price was now assumed to be $483.61 per ounce, which is what it was on October 15, 1993. These assumptions yielded a gold recovery of 581 ounces, worth $280,977. The value of the royalty to the owner Eckervogt, assuming the same average royalty of 11.62% as was achieved in 1993, would be $32,650.

[74]  The Hodos then calculated the net present value of this royalty income, this time using a discount rate of 30% and a probability factor of 50%, again reflecting the view that mining might not occur. This produced a present value of the royalty income to Eckervogt of $12,554.

[75]  The Hodos applied the Schmidt method to these new factual assumptions and obtained a market value to Eckervogt based on the income from the estimated gold production of $11,239. The income capitalization method was not used, apparently because only one year of mining was anticipated in this model.

3.3.2  Direct Comparison Approach

[76]  The Hodos also examined a number of transfers of placer leases, including the subject leases, and used the Direct Comparison Approach to estimate the value of the three leases owned by Eckervogt. The Lower Lease had been sold in 1978 for $2,500. In 1987 it had been sold to the claimant Eckervogt for $30,000. The Middle Lease had been sold to the claimant Eckervogt in 1980 for $32,000.

[77]  James Hodos provided details of nine other sales of placer mines in the Cariboo area of British Columbia between 1991 and 1993. These ranged from $250 to $70,000, with these two prices at either end of the range being for a half interest in a placer claim. He chose four lease sales that he thought were most similar to the subject leases. The sale prices for these four leases ranged from $2,500 to $6,895 for one placer lease, with what he regarded as the most similar lease, selling for $5,000. After consideration of these four sales he concluded a value of $4,500 per lease or $13,500 for the three placer leases.

[78]  The Hodos also estimated a market value from Alaskan sales information. The sale prices of Alaskan properties were provided in summary form per acre and per ounce of anecdotal or proven reserve gold. The average sale price derived from 11 sales in 1992-1993 was $US115,000 for a generally larger lease than the subject leases. Since the size of the subject leases was somewhat uncertain and there was only information on the average size of the Alaskan sales, the Hodos used the average price of $US1.59 per anecdotal ounce of gold recorded for 11 sales in 1992 - 1993, averaging 457 acres per sale. This price was some 50% lower than what had been reported for 11 sales in 1990 - 1991. Converting this price to Canadian dollars as of October 15, 1993, a market value for the three placer leases of $11,965 was derived, assuming the 5,673.46 ounces of gold in the Case I situation described above, or $1,125, assuming the 581 ounces of gold in the Case II situation.

3.3.3  Critique of the Claimants' DCF Approach

[79]  The Crown did not favour the DCF approach and introduced expert evidence from Richard Crosson, an accountant and business valuer, to rebut the claimants' evidence advanced by Clarkson and Symes. Crosson questioned the use of the DCF approach as a means of measuring the market value of the subject leases on two main bases:

i	the DCF approach is only a valid measure of market value where it is an approach that is used by real buyers in a real market. Clarkson and Symes did not provide any evidence that this was the case.
ii	the DCF approach can only be used where the risk attached to the projected cash flow is measurable. Crosson casts doubt on a number of the assumptions made by Clarkson and Symes in their DCF analyses and as a result says the assumptions are subject to significant estimation error. There are also a number of mistakes in their analyses, all of them increasing the claimants' final valuation.

Those assumptions which Crosson questioned are set out below. Not being himself a mining engineer or geologist, Crosson did not attempt his own estimate of the volume or grades of mineable material.

• Grade of gold

[80]  Crosson noted that Clarkson's original calculation of grade in his 1999 report contained an error in the average fineness factor obtained from the Englehard refinery receipts, which when corrected reduced the grade obtained by TD. Clarkson acknowledged this error and the grade advanced by him at the hearing contained this correction. 

• Gold price

[81]  Crosson criticized the use, by both Symes and Clarkson, of gold future contract prices. He described this as being wrong in principle, in that gold future prices at any date are not predictions of the price of gold at future dates, but rather reflect the investment interest rates over the time period of the contract or the time value of money. Thus, the use of future contract prices will improperly inflate the apparent value of the income flow. In Crosson's opinion the appropriate gold prices to use in a DCF calculation are the current spot market or cash values at the valuation date of October 15, 1993.

• Mining rate

[82]  Crosson felt that Clarkson was too optimistic using an assumption of 124 sluicing days per year and a daily volume of 710 cubic metres of gravel processed, for a total of 88,000 cubic metres (loose volume) per year. Crosson thought that an analysis of TD's time sheets only justified an assumption of 95 sluicing days per year out of a total of 106 operating days. He pointed out that while Clarkson had measured mineable volumes and gold recoveries on bank or in ground volume, he measured daily production on loose volume. This means that the daily production volume of 710 cubic metres was overstated by approximately 8%. He also considered that it was more representative for mining rates to be based on an average rate for the season, rather than solely on the final seven days, especially when those days resulted in a low recovery grade of gold. This resulted in a figure of 339 cubic metres (bank or in ground volume) per sluicing day, for a total of 32,000 cubic metres (bank or in ground volume) per year. Crosson noted that these were reasonable estimates for TD to achieve, based on its 1993 experience, but would not necessarily be rates that Yates or Eckervogt or a prospective purchaser might have been able to achieve.

• Mining costs

[83]  In Crosson's opinion the analysis of unit operating costs as presented by Clarkson (and adopted by Symes) was flawed. He disagreed with the reduction of the operating costs by 25% on the basis that all of the costs incurred in June were "one-time" costs. The time sheets for June recorded activities such as stripping, road-work, and settling ponds some of which would recur with respect to further mining on the other leases in future years. In addition the costs included nothing for the labour of Douglas and Carol Busat when the time sheets indicated that they had worked on site for 109 and 98 days respectively. Crosson also thought that it was unreasonable to expect operating costs (that were largely labour and machine operating costs) to remain fixed, while the volumes increased substantially. He had also noted that the unit costs were calculated on the basis of the 710 cubic metres of loose volume per day rather than on bank or in ground volume, a point that Clarkson conceded. Crosson calculated what was, in his opinion, a more reasonable unit operating cost by taking the midway point between the operating costs for a low range based on three months and for a high range based on four months. He added the costs of Douglas Busat and Carol Busat at $400 and $200 per day respectively for the appropriate number of days to the operating costs for three months or for four months and then divided by the appropriate volume of material mined in each period. This resulted in a figure of $8.85 per cubic metre excluding all consideration of capital costs, start up costs, exploration costs and mobilization costs.

[84]  Crosson observed that Clarkson had incorrectly included an allowance for capital depreciation in the DCF analysis. Both Clarkson and Symes had also ignored the up front capital costs of $647,000 for equipment, presumably in part because of the implicit assumption that TD would continue to do the mining. He agreed with Symes that the allowance for capital depreciation could be treated as a sustaining capital reinvestment; but if this was done it should be treated as a somewhat higher annual cost rather than as part of the unit mining cost.

