James Tinnell - Page 12

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          Cruson concluded that “The Quartette Mine was a significant                 
          producer of high grade gold ore.”  Mr. Cruson recommended that              
          petitioner:  (1) Acquire control of the Quartette Mine; (2) carry           
          out a detailed geologic study to determine the ore controls and             
          outline exploration targets; (3) examine the feasibility of                 
          applying new geophysical or geochemical techniques at the                   
          Quartette Mine; (4) develop a detailed history of the Quartette             
          Mine to determine cutoff grades during production; and (5) test             
          the targets defined by the earlier geologic study by drilling.              
          Petitioner followed all the recommendations outlined in Mr.                 
          Cruson’s report.                                                            
               On April 1, 1994, petitioner17 acquired the rights to mine             
          and purchase the Quartette Mine ore.  Exploratory drilling to               
          determine the economic viability of the mine was conducted from             
          September 7 to November 5, 1994.  Mr. Cruson and his partner,               
          Kent E. Carter, prepared an evaluation of the Quartette Mine,               
          dated January 20, 1995, that stated:  “Overall the scout drilling           
          and exploration program was a resounding success”.  Mr. Cruson              
          “strongly recommended” that petitioner continue excavating, begin           
          preliminary mine planning, and initiate a second round of                   
          drilling and exploration designed to delineate the new copper-              

               17The lease for the Quartette Mine was not made part of the            
          record, and we assume the parties to the lease were the owners of           
          the Quartette Mine and petitioner.  Nevertheless, because JEI did           
          not function as a tax reporting entity during the years at issue,           
          we attribute the mining activities to petitioner.                           

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