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C. Petitioner’s Mining Plan of Operations
On May 5, 1989, petitioner submitted a proposed mining plan
of operations to the BLM for approval.10 On January 12, 1993,
the BLM approved petitioner’s plan of operations. During the
BLM’s investigation of petitioner’s plan of operations, from 1989
through 1993, petitioner incurred substantial expenditures to
develop a production mill, purchase an induction furnace,11 and
10In order to initiate mining activity on Federal land, a
claimant must first file a 2-week notice, which allows the
claimant to disturb up to 2 acres of land per year. If the
claimant desires to disturb more than 2 acres, a plan of
operations must be approved by the BLM. Once a plan of
operations is filed, the BLM conducts an investigation before
approving the plan. In petitioner’s case, the BLM’s
investigation lasted approximately 3 to 4 years, during which
petitioner was allowed to erect facilities on his claims with the
knowledge of the BLM. The expenses incurred in erecting those
facilities are reflected in petitioner’s tax returns for those
years.
11At some point, petitioner entered into a contract with
Inductotherm to perform a series of test smelts to determine
whether recoveries from his claims could be enhanced through the
use of induction smelting. Inductotherm provided an induction
furnace in Los Angeles, and petitioner and his son L.R. Tinnell
performed a series of seven smelts at Inductotherm’s facilities
(which created dor� bars). Petitioner and L.R. Tinnell performed
tests on the dor� bars, the results of which were favorable.
Thereafter, petitioner communicated with Union Miniere in
Belgium, which sent a local representative to perform an analysis
on petitioner’s dor� bars. On the basis of a favorable report
from Union Miniere, petitioner began making arrangements to
upgrade his mill capacity. In 1993, petitioner purchased an
induction furnace from Ajax Magnathermic in order to increase the
capacity of his mill from 1 ton per hour to 10 tons per hour.
The purchase price of the induction furnace was about $50,000.
Petitioner made approximately 15 dor� bars with the induction
furnace. The induction furnace, however, has not been operated
since 1996.
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