• Discount rate

[85]  Crosson reserved some of his strongest criticism for Clarkson's and Symes' choice of a 15% discount rate. He observed that there was no attempt by either witness to demonstrate any market evidence for this percentage. Neither was there any analysis to support a built up rate consisting of a risk free rate for the time value of money (for the fact that the income stream would be received in the future) and a risk premium based on an assessment of the risk inherent in the projected cash flow. While Symes listed a number of positive and negative factors that he considered in arriving at his opinion that a 15% discount rate was appropriate, Crosson undermined a number of the alleged positive factors. In Crosson's opinion the prospective cash flows in the situation envisaged by the claimants had to be treated as speculative, in which case discount rates considerably higher than 15% would apply. He went further and said that, in his opinion, the risk in these cash flows was not determinable with sufficient certainty to develop any useful discount rate. Under such circumstances, one should not use the DCF approach at all.

• Allocation of value

[86]  Finally, Crosson criticized the way that Clarkson and Symes proposed to allocate the resulting value between the three claimants. He pointed out that the analyses treat the three leases as if they were under a single operator, TD, with costs based on the use of TD's equipment and Busat's experience. Neither Yates nor Eckervogt are assumed to have any costs in exploration, start-up costs, or equipment to mine their share of the leases. This, he argues, necessarily results in those interests being overstated.

• Alternative DCF valuation

[87]  On instructions from counsel, Crosson then presented what he called a "sensitivity" calculation, in which he used the same DCF model as the claimants, but inserted more pessimistic input assumptions for a few items such as annual volume mined and mining costs which he felt were better justified by the evidence. He maintained most of the other assumptions used by Clarkson including the total volume of mineable material, gold grade and even the 15% discount rate. Crosson also used the same model and showed the effect on the valuation by varying the discount rate and/or the amount of material to be mined per season.

3.3.4  Estimate of Market Value for each of the Claimants

[88]  There was a range of value by the Income Approach of $113,469 to $197,798 under the assumptions for Case I, and $11,239 to $12,554 under the assumptions for Case II. Using the Direct Comparison Approach, the four closest transactions provided a value of $4,500 for each lease or $13,500 for the three leases. Prior sales of the subject suggested a maximum market value of $96,000 for the three leases. Alaskan sales of placer leases suggested $11,965 based on 5,673.46 ounces of gold in Case I and $1,125 based on 581 ounces of gold in Case II.

[89]  The Hodos rejected the high values obtained using the Income Approach based on the assumptions in Case I on the basis that there was no market support for this range of values. In their survey of nine transfers of British Columbia placer leases, the highest price paid was $70,000 per lease, where exploration supported significant quantities of gold. The subject leases had not been similarly explored and, in their opinion, the market heavily discounts speculative projections of gold. Relying solely on the Direct Comparison Approach, they concluded a market value for Eckervogt's interest in the three leases as $13,500, a figure which was supported by the Income Approach based on the more pessimistic assumptions in Case II.

[90]  The Hodos stated that TD's interest as lessee of part of the Middle Lease and the Upper Lease had no market value. The contract rent averaged 11.5% royalty in 1993. In the Hodos opinion, the market rent for the right to mine was 10% royalty based on a survey of British Columbia and Yukon lease holders, operators, and publicly traded companies. If the contract rent was greater than market rent, then the lessee's interest in the agreement to mine had no market value. In any event, TD's financial statements and income tax returns for 1993 show that no profit was made. Although the Hodos did not value Yates' interest, the Crown took the position that for the same reasons Yates interest as lessee of the Lower Lease had no market value.

3.4  Discussion 

3.4.1  Interests to be Valued

[91]  Sections 31 and 32 of the Act require us to value interests in land as follows:

31 (1) The board must award as compensation to an owner the market value of the owner's estate or interest in the expropriated land plus reasonable damages for disturbance …

 … 

(3) If there is more than one separate interest in the land expropriated, the value of each interest must, if practical, be established separately.

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.

[92]  The first question to be addressed in this valuation is the claimants' interests that are to be valued. The Act requires us to attempt to value the three claimant's legal interests in the subject leases separately. Eckervogt is the owner of the placer leases, subject to their expiry in 1998 and 2002. However, but for the expropriation, we assume Eckervogt's interest, or any purchaser of one or more of those interests, would have been successful in applying for the continued extension of the lease(s) as had been done in the past. Eckervogt had an unencumbered right to the upper portion of the Middle Lease. He also had the right to receive royalties under the two agreements to mine he had signed with Yates and TD as long as Yates and TD continued to mine. Yates and TD's interests were only through their respective agreements to mine, for five years and three years respectively, with options to renew for a further three years in each case. These legal interests must be valued under section 32 on the basis of what a willing and prudent purchaser and seller of the interest would agree on as a transfer price. While Eckervogt did own all three placer leases and might sell his interest in the three leases collectively or separately, the two agreements to mine were with different claimants and were for separate leases and should not be treated collectively. We agree with the Crown that, given these circumstances, the claimants' implied assumption in the DCF approach that the three leases would all be mined by the same miner is inappropriate.

3.4.2  DCF approach 

3.4.2.1  Legal Authorities

[93]  The claimants referred us to two British Columbia cases where the DCF approach to valuation had been upheld by the courts. In Shell Canada Resources Ltd. v. British Columbia (Assessor of Area No. 22 East Kootenay) (1987), 21 B.C.L.R. (2d) 22 (B.C.S.C.) Spencer J. stated that the DCF approach is an acceptable way of valuing an industrial undertaking such as the subject coal mining operation where there was appropriate evidence. However, we note that Spencer J. went on to hold that since the requisite information to apply this approach was not available to the assessor (or the hypothetical purchaser) at the valuation date, the DCF approach could not, as a matter of law, be used as the valuation method in that case. In Re MacMillan Bloedel Ltd. and the Queen in Right of British Columbia (1995), 56 L.C.R. 81 (B.C.C.A.) the Court of Appeal upheld the arbitration board's decision to value the timber licenses that had been expropriated by the DCF method. In that case both valuators had valued the timber licenses on the DCF approach. What was being valued was the income that would be derived from the harvesting of the timber on the expropriated license. In our opinion, the valuation of an income stream from harvesting timber is a very different exercise than the one presented for this placer gold mining operation, because there is so much more certainty in the evidence on such factors as the amount of the resource, the rate of harvesting, and the costs of harvesting.

[94]  The use of the DCF approach to valuation of properties with mineral resources has been thoroughly canvassed in two decisions of this board: Casamiro Resource Corp v British Columbia (1993), 50 L.C.R. 99; affd 70 L.C.R. 81 (B.C.C.A.) and Premanco Industries Ltd. v. British Columbia (Ministry of Environment, Lands and Parks) (2000), 71 L.C.R. 6; leave to appeal to B.C.C.A. refused, (2001), 72 L.C.R. 1 (B.C.C.A.). We adopt the analyses in these two cases as to the requirements for the appropriate use of the DCF approach and provide only a brief summary of the relevant principles. As stated in the board decision in Casamiro, the DCF approach is grounded on there being proven or probable mineral reserves. While there are a number of factors that feed into the DCF approach for which there must be some level of certainty, the amount of known mineral resource is the starting point. Casamiro also referred to comments on the volatility in market value in the DCF approach as a result of relatively minor variations in assumptions for such items as mineral price, mining costs, or discount rates. This board's decision to reject the DCF approach in Casamiro on the grounds that the evidence on mineral resources was too speculative was upheld by the Court of Appeal since argument in the present case concluded.

