James Tinnell - Page 9

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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              
               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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