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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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