[95]  Similarly, in Premanco this board followed Casamiro and decided that the DCF approach was not suitable for valuing the mineral resource in that case. Again the primary problem was a lack of established mineral reserves. In addition, a number of authorities were cited that discussed the problem of volatility in the DCF approach. In Sequoia Springs West Development Corp. v. British Columbia (Minister of Transportation and Highways) (2000), 69 L.C.R. 1 (B.C.E.C.B.), for example, this board commented at para 53 that because of the volatility inherent in the discounting method in the Development Approach, a methodology in the appraisal of land that is similar to the DCF approach, "the Direct Comparison Approach is to be preferred except where there is insufficient evidence to support a comparative approach". The board in Premanco went on to note that the volatility associated with the DCF Approach was magnified in an arbitration setting such as this, where the constraints provided by the real market place are lacking. In such situations, valuers have a natural tendency to put forward opinions undependably high or undependably low. See the reference to Clinker & Ash v. Southern Gas Board (1967), Digest of Cases 533, (English Lands Tribunal). As indicated above the Court of Appeal has refused leave to appeal the board's decision in Premanco, one of the grounds for appeal being the board's rejection of the DCF approach.

[96]  The claimants in this case sought to distinguish their case from Casamiro on the basis that at the time of expropriation TD was engaged in an operating mine with recorded gold production and mining costs. It is true that TD was operating a placer mining operation on the Middle Lease in 1993 that recovered 26 kilograms (about 837 ounces) of gold. We accept that, but for the expropriation, TD would in all probability have returned to continue mining on the Middle and Upper Lease for some further period. TD's time sheets do provide some basis for estimating assumptions such as the mining costs used in the DCF approach. In this respect, the subject leases present a somewhat different factual situation than that in Casamiro and Premanco where there was no operating mine in effect at the date of the expropriation.

[97]  However, despite TD's mining operation, there continues to be considerable uncertainty with respect to the income stream that might be generated from any of the leases. As indicated in Shell Canada Resources, the DCF approach can only be used where there is appropriate evidence available to the hypothetical purchaser on the valuation date. Casamiro and Premanco make clear that the amount of established mineral reserve is a key evidentiary requirement for use of the DCF approach. In addition, the DCF approach can only be justified if it is an approach that is used in the market place as set out in section 32; the valuation must be one that a hypothetical willing purchaser and vendor of the interest would agree to pay.

3.4.2.2  Estimate of Amount of Gold

[98]  All of the miners and experts agreed that placer mining was inherently variable with patches where little or no gold was found and others where the gold recovery was high. TD's records of gold recovery for 1993 showed variable grades of gold at different times, and Busat attributed this to hot spots and cold spots in the gravels he was mining. Because of this variability, testing in one area is not necessarily indicative of grades to be found elsewhere on the leases. As we indicated above, placer mining is different from hard rock mining in this respect.

[99]  In placer mining, the amount of gold is estimated from the grade of gold and the volumes of mineable material. In this case the only actual testing we have is TD's six test holes done on the Middle Lease in May/June 1993. These tests showed a variation between $7.50 and $18.00 per cubic yard that Clarkson translated into grades that fell between 0.61 and 1.47 grams per cubic metre, with the lowest grade of 0.61 being for the test on the North Fork. The average grade was 0.95 grams per cubic metre. TD presumably used the tests when it decided where to mine in 1993 and although it is not clear exactly where TD did mine, it would appear that the locations around at least three of those test holes have now been mined over.

• Gold grade

[100]  The only other evidence of gold grade that we have is from TD's mining experience on the Middle Lease in 1993. Clarkson's revised estimate of TD's average grade based on the amount of gold recovered from the volume of gravel as measured by bucket counts recorded on TD's time sheets, adjusted for bank or in ground volume and boulders as set out above, was 1.02 grams per cubic metre. However, there was considerable controversy in the evidence as to whether the total volume of gravel mined by TD to recover the agreed amount of gold was in fact much larger. If the volume of gravel in place was actually larger than Clarkson assumed, as some of the evidence suggests, then the average grade of gold estimated by Clarkson would be lower.

• Volume mined in 1993

[101]  While the bucket counts recorded a total of 22,975 cubic metres of loose material (21,273 cubic metres of bank or in ground volume) that were sluiced, TD completed a Notice of Completion of Work, filed with the Ministry of Energy, Mines and Petroleum Resources on October 26, 1993, shortly after quitting the subject leases, indicating more than twice this, at 50,000 cubic metres of material, were mined. After reclamation, both the claimant's witness, Clarkson, and the Crown's witness, Levson, visited the site separately and relied on Martin Eckervogt and Douglas Busat, respectively, to point out to them the area of mining in 1993. Clarkson's measurements resulted in a strip approximately 200 metres long while Levson measured a strip approximately 330 metres long. Both agreed to a width of about 39 metres and a depth somewhat over 3 metres. The volume of in place gravels that were mined as calculated by Clarkson was 22,700 cubic metres (after subtracting a volume for the stream bed), while Levson's volume was twice as much, at 45,000 cubic metres. (In fact, using Clarkson's stated measurements we calculate the in place volume to be 25,700 cubic metres minus 2,000 cubic metres for the stream channel or 23,700 cubic metres).

[102]  The testimony of Martin Eckervogt and Douglas Busat as to their recollections of where the mining had occurred, tends to support a volume of approximately 30,000 cubic metres. Martin Eckervogt stated that the excavations started below the lower cabin, in an area where the two roads intersected. The first cut ended at a point near the upper cabin, perhaps a little upstream. The second cut started about 20 metres further upstream and continued past the upper cabin to close to the confluence with the North Fork. Douglas Busat said that the first cut started downstream from the lower cabin near where an area of bedrock was exposed and ended near the upper cabin. The second cut started upstream from the first and continued approximately 91 metres (300 feet) past the upper cabin. On her site visit, the Crown's witness, Ellen Hodos, measured the distance from the lower cabin to the upper cabin as 145 metres and the distance from the upper cabin to the confluence with the North Fork as 105 metres. Assuming the mining started some 50 metres downstream of the lower cabin, using the evidence of these three witnesses, the two swathes appear to average about 210 metres in length. Assuming the width was 39 metres and the average depth was 12 feet or 3.7 metres, as reported by Busat and Martin Eckervogt, an approximate volume of mined material is about 30,000 cubic metres. Again, TD filed a Notice of Completion of Work in October 1993 saying that the area mined (not including testing, settling ponds, or the campsite) was 11,000 square metres. At an average depth of 12 feet or 3.7 metres this calculates into a volume mined of 40,700 cubic metres.

[103]  Although Busat stated that, in his view, the most accurate measure of volume mined was bucket count, we heard evidence from the Crown's witness Levson that miners are commonly imprecise about bucket counts. Even if TD's operators were methodical in recording the bucket counts, bucket loads are in practice very variable in size, and they necessarily have to exclude all boulders that are too large for the machinery, a fact that may not be accurately reflected in Clarkson's 10% allowance for boulders.

[104]  Reviewing all of this evidence suggests to the board that Clarkson's volume estimate of the in place gravels that were mined in 1993 at 21,273 cubic metres based on adjusted bucket count was likely too low. There is evidence from Levson, Busat, and Eckervogt that supports volumes that are higher than this. This volume was the basis for Clarkson's estimate of the grade of 1.02 grams per cubic metre and therefore, in our opinion, the actual grade achieved by TD in 1993 was probably lower.

• Volumes of mineable material

[105]  Clarkson ascribed his estimate of TD's grade of 1.02 grams per cubic metre to all areas of the leases that he assumed were unmined, approximately 48% of the total estimated volume of mineable material. He then used 0.57 grams per cubic metre, the grade reported by the miner, Daniel Johnson, on the two leases below the subject leases in 1988 and 1989, for all the areas that Clarkson assumed were tailings, approximately 52% of the total estimated volume. As set out above, the volumes of mineable material in the different areas estimated and described by Clarkson had been reduced by a probability factor, with the greater reduction for those areas further up the hillside where there had been no testing or mining to date. However, this was a factor to adjust for overestimates of volume rather than grades. These two grades, one derived from TD and one from Johnson, were applied to large volumes of material estimated by Clarkson from his field work. Some of these areas of mineable material that were assigned a grade of 1.02 grams per cubic metre included areas that had traditionally never been mined in Squaw Creek: benches and limits of the channel some 15 or 20 metres up the hillside from the valley bottom. This grade of 1.02 grams per cubic metre was also applied to areas of the Upper Lease on the North Fork, both above and below the falls, where mining conditions were reported to be relatively difficult.

[106]  Thus the total of 394 kilograms of gold that Clarkson estimated would be recovered has been estimated from the application of two grades, one from an area of the valley floor in the Middle Lease already mined by TD and one from the two leases downstream of the subject leases. There is virtually no testing providing any basis for this uniform application of the two grades to the large estimations of mineable material, although everyone agrees that placer mining is very variable. We note that this total gold recovery of 394 kilograms has more than doubled from a total of 176 kilograms that Clarkson estimated in his first report in 1995. This significant increase in the amount of projected gold was justified by Clarkson on his more detailed mapping of the site in 1998 with the resulting increase in volume of mineable material from 181,247 to 504,156 cubic metres, an increase that is close to three times. The claimants submitted that if they had been allowed to carry out testing on the subject leases after the expropriation they could have been more certain in their projections of mineable gold. Any uncertainty in the projections for the amount of gold, they argued, should be interpreted to the benefit of the claimants since the Crown had denied them the opportunity to do any further testing.

[107]  However, under section 32 of the Act we must estimate the market value that would have been paid by a purchaser, not the potential gold that might have been mined. A purchaser in October 1993 would not have had the benefit of Clarkson's information. A purchaser of one or more of the leases may have done some testing on the site, as Busat did. While testing of the subject leases was precluded after expropriation for a park, it is unlikely, in our view, that a prospective purchaser would have carried out much more extensive testing than the type of testing already done by TD on the Middle Lease. There was considerable evidence at the hearing about how thorough and business-like Busat and TD were in their testing and mining on the Middle Lease. It is very unlikely that a prospective purchaser would have hired a mining engineer or a geologist to do five or six days of field work on the site to prepare detailed mapping. The prudent purchaser would have bought one or more of the leases on the basis of information ascertainable at the time; namely, the gold mining history as recorded in the Gold Commissioners office and government reports, any information that could be obtained from Eckervogt and/or TD and Yates, together with any further testing carried out by the purchaser, similar to what TD had done in early 1993. We also note that since argument in this case concluded, the Court of Appeal in Casamiro and this board in Premanco have rejected claims for an adverse inference on the Crown's refusal to allow further testing.

[108]  Given the considerable uncertainty in the evidence on both the grade obtained by TD and on the volume of mineable material, together with the inherent variability of placer mining, the evidence is far short of showing established reserves of gold on the subject leases in 1993.

3.4.2.3  Use in the Market Place

[109]  The evidence established that prices paid for placer leases in Squaw Creek and in the Cariboo appeared to range between zero or a relatively nominal $250 and $140,000. Many of the prices were under $50,000. Between 1990 and 1993 the statistical information on the sale of Alaska placer mines indicated an average sale price between $US70,000 and $US115,000 ($C92,800 and $C152,500). The board recognizes that placer mines are variable and that each turns on its own characteristics, such as accessibility, mining history, both on the lease and more generally in the surrounding area, and what gold testing on the site might reveal. However, in our opinion, these prices, some of them for leases on Squaw Creek, including the subject leases, indicate that actual buyers in the market place are prepared to pay only relatively modest amounts for placer leases. We can only conclude that buyers of placer leases place little or no faith in DCF projections such as those made by the claimants.

3.4.2.4  Volatility

[110]  In any event, we note Crosson's demonstration of volatility in the DCF approach. Crosson used the same DCF model as Clarkson and for this exercise used Clarkson's total estimate of the amount of mineral resource by using Clarkson's estimates on the volume of mineable material and the grade of gold. He also used Clarkson's discount rate. However, Crosson changed the assumptions on the amount of material that would be mined each season and an aspect of the mining costs, to amounts that he felt were better justified by the evidence as set out in section 3.3.3 above. He also factored in Clarkson's estimate of the value of TD's equipment. Changes on these factors alone, even at the low discount rate of 15%, caused a change in the market valuation from over $2,000,000 to a negative value of minus $405,000, before tax. Crosson used the same model and showed the effect on the present market valuation of changes in the discount rate and/or the amount of material that would be mined per season. A single change in the discount rate from 15% to 20% assuming that the amount mined per season was 88,000 cubic metres, as claimed by the claimants, caused the pretax present valuation to fall from $403,000 to $259,000 or 36%. A change only in the amount mined per season from 88,000 cubic metres as claimed by the claimants to 80,000 cubic metres, keeping the discount rate of 15%, resulted in a drop in the pretax present valuation from $403,000 to $302,000 or 25%. These significant changes in value by the substitution of a small change in a single factor or in a few factors makes obvious the unreliability of the DCF approach.

3.4.2.5  Conclusion on DCF Approach

[111]  Although there was a gold placer mining operation in place on the Middle Lease in 1993, there was no established reserve on the rest of the subject leases in 1993 from which a stream of income was reasonably predictable. In any event, we agree with the Crown that the DCF approach is not one that appears to be used by actual buyers of placer leases in the market place. It is also an approach that Crosson has demonstrated to be very vulnerable to major oscillations in the final value by relatively small changes in a few factors. As a result, we conclude that the DCF approach is inappropriate for the valuation of these placer leases. We are further supported in this conclusion by a detailed analysis of a number of the other assumptions and estimates which underlie the claimants' use of the DCF approach as set out below.

3.4.2.6  Other Assumptions and Estimates in the DCF Approach

• Gold price

[112]  We find the Crown's evidence on gold price for the seven years following expropriation persuasive. Gold future contract prices reflect the time value of money and therefore will tend to overstate the price that gold is actually expected to fetch at the specified date in the future. As a result, we agree that the gold future contract price should not have been used in the calculation.

• Mining rate

[113]  In a DCF calculation, the rate of production of income is an important assumption, as a longer mining period will reduce the present value, potentially to uneconomic levels. Crosson demonstrated this in his sensitivity calculation, when substitution of Clarkson's mining rate to one that Crosson thought was more reasonable given the evidence (as well as changes in mining costs) produced a negative present value.

[114]  Clarkson's assumption was that a daily volume of 710 cubic metres of gravel would be mined on 124 sluicing days each season, even though TD had averaged only 366 cubic metres per day in 72 sluicing days in 1993. Clarkson's assumptions resulted in an annual mining rate of 88,000 cubic metres of gravel, an increase close to three times the annual volume estimated in his 1995 report of 32,200 cubic metres. Crosson correctly pointed out that the mining rate should be expressed in bank or in ground volume rather than loose volume.

[115]  We agree with Crosson that an analysis of the work detailed on the time sheets suggests that time was spent on non-operating activities such as hauling in equipment and repairing the road and on operating activities such as building settling ponds and stripping the ground, as well as actual sluicing of gravels. Although the amount of non-operating start-up work for TD would be less in succeeding years, a number of activities in the time sheets such as further road work, constructing settling ponds, and reclamation work would continue. Further TD took a few days off site at the end of every month in 1993 and did not even work 124 days between May 18 and September 30, a season that is limited by weather conditions.

[116]  We are also reluctant to accept the daily volume of 710 cubic metres of gravel when this rate was only achieved for the final seven days of mining in 1993, at the same time as the gold grade dropped dramatically. Although TD may have improved its screening process, we also heard evidence that the presence of large boulders on Squaw Creek slowed the rate of mining. The conditions on the North Fork were worse in this respect than Squaw Creek. Busat attempted to support this high volume by suggesting that production rates could have been improved by adding a conveyer belt or operating double shifts. However, we note that TD did not, in fact, purchase a conveyer belt until 1999 and has not yet used double shifting in its new mining operations.

[117]  In the end, we conclude that Clarkson's mining rate assumptions were too optimistic.

• Mining costs

[118]  Clarkson's estimate of unit mining costs after adjustment for bank or in ground volume was $3.50, a decrease of 58% from the unit cost in his 1995 report of $6.05. Crosson again was able to show how sensitive the DCF approach was to mining costs since changes in Clarkson's assumption (together with a change in mining rate) produced a negative present value.

[119]  Clarkson reduced TD's mining costs 25% on the grounds that June was spent on start up costs that would not be needed in subsequent years. As we have already indicated a review of the time sheets shows that some of the activities that were done in June would continue in subsequent years. After reviewing the financial statements we also note that over $100,000 of expenses that were initially treated as repair and maintenance expenses were reallocated by Clarkson to capital expenses. There were also some general expenses that were likely at least partly attributable to the mining operation that were omitted. While we did not have detailed evidence on individual expenses, in our opinion, Clarkson appears to have minimized the operating expenses to some degree. At the same time Clarkson made no allowance for any increase in costs, which were primarily labour and equipment operating costs, although he assumed that the mining rate would more than double. In our view this is unrealistic. Finally, we agree with Crosson that the capital cost of the equipment estimated at $647,000 should be properly considered, as should the labour of Carol Busat and Douglas Busat. We note that in TD's claim for accelerated prospecting expenses, Douglas Busat's time is charged and yet it was omitted from the mining costs for the DCF analysis.

[120]  In our view, Clarkson's mining costs were significantly underestimated.

• Discount rate

[121]  The board agrees with the Crown's observation that the discount rate of 15% used by the claimants' experts is simply unsupported by any market evidence and that this choice appears to contribute to a significant overvaluation of the property. Given the uncertainties involved in the price for gold, as well as the estimates for the grade of gold, volume of mineable material, mining rate, and mining costs, the risks to the income stream support a significantly higher discount rate than 15%. Indeed, we are persuaded by Crosson's opinion that the cash flows are so speculative that a determination of the risk factors is uncertain enough that the DCF approach should not be used.

[122]  Thus, the board finds that none of the factors inputted into the DCF model used by Clarkson or Symes stands up to scrutiny. We also note that the assumptions of mining rate and mining costs are estimated as if TD would continue mining all three leases. As already indicated this is an inappropriate assumption. We are further confirmed in our conclusion that the DCF approach should not be used to value the subject leases.

3.4.3.  Income Approach

[123]  Having rejected the DCF approach, we must value Eckervogt's interests in the leases from other evidence that we received. Eckervogt's interests in the leases were partly encumbered by the agreements to mine from which he had the right to be paid royalties. During 1993 Eckervogt received 3,025 grams of gold from the Middle Lease which, at $484 per ounce ($15.57 per gram) in October 1993, was worth approximately $47,100. We accept the evidence from the Hodos that a valuation based on royalty income was more stable than a valuation based on a stream of income from gold production because the royalty income is paid off first and is not affected by the miners' costs.

[124]  The Hodos used the Income Approach to value Eckervogt's interest in the leases through his projected income stream from royalties. They used two sets of assumptions:

Case I	181,200 cubic metres (about 237,000 cubic yards) of mineable material with a gold grade of 0.99 grams per cubic metre (0.028 ounces per cubic yard) mined over five years, discounted at 15%, as well as a declining probability in each year, yielded a value of $144,905.
Case II	19,114 cubic metres (25,000 cubic yards) with the same gold grade mined over one year discounted at 30%, as well as a probability factor of 50%, yielded a value of $12,554.

[125]  The Hodos concluded that the present valuation in Case II of $12,554 supported their valuation based on the Direct Comparison Approach. In the board's opinion, the assumptions in Case II are overly pessimistic. The volume mined is assumed to be 20% smaller than the volume actually mined by TD in 1993; the other assumptions include a discount rate of 30% as well as a 50% probability factor that the mining would not occur. Based on the mining agreements actually in place in October 1993, we think that it is reasonable for a potential purchaser to assume that TD would have returned to mine on the Middle Lease as it had in 1993, with somewhat increased annual volumes. We note that Busat did not do any testing on the benches further up the hillside nor in any areas of till in 1993 and we do not think that a reasonable purchaser would have relied on TD mining those areas, despite Busat's testimony to the contrary. Busat testified that in order to finish mining "rim to rim" on the valley floor there was room for two more cuts or swathes with one of them being wider than the two done in 1993. There was also the area where the settling ponds were located. Assuming that TD had mined approximately 30,000 cubic metres in 1993, in our opinion a purchaser of Eckervogt's interest might make a conservative estimate that approximately two thirds of the valley bottom gravels, or 60,000 cubic metres in the area covered by the agreement to mine, remained to be mined. Although we have indicated above that a purchaser would be unlikely to have the information on volumes derived from Clarkson, we do note that his estimate of a total of approximately 95,000 cubic metres in the valley bottom on this section of the Middle Lease is relatively consistent with the estimate of 60,000 cubic metres remaining to be mined. Assuming the same average grade found by TD on its six test holes on the Middle Lease, 0.95 grams per cubic metre, gold recovery would be approximately 57,000 grams. Assuming again conservatively that this volume would be mined over two years with the same 11.62% royalty, the annual royalty income to the owner of the leases in each of the two years would be $51,563 at the gold price in October 1993 of $484 per ounce ($15.57 per gram).

[126]  Using the Hodos' assumptions for their Income Approach (as described for Case I), the net present value of the two years of royalty income to the owner of the leases in this situation would be $76,045, rounded to $76,000. We note that this valuation of the royalty income includes valuation for the Upper Lease but does not include any valuation for approximately one third of the Middle Lease that had been excluded from the right to mine agreement. Nor does it include any income for the Lower Lease, since there is no basis for projecting any royalty income from Yates. If TD's mining agreement was not in place, there would be considerable risk to this estimate from royalty income for parts of the Middle and Upper Lease. We also note that this valuation depends on an estimate of both volume to be mined and grade for the Middle Lease, when the evidence that we (and the prospective purchaser) have on both of these factors is limited.

[127]  The income capitalization method used by the Hodos to value Eckervogt's interest in the royalty income cannot be used because there are only two further years of mining assumed.

[128]  The Hodos also used the "Schmidt" method that valued leases at a percentage of the gross income from the estimated gold production. Using 4% total estimated recoverable gold and assuming a gold production of 57,000 grams as estimated above, together with a gold price in October 1993 of $484 an ounce ($15.57 per gram), for the part of the Middle Lease covered by the right to mine agreement we obtain a valuation of $35,500. Since we are now valuing the gold production rather than the royalty income from TD we can extend this method to the unencumbered part of the Middle Lease. One of TD's test holes in early 1993 was in this area and the grade produced was slightly over the average of the six test holes on the Middle Lease. Thus we have some basis for assuming the same average grade as used in the lower part of the Middle Lease of 0.95 grams per cubic metre. Clarkson's map indicated that the upper part of the Middle Lease constitutes approximately one third of the Middle Lease. We have assumed that the total volume of valley bottom gravels on the lower two thirds of the lease was approximately 90,000 cubic metres. Thus an approximate volume of valley bottom gravels on the upper part of the Middle Lease is 45,000 cubic metres. Again we note that although a purchaser is unlikely to have had this information, Clarkson estimated approximately 59,000 cubic metres of valley bottom gravels on this part of the Middle Lease. In our opinion, a purchaser's conservative estimate for the volume of valley bottom gravels on this part of the Middle Lease would be 50,000 cubic metres. On this basis the valuation for this portion of the lease would be $29,823. This would give a total value for the Middle Lease of $65,083, rounded to $65,000. Once more we note that this valuation depends on an estimate of both volume to be mined and grade for the Middle Lease, and that the evidence on both of these factors is limited. Moreover, we have difficulty in applying this method to the Upper and Lower Lease when we have no testing from these leases to permit us to predict gold recovery.

3.4.4  Direct Comparison Approach

[129]  The Hodos provided information about recent sales of nine placer leases in the Cariboo region, ranging from $250 to $70,000 for a 50% interest in a placer lease. James Hodos explained that he had obtained approximately 120 bills of sale for leases that had sold in British Columbia between 1991 and 1993 from the Ministry of Energy, Mines and Petroleum Resources. However, approximately 75% of these bills of sale did not provide a sale price. The sales of the nine placer leases were those in which a sale price was listed and James Hodos had been successful in locating the purchaser and/or seller by telephone and persuading them to provide him with further details about what was in the mind of the purchaser at the time such as testing, access and mining history. With respect to the four sales on which he relied, James Hodos indicated that there had been some sampling or testing by the purchasers prior to the sales in each case. We note, however, that although gold was found and in some cases gold nuggets were found, there is only one report on one of these four leases of a reported test grade. This one reported grade was lower than any of the grades on the six test holes dug by Busat on the Middle Lease. The lease that was said to be most comparable to the subject leases showed some similar characteristics such as a prior mining history and the presence of benches where some gold nuggets had been found. In addition, the purchaser's sampling had been carried out with a small wash plant and back hoe rather than by panning. Two of the four sales that were said to be similar had comparable depths of gravel to portions of the subject leases at 10 to 15 feet. Three of the leases were said to have better access than the subject leases. However, most of these factors are very general and are not in our view determinative of what a potential purchaser of a placer lease would be prepared to pay. We note that we do not know whether these Cariboo leases were the same size as the subject leases. In the absence of test results it is difficult to know whether these leases that sold between $2,500 and $6,895 are in any way comparable to the Middle Lease.

[130]  Two of the other sales were for $250 and $500 and were eliminated by the Hodos because they did not seem to be arms length sales. A third sale for $14,000 for two leases was also discarded because it appeared that the presence of the cabin on the lease might be transforming this sale into a recreational property, rather than a mining property. James Hodos commented that a fourth sale for $27,000 had a very high grade of six grams per cubic yard. However, because this sale was for a total of five leases and claims, it appears that the price per lease is just over $5,000. Finally, the highest priced sale at $140,000 for the whole lease was to be paid in three installments: $18,000 each from the two purchasers in November 1992 and $17,000 each in November 1993 with the remaining $35,000 each still outstanding. Thus the price of $140,000 should be discounted to reflect the fact that payments were to be spread over three years. In any event, this sale was not used because James Hodos stated that it was very positive in relation to the subject leases. This lease was reported to contain an auriferous seam; test results were reported at 0.3 ounces per cubic yard, which is greater than the average grade found on the Middle Lease through Busat's testing and mining. However, we note that there were 40 to 70 feet of overburden to remove to access the gravel that contained the gold.

[131]  In summary, the Hodos provided us with a range of sales of nine placer properties in the Cariboo region from which they concluded a value for the subject leases of $4,500 per lease. The Cariboo is a considerable distance from Squaw Creek and we do not have any evidence as to how placer mines in the Cariboo compare to those on Squaw Creek. A number of the arms length sales in the Cariboo were in the range of very approximately $5,000 per lease but in our opinion it is difficult to know how similar these leases are to the subject leases. We accept that detailed information on the sales of placer mines is more difficult to obtain than conventional land transactions. However, in our view, it is problematic that these nine sales were originally chosen because they were the only ones on which information was available rather than on their comparability with the subject leases. The one sale that should be discounted from $140,000 does appear to be superior to the Middle Lease.

[132]  We did not find the evidence derived from the sales of Alaskan placer leases of much assistance. The only information was that 11 sales of placer leases in private hands in the two-year period 1992 - 1993, with an average size of 457 acres per sale, sold for an overall average of $2.109 per estimated ounce of anecdotal gold or $152,500 per sale (based on a conversion to Canadian dollars in October 1993). We note that the subject leases appear to be very approximately 323,600 square metres (80 acres) in size. We do not have any other details with respect to the Alaskan leases: we do not know where they are located, we know nothing about their mining history or any testing that might have been carried out, and we know nothing about the purchasers or sellers. We do not know on what basis the ounces of gold were estimated.

[133]  Nonetheless, although there were problems with the comparable sales in the Cariboo region of British Columbia and with the statistical information from Alaska, there was information about the sale prices for a number of placer leases on Squaw Creek that came out in the evidence. First of all there were the two sales of the subject leases: the Middle Lease was bought by Eckervogt in 1980 for $32,000 and the Lower Lease was bought by Eckervogt in 1987 for $30,000. Documents showed a declared price of $2,500 for the Lower Lease when it was bought by Gruber in 1977. Other sales of leases on Squaw Creek included a transfer of a lease upstream from the Middle Lease from Art Papineau to Daniel Johnson for nominal financial consideration in 1987. Papineau and Johnson had been partners briefly and had mined together in 1982, Johnson's first year of mining. Papineau was an older and more experienced miner at that time. They staked two adjacent leases on upper Squaw Creek together, but Papineau, who was in his mid 50's, later gave up active mining and assigned his lease to Johnson for what Johnson described as a moose, perhaps, and some favours. This acquisition by Johnson from his partner Papineau is a non-arms length transaction and should be ignored. Johnson also testified that he was told by Black Cliff-Menora that they had paid $90,000 or $110,000 for the two leases immediately below the Lower Lease in 1987. Johnson reported that the company had based their purchase on a 1982 report by a geologist, Joseph Wise, on testing on these placer leases on Squaw Creek that had cautiously predicted that an economic placer mine on Squaw Creek was feasible. Johnson reported that the companies did not know that Terry Thompson had been mining the two relevant leases for the six years since Joseph Wise's report. While we did not see any documentation on the sale of these two leases, Johnson had no interest in these proceedings and we accept Johnson's testimony as to his understanding of the price paid. Yates sold another lease on Squaw Creek a short distance downstream over the Yukon border for $US70,000 (approximately $C92,800 at $1.326 rate in October 1993) including his equipment from the Lower Lease in October 1993. There was no allocation of the price between the lease and the equipment, although the evidence suggested that Yates attributed approximately $US20,000 to the equipment. The purchase price was paid in three installments: $5,000 in October 1993, $30,000 in December 1993 and $35,000 in June 1994. Yates testified that he had paid $US15,000 for this lease in 1982 although it was possible that he had made a further payment at some later date. We note that Yukon placer leases are somewhat smaller than the subject leases. Finally there was anecdotal evidence from Alan Dendys, who had mined on the Lower Lease in 1987, that in the negotiations with respect to the company that Dendys proposed joining, Heinz Eckervogt valued the three subject leases altogether at $150,000. However, this alleged valuation by Eckervogt was not for the purpose of selling the leases.

[134]  Given this evidence of prices paid for leases on Squaw Creek we find the Hodos' price of $4,500 per lease based on the sale of leases in the Cariboo too low. We recognize that gold has been removed from the subject leases since the prices of $30,000 and $32,000 was paid in the 1980's. The price for gold was also less in 1993 than when these prices were paid in 1980 and 1987. On the other hand, we do have evidence of higher prices on two of the more recent sales of placer leases on Squaw Creek in which there had also been prior mining. It may be that the Black Cliff-Menora purchase for the two adjacent leases in 1987 at $90,000 - $110,000 was made as a result of some misapprehension of how much mining had occurred since the test results on which the purchasers relied. However, the most recent placer lease sale on Squaw Creek appears to be for $66,000, assuming an allocation of $26,500 ($20,000 US) to the equipment, for a somewhat smaller lease. This sale price should be discounted somewhat to allow for the purchaser paying in installments. There appears to be a market for placer leases amongst individuals who are attracted to the life style of placer mining in the north, even if as set out by the Hodos, they sometimes underestimate the overall capital costs of a placer mining operation.

3.5  Final Conclusion on Market Value of Eckervogt's Interest

[135]  Thus with respect to the Middle Lease we have several estimates of value ranging from $4,500 based on the ORM report of four leases in the Cariboo region to $76,000 for approximately two thirds of the Middle Lease based on the royalty income from TD. We also have an estimate of value of $65,000 based on the "Schmidt" method (a percentage of the gross income for estimated gold production). We note that both the estimate based on royalty income and the estimate based on the "Schmidt" method rely on average grades and volumes for the Middle Lease, factors on which we have limited information (and on which a potential purchaser may have even less information). Finally we have evidence of two comparable sales for near-by leases on Squaw Creek at $50,000 per lease, (assuming a $100,000 purchase price by Black Cliff-Menora for the two leases immediately below the Lower Lease) and $66,000 (before discounting) for a somewhat smaller lease, (assuming the amount allocated for equipment was $US20,000) for the purchase of Yates' lease further downstream on the Yukon side. Relying particularly on the comparable sales on Squaw Creek, but with some support from the royalty Income Approach and the "Schmidt" approach, we conclude $70,000 for the market value of the Middle Lease. Given that royalty income from the mining agreement with TD provides a high estimate, we assume that this lease has similar value with or without this mining agreement in place.

[136]  We have less information about the Lower Lease. There is no evidence to support any value based on royalty income from Yates. There are also no test results to support any value based on the "Schmidt" method. There is also the presence of a relatively loosely worded mining agreement from which no royalty income is likely. In the circumstances of the mining history on this lease, and based primarily on the sale of other leases we conclude a market value of $35,000.

[137]  We have the least information on the Upper Lease. In our opinion there is no basis for any value based on royalty income from TD for this lease. Not only are there no test results for this lease, but the mining history is much more sketchy, with only the evidence of Yates' efforts in 1982 and we are not certain how much of his mining may in fact have been on the Middle Lease. It is true that some geologists thought the geology supported gold occurring on the Upper Lease, but other geologists disagreed, and in our view a purchaser would not likely have this information. The presence of many large boulders, the canyons and the lack of existing access to the area above the falls means that the market value for this lease would be significantly less than for other leases on Squaw Creek. Relying on the minimal evidence presented to us we attribute a value of $5,000 to the Upper Lease.

3.6  Market value of TD's and Yates' Interests

[138]  With respect to the right to mine agreements, the interests of the miners, TD and Yates, are solely through their agreements. The agreements require TD and Yates to pay an agreed royalty or rent. This aspect means that both TD's and Yates' interests resemble a lessee's interest. The market value of a lease is:

the present value of the difference between the rental paid by the tenant, and the rental that the property is worth, for the unexpired portion of the lease.

See E.C.E. Todd, The Law of Expropriation and Compensation in Canada, 2nd ed. (Carswell Co. Ltd., Toronto, 1992) p. 413. Professor Todd goes on to say at p. 414 that if the economic rent (which is the amount the property could have been rented for at the date of valuation, assuming it had been available for renting to a new tenant) is not greater than the contract rent in the lease then "the leasehold interest has no market value and the lessee will not be entitled to compensation".

[139]  ORM surveyed 10 owners or miners of placer leases in British Columbia and the Yukon as to the royalty that they paid or were paid for the right to mine. The royalties reported ranged from 3 to 30% with 10% reported as the typical rate by most, although two reported 10-15% as typical. Higher rates were sometimes reported for leases with higher grades. The Hodos determined from this information that the market royalty or rent for the right to mine was 10%. Their report also indicated that 10% royalty generally costs the mining operator approximately 40% of the profits. Since TD's net royalty in 1993 was 11.6% and this was more than the market rent, the Hodos concluded that TD's interest had a market value of nil. We accept ORM's evidence on this point and conclude that TD's interest had no market value. Although Yates interest was not valued by ORM, since Yates' royalty under his agreement to mine was 15%, then the same conclusion would apply; namely Yates' interest had nil market value.

4.  DISTURBANCE DAMAGES

4.1  T.D. Oilfield Services Ltd.

[140]  TD claims disturbance damages for the accelerated costs of exploration for a new mining property. The Crown accepts that TD is entitled to some of these costs as disturbance damages. However, it says that TD's claim for $53,000 is excessive for two reasons. First, while TD's claim assumes that mining over the remainder of the Upper and Middle Leases covered in the right to mine agreement would take three years (1994-1996) the Crown's position is that any further mining would be completed in only one more season. Second, TD's claim includes a significant portion of expenses for work on Hunker Creek in 1996 and 1997, when TD was actually in operation on Hunker Creek in 1997, and was generating income. As a result the Crown says that the claim for these expenses is inappropriate.

[141]  We agree that the disturbance damages in this case include the acceleration of moving expenses and prospecting expenses. We have found above that but for the expropriation that TD would have returned to mine for a further two years before having to move on and prospect for a new mine. Therefore, the discount to present value of the moving and exploration costs should be for a two-year period rather than the three-year period as suggested by the accountant McGillivray. With respect to the expenses for Hunker Creek, TD initially stated that exploration there continued from 1996 through 1997 and that mining did not begin until 1998. However some of the invoices for 1997 stated on their face that they were for mining. There was also reference in a Yukon Government Report as to TD being in full operation on Hunker Creek in 1997. Faced with this evidence Busat conceded that TD was in production on Hunker Creek in 1997. As a result the 1997 costs should be excluded.

[142]  Given that TD had a right to mine the gold on the Middle and Upper Lease, it could have claimed for its loss of profits, as long as there was no overlap with any award for market value. We have already set out that the mining costs for the continued operation of the mine in the DCF model advanced by the claimants are significantly underestimated. With respect to the 1993 mining year, although McGillivray attempted to show that TD made a profit we are not necessarily convinced. The relevant financial statement showed a loss of $115,000 and McGillivray reallocated over $200,000 of expenses to non-mining operations and to capital items before he arrived at a net profit of about $77,000 on the pro forma statement. While we accept McGillivray's evidence that certain items had been wrongly allocated by Busat or TD's own accountant, we are not satisfied that all his reallocations are appropriate. As we said above there are certain general expenses that are omitted which appear to be at least partly attributable to the mining operation. Again we note that wages to Douglas and Carol Busat were omitted. In our opinion McGillivray's mining expenses are likely undervalued. Despite TD not satisfying us that a profit was made in 1993, we have found that TD would have returned to mine the subject leases for two further years and in these circumstances TD would likely have made nominal profits. After consideration of all of the evidence we award a round figure of $75,000 for TD's disturbance damages for acceleration of moving and prospecting expenses and nominal loss of profits.

4.2  Walter Yates

[143]  Yates claims disturbance damages for either his loss of cash flow based on the DCF calculations or, in the alternative, his net expenses expended on his mining operation that he says were thrown away because the expropriation ended the mining before any income was received. Yates did not carry on mining on another lease and thus has no acceleration of moving and prospecting costs like those claimed by TD. The Crown says that the primary expense has been for equipment (approximately $51,000 of $87,000) and that Yates sold this equipment with his lease on Squaw Creek. Losses on this equipment are not a result of the expropriation and should not be charged to the Crown. More fundamentally, the Crown says that the Lower Lease was mined out by Dendys and that Yates with no history of successful mining was unreasonable in incurring the claimed expenses for this mining operation.

[144]  First, with respect to the claim for loss of cash flow, we have already rejected the claim based on the DCF analysis. In any event Yates has not demonstrated any profitable mining in the past. We do not accept Yates' claim for loss of cash flow as disturbance damages.

[145]  The second claim is for approximately $87,000 in costs thrown away as a result of the expropriation. Because Yates experienced difficulties with his equipment and then injured his back trying to repair his equipment, he had recovered only three ounces of gold in his two years on the Lower Lease. There is some uncertainty in the details of his expenses as Yates did not always record whether they were in US dollars or Canadian dollars. However, the expenses include the net cost of machinery and equipment including the wash plant (very approximately $35,000), repairs on the equipment (very approximately $7,000), mining supplies and fuel (very approximately $8,000), and travel expenses between Texas and Alaska (very approximately $10,000). Some of the travel expenses include trips after the expropriation to move his equipment to the Yukon lease on Squaw Creek.

[146]  We agree that as a result of the expropriation Yates' opportunity to recoup some of his expenses on the Lower Lease were foreclosed but for the sale of his equipment. However, we also agree with the Crown that Yates did not have a history of successful mining. The Crown is not responsible for Yates' losses due to this factor. We award $20,000 to Yates for costs thrown away as a result of the expropriation.

5.  SUMMARY 

5.1  Heinz Eckervogt

[147]  We have awarded Heinz Eckervogt compensation for the market value of his interest in each of the leases as follows:

Market Value of Middle Lease	$ 70,000
Market value of Lower Lease	$ 35,000
Market Value of Upper Lease	$   5,000
Total	$110,000

5.2  T.D. Oilfield Services Ltd.

[148]  We have awarded T.D. Oilfield Services Ltd. $75,000 compensation for disturbance damages. TD is not entitled to any compensation for the market value of its interest in the mining agreement for the Middle and Upper Leases.

[149]  Since the advance payment to TD of $250,000 is more than the compensation awarded, pursuant to section 30(2) of the Act we certify the difference of $175,000 as a debt due by TD to the Crown as represented by the Minister of Employment and Investment.

5.3  Walter Yates

[150]  We have awarded Walter Yates $20,000 compensation for disturbance damages for costs thrown away. Yates is not entitled to any compensation for the market value of its interest in the mining agreement for the Lower Lease.

6.  INTEREST and COSTS

[151]  Eckervogt submitted that the issues of interest and costs should be adjourned until the release of our decision. The Crown agreed with this submission and thus we make no awards for interest or costs at this time. However, we will make a few observations that may facilitate the parties in settling these issues in whole or in part without further submissions. We note that since the conclusion of the argument, this board has rendered its decision in Premanco where the issue of the commencement date for interest under section 46(1) and additional interest under section 46(4) in similar circumstances to those in this case have been considered. We would also note that although Eckervogt returned the advance payment cheque for $25,000 for the Lower Lease, section 20(2) of the Act provides that an advance payment under section 20(1) is deemed to be made when the expropriating authority tenders the cheque. Thus, for the purposes of sections 45 and 46, section 20(2) means that Eckervogt is deemed to have received the full $100,000 as an advance payment on September 26, 1997. With respect to costs, we note that the claims were difficult to characterize and to value. The advance payment made by the Crown and the expert evidence relied on by the Crown from geology engineers based in Nevada are some evidence of the difficulties. At the time that this hearing was held, the decision by the Court of Appeal in Casamiro and this board's decision in Premanco (as well as the Court of Appeal's refusal of leave to appeal) had not been rendered and therefore there was less authority that the DCF method was inappropriate.

[152]  We request that if one or more of the parties wish to schedule a hearing or make written submissions on the issues of interest and/or costs, that they so advise the registrar within 60 days from the issuance of these reasons.

THEREFORE IT IS ORDERED THAT the Crown as represented by the Minister of Employment and Investment shall pay: